Second Quarter 2018 Highlights
- Second quarter revenue of $152.8 million
- Second quarter net loss of $10.5 million, resulting in net loss of $0.07 per share
- Second quarter Non-GAAP net income of $19.3 million, resulting in Non-GAAP net income of $0.13 per share
- Second quarter Adjusted EBITDA of $52.8 million, resulting in Adjusted EBITDA margin of 34.6%
- Reaffirming full-year 2018 revenue, increasing Adjusted EBITDA and Non-GAAP EPS, and updating other guidance
Please refer to our Second Quarter 2018 Earnings Presentation Supplement available at http://investors.inovalon.com for additional information, including slides pertaining to new Platform offerings, financial details, and other matters that will be referenced during the Company’s conference call.
BOWIE, Md., Aug. 01, 2018 (GLOBE NEWSWIRE) — Inovalon (Nasdaq: INOV), a leading technology company providing advanced, cloud-based platforms empowering data-driven healthcare, today announced financial results for the second quarter of 2018.
“Inovalon executed well across several important initiatives in the second quarter of 2018, delivering strong financial results and further expanding our platform capabilities, differentiation, and adoption in the marketplace,” said Keith Dunleavy, M.D., Inovalon’s chief executive officer and chairman of the board. “The progress achieved in the period was the result of a longstanding focus on innovation, great client partner relationships, a discipline towards cost efficiencies, and a tremendous effort from the entire Inovalon team as we execute on our vision to empower data-driven healthcare.”
Second Quarter 2018 Financial Results
- Revenue for the second quarter of 2018 was $152.8 million, a year-over-year increase of 38% compared with $110.6 million for the second quarter of 2017, and a sequential increase of 65% compared with $92.8 million for the first quarter of 2018.
- Cost of revenue for the second quarter of 2018 was $39.0 million, or 25.5% of revenue, compared with $37.2 million, or 33.6% of revenue for the second quarter of 2017, and $33.5 million, or 36.1% of revenue for the first quarter of 2018. This equates to gross margin for the second quarter of 2018 of 74.5%, a year-over-year increase of 810 basis points compared with 66.4% for the second quarter of 2017, and a sequential increase of 1,060 basis points compared with 63.9% for the first quarter of 2018.
- Net loss for the second quarter of 2018 was $10.5 million, resulting in net loss of $0.07 per share, compared with net income of $5.5 million and diluted net income of $0.04 per share, respectively, for the second quarter of 2017, and a net loss of $16.8 million and net loss of $0.12 per share, respectively, for the first quarter of 2018. Net loss for the second quarter of 2018 includes a one-time restructuring expense of $9.5 million.
- Adjusted EBITDA for the second quarter of 2018 was $52.8 million, a year-over-year increase of 90% compared with $27.7 million for the second quarter of 2017, and a sequential increase of 571% compared with $7.9 million for the first quarter of 2018. Adjusted EBITDA margin for the second quarter of 2018 was 34.6%, a year-over-year increase of 950 basis points compared with 25.1% for the second quarter of 2017, and a sequential increase of 2,610 basis points compared with 8.5% for the first quarter of 2018.
- Non-GAAP net income for the second quarter of 2018 was $19.3 million, resulting in Non-GAAP net income per share of $0.13, increases of 64% and 63%, respectively, compared with $11.8 million and $0.08 per share, respectively, for the second quarter of 2017, and Non-GAAP net loss of $5.0 million and a Non-GAAP net loss of $0.04 per share, respectively, for the first quarter of 2018.
- Net cash provided by operating activities for the first six months of 2018 was $20.1 million, compared with $41.1 million for the first six months of 2017.
“During the second quarter, the Company executed well across a complex set of initiatives involving nearly every facet of the business,” said Jonathan Boldt, vice president of finance and interim chief financial officer of Inovalon. “The combination of an increasing number of growth engines within the Company and the successful realization of multiple margin improvement initiatives combined to produce strong financial results for the quarter. As we move forward through the balance of the year, we remain dedicated to disciplined execution of our strategic initiatives.”
Adjusted EBITDA, Adjusted EBITDA margin, and Non-GAAP net income are Non-GAAP measures. Net income is the GAAP financial measure most directly comparable to Adjusted EBITDA and Non-GAAP net income. Reconciliations of net income to Adjusted EBITDA and Non-GAAP net income, identifying the differences between net income and each of these Non-GAAP financial measures, are included in this press release after the consolidated financial statements.
Key Highlights
- ABILITY Integration. Integration of ABILITY Network progressed well during the second quarter with strong combined team engagement. In addition to achieving cost synergies in-line with previously projected targets and timelines, significant benefits are also being realized through expanded management strength and the application of several strong best-practices resident within ABILITY. Multiple additional new synergy product offerings and capability enhancements are progressing well at various stages of the go-to-market process with in-year launches expected.
- Continued Innovation. During the second quarter, the Company continued to advance the capabilities and offerings empowered through the Inovalon ONE® Platform. Direct EHR connectivity, even before the addition of connectivity gained through ABILITY, expanded to more than 185,000 unique physicians. This reflects a year-over-year increase of more than 70%, further increasing the market value and supporting adoption and growth of the Company’s recently released Clinical Data Extraction as a Service (CDEaaS™) solution. Additionally, the completion of a two-year development project produced the capability referred to as Elastic Container Technology, or ECT™ (as announced by the Company on July 26, 2018), enabling significant expansion in cloud-based computational speed, elasticity, resiliency, and scalability, while also reducing related technology operating costs materially.
- Inovalon ONE® Platform Adoption. During the second quarter, the Company saw continued expansion of interest and adoption of cloud-based SaaS solutions enabled by the Inovalon ONE® Platform. Both of the most recent announced platform offerings, specifically CDEaaS™ and ScriptMed™ Cloud, announced on April 10, 2018 and May 8, 2018 respectively, achieved multiyear contract wins during the quarter. Most notable was the five-year engagement to implement ScriptMed™ Cloud announced with AllianceRx Walgreens Prime (ARxWP) to support all ARxWP Specialty Pharmacy operations. Specialty Pharmacy is the fastest growing segment of the healthcare ecosystem, growing rapidly from approximately $178 billion in 2015 to a projected $282 billion by 2020 according to industry analysts. ScriptMed™ Cloud brings to this marketplace a cloud native, SaaS-based solution empowering a new generation of data-driven specialty pharmacy capabilities, delivering increased efficiency, lower operating costs, and improved patient outcomes and experience.
- Expanding Efficiencies and Profitability. During the second quarter, Inovalon executed a broad range of efficiency-enhancement and cost-reduction initiatives, both as part of its ongoing margin expansion goals, as well as related to the recent acquisition and ongoing integration of ABILITY. Key to these were a focus on increasing automation, further expansion of industry connectivity, and cost reduction actions to consolidate facilities and eliminate redundant functions. Reflecting the cost reduction actions, a one-time restructuring expense of $9.5 million was incurred during the period. In addition to the aforementioned cost efficiency initiatives, the ongoing expansion of the Company’s technology-enabled capabilities resulted in a continued positive product mix shift towards high-value SaaS offerings. The combined benefits of these factors can be seen in the Company’s strong margin performance in the second quarter of 2018, as well as in the strong financial performance expected going forward in 2018.
Other Financial Data and Key Metrics
The following constitute other financial data and key metrics which are presented quarterly.
- Growth of Datasets: At June 30, 2018, the MORE2 Registry® dataset contained more than 252 million unique patient counts and 39 billion medical event counts, increases of 10% and 31%, respectively, compared with June 30, 2017. Data resulting from the integration with ABILITY is not yet reflected within the MORE2 Registry® dataset and is therefore not reflected within the aforementioned data metrics as of this date.
- Investment in Innovation: For the quarter ended June 30, 2018, Inovalon’s ongoing investment supporting innovations in advanced, cloud-based platforms empowering data-driven healthcare was $19.6 million, or 12% of revenue, a decrease of $2.3 million, or 10%, compared to the prior year period.
- Analytical Process Count Growth: Inovalon’s trailing 12-month Patient Analytics Months (PAM) count, which the Company believes is indicative of the Company’s overall level of analytical activity, grew to 46.2 billion as of June 30, 2018, an increase of 48% as compared with June 30, 2017.
Please see the Company’s filings with the Securities and Exchange Commission (“SEC”) for further detail regarding the preceding other financial data and key metrics.
Shares Outstanding
As of July 20, 2018, the Company had 72.1 million shares of Class A common stock outstanding and 80.6 million shares of Class B common stock outstanding.
2018 Financial Guidance
The Company is updating full-year 2018 financial guidance to reflect: 1) expenses incurred from one-time restructuring initiatives undertaken during the second quarter of 2018, 2) increased fair-value contingent consideration in the setting of strong performance during the second quarter of 2018, 3) increased non-cash intangible asset amortization expense associated with the purchase accounting related to the ABILITY acquisition, 4) increased capital expenditures in response to increased business engagements, and 5) the increased Non-GAAP profitability of the Company.
| Financial Metric | Updated Guidance Range Provided August 1, 2018 |
Previous Guidance Range Provided May 8, 2018 |
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| Revenue | $568 million to $593 million | $568 million to $593 million | ||
| Net (loss) income(1) | ($24 million) to ($18 million) | ($13 million) to ($5 million) | ||
| Non-GAAP net income | $50 million to $58 million | $46 million to $55 million | ||
| Adjusted EBITDA | $166 million to $176 million | $163 million to $174 million | ||
| Net cash provided by operating activities | $90 million to $100 million | $90 million to $100 million | ||
| Non-GAAP net cash provided by operating activities | $104 million to $115 million | $104 million to $115 million | ||
| Capital expenditure(2) | $55 million to $60 million | $50 million to $55 million | ||
| Diluted net (loss) income per share | ($0.16) to ($0.12) | ($0.09) to ($0.03) | ||
| Non-GAAP diluted net income per share | $0.34 to $0.40 | $0.32 to $0.38 | ||
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| (1) | GAAP net (loss)/income includes estimated: one-time restructuring costs of $9.5 million, acquisition-related contingent consideration expense of $14.0 million, transaction costs of $7.0 million, non-recurring integration costs of $7.5 million, and intangible asset amortization of $45.0 million. |
| (2) | Capital expenditure is defined as the sum of purchases of property and equipment and investment in capitalized software. |
Additional assumptions made within the Company’s 2018 guidance are as follows:
- While changes in the stock price could change the fully diluted share count, under the treasury stock method, 2018 guidance assumes 146 million weighted average diluted shares.
- 2018 guidance assumes an effective tax rate of approximately 30% for the full year.
Reconciliations of net income, the GAAP financial measure most directly comparable to Adjusted EBITDA and Non-GAAP net income, and of net cash provided by operating activities, the GAAP financial measure most directly comparable to Non-GAAP net cash provided by operating activities, identifying the differences between each of these Non-GAAP financial measures and the most directly comparable GAAP financial measure, are included in this press release after the consolidated financial statements.
Conference Call
Inovalon will host a conference call to discuss its second quarter 2018 results at 5:00 p.m. Eastern Time today. To participate in Inovalon’s conference call, please dial (855) 783-2604, conference ID 4078088; international callers should dial (631) 485-4882 using the same conference ID. A replay will be available on Inovalon’s investor relations website (http://investors.inovalon.com).
Please refer to our Second Quarter 2018 Earnings Presentation Supplement available at http://investors.inovalon.com for additional information, including slides pertaining to new Platform offerings, financial details, and other matters that will be referenced during the Company’s conference call.
About the Inovalon ONE® Platform
The Inovalon ONE® Platform is an integrated cloud-based platform of more than 80 individual proprietary technology toolsets and deep data assets able to be rapidly configured to empower the operationalization of large-scale, data-driven healthcare initiatives. Each proprietary technology toolset is referred to as a Component, which are grouped into Modules, and informed by the data of billions of medical events within Inovalon’s proprietary datasets. Combinations of Components and Modules are configured to empower highly differentiated solutions for client needs quickly and in a highly scalable fashion. The flexibility of the modular design of the Platform enables clients to integrate the capabilities of the Platform with their own internal capabilities or other third-party solutions. The Platform brings to the marketplace a highly extensible, national-scale capability to interconnect with the healthcare ecosystem on a massive scale, aggregate and analyze data in petabyte volumes, arrive at sophisticated insights in real-time, and drive meaningful impact wherever it is analytically identified best to intervene and intuitively visualize data and information to inform business strategy and execution.
About Inovalon
Inovalon is a leading technology company providing cloud-based platforms empowering data-driven healthcare. Through the Inovalon ONE® Platform, Inovalon brings to the marketplace a national-scale capability to interconnect with the healthcare ecosystem, aggregate and analyze data in real-time, and empower the application of resulting insights to drive meaningful impact at the point of care. Leveraging its platform, unparalleled proprietary data sets, and industry-leading subject matter expertise, Inovalon enables better care, efficiency, and financial performance across the healthcare ecosystem. From health plans and provider organizations, to pharmaceutical, medical device, and diagnostics companies, Inovalon’s unique achievement of value is delivered through the effective progression of “Turning Data into Insight, and Insight into Action®.” Providing technology that supports a client base approaching 500 healthcare organizations, Inovalon’s platforms and analytics are informed by data pertaining to more than 943,000 physicians, 499,000 clinical facilities, 252 million Americans, and 39 billion medical events. For more information, visit www.inovalon.com.
Forward Looking Statements
Certain statements contained in this press release constitute forward-looking statements within the meaning of, and are intended to be covered by the safe harbor provisions of, Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. All statements contained in this press release other than statements of historical fact, including but not limited to statements regarding the roll-out of any product or capability, the timing, performance characteristics and utility of any such product or capability, and the impact of any such product or capability on the healthcare industry, future results of operations and financial position, business strategy and plans, market growth, and objectives for future operations, are forward-looking statements. The words “believe,” “may,” “see,” “will,” “estimate,” “continue,” “anticipate,” “assume,” “intend,” “expect,” “project,” “look forward,” and similar expressions are intended to identify forward-looking statements. Forward-looking statements in this press release include, but are not limited to, statements regarding the expected benefits and impact of the combination of Inovalon and ABILITY, expectations about future business plans, prospective performance and opportunities, strategies and business plans, expectations regarding future results, expectations regarding the size of our datasets, and financial guidance for 2018. Inovalon has based these forward-looking statements largely on current expectations and projections about future events and trends that may affect financial condition, results of operations, business strategy, short-term and long-term business operations and objectives, and financial needs as of the date of this press release. These forward-looking statements are subject to a number of risks, uncertainties, and assumptions, which could cause the future events and trends discussed in this press release not to occur and could cause actual results to differ materially and adversely from those anticipated or implied in the forward-looking statements.
These risks, uncertainties, and assumptions include, among others: the Company’s ability to continue and manage growth, including successfully integrating ABILITY; ability to grow the client base, retain and renew the existing client base and maintain or increase the fees and activity with existing clients; the effect of the concentration of revenue among top clients; the ability to innovate new services and adapt platforms and toolsets; the ability to successfully implement growth strategies, including the ability to expand into adjacent verticals, such as direct to consumer, growing channel partnerships, expanding internationally and successfully pursuing acquisitions; the ability to successfully integrate our acquisitions and the ability of the acquired business to perform as expected; the successful implementation and adoption of new platforms and solutions, including the Inovalon ONE® Platform, ScriptMed™ Cloud, Clinical Data Extraction as a Service (CDEaaS™), Natural Language Processing as a Service (NLPaaS™), and Elastic Container Technology (ECT™); the possibility of technical, logistical or planning issues in connection with the Company’s investment in and successful deployment of the Company’s products, services and technological advancements; the ability to enter into new agreements with existing or new platforms, products and solutions in the timeframes expected, or at all; the impact of pending M&A activity in the managed care industry, including potential positive or negative impact on existing contracts or the demand for new contracts; the effects of and costs associated with compliance with regulations applicable to the Company, including regulations relating to data protection and data privacy; the effects of changes in tax laws in the jurisdictions in which we operate, including the Tax Cuts and Jobs Act of 2017; the ability to protect the privacy of clients’ data and prevent security breaches; the effect of competition on the business; the timing, size and effect of business realignment and restructuring charges; and the efficacy of the Company’s platforms and toolsets. Additional information is also set forth in the Company’s Annual Report on Form 10-K for the year ended December 31, 2017, filed with the SEC on February 21, 2018, included under the heading Item 1A, “Risk Factors,” and in subsequent filings with the SEC. The Company is under no duty to, and disclaims any obligation to, update any of these forward-looking statements after the date of this press release or conform these statements to actual results or revised expectations, except as required by law.
Use of Non-GAAP Financial Measures
In the Company’s earnings releases, prepared remarks, conference calls, slide presentations and webcasts, there may be use or discussion of non-GAAP financial measures. The GAAP financial measure most directly comparable to each non-GAAP financial measure used or discussed, and a reconciliation of the differences between the comparable GAAP financial measure and each non-GAAP financial measure are included in this press release after the consolidated financial statements.
| Inovalon Holdings, Inc. | |||||||||||||||
| Consolidated Statements of Operations (unaudited) | |||||||||||||||
| (In thousands, except per-share amounts) | Three Months Ended June 30, |
Six Months Ended June 30, |
|||||||||||||
| 2018 | 2017 | 2018 | 2017 | ||||||||||||
| Revenue | $ | 152,798 | $ | 110,578 | $ | 245,553 | $ | 218,884 | |||||||
| Expenses: | |||||||||||||||
| Cost of revenue(1) | 39,015 | 37,198 | 72,506 | 75,483 | |||||||||||
| Sales and marketing(1) | 12,045 | 8,849 | 19,947 | 16,436 | |||||||||||
| Research and development(1) | 7,545 | 7,282 | 13,966 | 15,070 | |||||||||||
| General and administrative(1) | 60,174 | 35,874 | 109,570 | 71,719 | |||||||||||
| Depreciation and amortization | 26,906 | 12,479 | 43,286 | 24,964 | |||||||||||
| Restructuring expense | 9,464 | — | 9,464 | — | |||||||||||
| Total operating expenses | 155,149 | 101,682 | 268,739 | 203,672 | |||||||||||
| (Loss) Income from operations | (2,351 | ) | 8,896 | (23,186 | ) | 15,212 | |||||||||
| Other income and (expenses): | |||||||||||||||
| Realized losses on short-term investments | — | — | (1,035 | ) | — | ||||||||||
| Loss on disposal of equipment | (382 | ) | (138 | ) | (467 | ) | (138 | ) | |||||||
| Loss on extinguishment of debt | (129 | ) | — | (129 | ) | — | |||||||||
| Interest income | 154 | 1,342 | 1,549 | 2,680 | |||||||||||
| Interest expense | (15,568 | ) | (1,519 | ) | (17,450 | ) | (2,932 | ) | |||||||
| (Loss) Income before taxes | (18,276 | ) | 8,581 | (40,718 | ) | 14,822 | |||||||||
| (Benefit from) Provision for income taxes | (7,810 | ) | 3,095 | (13,418 | ) | 5,694 | |||||||||
| Net (loss) income | $ | (10,466 | ) | $ | 5,486 | $ | (27,300 | ) | $ | 9,128 | |||||
| Net (loss) income attributable to common stockholders, basic and diluted | $ | (10,466 | ) | $ | 5,338 | $ | (27,300 | ) | $ | 8,913 | |||||
| Net (loss) income per share attributable to common stockholders, basic and diluted: | |||||||||||||||
| Basic net (loss) income per share | $ | (0.07 | ) | $ | 0.04 | $ | (0.19 | ) | $ | 0.06 | |||||
| Diluted net (loss) income per share | $ | (0.07 | ) | $ | 0.04 | $ | (0.19 | ) | $ | 0.06 | |||||
| Weighted average shares of common stock outstanding: | |||||||||||||||
| Basic | 147,181 | 142,632 | 143,301 | 143,680 | |||||||||||
| Diluted | 147,181 | 143,072 | 143,301 | 144,123 | |||||||||||
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| (1) | Includes stock-based compensation expense as follows: | |||||||||||||||
| Cost of revenue | $ | (87 | ) | $ | 410 | $ | 53 | $ | 715 | |||||||
| Sales and marketing | (401 | ) | 505 | 68 | 895 | |||||||||||
| Research and development | 330 | 307 | 958 | 580 | ||||||||||||
| General and administrative | 2,802 | 2,525 | 5,313 | 5,154 | ||||||||||||
| Total stock-based compensation expense | $ | 2,644 | $ | 3,747 | $ | 6,392 | $ | 7,344 | ||||||||
| Inovalon Holdings, Inc. | |||||||
| Consolidated Balance Sheets (unaudited) | |||||||
| (In thousands, except share and par value amounts) | June 30, 2018 |
December 31, 2017 |
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| ASSETS | |||||||
| Current assets: | |||||||
| Cash and cash equivalents | |||||||