Inovalon (Nasdaq: INOV), a leading provider of cloud-based
platforms empowering data-driven healthcare, today announced
financial results for the first quarter of 2021, issued guidance
for the second quarter of 2021, and raised guidance for revenue
growth and reaffirmed profitability guidance for full-year 2021.
“Strong market demand, sales, implementations,
and execution was the recurring theme during the first quarter,
driving top-line outperformance and an increase in our revenue
growth guidance for the year,” said Keith Dunleavy, M.D.,
Inovalon’s chief executive officer and chairman of the board.
“Strength was seen across all business units, where each is not
only executing well, but also seeing robust, expanding sales
pipelines despite successive quarters of very strong deal closures.
In every corner of the Company, our teams are bringing passion and
commitment to bear, and the results are clearly shining through. I
could not be more proud of their performance. The combination of
all of these factors continues to fuel our combined enthusiasm for
2021 and beyond.”
First Quarter 2021 Financial
Results
- Revenue for the first quarter of
2021 was $177.2 million, a year-over-year increase of 15% compared
with $154.2 million for the first quarter of 2020.
- Subscription-based platform revenue
for the first quarter of 2021 was $158.0 million, or 89% of first
quarter 2021 total revenue and a year-over-year increase of 15%,
compared with $137.1 million for the first quarter of 2020, or 89%
of first quarter 2020 total revenue.
- Cost of revenue for the first
quarter of 2021 was $44.4 million, or 25.1% of revenue, compared
with $41.0 million, or 26.6% of revenue, for the first quarter of
2020.
- Net income for the first quarter of
2021 was $9.2 million, resulting in diluted net income of $0.06 per
share, compared with net loss of $1.7 million and diluted net loss
of $0.01 per share, respectively, for the first quarter of
2020.
- Adjusted EBITDA for the first
quarter of 2021 was $58.6 million, up 23% year-over-year, compared
with $47.5 million for the first quarter of 2020. Adjusted EBITDA
margin for the first quarter of 2021 was 33.1%, an increase of 230
basis points, compared with 30.8% for the first quarter of
2020.
- Non-GAAP net income for the first
quarter of 2021 was $25.0 million, up 55% year-over-year, resulting
in Non-GAAP diluted net income of $0.17 per share, compared with
$16.2 million and $0.11 per share, respectively, for the first
quarter of 2020.
- Net cash provided by operating
activities for the first quarter of 2021 was $32.4 million, an
increase of 130%, compared with $14.1 million for the first quarter
of 2020. Free cash flow2 for the first quarter 2021 was $14.0
million, compared with a net free cash outflow of $2.4 million for
the first quarter of 2020.
“Inovalon’s revenue performance above the high
end of our guidance range in the quarter highlights the Company’s
unique position to drive accelerating revenue growth, while
continuing to drive industry-leading efficiency and resulting
profitability, margins, and strong cashflows,” said Jonathan R.
Boldt, chief financial officer of Inovalon. “As planned for 2021,
we continue to strategically invest in our sales and marketing
organization, SaaS delivery services, and cloud innovation engine
to drive continued and sustainable revenue acceleration in 2021 and
beyond.”
Adjusted EBITDA, Adjusted EBITDA margin,
Non-GAAP net income, and free cash flow are Non-GAAP measures. Net
income is the GAAP financial measure most directly comparable to
Adjusted EBITDA and Non-GAAP net income. Net cash provided by
operating activities is the GAAP financial measure most directly
comparable to free cash flow. Reconciliations of net income to
Adjusted EBITDA and Non-GAAP net income and reconciliations of net
cash provided by operating activities to free cash flow,
identifying the differences between net income and net cash
provided by operating activities and each of these Non-GAAP
financial measures, are included in this press release after the
consolidated financial statements.
Key Highlights
- Strong Demand, Continued
Sales Growth, and Industry-Leading Client Expansion:
Inovalon continued to expand its leadership position in cloud-based
data-driven healthcare through the adoption of the Inovalon ONE®
Platform with first quarter new sales Annual Contract Value (ACV)
of $82.1 million, up 81% year-over-year. Platform new sales ACV
(excluding services) totaled $63.8 million, up 120% year-over-year.
Strong sales performance in the quarter reflected hundreds of
engagements, including both substantive expansion of existing
relationships as well as additions to the Company’s new logo list.
Reflecting new logo additions, during the quarter Inovalon was
proud to secure an 8-year engagement with the AIDS Healthcare
Foundation, one of the ten largest specialty pharmacies in the U.S.
and the world’s largest provider of HIV/AIDS medical care. During
the quarter Inovalon’s additions of several industry-leading
organizations to its client list was reflected in Inovalon proudly
achieving the mark of now counting as clients all 25 of the top 25
global biopharmaceutical companies (up from the previously reported
22 of 25), 24 of the top 25 provider systems (up from the
previously reported 19 of 25), and seven of the top 10 specialty
pharmacies (up from the previously reported five of 10). Reflecting
expansion of existing logos, the value impact driven by the
Inovalon ONE® Platform already in place with clients supported the
expansion of an extensive number of existing contract
relationships. As one example, on March 22, 2021 it was announced
that Humana had undertaken its fifth expansion of business with
Inovalon since 2019 with the inclusion of Inovalon’s Vaccine
Adherence Program. Despite the significant number of new sales
closed over recent quarters, Inovalon’s sales opportunity pipeline
continued to be robust as of the end of the first quarter.
- Implementations Coming
Online as Scheduled & Acceleration Initiatives
Progressing: Multiple previously reported large-scale
platform sales converting into compounding subscription-based
platform revenue and accelerating growth continue to come online at
an accelerating pace in the first quarter of 2021. During the
quarter, multiple initiatives that are focused on further
automating platform implementation processes progressed with the
goal of shortening implementation timelines and expanding the
Company’s capacity to accelerate the implementation of new platform
engagements.
- Network Effect
Expanding: With the broadening adoption of Inovalon’s
cloud-based SaaS solutions, Inovalon is increasingly empowering a
network of marquee industry-leading clients across multiple
segments of the marketplace. As the number of clients with platform
engagements in place and operating increases, Inovalon is able to
increasingly bring to market solutions which both require and
thrive from the unique interconnectivity such as the Company’s
Consumer Health Gateway, Inovalon’s DataStream™ API, and its
Vaccine Adherence platform – each of which drive value and benefit
from the growing matrix of engaged and connected clients.
- Driving Industry Leadership
with Deep Real-World Data, Proprietary Algorithms, Machine Learning
(ML) and Artificial Intelligence (AI) Insights: Inovalon’s
industry-leading primary source real-world data assets enable a
unique capability to inform, test, and validate advanced algorithm
design, machine learning, and artificial intelligence capabilities.
These analytics power many capabilities of the Inovalon ONE®
Platform, enabling significant value differentiation within the
marketplace. During the quarter, Inovalon continued to power
industry-leading research in the applications of real-world data
for the advancement of data-driven healthcare within its product
platform and focal areas of research. In addition to fueling the
capabilities utilized within the existing platform portfolio of the
Company, on March 31, 2021 Inovalon announced multiple areas of
research spanning multiple high-impact healthcare industry
challenges which are being conducted by Inovalon in partnership
with clients across all major healthcare coverage populations.
These areas of research reflect Inovalon’s industry leadership and
investments in ground-breaking capabilities being undertaken to
support existing client initiatives and drive high-value healthcare
impact for clients of Inovalon’s cloud platform.
Other Financial Data and Key
Metrics
The following constitute other financial data
and key metrics that are presented quarterly.
- Growth of Datasets: At
March 31, 2021, the MORE2 Registry® real-world dataset
contained more than 336 million unique patient counts and more than
62 billion medical event counts, increases of 7% and 14%,
respectively, compared with March 31, 2020.
- Investment in Innovation: For the
quarter ended March 31, 2021, Inovalon’s ongoing investment
supporting innovations in advanced, cloud-based platforms
empowering data-driven healthcare was $24.9 million, or 14% of
revenue, an increase of $7.4 million, or 42%, compared to the prior
year period.
- Analytical Process Count Growth:
Inovalon’s trailing twelve-month Patient Analytics Months (“PAM”)
count, which the Company believes is indicative of the Company’s
overall level of analytical activity, grew to 72 billion as of
March 31, 2021, an increase of 5%, compared with
March 31, 2020.
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 April 16, 2021, the Company had 155.9
million shares of stock outstanding (comprised of 77.8 million
shares of Class A common stock and 78.1 million shares of Class B
common stock).
2021 Financial Guidance
In the setting of continued ACV growth, multiple
substantive implementations coming online as scheduled, an
expanding subscription base, continued strong sales pipeline, solid
contract renewals, and strong operating efficiencies, Inovalon is
raising its revenue guidance and reiterating the following
profitability guidance for 2021 as outlined within the table below,
indicating 12% to 16% year-over-year organic revenue growth and 15%
to 19% year-over-year organic Adjusted EBITDA growth.
Financial Metric |
|
Previous 2021 GuidanceProvidedFebruary 3,
2021 |
|
Updated 2021 GuidanceProvidedApril 28, 2021 |
|
Change fromFull Year 2020 |
Revenue |
|
$741 million to $768 million |
|
$745 million to $772 million |
|
12% to 16% |
Net income |
|
$43 million to $47 million |
|
$43 million to $47 million |
|
90% to 108% |
Non-GAAP net income |
|
$110 million to $113 million |
|
$110 million to $113 million |
|
19% to 22% |
Adjusted EBITDA |
|
$265 million to $275 million |
|
$265 million to $275 million |
|
15% to 19% |
Net cash provided by operating
activities |
|
$180 million to $195 million |
|
$180 million to $195 million |
|
23% to 33% |
Capital expenditures |
|
$57 million to $63 million |
|
$59 million to $65 million |
|
— |
Diluted net income per
share |
|
$0.28 to $0.31 |
|
$0.28 to $0.31 |
|
87% to 107% |
Non-GAAP diluted net income
per share |
|
$0.73 to $0.75 |
|
$0.73 to $0.75 |
|
18% to 21% |
The Company is also providing second quarter
2021 guidance below, indicating 11% to 15% year-over-year organic
revenue growth.
Financial Metric |
|
Second Quarter
2021GuidanceProvided April 28, 2021 |
|
Change fromSecond Quarter
2020 |
Revenue |
|
$180 million to $187 million |
|
11% to 15% |
Net income |
|
$7 million to $10 million |
|
250% to 400% |
Non-GAAP net income |
|
$25 million to $28 million |
|
14% to 27% |
Adjusted EBITDA |
|
$60 million to $67 million |
|
6% to 18% |
Diluted net income per
share |
|
$0.05 to $0.07 |
|
400% to 600% |
Non-GAAP diluted net income
per share |
|
$0.17 to $0.19 |
|
13% to 27% |
Additional assumptions made within the Company’s
2021 guidance are as follows:
- While changes in the stock price
could change the fully diluted share count, under the treasury
stock method, 2021 guidance assumes 151 million weighted average
diluted shares.
- 2021 guidance assumes an effective
tax rate of approximately 28% for the full year.
Reconciliations of net income, the GAAP
financial measure most directly comparable to Adjusted EBITDA and
Non-GAAP net income, 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 first quarter 2021 results at 5:00 p.m. Eastern Time today. To
participate in Inovalon’s conference call, please dial (855)
783-2604, conference ID 3581518; 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 First Quarter 2021 Earnings
Presentation Supplement available at http://investors.inovalon.com
for additional information, including financial metrics, guidance
details, and other information 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 nearly 100 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, referred to as a Module, is informed by the data of
billions of medical events within Inovalon’s proprietary datasets.
Combinations of 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 provider of 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 datasets, 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®.” Supporting thousands of clients, including all 25 of
the top 25 U.S. health plans, all 25 of the top 25 global pharma
companies, 24 of the top 25 U.S. healthcare provider systems, and
many of the leading pharmacy organizations, device manufacturers,
and other healthcare industry constituents, Inovalon’s technology
platforms and analytics are informed by data pertaining to more
than one million physicians, 580,000 clinical facilities, 336
million Americans, and 62 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,” “promise,” and similar expressions are intended to
identify forward-looking statements. Forward-looking statements in
this press release include, but are not limited to, expectations
about future business plans, prospective performance and
opportunities, strategies and business plans, expectations
regarding future results, expectations regarding the size of our
datasets, expectations regarding implementation timeframes, our
ability to meet financial guidance for the second quarter and full
year 2021, expectations regarding future contract wins, our ability
to pay down outstanding indebtedness, expectations regarding
interest payments, expectations regarding tax rates, expectations
regarding and/or estimates of ACV and TCV, statements and
expectations with respect to visibility, revenue retention and
recurring revenue, including ACV and TCV, and the impact of the
COVID-19 pandemic on our business and operations. 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 effects and potential effects of the
COVID-19 pandemic on our business, cash flow, liquidity and results
of operations due to, among other things, effects on the economy
generally and on our customers, including the possible effects of
significant rising unemployment, the inability of consumers to
timely pay our customers and the resulting potential inability of
our customers to pay the fees under our contracts on time or in
full; the delay in the contracting for services by our customers as
a result of the COVID-19 pandemic; potential other delays in the
sales cycle for new customers and products; and other unforeseen
impacts on our customers and potential customers and on our
employees that could have a negative impact on us; the Company’s
ability to continue and manage growth, 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™),
Elastic Container Technology (ECT™), Inovalon DataStream™ API,
Consumer Health Gateway™, Healthcare Data Lake, and the Telehealth
configuration of the Inovalon ONE® Platform; 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; 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; the efficacy of the Company’s platforms and
toolsets; and the impact of the COVID-19 pandemic on our business
and operations.
Additional information is also set forth in the
Company’s Annual Report on Form 10-K for the year ended December
31, 2020, filed with the SEC on February 17, 2021, included under
Part I, 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.
1 Annualized Contract Value (ACV) is defined as
a metric reflecting the sum of the first 12 months of revenue
expected from contracts signed during a specific period (such as a
quarter or year). New sales ACV refers to the sum of the first 12
months of revenue expected from new sales contracts signed during a
specific period (such as a quarter or year).
2 Free cash flow is defined as net cash provided
by operating activities less purchases of property and equipment
and less investment in capitalized software.
Inovalon
Holdings, Inc.Consolidated Statements of
Operations
(In thousands, except
per-share amounts) |
Three Months EndedMarch 31, |
|
2021 |
|
2020 |
Revenue |
$ |
177,176 |
|
|
$ |
154,187 |
|
Expenses: |
|
|
|
Cost of revenue(1) |
44,397 |
|
|
41,043 |
|
Sales and marketing(1) |
19,474 |
|
|
15,159 |
|
Research and development(1) |
8,519 |
|
|
7,104 |
|
General and administrative(1) |
53,025 |
|
|
53,883 |
|
Depreciation and amortization |
28,431 |
|
|
27,934 |
|
Total operating expenses |
153,846 |
|
|
145,123 |
|
Income from operations |
23,330 |
|
|
9,064 |
|
Other income and
(expenses): |
|
|
|
Interest income |
46 |
|
|
290 |
|
Interest expense |
(13,128 |
) |
|
(14,560 |
) |
Other expense, net |
(2 |
) |
|
(22 |
) |
Income (Loss) before
taxes |
10,246 |
|
|
(5,228 |
) |
Provision for (Benefit from)
income taxes |
1,090 |
|
|
(3,545 |
) |
Net income (loss) |
$ |
9,156 |
|
|
$ |
(1,683 |
) |
Net income (loss) attributable to common stockholders, basic and
diluted |
$ |
8,910 |
|
|
$ |
(1,683 |
) |
Net income (loss) per share attributable to common stockholders,
basic and diluted: |
|
|
|
Basic net income (loss) per share |
$ |
0.06 |
|
|
$ |
(0.01 |
) |
Diluted net income (loss) per share |
$ |
0.06 |
|
|
$ |
(0.01 |
) |
Weighted average shares of
common stock outstanding: |
|
|
|
Basic |
150,302 |
|
|
149,183 |
|
Diluted |
150,454 |
|
|
149,183 |
|
_______________________________________________________
(1) |
Includes stock-based
compensation expense as follows: |
|
|
|
|
Cost of revenue |
$ |
221 |
|
|
$ |
165 |
|
|
Sales and marketing |
938 |
|
|
620 |
|
|
Research and development |
320 |
|
|
453 |
|
|
General and
administrative |
4,184 |
|
|
6,018 |
|
|
Total stock-based compensation
expense |
$ |
5,663 |
|
|
$ |
7,256 |
|
Inovalon Holdings, Inc.Selected
Consolidated Balance Sheet Information
(In
thousands) |
March 31,2021 |
|
December 31,2020 |
Total assets |
$ |
1,965,996 |
|
|
$ |
1,971,398 |
|
Total liabilities |
1,236,275 |
|
|
1,262,684 |
|
Total stockholders’ equity |
729,721 |
|
|
708,714 |
|
Inovalon
Holdings, Inc.Condensed Consolidated
Statements of Cash Flows
(In
thousands) |
Three Months EndedMarch 31, |
|
2021 |
|
2020 |
Net cash provided by operating activities |
$ |
32,436 |
|
|
$ |
14,099 |
|
Net cash used in investing activities |
(20,992 |
) |
|
(16,473 |
) |
Net cash (used in) provided by financing activities |
(6,694 |
) |
|
92,155 |
|
Increase in cash and cash equivalents |
4,750 |
|
|
89,781 |
|
Cash and cash equivalents, beginning of period |
123,880 |
|
|
93,094 |
|
Cash and cash equivalents, end of period |
$ |
128,630 |
|
|
$ |
182,875 |
|
Inovalon
Holdings, Inc.Adjusted Earnings Before
Interest, Taxes, Depreciation and Amortization
Inovalon defines Adjusted Earnings Before
Interest, Taxes, Depreciation and Amortization (Adjusted EBITDA) as
net income or loss calculated in accordance with GAAP, adjusted for
the impact of depreciation and amortization, interest income,
interest expense, other expense, net, provision for income taxes,
stock-based compensation, acquisition costs, restructuring expense,
tax on equity exercises, and other non-comparable items. Adjusted
EBITDA margin is defined as Adjusted EBITDA as a percentage of
revenue. A reconciliation of net income to Adjusted EBITDA
follows:
(In thousands, except
percentages) |
Three Months EndedMarch 31, |
|
2021 |
|
2020 |
Net income (loss) |
$ |
9,156 |
|
|
$ |
(1,683 |
) |
Depreciation and amortization |
28,431 |
|
|
27,934 |
|
Interest income |
(46 |
) |
|
(290 |
) |
Interest expense |
13,128 |
|
|
14,560 |
|
Other expense, net |
2 |
|
|
22 |
|
Provision for (Benefit from) income taxes |
1,090 |
|
|
(3,545 |
) |
EBITDA |
51,761 |
|
|
36,998 |
|
Stock-based compensation |
5,663 |
|
|
7,256 |
|
Acquisition costs: |
|
|
|
Integration costs |
— |
|
|
450 |
|
Contingent consideration accretion |
— |
|
|
102 |
|
Compensatory contingent consideration |
— |
|
|
7 |
|
Other non-comparable items(1) |
1,136 |
|
|
2,674 |
|
Adjusted EBITDA |
$ |
58,560 |
|
|
$ |
47,487 |
|
Adjusted EBITDA margin |
33.1 |
% |
|
30.8 |
% |
_______________________________________________________(1) Other
“non-comparable items” include items that are not comparable across
reporting periods or items that do not otherwise relate to the
Company’s ongoing financial results, such as certain employee
related expenses attributable to advancements in automation and
operational efficiencies, legal expenses beyond those in the normal
course of business, and tax on equity exercises. Non-comparable
items are excluded from Adjusted EBITDA in order to more
effectively assess the Company’s period-over-period and ongoing
operating performance.
Inovalon
Holdings, Inc.Non-GAAP net
income
Inovalon defines Non-GAAP net income as net
income or loss calculated in accordance with GAAP, adjusted to
exclude tax-affected stock-based compensation expense, acquisition
costs, restructuring expense, amortization of acquired intangible
assets, amortization of debt issuance costs and debt discount, and
other non-comparable items. The Company defines Non-GAAP basic net
income per share as Non-GAAP net income divided by basic weighted
average shares outstanding. The Company defines Non-GAAP diluted
net income per share as Non-GAAP net income divided by diluted
weighted average shares outstanding. A reconciliation of net income
to Non-GAAP net income follows:
(In thousands, except
per-share amounts) |
Three Months EndedMarch 31, |
|
2021 |
|
2020 |
Net income (loss) |
$ |
9,156 |
|
|
$ |
(1,683 |
) |
Stock-based compensation |
5,663 |
|
|
7,256 |
|
Acquisition costs: |
|
|
|
Integration costs |
— |
|
|
450 |
|
Contingent consideration accretion |
— |
|
|
102 |
|
Compensatory contingent consideration |
— |
|
|
7 |
|
Amortization of acquired and purchased intangible assets |
13,412 |
|
|
12,954 |
|
Amortization of debt issuance costs and debt discount |
1,217 |
|
|
1,151 |
|
Other non-comparable items(1) |
1,136 |
|
|
2,674 |
|
Tax impact of add-back items |
(5,593 |
) |
|
(6,739 |
) |
Non-GAAP net income |
$ |
24,991 |
|
|
$ |
16,172 |
|
|
|
|
|
GAAP basic net income (loss)
per share |
$ |
0.06 |
|
|
$ |
(0.01 |
) |
GAAP diluted net income (loss)
per share |
$ |
0.06 |
|
|
$ |
(0.01 |
) |
Non-GAAP basic net income per
share |
$ |
0.17 |
|
|
$ |
0.11 |
|
Non-GAAP diluted net income
per share |
$ |
0.17 |
|
|
$ |
0.11 |
|
Weighted average shares of
common stock outstanding: |
|
|
|
Basic |
150,302 |
|
|
149,183 |
|
Diluted |
150,454 |
|
|
149,361 |
|
_______________________________________________________(1) Other
“non-comparable items” include items that are not comparable across
reporting periods or items that do not otherwise relate to the
Company’s ongoing financial results, such as certain employee
related expenses attributable to advancements in automation and
operational efficiencies, legal expenses beyond those in the normal
course of business, and tax on equity exercises. Non-comparable
items are excluded from Non-GAAP net income in order to more
effectively assess the Company’s period-over-period and ongoing
operating performance.
Inovalon
Holdings, Inc.Free Cash Flow
Inovalon defines free cash flow as net cash
provided by operating activities less purchases of property and
equipment and less investment in capitalized software. A
reconciliation of net cash provided by operating activities to free
cash flow follows:
(In
thousands) |
Three Months EndedMarch 31, |
|
2021 |
|
2020 |
Net cash provided by operating activities |
$ |
32,436 |
|
|
$ |
14,099 |
|
Less: Purchases of property
and equipment |
(4,448 |
) |
|
(5,533 |
) |
Less: Investment in
capitalized software |
(13,988 |
) |
|
(10,940 |
) |
Free cash flow |
$ |
14,000 |
|
|
$ |
(2,374 |
) |
Inovalon
Holdings, Inc.Key Metrics
The Company believes the key metrics illustrated
in the tables below are indicative of its overall level of
analytical activity and its underlying growth in the business.
|
March 31, |
(In
thousands) |
2021 |
|
2020 |
MORE2 Registry® dataset
metrics |
|
|
|
Unique patient count(1) |
336,355 |
|
|
315,610 |
|
Medical event count(2) |
62,745,949 |
|
|
55,092,985 |
|
Trailing twelve-month Patient
Analytics Months (PAM)(3) |
72,287,954 |
|
|
68,531,751 |
|
_______________________________________________________(1) Unique
patient count is defined as each unique, longitudinally matched,
de-identified natural person represented in the
MORE2 Registry® as of the end of the period presented.(2)
Medical event count is defined as the total number of discrete
medical events as of the end of the period presented (for example,
a discrete medical event typically results from the presentation of
a patient to a physician for the diagnosis of diabetes and
congestive heart failure in a single visit, the presentation of a
patient to an emergency department for chest pain, etc.).(3)
Patient Analytics Months, or PAM, is defined as the sum of the
analytical processes performed on each respective patient within
patient populations covered by clients under contract. As used in
the metric, an “analytical process” is a distinct set of data
calculations undertaken by the Company which is initiated and
completed within the Company’s platform solutions to examine a
specific question such as whether a patient is believed to have a
condition such as diabetes, or worsening of the disease, during a
specific time period.
Inovalon
Holdings, Inc. Investment in
Innovation
The Company’s business model is based upon the
ability to deliver value to clients through the combination of
advanced, cloud-based data analytics and data-driven intervention
toolsets focused on the achievement of meaningful and measurable
improvements in clinical quality outcomes and financial performance
in healthcare. The Company’s ability to deliver this value is
dependent in part on the ability to continue to innovate, design
new capabilities, and bring these capabilities to market in an
enterprise scale. The Company’s continued ability to innovate the
platform and bring differentiated capabilities to market is an
important aspect of the Company’s business success. The Company’s
investment in innovation includes costs for research and
development, capitalized software development, and expenditures
related to hardware and software platforms on which data analytics
and data-driven interventions toolset capabilities are deployed as
summarized below.
|
Three Months EndedMarch 31, |
(In thousands, except
percentages) |
2021 |
|
2020 |
Investment in
Innovation: |
|
|
|
Research and development(1) |
$ |
8,519 |
|
|
$ |
7,104 |
|
Capitalized software development(2) |
16,320 |
|
|
10,432 |
|
Research and development infrastructure investments(3) |
101 |
|
|
— |
|
Total investment in
innovation |
$ |
24,940 |
|
|
$ |
17,536 |
|
As a percentage of
revenue |
|
|
|
Research and development(1) |
5 |
% |
|
4 |
% |
Capitalized software development(2) |
9 |
% |
|
7 |
% |
Research and development infrastructure investments(3) |
— |
% |
|
— |
% |
Total investment in
innovation |
14 |
% |
|
11 |
% |
_______________________________________________________(1) Research
and development primarily includes employee costs related to the
development and enhancement of our service offerings.(2)
Capitalized software development includes capitalized costs
incurred to develop and enhance functionality for our platform
solutions.(3) Research and development infrastructure investments
include strategic capital expenditures related to hardware and
software platforms under development or enhancement.
Inovalon
Holdings, Inc.Forward-Looking Guidance
Adjusted EBITDA
|
Guidance Range |
|
Three Months EndingJune 30
2021 |
|
Year EndingDecember 31, 2021 |
(In
millions) |
Low |
|
High |
|
Low |
|
High |
Net income |
$ |
7 |
|
|
$ |
10 |
|
|
$ |
43 |
|
|
$ |
47 |
|
Depreciation and amortization |
28 |
|
|
29 |
|
|
115 |
|
|
116 |
|
Interest expense |
13 |
|
|
14 |
|
|
54 |
|
|
55 |
|
Interest income |
— |
|
|
— |
|
|
(1 |
) |
|
(1 |
) |
Provision for income taxes(1) |
3 |
|
|
5 |
|
|
18 |
|
|
21 |
|
EBITDA |
51 |
|
|
58 |
|
|
229 |
|
|
238 |
|
Stock-based compensation |
8 |
|
|
8 |
|
|
32 |
|
|
32 |
|
Other non-comparable items(2) |
1 |
|
|
1 |
|
|
4 |
|
|
5 |
|
Adjusted EBITDA |
$ |
60 |
|
|
$ |
67 |
|
|
$ |
265 |
|
|
$ |
275 |
|
Adjusted EBITDA margin |
33.3 |
% |
|
35.8 |
% |
|
35.6 |
% |
|
35.6 |
% |
_______________________________________________________(1) A 28%
tax rate is assumed in order to approximate the Company’s effective
statutory corporate tax rate.(2) Other “non-comparable items”
include items that are not comparable across reporting periods or
items that do not otherwise relate to the Company’s ongoing
financial results, such as certain employee related expenses
attributable to advancements in automation and operational
efficiencies, and legal expenses beyond those in the normal course
of business. Non-comparable items are excluded from Adjusted EBITDA
in order to more effectively assess the Company’s
period-over-period and ongoing operating performance.
Inovalon
Holdings, Inc.Forward-Looking Guidance
Non-GAAP net income
|
Guidance Range |
|
Three Months EndingJune 30
2021 |
|
Year EndingDecember 31, 2021 |
(In millions, except
per-share amounts) |
Low |
|
High |
|
Low |
|
High |
Net income |
$ |
7 |
|
|
$ |
10 |
|
|
$ |
43 |
|
|
$ |
47 |
|
Stock-based compensation |
8 |
|
|
8 |
|
|
32 |
|
|
32 |
|
Amortization of acquired and purchased intangible assets |
14 |
|
|
14 |
|
|
54 |
|
|
54 |
|
Amortization of debt issuance costs and debt discount |
1 |
|
|
1 |
|
|
5 |
|
|
5 |
|
Other non-comparable items(1) |
1 |
|
|
1 |
|
|
4 |
|
|
5 |
|
Tax impact of add-back items(2) |
(6 |
) |
|
(6 |
) |
|
(28 |
) |
|
(30 |
) |
Non-GAAP net income |
$ |
25 |
|
|
$ |
28 |
|
|
$ |
110 |
|
|
$ |
113 |
|
|
|
|
|
|
|
|
|
GAAP diluted net income per
share |
$ |
0.05 |
|
|
$ |
0.07 |
|
|
$ |
0.28 |
|
|
$ |
0.31 |
|
Non-GAAP diluted net income
per share |
$ |
0.17 |
|
|
$ |
0.19 |
|
|
$ |
0.73 |
|
|
$ |
0.75 |
|
Weighted average shares of
common stock outstanding - diluted |
151 |
|
|
151 |
|
|
151 |
|
|
151 |
|
_______________________________________________________(1) Other
“non-comparable items” include items that are not comparable across
reporting periods or items that do not otherwise relate to the
Company’s ongoing financial results, such as certain employee
related expenses attributable to advancements in automation and
operational efficiencies, and legal expenses beyond those in the
normal course of business. Non-comparable items are excluded from
non-GAAP net income in order to more effectively assess the
Company’s period-over-period and ongoing operating performance.(2)
A 28% tax rate is assumed in order to approximate the Company’s
effective statutory corporate tax rate.
Non-GAAP Financial Measures
Inovalon provides the measures Adjusted EBITDA,
Adjusted EBITDA margin, and Non-GAAP net income as additional
information for evaluating the Company’s operating results and free
cash flow as a liquidity measure to evaluate the Company’s ability
to generate cash to support its ongoing business to service and
repay debt, and to invest in its business. These measures are not
prepared in accordance with, or as an alternative for, GAAP
accounting and may be different from non-GAAP measures used by
other companies.
Investors frequently have requested information
from management regarding depreciation, amortization and other
non-cash charges, such as stock-based compensation, as well as the
impact of non-comparable items and management believes, based on
discussions with investors, that these non-GAAP measures enhance
investors’ ability to assess Inovalon’s historical and projected
future financial performance. While management believes these
non-GAAP financial measures provide useful supplemental information
to investors, there are limitations associated with the use of
non-GAAP financial measures. For example, one limitation of
Adjusted EBITDA is that it excludes depreciation and amortization,
which represents the periodic costs of certain capitalized tangible
and intangible assets used in generating revenues in our business.
Inovalon compensates for these limitations by using these non-GAAP
financial measures as supplements to GAAP financial measures and by
reconciling the non-GAAP financial measures to their most
comparable GAAP financial measures. Investors are encouraged to
review the reconciliations of these non-GAAP financial measures to
the comparable GAAP measures that are provided above.
These non-GAAP measures include financial
information that is prepared in accordance with GAAP and presented
in our consolidated financial statements and are used to evaluate
our business, measure our performance, develop financial forecasts
and make strategic decisions and are an important factor in
determining variable compensation.
Adjusted EBITDA and Adjusted EBITDA
Margin
The Company defines Adjusted EBITDA as net
income calculated in accordance with GAAP, adjusted for the impact
of depreciation and amortization, other expense, net, interest
income, interest expense, provision for income taxes, stock-based
compensation, acquisition costs (including transaction costs,
integration costs, costs related to contingent consideration
accretion and compensatory contingent consideration), restructuring
expense, tax on equity exercises, and other non-comparable items. A
reconciliation of net income, which is the most directly comparable
GAAP financial measure, to Adjusted EBITDA is provided above.
Adjusted EBITDA margin is the Company’s
calculation of Adjusted EBITDA, divided by revenue calculated in
accordance with GAAP.
The Company uses Adjusted EBITDA and Adjusted
EBITDA margin as supplemental measures of performance to gain
insight into operating effectiveness. The Company uses Adjusted
EBITDA and Adjusted EBITDA margin as key metrics to assess its
ability to increase revenues while controlling expense growth and
the scalability of the Company’s business model. The Company
believes that the exclusion of the expenses eliminated in
calculating Adjusted EBITDA and Adjusted EBITDA margin provides
management and investors a useful measure for period-to-period
comparisons of the Company’s core business and operating results by
excluding items that are not comparable across reporting periods or
that do not otherwise relate to the Company’s ongoing operating
results. Accordingly, the Company believes that Adjusted EBITDA and
Adjusted EBITDA margin provide useful information to investors and
others in understanding and evaluating the Company’s operating
results. However, use of Adjusted EBITDA and Adjusted EBITDA margin
as analytical tools has limitations, and investors and others
should not consider them in isolation or as substitutes for
analysis of our financial results as reported under GAAP. In
addition, other companies, including companies in Inovalon’s
industry, might calculate Adjusted EBITDA and Adjusted EBITDA
margin or similarly titled measures differently, which may reduce
their usefulness as comparative measures.
Non-GAAP net income and Non-GAAP net
income per share
The Company defines Non-GAAP net income as net
income calculated in accordance with GAAP, adjusted to exclude
tax-affected stock-based compensation expense, acquisition costs
(including transaction costs, integration costs, costs related to
contingent consideration accretion and compensatory contingent
consideration), restructuring expense, amortization of acquired and
purchased intangible assets, amortization of debt issuance costs
and debt discount, tax on equity exercises, and other
non-comparable items.
The Company defines Non-GAAP basic net income
per share as Non-GAAP net income divided by basic weighted average
shares outstanding. The Company defines Non-GAAP diluted net income
per share as Non-GAAP net income divided by diluted weighted
average shares outstanding.
The Company uses Non-GAAP net income as a
supplemental measure of performance to gain insight into financial
effectiveness. The Company uses Non-GAAP net income as a key metric
to assess its ability to increase revenues while controlling
expense growth and the scalability of its business model. The
Company believes that the exclusion of the expenses eliminated in
calculating Non-GAAP net income provides management and investors a
useful measure for period to period comparisons of the Company’s
core business and financial results by excluding items that are not
comparable across reporting periods or that do not otherwise relate
to its ongoing financial results. Accordingly, the Company believes
that Non-GAAP net income provides useful information to investors
and others in understanding and evaluating the Company’s
performance. However, use of Non-GAAP net income as an analytical
tool has limitations, and investors and others should not consider
this measure in isolation or as a substitute for analysis of the
Company’s financial results as reported under GAAP. In addition,
other companies, including companies in Inovalon’s industry, might
calculate Non-GAAP net income or similarly titled measures
differently, which may reduce their usefulness as comparative
measures.
Free cash flow
The Company defines free cash flow as net cash
provided by operating activities calculated in accordance with GAAP
less purchases of property and equipment and less investments in
capitalized software. The Company uses free cash flow as a
liquidity measure to evaluate its ability to generate cash to
support its ongoing business operations, to service and repay debt,
and to invest in its businesses. However, use of free cash flow has
limitations, and investors and others should not consider this
measure in isolation or as a substitute for analysis of the
Company’s liquidity as reported under GAAP. In addition, other
companies, including companies in Inovalon’s industry, might
calculate free cash flow or similarly titled measures differently,
which may reduce their usefulness as comparative measures.
Contacts:
Inovalon Kim E. Collins, Senior Vice President,
Corporate CommunicationsPhone: 301-809-4000
x1473kcollins@inovalon.com
Hulus Alpay, Vice President, Investor Relations
Phone: 301-809-4000 x1237halpay@inovalon.com
Grafico Azioni Inovalon (NASDAQ:INOV)
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