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Inovalon Reports Fourth Quarter and Full Year 2019 Results

Fourth Quarter 2019 Highlights

  • Q4 revenue of $173.5 million, up 27% year-over-year (fully organic)
  • Q4 net income of $4.7 million, resulting in diluted net income of $0.03 per share
  • Q4 Non-GAAP net income of $21.9 million, resulting in Non-GAAP diluted net income of $0.15 per share
  • Q4 Adjusted EBITDA of $57.6 million, up 48% year-over-year
  • Q4 Adjusted EBITDA margin of 33.2%, up 470 basis points year-over-year
  • Q4 new sales ACV1 totaled $73.5 million, up 60% year-over-year

Full Year 2019 Highlights

  • Full year revenue of $642.4 million, up 22% year-over-year, and up 14% organically
  • Full year net income of $7.8 million, resulting in diluted net income of $0.05 per share
  • Full year Non-GAAP net income of $77.5 million, resulting in Non-GAAP diluted net income of $0.52 per share
  • Full year Adjusted EBITDA of $210.7 million, up 39% year-over-year
  • Full year Adjusted EBITDA margin of 32.8%, up 400 basis points year-over-year

Full Year 2019 Platform Dataset Highlights

  • MORE2 Registry® unique patient counts of 314 million, up 19% year-over-year
  • MORE2 Registry® medical event counts of 53 billion, up 24% year-over-year

2020 Guidance Highlights

  • Reaffirmed 2020 revenue guidance of $698 million to $718 million, reflecting 9% to 12% growth
  • Reaffirmed 2020 Adjusted EBITDA guidance of $231 million to $241 million, reflecting 10% to 14% growth
  • Raised 2020 guidance ranges for net income, non-GAAP net income, net income and non-GAAP income per share, and cash flow from operations
  • Providing first quarter 2020 guidance, including revenue of $158.5 million to $163 million, reflecting 9% to 12% growth

Subsequent Event Debt Repricing Highlight

  • Executed repricing of credit facility on February 11, 2020, decreasing applicable interest rate margin

Please refer to our Fourth Quarter & Full Year 2019 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.

BOWIE, Md., Feb. 19, 2020 (GLOBE NEWSWIRE) -- Inovalon (Nasdaq: INOV), a leading provider of cloud-based platforms empowering data-driven healthcare, today announced financial results for the fourth quarter and full year of 2019, reaffirmed and raised guidance ranges for the full year 2020, and issued guidance for the first quarter of 2020.

“The fourth quarter was another period of strong execution across the Company,” said Keith Dunleavy, M.D., Inovalon’s chief executive officer and chairman of the board. “The quarter and year were hallmarked by many positives, with strong advances in our platform capabilities, the reach of our connectivity, breadth of our datasets, performance of our salesforce, and implementation capabilities. I am extremely pleased with the strong performance that the Inovalon team achieved in 2019 and am looking forward to another great year ahead.”

Fourth Quarter 2019 Financial Results

  • Revenue for the fourth quarter of 2019 was $173.5 million, a year-over-year fully organic increase of 27%, compared with $136.3 million for the fourth quarter of 2018.

  • Cost of revenue for the fourth quarter of 2019 was $46.6 million, or 26.8% of revenue, compared with $35.9 million, or 26.3% of revenue, for the fourth quarter of 2018.

  • Net income for the fourth quarter of 2019 was $4.7 million, resulting in diluted net income of $0.03 per share, compared with net loss of $11.0 million and diluted net loss of $0.07 per share, for the fourth quarter of 2018.

  • Adjusted EBITDA for the fourth quarter of 2019 was $57.6 million, a year-over-year increase of 48%, compared with $38.8 million for the fourth quarter of 2018. Adjusted EBITDA margin for the fourth quarter of 2019 was 33.2%, a year-over-year increase of 470 basis points, compared with 28.5% for the fourth quarter of 2018.

  • Non-GAAP net income for the fourth quarter of 2019 was $21.9 million, resulting in Non-GAAP diluted net income of $0.15 per share, compared with $7.6 million and $0.05 per share, respectively, for the fourth quarter of 2018.

  • Net cash provided by operating activities for the fourth quarter of 2019 was $34.2 million, a year-over-year increase of 25%, compared with $27.4 million for the fourth quarter of 2018.

  • Free cash flow2 was $15.3 million for the fourth quarter of 2019, a year-over-year increase of 20%, compared with $12.7 million for the fourth quarter of 2018.

Full Year 2019 Financial Results

  • Revenue for 2019 was $642.4 million, a year-over-year increase of 22%, compared with $527.7 million for 2018.

  • Cost of revenue for 2019 was $167.8 million, or 26.1% of revenue, compared with $144.8 million, or 27.4% of revenue, for 2018.

  • Net income for 2019 was $7.8 million resulting in diluted net income of $0.05 per share, compared with a net loss of $39.2 million and net loss of $0.27 per share, respectively, for 2018.

  • Adjusted EBITDA for 2019 was $210.7 million, a year-over-year increase of 39%, compared with $151.9 million for 2018. Adjusted EBITDA margin for 2019 was 32.8%, an increase of 400 basis points, compared with 28.8% for 2018.

  • Non-GAAP net income for 2019 was $77.5 million, resulting in Non-GAAP diluted net income of $0.52 per share, compared with $39.3 million and $0.27 per share, respectively, for 2018.

  • Net cash provided by operating activities was $106.5 million for 2019, a year-over-year increase of 18%, compared with $90.4 million for 2018, representing 16.6% of revenue.

  • Free cash flow was $47.5 million for 2019, a year-over-year increase of 87%, compared with $25.4 million for 2018, representing 7.4% of revenue.

“The fourth quarter played out very nicely, capping a strong year across many metrics for the Company,” said Jonathan R. Boldt, Inovalon’s chief financial officer. “Across metrics tracking revenue expansion, gross margin performance, overhead discipline, profitability, connectivity reach, dataset size, compute scalability, platform performance, recruiting effectiveness, voluntary turnover, headcount efficiency, and countless other metrics that we follow closely, we are pleased with what we are seeing and look forward to continuing our focus on execution and always improving as we grow further in 2020 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 Sales and Revenue Growth. The combination of strong demand for the Company’s cloud-based platform capabilities and significant increases in the Company’s sophistication and scale of sales capabilities continued to drive significant contract signings in the fourth quarter. Q4 2019 total new sales Annual Contract Value (ACV) was a record $73.5 million, or an increase of 60% year-over-year and up 67% sequentially, and platform new sales ACV, excluding Services, was $52.7 million, or an increase of 96% year-over-year. Each of the Company’s four business units (empowering payers, providers, pharmacy, and life sciences) delivered strong double-digit organic revenue growth resulting in fourth quarter revenue of $173.5 million, a fully organic 27% year-over-year increase and a 4% increase sequentially. For the full year 2019, the Company delivered revenue of $642.4 million reflecting a year-over-year increase of 22% with strong year-over-year organic growth of 14%. The strong sales performance during 2019 secured substantive additions to the Company’s new logo list, with sales from new logos contributing 64.4% of the Company’s sales-driven revenue expansion, while positive client experience, value recognition, and successful “land and expand” execution contributed 35.6% during the year.

  • Continued Market-Leading Cloud-Based Innovation. The Company continued to meaningfully advance the capabilities of its cloud-based offerings during the fourth quarter and full-year of 2019. Notable were capability advancements in the Company’s cloud-based pharmacy platform (ScriptMed® Cloud), cloud-based clinical data extraction (CDEaaS®), cloud-based natural language processing (NLPaaS®), and a significantly expanded number of artificial intelligence applications within the Platform. Additionally, during 2019, Inovalon moved into production its FHIR enabled API toolset, providing data and data derivatives on-demand for cloud-based applications, allowing for real-time availability of data and analytics on a transactional basis. Lastly, as announced on January 13, 2020, the Company introduced its cloud-based Healthcare Data Lake offering, providing organizations with an industry-leading single-source-of-truth aggregation of clients’ otherwise disparate datasets, supporting translation of structured and unstructured data, and data supplementation from the industry’s largest healthcare dataset, the MORE2 Registry® of deidentified data, empowering clients to unlock the value of their own data assets and reduce costs from the elimination of their often multiple legacy enterprise data warehouse environments.

  • Significant MORE2 Registry® Dataset Growth. The significant size, extensive breadth of data types, historical duration, recency timeliness, and fully linkable primary-sourced nature of Inovalon’s datasets provides a uniquely rich, longitudinally matched real-world dataset able to empower highly differentiated and highly valued capabilities within the Inovalon ONE® Platform. These capabilities can be broadly viewed in four key differentiating strengths: 1) enabling superior training and refining of artificial intelligence, machine learning, and deep learning algorithms; 2) enabling of advanced outcomes-based and relative performance analytics; 3) informing highly detailed patient-specific and consumerism-focused solutions; and 4) supporting large-scale real world evidence (RWE) research and insights. Throughout 2019, and notably during the fourth quarter, Inovalon’s client base, connectivity, and reach of the Inovalon ONE® Platform resulted in significant expansion of the Company’s primary-source datasets. As of December 31, 2019, the MORE2 Registry® dataset contains more than 314 million unique patient counts and 53 billion medical event counts, representing an increase of 19% and 24% year-over-year, respectively.

  • Term Loan Repricing. On February 11, 2020, Inovalon completed a repricing of its Term Loan B Credit Facility, resulting in a 50 basis point decrease to the applicable interest rate margin to 3.00% with an additional 25 basis point reduction upon achievement of a senior secured net leverage ratio of 3.45:1.00. The repricing is expected to substantively reduce annual cash interest payments. The term loan maturity date of April 2, 2025 and other material provisions, including covenants, under the Credit Agreement, along with the amount of outstanding debt, all remained unchanged by the repricing.

Other Financial Data and Key Metrics

The following constitute other financial data and key metrics, which are presented quarterly.

  • Growth of Datasets: At December 31, 2019, the MORE2 Registry® dataset contained more than 314 million unique patient counts and 53 billion medical event counts, increases of 19% and 24%, respectively, compared with December 31, 2018.

  • Investment in Innovation: For the quarter ended December 31, 2019, Inovalon’s ongoing investment supporting innovations in advanced, cloud-based platforms empowering data-driven healthcare was $18.6 million, or 10.7% of revenue. For the full year 2019, Inovalon’s investment in innovation was $71.9 million, or 11.2% of revenue.

  • 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 65 billion as of December 31, 2019, an increase of 35% compared with December 31, 2018.

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 January 31, 2020, the Company had 75.7 million shares of Class A common stock outstanding and 79.4 million shares of Class B common stock outstanding.

Financial Guidance

The Company is updating its full-year 2020 guidance to raise its expected net income range, raise its diluted net income per share range, raise its non-GAAP net income range, raise its non-GAAP diluted net income per share range, and raise its net cash provided by operating activities range. Additionally, the Company is reiterating its previously provided full-year 2020 guidance for revenue, Adjusted EBITDA, and capital expenditures.

Financial Metric Previous 2020 Guidance
Originally Provided
October 30, 2019		 Updated 2020 Guidance
Provided
February 19, 2020		 Change from
Full Year 2019
Revenue $698 million to $718 million $698 million to $718 million 9% to 12%
Net income $22 million to $28 million $25 million to $31 million 221% to 297%
Non-GAAP net income $86 million to $91 million $89 million to $94 million 15% to 21%
Adjusted EBITDA $231 million to $241 million $231 million to $241 million 10% to 14%
Net cash provided by operating activities $145 million to $160 million $170 million to $185 million 60% to 74%
Capital expenditures $52 million to $58 million $52 million to $58 million —
Diluted net income per share $0.15 to $0.19 $0.17 to $0.21 240% to 320%
Non-GAAP diluted net income per share $0.57 to $0.61 $0.59 to $0.63 13% to 21%

The Company is providing first quarter 2020 guidance below, indicating 9% to 12% year-over-year organic revenue growth.

Financial Metric First Quarter 2020
Guidance
Provided February 19, 2020		 Change from
First Quarter 2019
Revenue $158.5 million to $163 million 9% to 12%
Net income $0 million to $2 million —
Non-GAAP net income $17 million to $19 million 16% to 29%
Adjusted EBITDA $48 million to $51 million 8% to 15%
Diluted net income per share $0.00 to $0.01 —
Non-GAAP diluted net income per share $0.11 to $0.13 10% to 30%

Additional assumptions made within the Company’s 2020 guidance are as follows:

  • While changes in the stock price could change the fully diluted share count, under the treasury stock method, 2020 guidance assumes 150 million weighted average diluted shares.

  • 2020 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 fourth quarter and full year 2019 results at 5:00 p.m. Eastern Time today. To participate in Inovalon’s conference call, please dial (855) 783-2604, conference ID 4674798; 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 Fourth Quarter & Full Year 2019 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 24 of the top 25 U.S. health plans, 22 of the top 25 global pharma companies, 19 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 988,000 physicians, 552,000 clinical facilities, 314 million Americans, and 53 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 first quarter and full year 2020, our ability to pay down outstanding indebtedness, expectations regarding interest payments, expectations regarding tax rates, and statements with respect to visibility, revenue retention and recurring revenue, including ACV. 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, 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; 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, 2019, filed with the SEC on February 19, 2020, 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.

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 Ended
December 31,		 Twelve Months Ended
December 31,
 2019 2018 2019 2018
Revenue$173,489  $136,314  $642,410  $527,676 
Expenses:       
Cost of revenue(1)46,553  35,898  167,814  144,826 
Sales and marketing(1)18,407  13,802  62,411  45,534 
Research and development(1)8,527  7,092  33,686  28,638 
General and administrative(1)52,139  48,265  200,762  205,038 
Depreciation and amortization26,880  26,868  108,250  96,725 
Restructuring expense—  36  —  9,500 
Total operating expenses152,506  131,961  572,923  530,261 
Income (Loss) from operations20,983  4,353  69,487  (2,585)
Other income and (expenses):       
Interest income349  307  2,242  2,181 
Interest expense(15,940) (16,624) (65,831) (50,898)
Other expense, net(2) (414) (20) (2,255)
Income (Loss) before taxes5,390  (12,378) 5,878  (53,557)
Provision for (Benefit from) income taxes672  (1,358) (1,897) (14,393)
Net income (loss)$4,718  $(11,020) $7,775  $(39,164)
Net income (loss) attributable to common stockholders, basic and diluted$4,563  $(11,020) $7,538  $(39,164)
Net income (loss) per share attributable to common stockholders, basic and diluted:       
Basic net income (loss) per share$0.03  $(0.07) $0.05  $(0.27)
Diluted net income (loss) per share$0.03   GlobeNewswire
By: GlobeNewswire - 19 Feb 2020
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