Attached files
| file | filename |
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| EX-99.1 - EXHIBIT 99.1 - Inovalon Holdings, Inc. | ex-991x12312017.htm |
| 8-K - 8-K - Inovalon Holdings, Inc. | inovq42017-8xkcover123117.htm |
Fourth Quarter & Full Year 2017
Earnings Presentation Supplement
February 20, 2018
© 2018 by Inovalon. All rights reserved. 2
This presentation contains forward-looking statements. All statements other than statements of historical facts contained in this presentation, including, but not
limited to, statements regarding future results of the operations and financial position of Inovalon Holdings, Inc. (“Inovalon”), and its financial targets, business
strategy, and plans and objectives for future operations, are forward-looking statements. The words „„believe,‟‟ „„may,‟‟ “see”, „„will,‟‟ „„target,” “estimate,‟‟
„„continue,‟‟ „„anticipate,‟‟ „„assume,‟‟ „„intend,‟‟ „„expect,‟‟ “project,” “look forward” and variations of these words or similar expressions are intended to identify
forward-looking statements.
• Inovalon has based these forward-looking statements on its estimates of its financial results and its current expectations and projections about future
events and financial trends that it believes may affect its 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 presentation.
• These forward-looking statements are subject to a number of significant business, economic, regulatory and competitive risks, uncertainties and
contingencies, many of which are beyond the control of Inovalon and its management, and are based upon assumptions with respect to future events or
decisions, which are subject to change. Moreover, because Inovalon operates in a very competitive and rapidly changing environment, new risks emerge
from time to time. It is not possible for Inovalon‟s management to predict all risks, nor can Inovalon assess the impact of all factors on its business or the
extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements.
• In light of these risks, uncertainties and assumptions, the forward-looking events and circumstances discussed in this presentation may not occur and
actual results, including, but not limited to, the timing of and investment in technological advancements and developments, as well as Inovalon‟s ability to
enter into new agreements with existing or new platforms, products and solutions in the timeframes expected, or at all, could differ materially and adversely
from those anticipated or implied in the forward-looking statements. For a discussion of the risks and uncertainties that may cause Inovalon‟s actual results,
performance or achievements to differ materially from those expressed or implied by forward-looking statements, you should read Inovalon‟s most recent
Annual Report on Form 10-K, including the sections entitled “Risk Factors” and “Special Note Regarding Forward Looking Statements,” as well as the other
documents that Inovalon may file from time to time in the future with the Securities and Exchange Commission.
• You should not rely upon forward-looking statements as predictions of future events. Although Inovalon believes that the expectations reflected in the
forward-looking statements are reasonable, Inovalon cannot guarantee and provides no assurance that the future results, levels of activity, performance or
events and circumstances reflected in the forward-looking statements will be achieved or occur. In addition, certain information included in this presentation
is presented strictly for illustrative or educational purposes, and such information should not be viewed as a representation regarding management‟s
expectations or actual results. Management‟s expectations and actual results could differ materially from information presented solely for illustrative or
educational purposes. Except as required by law, Inovalon undertakes no obligation to update publicly any forward-looking statements for any reason after
the date of this presentation, to conform these statements to actual results or to changes in Inovalon‟s expectations, and nothing in this presentation should
be regarded as a representation by any person that any financial targets, business strategy or plans and objectives for future operations suggested by any
forward-looking statements will be achieved or realized.
In addition, this presentation may include certain non-GAAP financial measures. These non-GAAP measures are in addition to, not a substitute for or
necessarily superior to, measures of financial performance prepared in accordance with U.S. GAAP. The GAAP financial measure most directly comparable to
each non-GAAP financial measure used or discussed, and a reconciliation of the differences between each non-GAAP financial measure and the comparable
GAAP financial measure, is available herein and within our public filings with the Securities and Exchange Commission, available on the Company‟s investor
website at http://investors.inovalon.com.
Note Regarding Forward-Looking Statements
INOV Q4 2017 Earnings Presentation Supplement (2.20.18) v1.0.0
© 2018 by Inovalon. All rights reserved. 3
This deck is provided as a supplement to the Q4 and FY 2017 Earnings Results release
announced by Inovalon on February 20, 2018.
The following outlines the content of this supplemental presentation:
• Q4 and FY 2017 – Revenue Growth and Margin Expansion
• Empowering Healthcare‟s Transformation
• Transition to Subscription-Based Cloud-Based Platform Offerings
• 2018 Revenue and Adjusted EBITDA Margin Guidance Bridges
• 2018 Financial Guidance Summary
• MORE2 Registry® Dataset Expansion
• Expanding Compute and Analytics
• Expanding Connectivity
• The Inovalon ONE™ Platform
• Appendix
Contents
INOV Q4 2017 Earnings Presentation Supplement (2.20.18) v1.0.0
© 2018 by Inovalon. All rights reserved.
$21.1
$26.4
Q4 2016 Q4 2017
Investment in Innovation
14.9%
22.3%
Q4 2016 Q4 2017
Adj. EBITDA Margin
59.8%
67.6%
Q4 2016 7
Gross Margin
Q4 2017 – Revenue Growth and Margin
Expansion
• Ramping of the Inovalon ONE™ Platform
engagements with four national health plans,
in addition to other new business signings
• Delivered 19% year-over-year growth as
reported, and 14% year-over-year growth on
an organic basis, consistent with guidance
• Product mix improvement and technology-
enabled efficiencies continued to drive gross
margin expansion on a year-over-year (+780
bps) and sequential (+80 bps) basis
• Adjusted EBITDA margin expanded 740 bps
year-over-year while maintaining increased
investments in innovation and sales &
marketing
• Continued investment in platform innovation
to drive growth and differentiation
• Expanded MORE2 Registry® patient count,
EHR connectivity provider count, and trailing
12-month Patient Analytics Months (PAM) by
59%, 23%, and 60% year-over-year,
respectively
4 INOV Q4 2017 Earnings Presentation Supplement (2.20.18) v1.0.0
Note: All $ amounts are in Millions except as otherwise noted.
1: Gross Margin defined as Revenue less Cost of Revenue, as a percentage of Revenue.
2: Adj. EBITDA Margin represents Adjusted EBITDA as a percentage of Revenue.
1
Growth
Operating
Leverage
Continued
Investment
2
$96.1
$114.6
Q4 2016 Q4 2017
Revenue
$14.3
$25.5
Q4 20 6 Q4 2017
Adjusted EBITDA
$7.4
$9.7
Q4 2016 7
Sales & Mark ting
© 2018 by Inovalon. All rights reserved.
$62.4
$85.8
FY 2016 FY 2017
Investment in Innovation
$27.1
$34.1
FY 2016 7
Sales & Mark ting
23.4%
24.3%
FY 2016 FY 2017
Adj. EBITDA Margin
62.8%
66.4%
FY 2016 7
Gross Margin
$427.6
$449.4
FY 2016 FY 2017
Revenue
FY 2017 – Revenue Growth and Margin
Expansion
• Revenue and Adjusted EBITDA in-line with
prior guidance, up 5% and 9% year-over-
year, respectively
• Strong market adoption of the Inovalon
ONE™ Platform
• Signed multi-year engagements with multiple
national health plans, state and regional
players
• Expanded gross margin by 360 bps, driven
by favorable product mix and pricing, and
technology-enabled efficiency initiatives
• Expanded Adjusted EBITDA margin by 90
bps, consistent with guidance, while
increasing investments in innovation and
sales & marketing
• Total annualized revenue from new business
signings increased by 45% and average
revenue per opportunity increased by 54%
versus 2016
• Significant investments in platform innovation
– including modularity, connectivity, compute
power and cloud infrastructure, and
enhanced data visualization
5 INOV Q4 2017 Earnings Presentation Supplement (2.20.18) v1.0.0
Note: All $ amounts are in Millions except as otherwise noted.
1: Gross Margin defined as Revenue less Cost of Revenue, as a percentage of Revenue.
2: Adj. EBITDA Margin represents Adjusted EBITDA as a percentage of Revenue.
1
Growth
Operating
Leverage
Continued
Investment
2
$99.9
$109.0
6 FY 2017
Adjusted EBITDA
© 2018 by Inovalon. All rights reserved. 6
By the end of 2017, there were over 94 million patients on the Inovalon ONE™ Platform, an
increase of more than 450% from 2016. The vast majority of clients represented by the
more than 94 million patients utilize only a small fraction of the Platform‟s capabilities –
providing a significant opportunity for expanding value for clients and financial performance
for Inovalon.
Empowering Healthcare’s Transformation
INOV Q4 2017 Earnings Presentation Supplement (2.20.18) v1.0.0
0
8,269,695
17,129,398
94,482,322
2014 2015 2016 2017
Number of Patients
on Inovalon’s
Cloud-Native Platform
452%
Year-over-Year
Growth
(4Q 2017 vs. 4Q 2016)1
(1) Figures are as of December 31st for each respective year.
, ,
© 2018 by Inovalon. All rights reserved.
Transition from Legacy to Platform-Based
Revenue
Inovalon has been undergoing an intentional transition in its offering portfolio from legacy enterprise
solutions to subscription-based cloud-based platform offerings with add-on advisory services. Growth in
revenue from the Company‟s subscription-based cloud-based platform offerings was approximately 30%
in 2017 in comparison to 2016, with continued expansion seen for 2018.
7 INOV Q4 2017 Earnings Presentation Supplement (2.20.18) v1.0.0
Subscription-Based Platform
Offerings:
Cloud-based platform offerings tied to
subscription-based contract
structures.
Legacy Solutions:
Solutions historically provided by the
Company that are not cloud-based
platform offerings tied to subscription-
based contract structures.
Services:
Advisory, implementation, and
support services under time and
materials, fixed price, or retainer-
based contracts.
2015 2016 2017 2018G
Revenue Offering Mix
Services Legacy Solutions Subscription-Based Platform Offerings
$437.3
$427.6
$449.4
$482M -
$462M
43%
53%
54% 66% ~69%
34%
19% ~16%
~15% 15% 12%
4%
© 2018 by Inovalon. All rights reserved.
2018 Revenue Guidance Bridge
Inovalon continues to transition its business to an increasingly subscription-based cloud-based platform
model. The Company‟s advancing capabilities and technologies continue to be positively recognized in
the marketplace. At the same time, external market forces related to the ACA are a short-term opposing
force in 2018. This combination of factors in 2018 yields full-year revenue guidance of $462M to $482M,
or expected revenue growth of 5% at the midpoint.
8
• Net Client Churn expected to be
~5 points in 2018
• Client decisions to withdraw from
ACA markets, unrelated to the
efficacy of Inovalon services, is a
short-term headwind of ~8 points
in 2018, most pronounced in 1H
2018
• Continued transition and
expansion of Inovalon ONE™
Platform adoption is seen driving
new platform client sales of ~16
points of growth in 2018
$449.4
~(5 pts)
~(8 pts)
~16 pts ~2 pts
$471.9
2017
Actual
Revenue
Net
Client
Churn
Client
ACA
Withdrawals
New
Client
Sales
CCS
Acquisition
(in 2017)
2018
Revenue
Guidance
INOV Q4 2017 Earnings Presentation Supplement (2.20.18) v1.0.0
The above table is for illustrative purposes only.
Full Year 2017 vs. 2018 Guidance
Revenue Growth of 5% at Midpoint
© 2018 by Inovalon. All rights reserved.
2018 Adjusted EBITDA Margin Bridge
Inovalon continues to expect operating leverage, driven by further improvement in mix and pricing, along
with technology-enabled efficiency initiatives. The Company sees these driving ~50 basis points of
Adjusted EBITDA margin expansion in 2018.
9
• The full gross margin benefit of an
increasing mix of higher margin
Platform offerings, coupled with
continued technology efficiencies,
is seen to be partially offset by
one-time client ACA withdrawals
• Efficiencies achieved in overhead
are expected to fully offset
continued investments in strategic
areas for the Company
INOV Q4 2017 Earnings Presentation Supplement (2.20.18) v1.0.0
The above table is for illustrative purposes only.
Represents ~30 bps of Gross
Margin Expansion YtY
~50 Basis Point Year-to-Year Improvement
24.8%
~20 bps
~10 bps
~20 bps
24.3%
FY 2017
Adj. EBITDA
Margin %
Investment
Initiatives / Overhead
Efficiencies
Platform
Mix & Price
Changes
Platform
Efficiencies
FY 2018G
Adj. EBITDA
Margin %
© 2018 by Inovalon. All rights reserved.
2018 Financial Guidance Summary
Inovalon is providing 2018 guidance as follows.
10 INOV Q4 2017 Earnings Presentation Supplement (2.20.18) v1.0.0
Financial Metric 2018 Guidance
Revenue $462 million to $482 million
Net Income $12 million to $16 million
Adjusted EBITDA $113 million to $121 million
Non-GAAP net income $44 million to $49 million
Diluted net income per share $0.09 to $0.11
Non-GAAP diluted net income per share $0.31 to $0.35
The Company is assuming 140 million shares for the full year 2018. Additionally, the Company‟s guidance assumes an effective tax rate of approximately 30% for the full year 2018.
© 2018 by Inovalon. All rights reserved.
MORE2 Registry® Dataset Expansion
11 INOV Q4 2017 Earnings Presentation Supplement (2.20.18) v1.0.0
Please see the Company‟s filings with the Securities and Exchange Commission (SEC), including the Form 8-K filed on February 20, 2018, for further information on this and other key metrics.
One of the industry‟s largest independent healthcare datasets, with more than 240M patients
and 37B medical events
Primary-sourced, longitudinally-matched, with data from all major U.S. healthcare programs
Contains EHR, claims, scripts, labs, provider, demographic data & more
Qualified Entity (QE) containing CMS‟ Fee for Service Medicare Data
Empowers and informs our industry-leading analytics, creating differentiation and client value
© 2018 by Inovalon. All rights reserved.
0
5,000,000
10,000,000
15,000,000
20,000,000
25,000,000
30,000,000
35,000,000
40,000,000
45,000,000
A
n
a
ly
ti
ca
l
P
ro
cess
C
o
u
n
t
(000s
)
Expanding Compute and Analytics
Inovalon has significantly expanded its cloud computing environments in support of the
growing demand for the Inovalon ONE™ Platform. Reflecting this demand, Inovalon is
seeing significant growth in its trailing 12-month Patient Analytics Months (PAM)1 metric.
12
60%
Year-over-Year
Expansion
(4Q 2017 vs. 4Q 2016) 2
INOV Q4 2017 Earnings Presentation Supplement (2.20.18) v1.0.0
(1) 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.
(2) Figures are as of December 31 for each respective period.
© 2018 by Inovalon. All rights reserved.
0
20,000
40,000
60,000
80,000
100,000
120,000
P
ro
v
id
e
r
C
o
u
n
t
Expanding Connectivity
Inovalon‟s interoperability technology enables real-time, bi-directional data aggregation and
point-of-care intervention through Electronic Health Record (EHR) systems, driving positive
impact and efficiency for clients, clinicians, patients, and the Company.
13
203%
CAGR
(2014 – 2017)1
INOV Q4 2017 Earnings Presentation Supplement (2.20.18) v1.0.0
(1) 2014 and 2017 figures are as of December 31 for each respective year.
© 2018 by Inovalon. All rights reserved. 14
The Inovalon ONE™ Platform is an integrated, cloud-based platform of more than 80
individual proprietary toolsets, or “Components”, able to be rapidly configured to empower
the operationalization of large-scale, data-driven and value-based care initiatives.
The Inovalon ONE™ Platform
INOV Q4 2017 Earnings Presentation Supplement (2.20.18) v1.0.0
The Inovalon ONE™ Platform Architecture
Appendix
© 2018 by Inovalon. All rights reserved. 16
Inovalon defines Adjusted Earnings Before Interest, Taxes, Depreciation and Amortization (Adjusted EBITDA) as
net income calculated in accordance with GAAP, adjusted for the impact of depreciation and amortization,
realized losses on short-term investments, loss (gain) on disposal of equipment, interest expense, interest
income, provision for income taxes, stock-based compensation, acquisition costs, 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 forward-looking net income to Adjusted EBITDA guidance follows:
Reconciliation of Forward-Looking Guidance
Adjusted EBITDA
(1) A 30% tax rate is assumed in order to approximate the Company's effective 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. Non-comparable items are excluded from Adjusted EBITDA in order to more effectively assess the Company's
period over period and on going operating performance.
INOV Q4 2017 Earnings Presentation Supplement (2.20.18) v1.0.0
(In millions) Low High
Reconciliation of Forward-Looking Guidance Net Income to Adjusted EBITDA:
Net income 12$ 16$
Depreciation and amortization 65 65
Loss (gain) on disposal of equipment - -
Interest income (6) (5)
Interest expense 6 6
Provision for income taxes (1) 5 7
EBITDA 82 89
Stock-based compensation 18 18
Acquisition costs:
Transaction costs - -
Integration costs 3 3
Contingent consideration accretion 4 4
Compensatory contingent consideration 2 2
Other non-comparable items (2) 4 5
Adjusted EBITDA 113$ 121$
Adjusted EBITDA Margin 24.5% 25.1%
Guidance Range
Twelve Months Ending
December 31, 2018
© 2018 by Inovalon. All rights reserved. 17
Inovalon defines Non-GAAP net income as net income calculated in accordance with GAAP, adjusted to exclude
tax-affected stock-based compensation expense, acquisition costs, amortization of acquired intangible assets,
tax on equity exercises and other non-comparable items. A reconciliation of net income to Non-GAAP net income
follows:
Reconciliation of Forward-Looking Guidance
Non-GAAP Net Income
(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. Non-comparable items are excluded from Non-GAAP net income in order to more effectively assess the
Company's period over period and on going operating performance.
(2) A 30% tax rate is assumed in order to approximate the Company's effective corporate tax rate.
INOV Q4 2017 Earnings Presentation Supplement (2.20.18) v1.0.0
(In millions, except per share amounts) Low High
Reconciliation of Forward-Looking Guidance Net Income to Non-GAAP net income:
Net income 12$ 16$
Stock-based compensation 18 18
Acquisition costs:
Transaction costs - -
Integration costs 3 3
Contingent consideration accretion 4 4
Compensatory contingent consideration 2 2
Amortization of acquired intangible assets 15 15
Other non-comparable items (1) 4 5
Tax imp t of add-back items (2) (14) (14)
Non-GAAP net income 44$ 49$
GAAP diluted net income per share 0.09$ 0.11$
Non-GAAP diluted net income per share 0.31$ 0.35$
Weighted average shares of common stock outstanding - diluted 140 140
Guidance Range
Twelve Months Ending
December 31, 2018
