Inovalon Reports First Quarter 2015 Results

BOWIE, Md., May 6, 2015 /PRNewswire/ --

• Record first quarter revenue of $93.6 million

• Record first quarter Adjusted EBITDA of $32.0 million

• Non-GAAP Net Income of $15.1 million in the first quarter, resulting in Non-GAAP diluted net income of $0.11 per share

• Cash and cash equivalents of $793.1 million or $5.37 per outstanding share as of March 31, 2015

• Record analytical volume reflected in the Company's Patient Analytical Months (PAM) metric of 17.8 billion, a 30.9% year-over-year increase on strong client demand

Inovalon (Nasdaq: INOV), a leading technology company providing advanced cloud-based data analytics and data-driven intervention platforms to the healthcare industry, today announced financial results for the first quarter of 2015. A conference call will be held today at 5:00 pm Eastern Time to discuss the results, management's outlook for future financial and operational performance, and certain key trends in Inovalon's business.

"From the expansion of Inovalon's analytics into the CO-OP, ACO, and ACA EDGE server markets, to the continued growth of new and existing clients and the completion of the Company's initial public offering, the first quarter of 2015 was hallmarked by many successes for Inovalon," said Keith Dunleavy, M.D., chairman and chief executive officer of Inovalon. "In addition to the more visible achievements, behind the scenes the Company made great progress investing in people, processes, and infrastructure to support the Company's ongoing growth and innovative leadership. We exceeded our guidance for the quarter and see a strong second quarter and full year ahead. We are off to a solid start in 2015 and are very enthusiastic about the opportunities ahead of us."

First Quarter 2015 Results

• Revenue for the first quarter of 2015 was $93.6 million, an increase of $8.9 million, or 11%, compared with $84.7 million for the first quarter of 2014.

• Cost of revenue for the first quarter of 2015 was $31.9 million, or 34% of revenue, consistent with 34% of revenue for the first quarter of 2014.

• Income from operations for the first quarter of 2015 was $25.3 million, an increase of $1.4 million, or 6%, compared with $23.9 million for the first quarter of 2014.

• Adjusted EBITDA was $32.0 million for the first quarter of 2015, an increase of $2.6 million, or 9%, compared with $29.4 million for the first quarter of 2014. Adjusted EBITDA margin was 34.2% in the first quarter of 2015, compared with 34.7% for the first quarter of 2014.

• Non-GAAP net income for the first quarter of 2015 was $15.1 million, resulting in Non-GAAP diluted net income per share of $0.11, compared with $15.9 million and $0.12 per share, respectively, for the first quarter of 2014.

• Cash and cash equivalents increased to $793.1 million or $5.37 per outstanding share as of March 31, 2015, from $162.6 million as of December 31, 2014.

Adjusted EBITDA, Adjusted EBITDA margin and Non-GAAP net income are non-GAAP measures. The non-GAAP measures are described and reconciled to the most directly comparable GAAP measures at the end of this release.

Additional Key Highlights of the Q1 2015 Period

• The Company expanded the application of its data integration and quality outcomes analytics into the Accountable Care Organization (ACO) marketplace supporting the Group Practice Reporting Option (GPRO) process used by provider networks within the Medicare Shared Savings Program (MSSP). Inovalon's GPRO technology platform offers an industry-leading approach to Electronic Health Record (EHR) interoperability to streamline data abstraction and subsequent analysis. When combined with Inovalon's Quality Spectrum Insight (QSI^®) clinical outcomes data analysis platform, the cloud-based data-driven solution delivers measurable results that support regulatory requirements for quality data aggregation, analysis, reporting and quality improvement initiatives, while lowering costs for ACOs.

• Inovalon announced that it has been engaged to provide multiple analytical platform solutions for CO-OPs demonstrating the versatility and ease of implementation of the Inovalon cloud-based platform. Arches Health Plan and Montana Health CO-OP, two of the nation's 10 largest CO-OPs were added to Inovalon's CO-OP client list, which now totals six out of the nation's approximately 23 CO-OPs that were created under the Affordable Care Act (ACA) to foster the creation of competitive health plans servicing the individual and small group markets. Subject to the many pressures of disease and comorbidity data accuracy, quality, utilization, and compliance, the CO-OP client expansion demonstrates a strong cross-applicability of Inovalon's analytical abilities into the rapidly evolving marketplace.

• During Q1 2015, and culminating with the Centers for Medicare and Medicaid Services (CMS) April 30, 2015 deadline for the 2014 clinical encounter dates of service, Inovalon successfully delivered nearly 100 cloud-based, Software as a Service (SaaS) EDGE Server solution implementations for clients operating hundreds of Qualified Health Plans (QHPs) under the ACA in 48 states. Health plans that offer commercial coverage for individuals and small groups under the ACA are required to submit data pertaining to membership, medical encounters, pharmacy, and other information to the Department of Health and Human Services (HHS) on a regular basis. This data, submitted into what is referred to as an EDGE Server environment, is used by HHS to make risk adjustment and reinsurance calculations. Each plan is required to deploy and manage an EDGE Server for such data submission under very strict technical specifications, with the data playing a key role in their financial performance calculations. The Inovalon offering provides a cloud-based SaaS solution for data aggregation, data integrity analysis, performance analysis and financial reporting, eliminating significant costs for clients while also providing industry-leading transparency, analysis, and reporting capabilities in conjunction with the data submission process. With just over 800 EDGE servers deployed under the ACA nationwide, the Company believes that Inovalon is the largest provider of EDGE server solutions in the country.

• Reflecting the rise in Inovalon's client count, underlying patient population size, and increasing demand for analytical processes, the Company's measure of analytical volume, the Patient Analytical Month (PAM) metric, a measure of the number of analytical processes undertaken by the Company on behalf of its clients each month, as totaled and reported for the trailing 12 months (as detailed within the Company's recent prospectus), rose at a record rate of 30.9% to 17.8 billion at March 31, 2015. Inovalon sees the market's rising demand for its cloud-based analytics as a strong indicator of the Company's value achievement on behalf of its clients.

• Inovalon released the results of the industry's largest-ever analysis of multivariate contributors to clinical quality outcomes in Medicare Advantage Dual Eligible member populations entitled "An Investigation of Medicare Advantage Dual Eligible member-Level Performance on the CMS Five-Star Quality Measures." Inovalon conducted this research on behalf of, and in collaboration with, Cigna-HealthSpring, WellCare, Healthfirst, Gateway Health, BCBS Minnesota and Blue Plus, Health Care Service Corporation (HCSC), the Special Needs Plan (SNP) Alliance, and Medicaid Health Plans of America (MHPA), and consulted with multiple other industry partners. The study, the results of which have been presented to the U.S. Congress, CMS, and numerous leading healthcare institutions, is seen as a testament to Inovalon's reputation within the industry as a thought leader, analytical power, and trusted collaborator. Insights gained from this analysis are empowering new advancements in Inovalon's patient-level and provider-level analyses technologies designed to achieve greater insight into the identification of gaps in care, quality, and financial performance, as well as the intervention platforms needed to resolve such gaps.

• Walgreens expanded its relationship with Inovalon. The expanded strategic partnership provides an industry-leading patient assessment channel within Inovalon's cloud-based analytics and data-driven intervention platforms for health plans, ACOs, and integrated care delivery organizations seeking to achieve goals in improving clinical and quality outcomes as well as financial performance. With the expansion of the relationship, Walgreens will provide analytically-driven patient assessments supported solely by Inovalon's ePASS^® platform for healthcare organizations seeking member assessments within Healthcare Clinic locations. These analytics support the identification and resolution of patient-specific gaps in care, quality, diseases co-morbidity and compliance that impact quality outcomes and financial performance for the healthcare community.

• CMS released its "Final Call Letter" to Medicare Advantage plans on April 6, 2015, with multiple positive implications to Inovalon's technology platforms. 
  
  1. The Final Call Letter announced the transition of the remaining Star quality incentive program's fixed quality threshold measures to variable-based calculations, further increasing the importance of a key Inovalon competitive differentiator: predictive analytics informed by near-real-time national-scope data insight. Fixed cut points allow for the use of aged data, while variable cut points require insight into more real-time data from across the relevant landscape (i.e. not only within one healthcare organization's ecosystem). Clients utilizing Inovalon's Star Advantage^® quality predictive analytics benefit from Inovalon's national view of changes in critical cut-points informed from more real-time data during the date-of-service period. This differs significantly from analytical approaches which are devoid of timely or national scope data, leaving such competing approaches unable to identify or assess critical changes in relative quality scores, impeding their ability to accurately inform quality improvement initiatives and quality incentive projections during the relevant date-of-service period.
  
  2. The Final Call Letter finalized changes in the risk score calculation associated with both clinical revisions to the Hierarchical Condition Category (HCC) model and the coding pattern adjustment calculations. These changes were similar to prior year changes and in-line with expectations of the change. As the complexity and significance of the financial implications of achieving accurate insights into patient disease and co-morbidity continue to expand, Inovalon finds itself increasingly recognized as a leading provider of capabilities related to the analytics and improvement of risk score and risk adjustment related initiatives.
  
  3. The complexity endured by Health plans submitting data to CMS increased as a result of the Final Call Letter with CMS now requiring a blend (at a rate of 90/10) of both the Risk Adjustment Processing System (RAPS) and the Encounter Data System (EDS). Organizations seeking to accurately project and manage financial forecasts need sophisticated capabilities in data management and analytics to achieve accurate submissions of data and projection of financial implications. Inovalon's Claims Aggregation and Analysis Solution (CAAS) for RAPS data submissions and the eCAAS Advantage^® solution for EDS data submissions provide for a 100% cloud-based, SaaS, solution that addresses the increased complexity now introduced by CMS' decision to blend data submission requirements.

Initial Public Offering

On February 18, 2015, the Company completed its Initial Public Offering (IPO) of 22,222,222 shares of Class A common stock and, upon the underwriters' exercise of their option to purchase additional shares, issued an additional 3,142,581 shares of Class A common stock for a total of 25,364,803 shares issued.  All of the shares issued in the IPO were primary shares offered by the Company as none of the Company's stockholders sold any shares in the IPO. The offering price of the shares sold in the IPO was $27.00 per share, resulting in net proceeds to the Company after underwriters' discounts and commissions and other expenses payable by the Company of approximately $639.1 million.

Other Financial Data and Key Metrics

The following constitute other financial and key metrics which are presented quarterly (with the metrics, namely Patient Population Statements of Work (SOWs) and Data Analytics and Data-Driven Intervention Revenue Mix, provided annually). Please see the Company's filings with the Securities and Exchange Commission (SEC) for further detail.

• Growth of Datasets: At March 31, 2015, the MORE² Registry^® dataset contained more than 121 million unique patient counts and approximately 9.7 billion medical event counts, increases of 9% and 13%, respectively, compared with March 31, 2014.

• Investment in Innovation: For the three months ended March 31, 2015, Inovalon's ongoing investment supporting innovations in advanced, cloudbased data analytics and datadriven intervention platforms was $10.0 million, or 11% of revenue, compared with $10.8 million, or 12% of revenue, for the three months ended March 31, 2014.
  
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