UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
(Mark One) | ||
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended March 31, 2017 |
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or |
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o |
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to |
Commission File Number 001-36841
INOVALON HOLDINGS, INC.
(Exact name of registrant as specified in its charter)
Delaware
(State or other jurisdiction of incorporation or organization) |
47-1830316
(I.R.S. Employer Identification No.) |
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4321 Collington Road, Bowie, Maryland (Address of principal executive offices) |
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20716 (Zip Code) |
(301) 809-4000
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ý No o
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ý No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer" and "smaller reporting company" and "emerging growth company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer ý | Accelerated filer o |
Non-accelerated filer
o
(Do not check if a smaller reporting company) |
Smaller reporting company
o
Emerging growth company o |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes o No ý
As of April 28, 2017, the registrant had 63,243,236 shares of Class A common stock outstanding and 82,745,283 shares of Class B common stock outstanding.
INOVALON HOLDINGS, INC.
FORM 10-Q
FOR THE THREE MONTHS ENDED MARCH 31, 2017
TABLE OF CONTENTS
PART IFINANCIAL INFORMATION
Item 1. Condensed Consolidated Financial Statements
INOVALON HOLDINGS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except share and par value amounts)
See notes to condensed consolidated financial statements.
1
INOVALON HOLDINGS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited, in thousands, except per-share amounts)
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(1) Includes stock-based compensation expense as follows: |
| | |||||
Cost of revenue |
|
$ |
305 |
|
$ |
119 |
|
Sales and marketing |
| 390 | | 154 | | ||
Research and development |
| 273 | | 242 | | ||
General and administrative |
| 2,629 | | 1,577 | | ||
| | | | | | ||
Total stock-based compensation expense |
| $ | 3,597 | | $ | 2,092 | |
| | | | | | ||
| | | | | | ||
| | | | | |
See notes to condensed consolidated financial statements.
2
INOVALON HOLDINGS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited, in thousands)
|
Three Months
Ended March 31, |
||||||
---|---|---|---|---|---|---|---|
|
2017 | 2016 | |||||
Net income |
$ | 3,642 | $ | 2,365 | |||
Other comprehensive income: |
|||||||
Realized losses on short-term investments reclassified from accumulated other comprehensive income, net of tax of $0 and $1, respectively |
| 3 | |||||
Net change in unrealized gains and (losses) on available-for-sale investments, net of tax of $138 and $560, respectively |
176 | 2,385 | |||||
| | | | | | | |
Comprehensive income |
$ | 3,818 | $ | 4,753 | |||
| | | | | | | |
| | | | | | | |
| | | | | | | |
See notes to condensed consolidated financial statements.
3
INOVALON HOLDINGS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited, in thousands)
See notes to condensed consolidated financial statements.
4
INOVALON HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements have been prepared by Inovalon Holdings, Inc. (the "Company") in accordance with accounting principles generally accepted in the United States ("GAAP") for interim financial reporting and as required by Rule 10-01 of Regulation S-X. Accordingly, the unaudited condensed consolidated financial statements may not include all of the information and notes required by GAAP for audited financial statements. The year-end December 31, 2016 condensed consolidated balance sheet data included herein was derived from audited financial statements but does not include all disclosures required by GAAP for complete financial statements. In the opinion of the Company's management, the accompanying unaudited condensed consolidated financial statements contain all adjustments, consisting of items of a normal and recurring nature, necessary to present fairly the Company's financial position as of March 31, 2017, and the results of operations, and comprehensive income for the three month periods ended March 31, 2017 and 2016, and cash flows for the three months ended March 31, 2017 and 2016. The results of operations for the three month periods ended March 31, 2017 and 2016 are not necessarily indicative of the results to be expected for the full year. The preparation of condensed consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts of assets and liabilities, and related disclosures, as of the date of the financial statements, and the amounts of revenue and expenses reported during the period. Actual results could differ from estimates. The information contained herein should be read in conjunction with the audited financial statements included in the Company's Annual Report on Form 10-K for the year ended December 31, 2016.
The accompanying unaudited condensed consolidated financial statements include the accounts of Inovalon Holdings, Inc. and its wholly owned subsidiaries. All intercompany accounts and transactions have been eliminated in consolidation.
The Company's management considers events or transactions that occur after the balance sheet date but before the financial statements are issued to provide additional evidence relative to certain estimates or to identify matters that require additional disclosure. Subsequent events have been evaluated through the date of issuance of these financial statements.
Recently Issued Accounting Standards
There have been no developments to recently issued accounting standards, including the expected dates of adoption and estimated effects on the Company's consolidated financial statements and note disclosures, from those disclosed in the Company's 2016 Annual Report on Form 10-K, that would be expected to impact the Company except for the following:
In January 2017, the FASB issued ASU 2017-04, IntangiblesGoodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment. The new standard simplifies the subsequent measurement of goodwill by eliminating the second step of the goodwill impairment test. This ASU will be applied prospectively and is effective for annual or interim goodwill impairment tests in fiscal years beginning after December 15, 2019. Early adoption is permitted for interim or annual goodwill impairment tests performed on testing dates after January 1, 2017.
In January 2017, the FASB issued ASU 2017-01, Business Combinations (Topic 805): Clarifying the Definition of a Business. The new standard narrows the definition of a business and provides a
5
INOVALON HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
1. BASIS OF PRESENTATION (Continued)
framework for evaluation. This ASU is effective for financial statements issued for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years.
2. NET INCOME PER SHARE (in thousands, except per share amounts)
Holders of all outstanding classes of common stock participate ratably in earnings on an identical per share basis as if all shares were a single class. Basic earnings per share ("EPS") is computed by dividing net income by the weighted average number of shares of common stock, (Class A common stock and Class B common stock), outstanding during the period. Diluted EPS is computed by dividing net income by the sum of the weighted average number of shares of common stock outstanding and potentially dilutive securities outstanding during the period under the treasury stock method. Potentially dilutive securities include stock options and restricted stock units ("RSUs") and restricted stock awards ("RSAs"). Under the treasury stock method, dilutive securities are assumed to be exercised at the beginning of the periods and as if funds obtained thereby were used to purchase common stock at the average market price during the period. Securities are excluded from the computations of diluted earnings per share if their effect would be anti-dilutive to EPS.
The Company has issued RSAs under the 2015 Omnibus Incentive Plan. The Company considers issued and unvested RSAs to be participating securities as the holders of these RSAs have a non-forfeitable right to dividends in the event of the Company's declaration of a dividend on shares of Class A and Class B common stock. Subsequent to the issuance of the participating securities, the Company applied the two-class method required in calculating net income per share of Class A and Class B common stock. Under the two-class method, net income attributable to common stockholders is determined by allocating undistributed earnings, calculated as net income, less earnings attributable to participating securities. The net income per share attributable to common stockholders is allocated based on the contractual participation rights of the Class A common stock and Class B common stock as if the income for the period has been distributed. As the liquidation and dividend rights are identical for both classes of common stock, the net income attributable to common stockholders is allocated on a proportionate basis.
6
INOVALON HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
2. NET INCOME PER SHARE (in thousands, except per share amounts) (Continued)
The following table reconciles the weighted average shares outstanding for basic and diluted EPS for the periods indicated:
|
Three Months Ended
March 31, |
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---|---|---|---|---|---|---|---|
|
2017 | 2016 | |||||
Basic |
|||||||
Numerator: |
|||||||
Net income |
$ | 3,642 | $ | 2,365 | |||
Undistributed earnings allocated to participating securities |
(73 | ) | (9 | ) | |||
| | | | | | | |
Net income attributable to common stockholdersbasic |
$ | 3,569 | $ | 2,356 | |||
| | | | | | | |
| | | | | | | |
| | | | | | | |
Denominator: |
|||||||
Weighted average shares used in computing net income per share attributable to common stockholdersbasic |
144,729 | 151,282 | |||||
| | | | | | | |
Net income per share attributable to common stockholdersbasic |
$ | 0.02 | $ | 0.02 | |||
| | | | | | | |
| | | | | | | |
| | | | | | | |
Diluted |
|||||||
Numerator: |
|||||||
Net income attributable to common stockholdersdiluted |
$ | 3,569 | $ | 2,356 | |||
| | | | | | | |
| | | | | | | |
| | | | | | | |
Denominator: |
|||||||
Number of shares used for basic EPS computation |
144,729 | 151,282 | |||||
Effect of dilutive securities |
436 | 1,073 | |||||
| | | | | | | |
Weighted average shares used in computing net income per share attributable to common stockholdersdiluted |
145,165 | 152,355 | |||||
| | | | | | | |
Net income per share attributable to common stockholdersdiluted |
$ | 0.02 | $ | 0.02 | |||
| | | | | | | |
| | | | | | | |
| | | | | | | |
The computation of diluted EPS does not include certain unvested awards, on a weighted average basis, for the three months ended March 31, 2017 and 2016, respectively, because their inclusion would have an anti-dilutive effect on EPS. The awards excluded because of their anti-dilutive effect are as follows:
|
Three Months
Ended March 31, |
||||||
---|---|---|---|---|---|---|---|
|
2017 | 2016 | |||||
Awards excluded from the computation of diluted net income per share because their inclusion would have been anti-dilutive |
168 | 110 |
7
INOVALON HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
3. SHORT-TERM INVESTMENTS (in thousands)
As of March 31, 2017, short-term investments consisted of the following:
|
Amortized Cost |
Gross Unrealized
Gains |
Gross
Unrealized Losses |
Estimated Fair
Value |
|||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Available-for-sale securities: |
|||||||||||||
Corporate notes and bonds |
$ | 318,459 | $ | 62 | $ | (637 | ) | $ | 317,884 | ||||
U.S. agency obligations |
34,855 | 15 | (72 | ) | 34,798 | ||||||||
U.S. treasury securities |
31,147 | 3 | (93 | ) | 31,057 | ||||||||
Commercial paper |
| | | | |||||||||
Certificates of deposit |
1,683 | | | 1,683 | |||||||||
| | | | | | | | | | | | | |
Total available-for-sale securities |
$ | 386,144 | $ | 80 | $ | (802 | ) | $ | 385,422 | ||||
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
As of December 31, 2016, short-term investments consisted of the following:
|
Amortized Cost |
Gross Unrealized
Gains |
Gross
Unrealized Losses |
Estimated Fair
Value |
|||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Available-for-sale securities: |
|||||||||||||
Corporate notes and bonds |
$ | 349,571 | $ | 36 | $ | (918 | ) | $ | 348,689 | ||||
U.S. agency obligations |
34,864 | 22 | (78 | ) | 34,808 | ||||||||
U.S. treasury securities |
53,681 | 6 | (100 | ) | 53,587 | ||||||||
Commercial paper |
6,312 | | (3 | ) | 6,309 | ||||||||
Certificates of deposit |
1,921 | 1 | | 1,922 | |||||||||
| | | | | | | | | | | | | |
Total available-for-sale securities |
$ | 446,349 | $ | 65 | $ | (1,099 | ) | $ | 445,315 | ||||
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
The following table summarizes the estimated fair value of our short-term investments, designated as available-for-sale and classified by the contractual maturity date of the securities as of the dates shown:
|
March 31, 2017 |
December 31,
2016 |
|||||
---|---|---|---|---|---|---|---|
Due in one year or less |
$ | 186,057 | $ | 176,696 | |||
Due after one year through three years |
199,365 | 268,619 | |||||
| | | | | | | |
Total |
$ | 385,422 | $ | 445,315 | |||
| | | | | | | |
| | | | | | | |
| | | | | | | |
The Company has certain available-for-sale securities in a gross unrealized loss position. The Company reviews its debt securities classified as short-term investments on a regular basis to evaluate whether or not any security has experienced an other-than-temporary decline in fair value. The Company considers factors such as the length of time and extent to which the market value has been less than the cost, the financial position and near-term prospects of the issuer and the Company's intent to sell, or whether it is more likely than not the Company will be required to sell the investment before recovery of the investment's amortized-cost basis. If the Company determines that an other-than-temporary decline exists, or if write downs related to credit losses are necessary, in one of these securities, the unrealized losses attributable to the respective investment would be reclassified to realized losses on short-term investments within the statement of operations. There were no impairments considered other-than-temporary as of March 31, 2017.
8
INOVALON HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
3. SHORT-TERM INVESTMENTS (in thousands) (Continued)
The following table shows the fair values and the gross unrealized losses of available-for-sale securities that were in a gross unrealized loss position, as of March 31, 2017, aggregated by investment category:
|
Estimated
Fair Value |
Gross
Unrealized Losses |
|||||
---|---|---|---|---|---|---|---|
Corporate notes and bonds |
$ | 255,307 | $ | (637 | ) | ||
U.S. agency obligations |
22,978 | (72 | ) | ||||
U.S. treasury securities |
26,836 | (93 | ) | ||||
| | | | | | | |
|
$ | 305,121 | $ | (802 | ) | ||
| | | | | | | |
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4. FAIR VALUE MEASUREMENTS ( in thousands)
The following table presents the fair value hierarchy for financial assets and liabilities measured at fair value on a recurring basis as of March 31, 2017:
|
Level 1 | Level 2 | Level 3 | Total | |||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Cash Equivalents: |
|||||||||||||
Money market funds |
$ | 85,603 | $ | | $ | | $ | 85,603 | |||||
Short-term investments: |
|||||||||||||
Corporate notes and bonds |
| 317,884 | | 317,884 | |||||||||
U.S. agency obligations |
| 34,798 | | 34,798 | |||||||||
U.S. treasury securities |
| 31,057 | | 31,057 | |||||||||
Certificates of deposit |
| 1,683 | | 1,683 | |||||||||
Liabilities: |
|||||||||||||
Contingent consideration |
| | (12,600 | ) | (12,600 | ) | |||||||
| | | | | | | | | | | | | |
Total |
$ | 85,603 | $ | 385,422 | $ | (12,600 | ) | $ | 458,425 | ||||
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
The following table presents the fair value hierarchy for financial assets and liabilities measured at fair value on a recurring basis as of December 31, 2016:
|
Level 1 | Level 2 | Level 3 | Total | |||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Cash Equivalents: |
|||||||||||||
Money market funds |
$ | 44,108 | | | $ | 44,108 | |||||||
Short-term investments: |
|||||||||||||
Corporate notes and bonds |
| 348,689 | | 348,689 | |||||||||
U.S. agency obligations |
| 34,808 | | 34,808 | |||||||||
U.S. treasury securities |
| 53,587 | | 53,587 | |||||||||
Commercial paper |
| 6,309 | | 6,309 | |||||||||
Certificates of deposit |
| 1,922 | | 1,922 | |||||||||
Other Current Liabilities: |
|||||||||||||
Contingent consideration |
| | (12,600 | ) | (12,600 | ) | |||||||
| | | | | | | | | | | | | |
Total |
$ | 44,108 | $ | 445,315 | $ | (12,600 | ) | $ | 476,823 | ||||
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
9
INOVALON HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
4. FAIR VALUE MEASUREMENTS ( in thousands) (Continued)
The Company determines the fair value of its security holdings based on pricing from its pricing vendors. The valuation techniques used to measure the fair value of financial instruments having Level 2 inputs were derived from non-binding consensus prices that are corroborated by observable market data or quoted market prices for similar instruments. Such market prices may be quoted prices in active markets for identical assets (Level 1 inputs) or pricing determined using inputs other than quoted prices that are observable either directly or indirectly (Level 2 inputs). The Company performs procedures to ensure that appropriate fair values are recorded such as comparing prices obtained from other sources.
The following table presents our financial instruments measured at fair value using unobservable inputs (Level 3):
|
Fair Value
Measurements Using Unobservable Inputs (Level 3) |
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---|---|---|---|---|---|---|---|
|
Three Months Ended
March 31, |
||||||
|
2017 | 2016 | |||||
Balance, beginning of period |
$ | (12,600 | ) | $ | (2,300 | ) | |
Accretion expense (recognized in general and administrative expenses) |
| (235 | ) | ||||
| | | | | | | |
Total |
$ | (12,600 | ) | $ | (2,535 | ) | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
5. COMMITMENTS AND CONTINGENCIES (in thousands)
Legal Proceedings From time to time the Company is involved in various litigation matters arising out of the normal course of business. The Company consults with legal counsel on those issues related to litigation and seeks input from other experts and advisors with respect to such matters. Estimating the probable losses or a range of probable losses resulting from litigation, government actions and other legal proceedings is inherently difficult and requires an extensive degree of judgment, particularly where the matters involve indeterminate claims for monetary damages, may involve discretionary amounts, present novel legal theories, are in the early stages of the proceedings, or are subject to appeal. Whether any losses, damages or remedies ultimately resulting from such matters could reasonably have a material effect on the Company's business, financial condition, results of operations, or cash flows will depend on a number of variables, including, for example, the timing and amount of such losses or damages (if any) and the structure and type of any such remedies. The Company's management does not presently expect any litigation matters to have a material adverse impact on the condensed consolidated financial statements of the Company.
On June 24, 2016, a purported securities class action complaint ( Xiang v. Inovalon Holdings, Inc., et.al ., No. 1:16-cv-04923) was filed in the United States District Court for the Southern District of New York against the Company, certain officers, directors and underwriters in the Company's initial public offering (the "Complaint"). The Complaint was brought on behalf of a purported class consisting of all persons or entities who purchased shares of the Company's Class A common stock pursuant or traceable to the Registration Statement relating to the Company's initial public offering on February 18, 2015. The Complaint asserted violations of Sections 11 and 15 of the Securities Act based
10
INOVALON HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
5. COMMITMENTS AND CONTINGENCIES (in thousands) (Continued)
on allegedly false or misleading statements and omissions with respect to, among other things, the Company's revenues from sales in the city and state of New York and the Company's effective tax rate. The Complaint sought certification as a class action and unspecified compensatory damages plus interest and attorneys' fees. On June 28, 2016, a nearly identical complaint was filed in the same court captioned Patel v. Inovalon Holdings, Inc., et. al ., No. 1:16-cv-05065. On July 5, 2016, the court consolidated the Xiang and Patel actions. On September 20, 2016, the court appointed a lead plaintiff and lead counsel. On December 21, 2016, lead plaintiff filed a consolidated class action complaint (the "Amended Complaint") purporting to assert violations of Sections 11, 12(a)(2), and 15 of the Securities Act of 1933, as amended, based on allegedly false or misleading statements and omissions with respect to substantially the same topics as alleged in the Complaint. On February 21, 2017, and as required by the court's individual practices, the Company invoked the pre-motion process required prior to filing a motion to dismiss, which process is ongoing. The Company believes that the claims against it and its officers and directors are without merit, and the Company and the named officers and directors intend to defend themselves vigorously. In light of, among other things, the early stage of the litigation, the Company is unable to predict the outcome of these consolidated actions and is unable to make a meaningful estimate of the amount or range of loss, if any, that could result from an unfavorable outcome.
On February 16, 2017, an order was entered unsealing a relator's civil False Claims Act qui tam complaint in the matter of U.S. ex rel. Benjamin Poehling , individually (Civil Action No: 11-cv-0258-A). The action was filed on October 27, 2011 in the Western District of New York. The case names 15 defendants, one of which is MedAssurant, Inc., the Company's former name, and cites the allegedly fraudulent submission of claims for and alleged false statements relating to risk adjustment payments under the federal Medicare program as the basis for the suit. The Company was not aware prior to February 16, 2017, that it was named as one of 15 defendants in this case until the complaint was unsealed. To date, the U.S. government has decided to intervene in this case against only two defendants but not to intervene against the Company. The Company has not been served. The Company believes the claims against it are without merit, and if the Company is served in the case, the Company intends to defend itself vigorously. In light of, among other things, the early stage of the litigation, the Company is unable to predict the outcome of this lawsuit and is unable to make a meaningful estimate of the amount or range of loss, if any, that could result from an unfavorable outcome.
6. BUSINESS COMBINATIONS (in thousands, except share amounts)
Creehan Acquisition
On October 3, 2016, the Company completed its acquisition of Creehan Holding Co., Inc. ("Creehan"). Creehan, through its subsidiary Creehan & Company Corporation, is a leading provider of specialty pharmacy software solutions to the pharmaceutical industry. Pursuant to the terms of the Stock Purchase Agreement between the Company and Creehan (the "Stock Purchase Agreement"), Creehan became a wholly owned subsidiary of Inovalon.
Pursuant to the terms of the Stock Purchase Agreement, Inovalon acquired all of the issued and outstanding capital stock of Creehan for an aggregate purchase price of $130 million, which was comprised of $120 million in cash and $10 million in shares of Class A common stock of the Company.
11
INOVALON HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
6. BUSINESS COMBINATIONS (in thousands, except share amounts) (Continued)
The Company completed the acquisition of Creehan through the use of cash on hand and the issuance of 651,355 shares of Class A common stock, subject to resale restrictions. Certain components, which are referred to below as contingent consideration, of the aggregate purchase price are subject to the achievement of financial performance objectives. The Company acquired Creehan for the assembled workforce, technology platform, client base, and to accelerate entry into the specialty pharmacy software market. Transaction costs in connection with the acquisition are expensed as incurred and are included in general and administrative expenses. The results of operations related to Creehan are included in our consolidated statements of operations beginning from the date of acquisition.
A summary of the preliminary composition of the stated purchase price and fair value of the stated purchase price is as follows:
Share Purchase Agreement purchase price |
$ | 130,000 | ||
Working capital adjustment |
(247 | ) | ||
| | | | |
Subtotal |
129,753 | |||
Fair value adjustments: |
||||
Marketability restrictions on equity consideration |
(2,236 | ) | ||
Contingent consideration probability of achievement adjustment. |
(12,400 | ) | ||
Post-acquisition compensation expense |
(5,952 | ) | ||
| | | | |
Total fair value purchase price |
$ | 109,165 | ||
| | | | |
| | | | |
| | | | |
The composition of the fair value of the consideration transferred is as follows:
Cash |
$ | 89,370 | ||
Issuance of Class A common stock |
7,764 | |||
Working capital adjustment receivable |
(569 | ) | ||
Contingent consideration |
12,600 | |||
| | | | |
Total fair value purchase price |
$ | 109,165 | ||
| | | | |
| | | | |
| | | | |
Recording of Assets Acquired and Liabilities Assumed
Preliminary estimates of fair value included in the consolidated financial statements, in conformity with ASC No. 820, Fair Value Measurements and Disclosures , represent the Company's best preliminary estimates and preliminary valuations. In accordance with ASC No. 805, Business Combinations , the preliminary allocation of the consideration value is subject to adjustment until the Company has completed its analysis, but not to exceed one year after the date of acquisition, which was October 3, 2016, to provide the Company with the time to complete the valuation of its assets and liabilities. As of March 31, 2017, the Company was in the process of reviewing its assumptions related to (a) the fair value of consideration, pending the finalization of a customary working capital adjustment provision, (b) the finalization of assumptions used to determine the fair value of acquired deferred revenue liabilities, and (c) the finalization of estimates of tax related matters. If the previously identified matters are significant, changes to the Company's allocation of the consideration value to assets acquired and liabilities assumed could result as well as changes concerning amortization expense and revenue.
12
INOVALON HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
6. BUSINESS COMBINATIONS (in thousands, except share amounts) (Continued)
The following table summarizes the preliminary purchase price allocation to assets acquired and liabilities assumed, including identification of measurement period adjustments:
|
Preliminary
Recorded Value |
|||
---|---|---|---|---|
Cash and cash equivalents |
$ | 861 | ||
Accounts receivable |
9,048 | |||
Other current assets |
171 | |||
Property, equipment and capitalized software |
641 | |||
Intangible assets(1) |
50,900 | |||
Goodwill(2) |
50,987 | |||
| | | | |
Total assets acquired |
112,608 | |||
| | | | |
Current liabilities |
(1,007 | ) | ||
Deferred revenue |
(2,436 | ) | ||
| | | | |
Total liabilities assumed |
(3,443 | ) | ||
| | | | |
Net assets acquired |
$ | 109,165 | ||
| | | | |
| | | | |
| | | | |
The amounts preliminarily attributed to identified intangible assets are summarized in the table below:
|
Weighted
Average Useful Life |
Recorded
Value |
||||
---|---|---|---|---|---|---|
Customer relationships |
8 years | $ | 36,500 | |||
Tradename |
4 years | 4,000 | ||||
Technology |
4 years | 8,800 | ||||
In-process Research and Development |
indefinite | 1,600 | ||||
| | | | | | |
Total intangible assets |
$ | 50,900 | ||||
| | | | | | |
| | | | | | |
| | | | | | |
13
INOVALON HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
6. BUSINESS COMBINATIONS (in thousands, except share amounts) (Continued)
The following table summarizes the activity related to the carrying value of our goodwill during the three months ended March 31, 2017:
Goodwill as of January 1, 2017 |
$ | 184,557 | ||
Measurement period adjustments |
| |||
| | | | |
Goodwill as of March 31, 2017 |
$ | 184,557 | ||
| | | | |
| | | | |
| | | | |
7. STOCKHOLDERS' EQUITY (in thousands, except share amounts and share price)
Treasury Stock On May 4, 2016, the Company announced that its Board of Directors authorized a program to repurchase up to $100 million of Inovalon's Class A common stock through December 31, 2016. Repurchases under the Company's share repurchase program have been made in open-market or privately negotiated transactions. The Company has and expects to continue to fund repurchases through a combination of cash on hand, cash generated by operations and sales of short-term investments, if needed. On November 2, 2016, the Company announced that its Board of Directors authorized an expansion of the share repurchase program to repurchase up to an additional $100 million of shares of Inovalon's Class A Common Stock (bringing the total to $200 million) through December 31, 2017. The share repurchase program does not obligate the Company to acquire any particular amount of Class A common stock. During the three months ended March 31, 2017, the Company repurchased 2,141,401 shares of Class A common stock for an aggregate of $25,383 at an average cost of $11.85 per share, excluding commissions. During the year ended December 31, 2016, the Company repurchased 7,508,985 shares of Class A common stock for an aggregate of $106,231 at an average cost of $14.15 per share, excluding commissions. At March 31, 2017, approximately $68,386 remained available to repurchase shares under the share repurchase program. Shares that are repurchased under the repurchase program were recorded as treasury stock, based on the stock trading dates, and are available for future issuance, until retired.
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Item 2.
Management's Discussion and Analysis of Financial Condition and Results of Operations
The following discussion and analysis should be read in conjunction with our unaudited condensed consolidated financial statements and the related notes included elsewhere in this Quarterly Report on Form 10-Q and with our audited consolidated financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2016, as filed with the Securities and Exchange Commission (the "SEC") on February 23, 2017. Unless we otherwise indicate or the context requires, references to the "Company," "Inovalon," "we," "our," and "us" refer to Inovalon Holdings, Inc. and its consolidated subsidiaries.
Note Regarding Forward-Looking Statements
This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the "Securities Act"), and Section 21E of the Securities Exchange Act of 1934, as amended (the "Exchange Act"). All statements contained in this Quarterly Report other than statements of historical fact, including but not limited to statements regarding our future results of operations and financial position, our business strategy and plans, market growth, and our objectives for future operations, are forward-looking statements. The words "believe," "may," "see," "will," "estimate," "continue," "anticipate," "intend," "expect," and similar expressions are intended to identify forward-looking statements. We have based these forward-looking statements largely on our current expectations and projections about future events and trends that we believe may affect our financial condition, results of operations, business strategy, short-term and long-term business operations and objectives and financial needs. Moreover, we operate in a very competitive and rapidly changing environment. New risks emerge from time to time. It is not possible for our management to predict all risks, nor can we assess the impact of all factors on our 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 we may make. In light of these risks, uncertainties and assumptions, the future events and trends discussed in this Quarterly Report may not occur and actual results could differ materially and adversely from those anticipated or implied in the forward-looking statements.
Factors that may cause actual results to differ from expected results include, among others:
15
Forward-looking statements are only current predictions and are subject to known and unknown risks, uncertainties, and other factors that may cause our actual results, levels of activity, performance, or achievements to be materially different from those anticipated by such statements. These factors include, among other factors, those set forth in our Annual Report on Form 10-K for the fiscal year ended December 31, 2016, under the heading Part I, Item 1A, "Risk Factors".
You should not rely upon forward-looking statements as predictions of future events. The events and circumstances reflected in the forward-looking statements may not be achieved or occur. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance, or achievements. We are under no duty to, and we disclaim any obligation to, update any of these forward- looking statements after the date of this Quarterly Report or to conform these statements to actual results or revised expectations.
We are a leading technology company providing cloud-based platforms empowering a data-driven transformation from volume-based to value-based models throughout the healthcare industry. Leveraging large-scale data interconnectivity capabilities, large proprietary data sets, advanced analytics, data-driven intervention systems, and deep subject matter expertise, we enable the assessment and improvement of clinical and quality outcomes and financial performance across the healthcare ecosystem. From health plans and provider organizations, to pharmaceutical, medical device, and diagnostics companies, our unique achievement of value is delivered through the effective progression of Turning Data into Insight and Insight into Action®. Providing technology that supports nearly 500 healthcare organizations, Inovalon's platforms are informed by data pertaining to more than 856,000 physicians, 375,000 clinical facilities, and more than 158 million individuals. Currently, our clients include health plans, hospitals, physicians, patients, pharmaceutical companies and researchers.
Our large proprietary datasets, advanced integration technologies, sophisticated predictive analytics, data-driven intervention platforms, and deep subject matter expertise deliver a seamless, end-to-end capability that brings the benefits of big data and large-scale analytics to the point of care. Driven by data, our data analytics platforms uniquely identify gaps in care, quality, data integrity, and financial performancewhile bringing to bear the unique capabilities to resolve them. Providing technology that supports hundreds of healthcare organizations in 98.8% of all U.S. counties and Puerto Rico, Inovalon's cloud-based analytical and data-driven intervention platforms are informed by data pertaining to more than 856,000 physicians, 375,000 clinical facilities, and more than 158 million individuals. Through these capabilities, Inovalon is able to drive high-value impact, improving quality and economics for health plans, ACOs, hospitals, physicians, consumers and pharma/life-sciences researchers.
We generate the substantial majority of our revenue through the sale or subscription licensing of our cloud-based data analytics, intervention and reporting platforms and related support services.
Share Repurchase Program Authorization
On May 4, 2016, we announced that our Board of Directors authorized a program to repurchase up to $100 million of Inovalon's Class A common stock through December 31, 2016. Repurchases
16
under the Company's share repurchase program have been made in open-market or privately negotiated transactions in compliance with Rule 10b-18 of the Exchange Act, subject to market conditions, applicable legal requirements, and other relevant factors. On November 2, 2016, we announced that our Board of Directors authorized an expansion of the share repurchase program to repurchase up to an additional $100 million of shares of Inovalon's Class A common stock (bringing the total to $200 million) through December 31, 2017. As of March 31, 2017, the Company had repurchased an aggregate of 9,650,386 Class A common stock shares for approximately $131.6 million or an average of $13.64 per share. The share repurchase program does not obligate us to acquire any particular amount of Class A common stock.
We review certain metrics quarterly, including the key metrics shown in the table below. We believe that these metrics are indicative of our overall level of analytical activity and the underlying growth in our business.
|
As of March 31, | ||||||
---|---|---|---|---|---|---|---|
|
2017 | 2016 | |||||
|
(in thousands)
|
||||||
MORE 2 Registry® dataset metrics(1) |
|||||||
Unique patient count(2) |
158,482 | 132,361 | |||||
Medical event count(3) |
14,016,628 | 11,300,216 | |||||
Trailing 12 month Patient Analytics Months (PAM)(1)(4) |
28,303,430 | 22,125,006 |
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Trends and Factors Affecting Our Future Performance
A number of factors influence our growth and performance. We see many of these factors as being more quantitatively driven, such as the rate of growth of the underlying data counts within our datasets, the ongoing investment in innovation, the number of statement of work contracts maintained by us, and our level of analytical activity. Additionally, there are several factors that influence our growth and performance that are less quantitatively driven, including seasonality, macro-economic forces, and trends within healthcare (such as payment models, incentivization, and regulatory oversight), that can be driven by changes in federal and state laws and regulations, as well as private sector market forces.
Growth of Datasets. Healthcare costs in the United States have been increasing significantly for many years. This rise in healthcare costs has driven a broad transition from consumption-based payment models to quality and value-based payment models across the healthcare landscape. As a result, the specific disease and comorbidity status, clinical and quality outcomes, resource utilization, and care details of the individual patient have become increasingly relevant to the various constituents across the healthcare delivery system. Concurrently, the count and complexity of diseases, diagnostics, and treatments as well as payment models and regulatory oversight requirements have soared. In this setting, granular data has become critical to determining and improving quality and financial performance in healthcare. Our MORE 2 Registry® is our largest principal dataset and serves as a proxy for our general growth of datasets within Inovalon. The growth of our datasets that inform our analytical capabilities and comparative analytics is a key aspect of our provision of value to our clients and is indicative of our overall growth and capabilities.
Innovation and Platform Development. Our business model is based upon our ability to deliver value to our clients through the combination of advanced, cloud-based data analytics and data-driven intervention platforms focused on the achievement of meaningful and measureable improvements in clinical quality outcomes and financial performance in healthcare. Our ability to deliver this value is dependent in part on our ability to continue to innovate, design new capabilities, and bring these capabilities to market in an enterprise scale. Our continued ability to innovate our platform and bring differentiated capabilities to market is an important aspect of our business success. Our investment in innovation includes costs for research and development, capitalized software development, and capital
18
expenditures related to hardware and software platforms on which our data analytics and data-driven interventions capabilities are deployed as summarized below (in thousands, except percentages).
|
Three Months Ended
March 31, |
||||||
---|---|---|---|---|---|---|---|
|
2017 | 2016 | |||||
Investment in Innovation: |
|||||||
Research and development(1) |
$ | 7,788 | $ | 5,932 | |||
Capitalized software development(2) |
6,140 | 5,300 | |||||
Research and development infrastructure investments(3) |
3,758 | 379 | |||||
| | | | | | | |
Total investment in innovation |
$ | 17,686 | $ | 11,611 | |||
| | | | | | | |
| | | | | | | |
| | | | | | | |
As a percentage of revenue |
|||||||
Research and development(1) |
7 | % | 6 | % | |||
Capitalized software development(2) |
6 | % | 5 | % | |||
Research and development infrastructure investments(3) |
3 | % | | % | |||
| | | | | | | |
Total investment in innovation |
16 | % | 11 | % | |||
| | | | | | | |
| | | | | | | |
| | | | | | | |
Data Analytics and Data-Driven Intervention Mix. Our business and operational models are highly scalable and leverage variable costs to support revenue generating activities. Our data analytic service costs are less variable in nature and require lower incremental capital expenditures. As a result, following initial development and deployment investments, our big data analytics platform and data technology capabilities allow us to process significant volumes of transactions with lower incremental costs. Conversely, our data- driven intervention costs are generally variable in nature and require incremental costs to generate additional revenue. As a result, the mix of our data analytics and data interventions activities affects our financial performance.
Client and Analytical Process Count Growth. Our business is generally driven by the number of underlying patients for which our analytics and data-driven intervention platforms are being utilized. As such, we track the number of analytical processes that we run on patients each month in fulfillment of our client contracts, as totaled for the trailing 12 months. This metric is referred to as the Trailing 12 month Patient Analytical Months, or PAM. We believe that PAM is indicative of our overall level of analytical activity, and we expect our period-to-period comparisons of our PAM to be indicative of underlying growth of our business, although changes in levels of analytical activity do not always directly translate to changes in financial performance of our business. Differences in fees charged for different analytical packages exist and differences in how analytics trigger the applicability of our data-driven intervention platforms may result in increases in analytical activity that do not result in proportional increases in revenue, or net income (and vice versa). Therefore, in situations in which a new engagement is initiated for analytical processes that have a higher than average fee rate, revenue could expand disproportionately faster than the increase in PAM. Likewise, if engagements for analytical processes that have a higher than average fee rate are concluded then such conclusions can negatively affect revenue disproportionately more than PAM.
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Seasonality. The nature of our customers' end-market results in seasonality reflected in both revenue and cost of revenue differences during the year. Regulatory impact of data submission deadlines in, for example, March, June, September, and January drive predictable timing of analytics and data processing activity variances from quarter to quarter. Further, regulatory clinical encounter deadlines of June 30th and December 31st drive predictable intervention concentrations variances from quarter to quarter. The timing of these factors results in analytical and intervention activity mix variances which predictably impact financial performance from quarter to quarter. Finally, quarter to quarter financial performance may increasingly vary from historical seasonal trends as we further expand into adjacent markets and increase the portion of our revenue generated from new offerings.
Regulatory, Economic and Industry Trends. Our clients are affected, sometimes directly, and sometimes counter-intuitively, by macro- economic trends such as economic growth (or economic recession), inflation, and unemployment. Further, industry trends in federal and state laws and regulations, as well as emerging trends in private sector payment models, affect our clients' businesses and their need for technologies and services to support these challenges. These factors have various effects on our business, and on occasion have resulted in the slowing or cessation of the decision-making process by clients adopting our technologies and services. On the other hand, changes in macro-economic trends and the industry landscape have accelerated the need for our technologies and services from time-to-time, particularly as regulators introduce complex requirements with which our clients must comply.
Shift to Fully Automated Data-Driven Intervention Platform Services. We view the decreased proportion of revenue derived from partially automated data-driven intervention platform services as a positive reflection of our cloud-based interconnectivity and automation capabilities. The proportion of our revenue derived from pure data analytics and fully automated data-driven intervention platform services revenue is expected to continue to expand over time as a percentage of total revenue as a result of our continued expansion of our cloud-based interconnectivity technologies and the continued expansion of interconnectivity within the healthcare landscape. In order to drive value for our clients and serve them irrespective of their level of connectivity, we continue to provide cloud-based partially automated data-driven intervention platform services, converting the performance of such services to cloud-based fully automated data-driven intervention platform services wherever possible. As the healthcare infrastructure becomes more interconnected and our integration and interconnectivity technologies continue to expand, we believe that we will be able to achieve more rapid implementation, and greater value impact, at more efficient costs.
Critical Accounting Policies
Our discussion and analysis of our financial condition and results of operations are based on our unaudited condensed consolidated financial statements, which have been prepared in accordance with GAAP. In connection with the preparation of our unaudited condensed consolidated financial statements, we are required to make assumptions and estimates about future events, and apply judgments that affect the reported amounts of assets and liabilities, the disclosures of contingent assets and liabilities as of the date of the financial statements, and the reported amounts of revenues and expenses during the reporting periods. We base our assumptions, estimates, and judgments on historical experience, current trends, and other factors we believe to be relevant at the time we prepare our unaudited condensed consolidated financial statements. The accounting estimates used in the preparation of our unaudited condensed consolidated financial statements will change as new events occur, as more experience is acquired, as additional information is obtained, and as our operating environment changes. On a regular basis, we review the accounting policies, assumptions, and evaluate and update our assumptions, estimates, and judgments to ensure that our unaudited condensed consolidated financial statements are presented fairly and in accordance with GAAP. However, because
20
future events and their effects cannot be determined with certainty, actual results could differ from our assumptions and estimates, and such differences could be material.
Critical accounting policies are those policies that affect our more significant judgments and estimates used in the preparation of our unaudited condensed consolidated financial statements. For a more detailed discussion of our critical accounting policies, please refer to our Annual Report on Form 10-K for the fiscal year ended December 31, 2016, filed with the SEC on February 23, 2017.
Components of Results of Operations
Revenue
We earn revenue primarily through the sale or subscription licensing of our cloud-based data analytics, data-driven intervention platform services, our advisory services and business intelligence solutions, and through the sale of perpetual licenses and peripheral services related to our specialty pharmacy software platform.
Our cloud-based data analytics services are performed either at the beginning of a data-driven intervention process, which typically aligns with regulatory submission deadlines, or on a monthly basis, depending on the particular client's needs. Cloud-based data analytics revenue is driven primarily by the number of identified gaps in care, quality, data integrity, and financial performance identified in a client's dataset, the number of unique patients in a client's dataset, a minimum data analytics processing fee, and a contractually negotiated transactional price for each identified gap or unique patient. Subscription licensing revenue is driven primarily by the number of clients, the number of unique patients in a client's population dataset, the number of analytical services contracted for by a client, and the contractually negotiated price of such services.
Cloud-based data-driven intervention platform service revenue represents revenue that is generated from fully automated processes (i.e., those processes that require no material variable-based labor components) and partially automated processes (i.e., those processes that require a degree of variable-based labor components). As many of our analytical capabilities are designed to identify gaps in care, quality, utilization, compliance, and/or other gaps that may impact our clients' achievement of greater healthcare quality and financial performance, our cloud-based data driven intervention platform services revenue is driven primarily by the results of our cloud-based data analytics processes and our clients' desire to utilize our cloud-based data-driven intervention platforms to resolve such identified gaps. Informed by our analytics, our cloud-based data-driven intervention platforms are designed to enable the resolution of specific gaps through the aggregation of specific data or achievement of specific impact. Revenue from our intervention platform utilization is generally driven by the quantity and type of completed interventions enabled by our platform, and a contractually negotiated transactional price for each such intervention.
Advisory service and business intelligence solutions revenue represents revenue that is generated from strategic advisory, analysis and educational services. Revenue from our advisory services arrangements is generally provided under time and materials, fixed-price, or retainer-based contracts, based on contractually negotiated prices for each such arrangement.
Revenue on perpetual license fees and peripheral services derived from our specialty pharmacy software platform represent software licensing and fulfilment of obligations for peripheral service events following the delivery of the software.
Cost of Revenue
Cost of revenue consists primarily of expenses for employees who provide direct contractual services to our clients, including salaries, benefits, discretionary incentive compensation, employment taxes, severance, and equity compensation costs. Cost of revenue also includes expenses associated with
21
the integration, and verification of data and other service costs incurred to fulfill our revenue contracts. Cost of revenue does not include allocated amounts for occupancy expense and depreciation and amortization. Many of the elements of our cost of revenue are relatively variable and semi-variable, and can be reduced in the near-term to help offset any decline in our revenue.
Our business and operational models are designed to be highly scalable and leverage variable costs to support revenue generating activities. While we expect to grow our headcount over time to capitalize on our market opportunities, we believe our increased investment in automation, electronic health record integration capabilities, and economies of scale in our operating model, will position us to grow our cloud-based data analytics and cloud-based data-driven intervention platform services revenue at a greater rate than our cost of revenue, over time, excluding the impact of stock-based compensation expense.
Sales and Marketing
Sales and marketing expense consists primarily of employee-related expenses, including salaries, benefits, commissions, discretionary incentive compensation, employment taxes, severance, and equity compensation costs for our employees engaged in sales, sales support, business development, and marketing. Sales and marketing expense also includes operating expenses for marketing programs, research, trade shows and brand messages, and public relations costs. Our sales and marketing expense excludes any allocation of occupancy expense and depreciation and amortization.
We expect our sales and marketing expenses to increase as we strategically invest to expand our business. We expect to hire additional sales personnel and related support personnel to capture an increasing amount of our market opportunity. As we scale our sales and marketing activities in the short to medium term, we expect these expenses to increase in both absolute dollars and as a percentage of revenue.
Research and Development
Research and development expense (one component of our investment in innovation) consists primarily of employee-related expenses, including salaries, benefits, discretionary incentive compensation, employment taxes, severance, and equity compensation costs for our software developers, engineers, analysts, project managers, and other employees engaged in the development and enhancement of our service offerings. Research and development expense also includes certain third party consulting fees. Our research and development expense excludes any allocation of occupancy expense and depreciation and amortization.
We expect to continue our focus on developing new product offerings and enhancing our existing product offerings. As a result, we expect our research and development expense to increase in absolute dollars, although it may vary from period to period as a percentage of revenue.
General and Administrative
Our general and administrative expense consists primarily of employee-related expenses including salaries, benefits, discretionary incentive compensation, employment taxes, severance, and equity compensation costs, for employees who are responsible for management information systems, administration, human resources, finance, legal, and executive management. General and administrative expense also includes occupancy expenses (including rent, utilities, communications, and facilities maintenance), professional fees, consulting fees, insurance, travel, and other expenses. Our general and administrative expense excludes depreciation and amortization.
22
While we expect our general and administrative expense to increase in absolute dollars as we expand our business we also expect general and administrative expense, as a percentage of revenue, to decrease, as compared to the year ended December 31, 2016, for the foreseeable future.
Depreciation and Amortization Expense
Our depreciation and amortization expense consists primarily of depreciation of fixed assets, amortization of capitalized software development costs, and amortization of acquisition-related intangible assets.
We expect our depreciation and amortization expense to increase as we expand our business organically and through acquisitions.
Realized Gains (Losses) on Short-term Investments
Realized gains (losses) on short-term investments consist of gains and losses realized upon the sale of certain of the Company's available-for-sale securities, prior to their maturity. The gains and losses were incurred as the value of the available-for-sale securities declined from the date of purchase to the date of sale.
We expect to incur realized gains or losses to the extent the available-for-sale securities are sold prior to their maturity. From time to time we may sell our available-for-sale securities prior to their maturity to generate cash needed to fund strategic initiatives including acquisitions and our share repurchase program.
Gain on Disposal of Equipment
Gain on disposal of equipment consists of proceeds received for the disposition of equipment that were greater than the equipment's depreciated book value.
We expect to recognize gains or on disposal of equipment to the extent that proceeds received upon disposal are greater than the carrying value of the underlying equipment, otherwise loss on disposal of equipment could be incurred.
Interest Income
Interest income represents interest earned from our available-for-sale short-term investments.
We expect our interest income to fluctuate in proportion to the amount of funds we invest, according to our corporate investment policy, in available-for-sale short-term investments and considering prevailing available interest rate yields on such investment grade debt securities.
Interest Expense
Interest expense represents interest incurred on our Credit Facilities (as defined below, under the heading "Liquidity and Capital ResourcesDebt").
We expect our interest expense to fluctuate in proportion to the outstanding principal balance of the Credit Facilities and the prevailing LIBOR interest rate.
Provision for Income Taxes
Provision for income taxes consists of federal and state income taxes in the United States and foreign income taxes from the territory of Puerto Rico, including deferred income taxes reflecting the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes, and excess tax benefits or deficiencies derived from exercises of stock options and vesting of restricted stock.
We expect that in the near-term our effective tax rate may fluctuate due to the recognition of excess tax benefits and tax deficiencies associated with adopting ASU 2016-09, "Compensation-Stock
23
Compensation
(Topic 718): Improvements to Employee Share-Based Payment Accounting", ("ASU
2016-09"). Excluding discrete items impacting the effective tax rate, we are expecting our long-term tax rate to reflect the applicable statutory rates.
The following table sets forth our consolidated statement of operations data for each of the periods presented (in thousands, except percentages):
24
The following table sets forth our consolidated statement of operations data for each of the periods presented as a percentage of revenue:
|
Three Months
Ended March 31, |
||||||
---|---|---|---|---|---|---|---|
|
2017 | 2016 | |||||
Revenue |
100 | % | 100 | % | |||
Expenses: |
|||||||
Cost of revenue |
35 | % | 41 | % | |||
Sales and marketing |
7 | % | 6 | % | |||
Research and development |
7 | % | 6 | % | |||
General and administrative |
33 | % | 36 | % | |||
Depreciation and amortization |
12 | % | 8 | % | |||
| | | | | | | |
Total operating expenses |
94 | % | 97 | % | |||
| | | | | | | |
Income from operations |
6 | % | 3 | % | |||
| | | | | | | |
Other income and (expenses): |
|||||||
Realized losses on short-term investments |
| % | * | % | |||
Gain on disposal of equipment |
| % | 1 | % | |||
Interest income |
1 | % | 1 | % | |||
Interest expense |
(1 | )% | (1 | )% | |||
| | | | | | | |
Income before taxes |
6 | % | 4 | % | |||
Provision for income taxes |
2 | % | 2 | % | |||
| | | | | | | |
Net income |
4 | % | 2 | % | |||
| | | | | | | |
| | | | | | | |
| | | | | | | |
Comparison of the Three Months Ended March 31, 2017 and 2016
Revenue
Revenue during the three months ended March 31, 2017 increased by approximately $5.6 million, compared with the three months ended March 31, 2016. The increase was primarily attributable to revenue from new and existing clients of approximately $8.7 million offset by a net decrease of approximately $3.1 million in revenue from existing clients.
Cost of Revenue
During the three months ended March 31, 2017, cost of revenue decreased by approximately $3.6 million, or 9%, compared with the three months ended March 31, 2016. The $3.6 million decrease in cost of revenue was primarily due to technology-enabled product platform efficiency initiatives and the composition of a greater volume of data-driven analytics as a percentage of revenue. Cost of revenue as a percentage of revenue was 35% and 41% for the three months ended March 31, 2017 and 2016, respectively.
Sales and Marketing
During the three months ended March 31, 2017, sales and marketing expenses increased by approximately $1.0 million, or 16%, compared with the three months ended March 31, 2016. The increase was primarily attributable to our investment in the growth of our sales team, related sales infrastructure tools, and marketing programs. The growth of our sales and marketing team was driven by our investment in new sales personnel to focus on adding new clients and capturing an increased amount of the market opportunity.
Research and Development
During the three months ended March 31, 2017, research and development expense increased by approximately $1.9 million, or 31%, compared with the three months ended March 31, 2016. The
25
increase was primarily attributable to growth in employee-related expenses necessary to support our on-going investment in innovation and platform development compared to the prior period.
General and Administrative
During the three months ended March 31, 2017, general and administrative expenses decreased by approximately $0.7 million, or 2%, compared with the three months ended March 31, 2016. General and administrative expenses for the three months ended March 31, 2017 decreased approximately $2.5 million primarily as a result of a decline in employee-related expenses attributable to the Company's initiative to streamline administrative infrastructure and was partially offset by incremental expenses of $1.8 million attributable to the acquisition of Creehan.
Depreciation and Amortization
During the three months ended March 31, 2017, depreciation and amortization expense increased by approximately $4.1 million, or 49%, compared with the three months ended March 31, 2016. The increase is primarily attributable to approximately $2.1 million of incremental amortization of capitalized software, and $2.0 million of amortization of intangible assets related to the acquisition of Creehan, as compared with the three months ended March 31, 2016.
Gain on Disposal of Equipment
During the three months ended March 31, 2017, there were no equipment disposals.
During the three months ended March 31, 2016, we replaced certain data-center equipment. The replacement of the equipment was covered under our insurance and the cost of our replacement equipment was reimbursed by our insurance carrier. As a result, the disposal and replacement of the equipment resulted in a gain of $0.5 million during the three months ended March 31, 2016.
Interest Income
During the three months ended March 31, 2017, interest income decreased by approximately $0.1 million, compared with the three months ended March 31, 2016. A portion of our available-for-sale short-term investments have been used to fund strategic initiatives such as the acquisition of Creehan and the share repurchase program. The decrease in our interest income is attributable to the decline in the overall value of our available-for-sale short term investment portfolios that resulted in a decrease in earnings derived from our available-for-sale short-term investments.
Interest Expense
During the three months ended March 31, 2017, interest expense increased by approximately $0.2 million, compared with the three months ended March 31, 2016, respectively. The increase in interest expense was attributable to an increase in interest rate on our Term Loan Facility (as defined below under the heading "Liquidity and Capital ResourcesDebt") which is variable and fluctuates alongside changes to LIBOR.
Provision for Income Taxes
During the three months ended March 31, 2017, provision for income taxes increased by approximately $1.0 million, or 59%, compared to the three months ended March 31, 2016. Our statutory tax rate for the three months ended March 31, 2017 was approximately 39%, exclusive of $0.2 million of excess tax shortfalls related to equity events that occurred during the three months ended March 31, 2017, as compared to approximately 41% for the three months ended March 31, 2016. Our effective tax rate for the three months ended March 31, 2017, including $0.2 million of excess tax shortfalls related to equity events that occurred during the three months ended March 31, 2017,was approximately 41%, as compared to approximately 41% for the three months ended March 31, 2016.
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Liquidity and Capital Resources
Sources of Liquidity
Our principal source of liquidity has been cash generated by operating activities, proceeds from our initial public offering and proceeds from our Credit Facilities. Our cash generated from such means has been sufficient to fund our growth, including our capital expenditures. As of March 31, 2017, our cash, cash equivalents and short-term investments totaled $533.3 million, of which $385.4 million represented short-term, available-for-sale, investment grade, domestic debt-securities, compared to $738.5 million of cash, cash equivalents, and short-term investments as of March 31, 2016, of which $611.6 million represented short-term, available-for-sale, investment grade, domestic debt-securities.
We believe our current cash, cash equivalents, and short-term investments balance, expected cash generated by operating activities and availability of cash under our Credit Facilities are sufficient to fund our operations, finance our strategic initiatives, fund our investment in innovation and new service offerings, and fund our share repurchase program, for the foreseeable future. There can be no assurance that we will continue to generate cash flows at or above current levels or that we will be able to maintain our ability to borrow under our Credit Facilities.
Debt
On September 19, 2014, we entered into a Credit and Guaranty Agreement with a group of lenders including Goldman Sachs Bank USA, as administrative agent (the "Credit Agreement"). The terms of the Credit Agreement provide-for credit facilities in the aggregate maximum principal amount of $400.0 million, consisting of a senior unsecured term loan facility in the original principal amount of $300.0 million (the "Term Loan Facility") and a senior unsecured revolving credit facility in the maximum principal amount of $100.0 million (the "Revolving Credit Facility" and, together with the Term Loan Facility, the "Credit Facilities"). As of March 31, 2017, we had outstanding indebtedness under the Term Loan Facility and capital lease obligations of approximately $258.8 million and approximately $0.3 million, respectively, and had outstanding indebtedness under our Term Loan Facility and capital lease obligations of approximately $277.5 million and approximately $0.4 million, respectively, as of March 31, 2016. No amounts were outstanding under the Revolving Credit Facility as of March 31, 2017 or March 31, 2016. The Term Loan Facility has a five-year term and is an amortizing facility with principal payments quarterly and interest payments monthly. Scheduled principal payments totaling $7.5 million and scheduled interest payments totaling approximately $1.4 million were paid during the three months ended March 31, 2017. As of March 31, 2017, we were in compliance with the covenants under the Credit Agreement.
Cash Flows
Operating Cash Flow Activities
Cash provided by operating activities during the three months ended March 31, 2017 was approximately $2.3 million, representing a decrease in cash inflow of approximately $12.0 million compared with the three months ended March 31, 2016. Cash provided by operating activities was driven by net income of approximately $3.6 million, as adjusted for the exclusion of non-cash expenses totaling approximately $16.6 million, and offset by approximately $17.9 million related to the effect of changes in working capital and other balance sheet accounts.
Investing Cash Flow Activities
Cash provided by investing activities during the three months ended March 31, 2016 was approximately $51.0 million compared with cash used in investing activities of approximately $2.2 million during the three months ended March 31, 2016. The cash provided by investing activities was primarily due to proceeds generated from sales and maturities of available-for-sale securities, net
27
of purchases, of approximately $59.6 million and was partially offset by approximately $8.6 million of investments in property and equipment and capitalized software.
We make investments in innovation, including research and development expense, capital software development costs, and research and development infrastructure investments, on a recurring basis. We expect our investment in innovation to increase in the foreseeable future to support our continued growth and new service offerings.
Financing Cash Flow Activities
Cash used in financing activities during the three months ended March 31, 2017 was approximately $33.2 million, compared with cash provided by financing activities of approximately $0.8 million during the three months ended March 31, 2016. The cash used in financing activities during the three months ended March 31, 2017 was primarily comprised of approximately $25.4 million related to share repurchases, approximately $7.5 million for the repayment of Credit Facility borrowings.
We have funded and expect to continue to fund repurchases of shares of Class A common stock under our share repurchase program through a combination of cash on hand, cash generated by operations and sales of short-term investments, if needed. During the three months ended March 31, 2017, the Company repurchased an aggregate of 2,141,401 shares of Class A common stock for approximately $25,383 or an average purchase price of $11.85 per share, excluding commissions. As of March 31, 2017, the Company had repurchased an aggregate of 9,650,386 shares of Class A common stock for approximately $131.6 million or an average of $13.64 per share, excluding commissions. As of March 31, 2017, approximately $68.4 million remained available to repurchase shares under the share repurchase program. The share repurchase program does not obligate us to acquire any particular amount of Class A common stock.
Contractual Obligations
During the three months ended March 31, 2017, there have been no material changes, outside of the ordinary course of business, in our contractual obligations previously disclosed under the caption "Contractual Obligations" in our Annual Report on Form 10-K for the year ended December 31, 2016 filed with the SEC on February 23, 2017.
Off-Balance Sheet Arrangements
As of March 31, 2017, we did not have any off-balance sheet arrangements.
Recently Issued Accounting Standards
Recently issued accounting standards and their expected impact, if any, are discussed in Note 1, "Basis of Presentation", in the notes to our unaudited condensed consolidated financial statements, included under Item 1 within this Quarterly Report on Form 10-Q and in Note 2, "Summary of Significant Accounting Policies," in the notes to our consolidated financial statements, included under Item 15 within our Annual Report on Form 10-K for the year ended December 31, 2016, filed with the SEC on February 23, 2017.
Item 3.
Quantitative and Qualitative Disclosures About Market Risk
Variable Rate Debt Risk. Our variable rate debt includes our Term Loan Facility and our Revolving Credit Facility. As of March 31, 2017, we had $258.8 million outstanding under our Term Loan Facility at an effective interest rate of approximately 2.2%. As a result, if market interest rates were to increase by 1.0%, or 100 basis points, interest expense would decrease future earnings and cash flows, net of estimated tax benefits, by approximately $1.6 million annually, assuming that we do not enter into contractual hedging arrangements. As of March 31, 2017, there was no balance outstanding on the Revolving Credit Facility.
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Marketable Securities Risk. We had short-term investment portfolios, including cash held in money market funds, totaling approximately $471.0 million as of March 31, 2017. This amount was invested primarily in marketable securities including corporate notes and bonds, U.S. agency obligations, commercial paper, U.S. treasury securities, certificates of deposit and money market funds. Our investments are made for capital preservation purposes. We do not enter into investments for trading or speculative purposes.
Our short-term investments are subject to market risk due to changes in interest rates, which could affect our results of operations. Fixed rate securities may have their market value adversely affected due to a rise in interest rates, while floating rate securities may produce less income than expected if interest rates fall. Due in part to these factors, our future investment income may fluctuate due to changes in interest rates or we may suffer losses in principal if we are forced to sell securities that decline in market value due to changes in interest rates. However because we classify our marketable securities as "available-for-sale," no gains or losses are recognized due to changes in interest rates unless such securities are sold prior to maturity or declines in fair value are determined to be other-than-temporary.
An immediate increase of 100-basis points in interest rates would have resulted in an approximate $1.5 million market value reduction in our investment portfolio as of March 31, 2017. An immediate decrease of 100-basis points in interest rates would have increased the market value by approximately $5.7 million as of March 31, 2017. This estimate is based on a sensitivity model that measures market value changes when changes in interest rates occur. Fluctuations in the value of our investment securities caused by a change in interest rates (gains or losses on the carrying value) are recorded in accumulated other comprehensive income (loss), and are realized only if we sell the underlying securities prior to their maturity.
Item 4.
Controls and Procedures
Disclosure Controls and Procedures
Our management, with the participation of our chief executive officer ("CEO") and chief financial officer ("CFO"), has evaluated the effectiveness of our disclosure controls and procedures, (as defined in Rules 13a- 15(e) and 15d- 15(e) under the Exchange Act), as of the end of the period covered by this Quarterly Report on Form 10-Q. Based on such evaluation, our CEO and CFO have concluded that, as of March 31, 2017, our disclosure controls and procedures were designed at a reasonable assurance level to ensure that material information relating to Inovalon Holdings, Inc., including its consolidated subsidiaries, is made known to our CEO and CFO by others within those entities, particularly during the period in which this report was being prepared and that our disclosure controls and procedures were effective in providing reasonable assurance that information we are required to disclose in reports that we file or submit under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in the rules and forms of the SEC, and that such information is accumulated and communicated to our management, including our CEO and CFO, as appropriate, to allow timely decisions regarding required disclosure.
Changes in Internal Control
There have been no changes in the Company's internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) of the Exchange Act) during the three months ended March 31, 2017 that have materially affected, or are reasonably likely to materially affect, the Company's internal control over financial reporting.
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See "Note 5Commitments and Contingencies" in the Notes to our unaudited condensed consolidated financial statements included under Part I, Item 1 within this Quarterly Report on Form 10-Q.
For a discussion of potential risks and uncertainties related to our Company see the information in Part I, Item 1A ("Risk Factors") of our Annual Report on Form 10-K for the year ended December 31, 2016. There have been no material changes to the risk factors previously disclosed in our Annual Report on Form 10-K for the year ended December 31, 2016.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Unregistered Sales of Equity Securities
None.
Use of Proceeds from Registered Securities
On February 18, 2015, we completed our 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 us as none of our 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 us, after underwriters' discounts and commissions and other expenses payable by us, of $639.1 million. All of the shares were sold pursuant to our registration statement on Form S-1, as amended (File No. 333-201321), that was declared effective by the SEC on February 11, 2015. Goldman, Sachs & Co., Morgan Stanley & Co. LLC, and Citigroup Global Markets Inc. acted as joint book-running managers for the IPO and as representatives of the underwriters. The principal purposes of our IPO were to create a public market for our Class A common stock and thereby enable future access to the public equity markets by us and our stockholders, and obtain additional capital. On September 1, 2015, we used approximately $126.2 million of the net proceeds from the IPO to complete the acquisition of Avalere Health, Inc. On October 1, 2016, we committed $120.0 million as partial consideration for our acquisition of Creehan. Through March 31, 2017, in aggregate, we have used approximately $131.6 million of the net proceeds from the IPO to repurchase outstanding Class A common shares under our share repurchase program. We intend to use the remaining net proceeds to us from our IPO for working capital and other general corporate purposes; other than funding the share repurchase program, we do not currently have any specific uses of the remaining net proceeds. Additionally, we may use a portion of the remaining net proceeds for additional acquisitions of complementary businesses, technologies, or other assets, or to repay outstanding indebtedness.
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Purchases of Equity Securities by the Issuer or Affiliated Purchasers
The following table presents a summary of share repurchases made by the Company during the quarter ended March 31, 2017:
Period
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Total Number of
Shares Purchased |
Average Price
Paid per Share |
Total Number of Shares
Purchased as Part of Publicly Announced Plans or Programs |
Maximum Number of Shares (or
approximate dollar value) that May Yet be Purchased under the Plans or Programs(2) |
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January |
151,905 | $ | 10.70 | 151,905 | $ | 92,143,475 | |||||||
February |
175,323 | 11.81 | 175,323 | $ | 90,072,831 | ||||||||
March |
1,830,745 | (1) | 11.95 | 1,814,173 | $ | 68,385,510 | |||||||
| | | | | | | | | | | | | |
Total |
2,157,973 | $ | 11.86 | 2,141,401 | $ | 68,385,510 | |||||||
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| | | | | | | | | | | | | |
Item 3. Defaults Upon Senior Securities
Not applicable.
Item 4. Mine Safety Disclosures
Not applicable.
None.
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Exhibit
Number |
Description of Document | ||
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10.1 | * | Form of Long-Term Incentive Restricted Stock Bonus Award. | |
31.1 | * | Certification of Chief Executive Officer pursuant to Rule 13a-14(a)/15d-14(a) of the Securities Exchange Act of 1934, as amended, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. | |
31.2 | * | Certification of Chief Financial Officer pursuant to Rule 13a-14(a)/15d-14(a) of the Securities Exchange Act of 1934, as amended, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. | |
32.1 | ** | Certification of Chief Executive Officer pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. | |
32.2 | ** | Certification of Chief Financial Officer pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. | |
101.INS | * | XBRL Instance Document | |
101.SCH | * | XBRL Taxonomy Extension Schema | |
101.CAL | * | XBRL Taxonomy Extension Calculation Linkbase | |
101.DEF | * | XBRL Taxonomy Extension Definition Linkbase | |
101.LAB | * | XBRL Taxonomy Extension Label Linkbase | |
101.PRE | * | XBRL Taxonomy Extension Presentation Linkbase |
32
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
Date: May 4, 2017 |
INOVALON HOLDINGS, INC. | |||
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By: |
/s/ KEITH R. DUNLEAVY, M.D.
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By: |
/s/ CHRISTOPHER E. GREINER
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Exhibit 10.1
INOVALON HOLDINGS, INC.
2015 OMNIBUS INCENTIVE PLAN
NOTICE OF LONG-TERM INCENTIVE RESTRICTED STOCK BONUS AWARD
You (Grantee) have been granted shares of Common Stock of the Company (the Award), subject to the terms and conditions of this Notice of Long-Term Incentive Restricted Stock Bonus Award (the Notice), the Inovalon Holdings, Inc. 2015 Omnibus Incentive Plan (the Plan), as amended from time to time, and the Long-Term Incentive Restricted Stock Bonus Award Agreement (the Agreement) attached to this Notice. Unless otherwise defined in this Notice, capitalized terms will have the same meaning as given to them in the Plan.
Date of Award |
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Vesting Date |
5 th Anniversary of Date of Award |
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Total Number of Shares of Common Stock Awarded (the Shares) |
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Vesting Schedule :
Service-Based Vesting: |
50% of the Award |
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Service and Performance-Based Vesting: |
50% of the Award |
Service-Based Vesting
Subject to Grantees Continuous Service through the Vesting Date, and other terms and conditions set forth in this Notice, the Plan and the Agreement, 50% of the Shares (rounding up for any fractional shares) will vest on the Vesting Date.
Service and Performance-Based Vesting
Revenue Goal : Subject to the terms and conditions set forth in this Notice, the Plan and the Agreement, if the Companys cumulative Revenue (defined below) over the period beginning January 1, 2017 and ending December 31, 2019 (the Performance Period) is at least equal to the Revenue Target (defined below), and Grantee remains in Continuous Service through the Vesting Date, 25% of the Shares will vest on the Vesting Date.
Adjusted EBITDA Goal : Subject to the terms and conditions set forth in this Notice, the Plan and the Agreement, if the Companys cumulative Adjusted EBITDA (defined below) over the Performance Period is at least equal to the Adjusted EBITDA Target (defined below), and the Grantee remains in Continuous Service through the Vesting Date, 25% of the Shares will vest on the Vesting Date.
Revenue For purposes of this Award, the term Revenue means, as determined by the Administrator, the Companys consolidated revenue, as reported in the Companys Form 10-K for the applicable fiscal year, excluding the impact of changes in accounting policies adopted by the Company, items that are either unusual or infrequent in nature, items not considered indicative of the Companys ongoing operational performance, and revenue that is not organic revenue (such as acquisition-related revenue exceeding 10% of the Companys consolidated revenue) or that is otherwise not consistent with the objectives of the Award. In addition, for purposes of this Award, Revenue includes revenue generated and realized from an acquired entity in the Companys consolidated financial statements over a twelve consecutive month period.
Revenue Target For purposes of this Award, the term Revenue Target means the sum of the annual Revenue targets established by the Administrator for each calendar year during the Performance Period. The Administrator will establish the Revenue target for a calendar year within the first 90 days of the year.
Adjusted EBITDA For purposes of this Award, the term Adjusted EBITDA means, as determined by the Administrator, the Companys consolidated earnings (net income) calculated in accordance with GAAP, adjusted for the impact of depreciation and amortization, realized losses on short-term investments, gain on disposal of equipment, interest expense, interest income, provision for income taxes, stock-based compensation, acquisition costs, tax on equity exercises, other non-comparable items, acquired Adjusted EBITDA and other items not considered indicative of the Companys ongoing operational performance or not consistent with the objectives of the Award.
Adjusted EBITDA Target For purposes of this Award, the term Adjusted EBITDA Target means the sum of the annual Adjusted EBITDA targets established by the Administrator for each calendar year during the Performance Period. The Administrator will establish the Adjusted EBITDA target for a calendar year within the first 90 days of the year.
All calculations of Revenue and Adjusted EBITDA with respect to the Award shall be made by the Administrator, and such calculations and resulting determinations shall be final and binding.
Notwithstanding the foregoing, in the event of a Corporate Transaction:
(a) if the Restricted Shares (as defined below) are Assumed or Replaced as part of the Corporate Transaction, (i) the Revenue and Adjusted EBITDA goals shall be deemed satisfied, with 100% of the Restricted Shares thereafter being subject solely
to the Service-Based Vesting terms described above, unless a portion of the transaction proceeds in the Corporate Transaction are subject to an earnout or similar performance-based contingency (an Earnout) and the Administrator determines that the remaining Revenue Target and Adjusted EBITDA Target can and should be aligned with, or otherwise correlated to, the performance contemplated by the Earnout, in which case vesting of the Restricted Shares shall remain subject to the Service and Performance-Based Vesting terms described above, but with the Revenue Target and Adjusted EBITDA Target adjusted by the Administrator before the consummation of the Corporate Transaction to align with or otherwise correlate to the performance contemplated by the Earnout, and (ii) 100% of the Restricted Shares will become fully vested immediately upon termination of Grantees Continuous Service if, within 12 months after the Corporate Transaction, the Continuous Service is terminated by the successor company or the Company without Cause or voluntarily by Grantee with Good Reason; and
(b) if the Restricted Shares are neither Assumed nor Replaced as part of the Corporate Transaction, 100% of the Restricted Shares will automatically become fully vested immediately prior to the specified effective date of the Corporate Transaction, provided that Grantees Continuous Service has not terminated prior to this date.
In addition, in the event of a Change of Control, 100% of the Restricted Shares will become fully vested immediately upon termination of Grantees Continuous Service if, within 12 months after the Change of Control, Grantees Continuous Service is terminated by the Company without Cause or voluntarily by Grantee with Good Reason.
For purposes of this Notice and the Agreement, the term vest will mean, with respect to any Shares, that the Shares are no longer subject to forfeiture to the Company. Shares that have not vested are deemed Restricted Shares.
During any authorized leave of absence, the vesting of the Restricted Shares as provided in this Notice will be suspended after the leave of absence exceeds a period of three (3) months. Vesting of the Restricted Shares will resume upon Grantees termination of the leave of absence and return to service to the Company or a Related Entity. The Vesting Schedule of the Restricted Shares will be extended by the length of the suspension.
Except as otherwise provided above, vesting will cease upon the date of termination of Grantees Continuous Service for any reason, including death or Disability. Additionally, the portions of the Restricted Shares that are subject to the Revenue and Adjusted EBITDA performance goals will vest only if the applicable performance goal is achieved. In the event Grantee terminates Continuous Service for any reason, including death or Disability, before the Vesting Date, any Restricted Shares held by Grantee immediately upon the termination of Grantees Continuous Service will be forfeited to the Company and the Company will thereafter be the legal and beneficial owner of the forfeited Restricted Shares and will have all rights and interest in or related to these Restricted Shares without further action by Grantee. In the event
the Revenue Target and/or Adjusted EBITDA Target is not achieved, the Restricted Shares subject to such target will be forfeited to the Company and the Company will thereafter be the legal and beneficial owner of the forfeited Restricted Shares and will have all rights and interest in or related to these Shares without further action by Grantee.
The forfeiture provisions set forth in this Notice as to Restricted Shares will apply to the new capital stock or other property (including cash paid other than as a regular cash dividend) received in exchange for the Shares in consummation of any transaction described in Section 11 of the Plan and this new capital stock and other property will be deemed Additional Securities (as defined in the Agreement) for purposes of the Agreement, but only to the extent the Shares, are at the time, covered by these forfeiture provisions. For purposes of this Award, regular cash dividends payable in connection with Restricted Shares that performance vests shall be held by the Company subject to the vesting of the underlying Shares of Restricted Shares.
The Award will be subject to the provisions of Section 11 of the Plan in the event of a Corporate Transaction or Change in Control. The Award will be subject to Section 10 of the Plan in the event of certain changes in capitalization.
GRANTEE ACKNOWLEDGES AND AGREES THAT THE SHARES WILL VEST, IF AT ALL, ONLY DURING THE PERIOD OF GRANTEES CONTINUOUS SERVICE (AND NOT DUE TO GRANTEES BEING HIRED, BEING GRANTED THIS AWARD OR ACQUIRING SHARES UNDER THIS NOTICE). GRANTEE FURTHER ACKNOWLEDGES AND AGREES THAT NOTHING IN THIS NOTICE, THE AGREEMENT, NOR THE PLAN, WILL CONFER UPON GRANTEE ANY RIGHT WITH RESPECT TO CONTINUATION OF GRANTEES CONTINUOUS SERVICE, NOR WILL IT INTERFERE IN ANY WAY WITH GRANTEES RIGHT OR THE COMPANYS RIGHT TO TERMINATE GRANTEES CONTINUOUS SERVICE AT ANY TIME, WITH OR WITHOUT CAUSE, AND WITH OR WITHOUT NOTICE. GRANTEE ACKNOWLEDGES THAT UNLESS GRANTEE HAS A WRITTEN EMPLOYMENT AGREEMENT WITH THE COMPANY OR A COMPANY RELATED ENTITY TO THE CONTRARY, GRANTEES EMPLOYMENT STATUS IS AT WILL.
As a condition to receiving the Shares, Grantee agrees to refrain from making an election pursuant to Section 83(b) of the Code with respect to the Shares (Section 83(b) Election).
Grantee acknowledges receipt of a copy of the Plan and the Agreement, represents that he or she is familiar with the terms and provisions of both, and hereby accepts the Award subject to all of the terms and provisions of this Notice, the Plan and the Agreement. Grantee has reviewed this Notice, the Agreement and the Plan in their entirety, has had an opportunity to obtain the advice of counsel prior to executing this Notice, and fully understands all provisions of this Notice, the Agreement and the Plan.
Grantee further acknowledges that, from time to time, the Company may be in a blackout period and/or subject to applicable federal securities laws that could subject Grantee to liability for engaging in any transaction involving the sale of the Companys Shares. Grantee further acknowledges and agrees that, prior to the sale of any Shares acquired under this Award,
it is Grantees responsibility, and not the Companys, to determine whether or not the sale of Shares will subject Grantee to liability under insider trading rules or other applicable federal securities laws.
The Company may, in its sole discretion, decide to deliver this Notice, the Agreement, the Plan and the Plan prospectus (collectively, the Plan Documents) by electronic means or request Grantees consent to participate in the Plan by electronic means. Grantee hereby consents to receive these documents by electronic delivery and agrees to participate in the Plan through an on-line or electronic system established and maintained by the Company or a third party designated by the Company.
Grantee acknowledges that Grantee has access to the Companys intranet and that Grantee has received either electronic or paper copies of the Plan Documents.
Grantee hereby agrees that all questions of interpretation and administration relating to this Notice, the Plan and the Agreement will be resolved by the Administrator in accordance with Section 12 of the Agreement. Grantee further agrees to the venue and jurisdiction selection in accordance with Section 13 of the Agreement. Grantee further agrees to notify the Company upon any change in the residence address indicated in this Notice.
IN WITNESS WHEREOF, the Company and the Grantee have executed this Notice and agree that the Award is to be governed by the terms and conditions of this Notice, the Plan and the Agreement.
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INOVALON HOLDINGS, INC. |
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a Delaware corporation |
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Dated: |
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By: |
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Name: |
Keith R. Dunleavy, M.D. |
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Title: |
Chief Executive Officer |
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GRANTEE |
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Dated: |
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Signed: |
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Grantees Address: |
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INOVALON HOLDINGS, INC.
2015 OMNIBUS INCENTIVE PLAN
LONG-TERM INCENTIVE RESTRICTED STOCK BONUS AWARD AGREEMENT
1. Issuance of Shares . Inovalon Holdings, Inc., a Delaware corporation (the Company), hereby issues to Grantee (the Grantee) named in the Notice of Long-Term Incentive Restricted Stock Bonus Award (Notice) an award (the Award) of the Total Number of Restricted Shares of Common Stock Awarded set forth in the Notice (Shares), subject to the Notice, this Long-Term Incentive Restricted Stock Bonus Award Agreement (the Agreement) and the terms and provisions of the Inovalon Holdings, Inc. 2015 Omnibus Incentive Plan, as amended from time to time (the Plan), which are incorporated into this Agreement by this reference. Unless otherwise defined in this Agreement, capitalized terms will have the same meaning as given to them in the Plan. All Shares issued under this Agreement will be deemed issued to Grantee as fully paid and nonassessable shares, subject to forfeiture as provided in the Notice and this Agreement, and Grantee will have the right to vote the Shares at meetings of the Companys stockholders. The Company will pay any applicable stock transfer taxes imposed upon the issuance of the Shares to Grantee hereunder.
2. Transfer Restrictions . The Shares issued to Grantee under this Agreement may not be sold, transferred by gift, pledged, hypothecated, or otherwise transferred or disposed of by Grantee prior to the date when the Shares become vested pursuant to the vesting schedule specified in the Notice (Vesting Schedule). Any attempt to transfer Restricted Shares in violation of this Section 2 will be null and void and will be disregarded.
3. Escrow of Stock . For purposes of facilitating the enforcement of the provisions of this Agreement, Grantee agrees, immediately upon issuance of the Restricted Shares, Grantee will deliver (i) any certificate(s) issued by the Company for the Restricted Shares and (ii) the Stock Assignment in the form attached to this Agreement as Exhibit A , executed in blank by Grantee (with respect to each stock certificate, if applicable) to the Secretary or Assistant Secretary of the Company, or their designee, to hold in escrow for so long as the Restricted Shares have not vested pursuant to the Vesting Schedule set forth in the Notice, with the authority to take all actions and to effectuate all transfers and/or releases as may be necessary or appropriate to accomplish the objectives of this Agreement in accordance with its terms. Grantee hereby acknowledges that the appointment of the Secretary or Assistant Secretary of the Company (or their designee) as the escrow holder under this Agreement (Escrow Holder) with the stated authorities is a material inducement to the Company to make this Agreement and that this appointment is coupled with a Company interest in and to the Restricted Shares and, accordingly, is irrevocable by Grantee. Grantee agrees that the Restricted Shares may be held electronically in a book entry system maintained by the Companys transfer agent or other third party and that all the terms and conditions of this Section 3 applicable to certificated Restricted Shares will apply with the same force and effect to the electronic method for holding the Restricted Shares. Grantee agrees that the Escrow Holder will not be liable to any party to this
Agreement (or to any other party) for any actions or omissions, unless the Escrow Holder is grossly negligent. The Escrow Holder may rely upon any letter, notice or other document executed by any signature purported to be genuine and may resign at any time. Upon the vesting of Restricted Shares, the Escrow Holder will, without further order or instruction, transmit to Grantee the certificate, if any, evidencing the Shares, (or effectuate an electronic book entry transfer if applicable); provided , however , that no transmittal of certificates or electronic book entry evidencing the Shares will occur unless and until Grantee has satisfied all Tax Withholding Obligations (as defined in Section 5(c) below).
4. Additional Securities and Distributions .
Any securities or cash received (other than a regular cash dividend) as the result of ownership of the Restricted Shares (the Additional Securities), including, but not by way of limitation, warrants, options and securities received as a stock dividend or stock split, or as a result of a recapitalization or reorganization or other similar change in the Companys capital structure, will be retained in escrow in the same manner and subject to the same conditions and restrictions as the Restricted Shares with respect to which they were issued, including, without limitation, the Vesting Schedule.
Grantee will be entitled to direct the Company to exercise any warrant or option received as Additional Securities upon supplying the funds necessary to do so, in which event the securities so purchased will constitute Additional Securities, subject to the same conditions and restrictions as the Restricted Shares with respect to which they were issued, including, without limitation, the Vesting Schedule, but Grantee may not direct the Company to sell any of these warrants or options. However, Grantee understands and agrees that any Additional Securities received from Grantees exercise of any warrant or option received as Additional Securities may be subject to forfeiture under the terms of the Notice, the Plan and this Agreement and that Company will have no liability to Grantee resulting from any forfeiture of these Additional Securities.
If Additional Securities consist of a convertible security, Grantee may exercise any conversion right, and any securities so acquired will constitute Additional Securities, subject to the same conditions and restrictions as the Restricted Shares with respect to which they were issued, including, without limitation, the Vesting Schedule.
In the event of any change in certificates (or electronic book entries if applicable) evidencing the Shares or the Additional Securities by reason of any recapitalization, reorganization or other transaction that results in the creation of Additional Securities, the Escrow Holder is authorized to either (i) deliver to the issuer the certificates evidencing the Shares or the Additional Securities in exchange for the certificates of the replacement securities or (ii) effectuate any applicable electronic book entries with respect to the issuer, the Shares or the Additional Securities.
5. Taxes .
(a) No Section 83(b) Election . As a condition to receiving the Shares, Grantee agrees to refrain from making an election pursuant to Section 83(b) of the Code with respect to the Shares.
(b) Tax Liability . Grantee is ultimately liable and responsible for all taxes owed by Grantee in connection with the Award, regardless of any action the Company or any Related Entity takes with respect to any tax withholding obligations that arise in connection with the Award. Neither the Company nor any Related Entity makes any representation or undertaking regarding the treatment of any tax withholding in connection with any aspect of the Award or the subsequent sale of Shares subject to the Award. The Company and its Related Entities do not commit and are under no obligation to structure the Award to reduce or eliminate Grantees tax liability.
(c) Payment of Withholding Taxes . Prior to any event in connection with the Award (e.g., vesting or payment of dividends) that the Company determines may result in any tax withholding obligation, whether United States federal, state, local or non-U.S., including any employment tax obligation (the Tax Withholding Obligation), Grantee must arrange for the satisfaction of the minimum amount of the Tax Withholding Obligation in a manner acceptable to the Company.
(i) By Share Withholding. Grantee authorizes the Company to, in its sole discretion, withhold from those Shares that would otherwise vest the whole number of Shares sufficient to satisfy the minimum applicable Tax Withholding Obligation. Grantee acknowledges that the withheld Shares may not be sufficient to satisfy Grantees minimum Tax Withholding Obligation. Accordingly, Grantee agrees to pay to the Company or any Related Entity as soon as practicable, including through additional payroll withholding, any amount of the Tax Withholding Obligation that is not satisfied by the withholding of Shares described above.
(ii) By Sale of Shares . Unless Grantee determines to satisfy the Tax Withholding Obligation by some other means in accordance with clause (iii) below, Grantees acceptance of this Award constitutes Grantees instruction and authorization to the Company and any brokerage firm determined acceptable to the Company for this purpose to, upon the exercise of Companys sole discretion, sell on Grantees behalf a whole number of Shares from those Shares that would otherwise vest as the Company determines to be appropriate to generate cash proceeds sufficient to satisfy the minimum applicable Tax Withholding Obligation (Tax Obligation Sale). These Shares will be sold on the day the Tax Withholding Obligation arises (e.g., a vesting date) or as soon thereafter as practicable. Grantee will be responsible for all brokers fees and other costs related to a Tax Obligation Sale, and Grantee agrees to indemnify and hold the Company harmless from any losses, costs, damages, or expenses relating to any Tax Obligation Sale. To the extent the proceeds of a Tax Obligation Sale exceed Grantees minimum Tax Withholding Obligation, the Company agrees to pay the excess in cash to Grantee. Grantee acknowledges that the Company or its designee is under no obligation to arrange for a Tax Obligation Sale at any particular price, and that the proceeds of any Tax Obligation Sale may not
be sufficient to satisfy Grantees minimum Tax Withholding Obligation. Accordingly, Grantee agrees to pay to the Company or any Related Entity as soon as practicable, including through additional payroll withholding, any amount of the Tax Withholding Obligation that is not satisfied by a Tax Obligation Sale.
(iii) By Check, Wire Transfer or Other Means . At any time not less than five (5) business days (or a fewer number of business days as determined by the Administrator) before any Tax Withholding Obligation arises (e.g., a vesting date), Grantee may elect to satisfy Grantees Tax Withholding Obligation by delivering to the Company an amount that the Company determines is sufficient to satisfy the Tax Withholding Obligation by (x) wire transfer to an account specified by the Company, (y) delivery of a certified check payable to the Company, or (z) any other means as is specified from time to time by the Administrator.
(iv) Additional Options . The Company or a Related Entity also may satisfy any Tax Withholding Obligation by offsetting any amounts (including, but not limited to, salary, bonus and severance payments) payable to Grantee by the Company and/or a Related Entity. Furthermore, in the event of any determination that the Company has failed to withhold a sum sufficient to pay all withholding taxes due in connection with the Award, Grantee agrees to pay the Company the amount of the deficiency in cash within five (5) days after receiving a written demand from the Company to do so, whether or not Grantee is an employee of the Company at that time.
6. Stop-Transfer Notices . In order to ensure compliance with the restrictions on transfer specified in this Agreement, the Notice or the Plan, the Company may issue appropriate stop transfer instructions to its transfer agent, if any, and, if the Company transfers its own securities, it may make appropriate notations to the same effect in its own records. The Company may issue a stop transfer instruction if Grantee fails to satisfy any Tax Withholding Obligations.
7. Refusal to Transfer . The Company will not be required (i) to transfer on its books any Shares that have been sold or otherwise transferred in violation of any of the provisions of this Agreement (Improper Transfer) or (ii) to treat as owner of any Shares or to accord the right to vote or pay dividends to any purchaser or other transferee of Shares in an Improper Transfer.
8. Restrictive Legends . Grantee understands and agrees that the Company will cause the legends set forth below, or substantially equivalent legends, to be placed upon any certificate(s) evidencing ownership of the Shares together with any other legends that may be required by the Company or by state or federal securities laws:
THE SHARES REPRESENTED BY THIS CERTIFICATE ARE RESTRICTED BY THE TERMS OF THAT CERTAIN RESTRICTED STOCK BONUS AWARD AGREEMENT BETWEEN THE COMPANY AND THE NAMED STOCKHOLDER. THE SHARES REPRESENTED BY THIS CERTIFICATE MAY BE TRANSFERRED ONLY IN ACCORDANCE WITH THE AGREEMENT, A COPY OF
WHICH IS ON FILE WITH THE SECRETARY OF THE COMPANY.
9. Entire Agreement: Governing Law . The Notice, the Plan, and this Agreement constitute the entire agreement of the parties with respect to the subject matter of this Agreement and supersede in their entirety all prior undertakings and agreements of the Company and Grantee with respect to the subject matter of this Agreement, and may not be modified adversely to Grantees interest except by means of a writing signed by the Company and Grantee. The Notice, the Plan, and this Agreement are to be construed in accordance with and governed by the internal laws of the State of Delaware without giving effect to any choice of law rule that would cause the application of the laws of any jurisdiction other than the internal laws of the State of Delaware to the rights and duties of the parties. Should any provision of the Notice, the Plan, or this Agreement, including, without limitation, any provision of Section 13 of this Agreement, be determined for any reason to be illegal, invalid or unenforceable, it is the specific intent of the parties that the provision will be modified to the minimum extent necessary to make it or its application valid and enforceable and will be enforced to the fullest extent allowed by law and the other provisions of the Notice, the Plan, and this Agreement will nevertheless remain effective and will remain enforceable.
10. Construction . The captions used in the Notice and this Agreement are inserted for convenience and will not be deemed a part of the Award for construction or interpretation. Except when otherwise indicated by the context, the singular will include the plural and the plural will include the singular. Use of the term or is not intended to be exclusive, unless the context clearly requires otherwise.
11. Administration and Interpretation . Any question or dispute regarding the administration or interpretation of the Notice, the Plan or this Agreement will be submitted by Grantee or by the Company to the Administrator. The resolution of the question or dispute by the Administrator will be final and binding on all persons.
12. Venue and Jurisdiction . The parties agree that any suit, action, or proceeding arising out of or relating to the Notice, the Plan or this Agreement will be brought in the United States District Court for Delaware (or should the court lack jurisdiction to hear the action, suit or proceeding, in a Delaware state court) and that the parties will submit to the jurisdiction of the court. The parties irrevocably waive, to the fullest extent permitted by law, any objection the party may have to the laying of venue for any suit, action or proceeding brought in the court.
13. Notices . Any notice required or permitted hereunder will be given in writing and will be deemed effectively given upon personal delivery, upon deposit for delivery by an internationally recognized express mail courier service or upon deposit in the United States mail by certified mail (if the parties are within the United States), with postage and fees prepaid, addressed to the other party at its address as shown in these instruments, or to any other address as a party may designate in writing from time to time to the other party.
14. Language . If Grantee has received this Agreement or any other document related to the Plan translated into a language other than English and if the translated version is different
than the English version, the English version will control, unless otherwise prescribed by Applicable Law.
END OF AGREEMENT
EXHIBIT A
STOCK ASSIGNMENT
FOR VALUE RECEIVED, hereby sells, assigns and transfers unto , ( ) shares (Shares) of the Common Stock of Inovalon Holdings, Inc., a Delaware corporation (the Company), standing in his/her/its name on the books of the Company [and represented by Certificate No. provided to Company with this Stock Assignment](1), and does hereby irrevocably constitute and appoint the Secretary of the Company attorney to transfer the Shares in the books of the Company with full power of substitution.
DATED: |
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[Please sign this document but do not date it. The date and information of the transferee will be completed if and when the shares are assigned.]
(1) If certificates are issued.
I, Keith R. Dunleavy, M.D., certify that:
1. I have reviewed this Quarterly Report on Form 10-Q of Inovalon Holdings, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations, and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and
5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's Board of Directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize, and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.
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/s/ KEITH R. DUNLEAVY, M.D.
Keith R. Dunleavy, M.D. Chief Executive Officer & Chairman (Principal Executive Officer) |
Date: May 4, 2017
I, Christopher E. Greiner, certify that:
1. I have reviewed this Quarterly Report on Form 10-Q of Inovalon Holdings, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations, and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and
5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's Board of Directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize, and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.
/s/ CHRISTOPHER E. GREINER
Christopher E. Greiner Chief Financial & Operating Officer (Principal Financial Officer) |
Date: May 4, 2017
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of Inovalon Holdings, Inc. (the "Company") on Form 10-Q for the period ended March 31, 2017 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Keith R. Dunleavy, M.D., the Chief Executive Officer and Chairman of the Company, certify, to my knowledge, pursuant to 18 U.S.C. §1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:
/s/ KEITH R. DUNLEAVY, M.D.
Keith R. Dunleavy, M.D. Chief Executive Officer & Chairman (Principal Executive Officer) |
Date: May 4, 2017
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of Inovalon Holdings, Inc. (the "Company") on Form 10-Q for the period ended March 31, 2017 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Christopher E. Greiner, Chief Financial and Operating Officer of the Company, certify, to my knowledge, pursuant to 18 U.S.C. §1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:
/s/ CHRISTOPHER E. GREINER
Christopher E. Greiner Chief Financial & Operating Officer (Principal Financial Officer) |
Date: May 4, 2017