Inovalon Holdings, Inc. (INOV) CEO Keith Dunleavy on Q3 2019 Results - Earnings Call Transcript

Oct. 30, 2019 11:12 PM ETInovalon Holdings, Inc. (INOV)
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Inovalon Holdings, Inc. (NASDAQ:INOV) Q3 2019 Earnings Conference Call October 30, 2019 5:00 PM ET

Company Participants

Kim Collins - Senior Vice President of Communications

Keith Dunleavy - Chief Executive Officer and Chairman of the Board

Jonathan Boldt - Chief Financial Officer

Conference Call Participants

Ricky Goldwasser - Morgan Stanley

Stephanie Demko - Citi

Frank Sparacino - First Analysis

Sandy Draper - SunTrust


Good day, ladies and gentlemen and welcome to the Inovalon Third Quarter 2019 Earnings Call. [Operator Instructions] As a reminder, this conference is being recorded. And now, I will turn the conference over to your host, Kim Collins. Please begin.

Kim Collins

Good afternoon. This is Kim Collins, Senior Vice President of Communications at Inovalon. I am here today with Dr. Keith Dunleavy, Inovalon’s Chief Executive Officer and Chairman of the Board and Jonathan Boldt, Inovalon’s Chief Financial Officer. I would like to welcome you to our third quarter 2019 earnings call.

The press release announcing our financial results for the third quarter was distributed this afternoon and a replay of today’s call will be available shortly, posted on the Investor Relations page on Inovalon’s website. For those of you listening to the rebroadcast of this call, we remind you that the remarks made herein are as of today, October 30, 2019 and will not be updated subsequent to the initial earnings call.

I will remind you that certain statements made during this call maybe characterized as forward-looking under the Private Securities Litigation Reform Act of 1995, including statements related to future results of operations and financial position, our business strategy and plans, market growth and our objectives for future operations. Those statements involve a number of factors that could cause actual results to differ materially. Additional information concerning these factors is contained in the company’s earnings release and filings with the SEC.

In an effort to provide additional information to investors, this conference call and webcast is accompanied by a presentation, which is available on the IR section of our website. You’re encouraged to download a copy of this presentation to follow along with our prepared remarks. Our presentation also includes certain non-GAAP financial measures. You will find definitions of these non-GAAP measures and reconciliation charts at the end of the company’s earnings release and on the company’s website.

Now, it is my pleasure to turn the call over to Dr. Keith Dunleavy.

Keith Dunleavy

Thank you, Kim. Good afternoon, everyone and thank you for joining our call. Over the past several years we’ve focused on executing across a number of key objectives. We’ve transitioned our foundational technology from an enterprise approach to a modular cloud based platform approach. We’ve transitioned our contracting structure from a more complex legacy approach to a more streamlined subscription based approach. We’ve diversified and expanded our end customer base through acquisition and organic development. And we’ve dramatically increased the scale and sophistication of our sales capability and the result, is that today we stand as the unique provider of the market’s leading cloud based platform empowering data driven healthcare. Concurrent with the focus on these four key pillars of strategic transitions.

We’ve continued to focus on our primary differentiating strengths of healthcare ecosystem connectivity, depth of primary source data sets, sophistication of analytics and the ability to empower patient specific data driven interventions at the point of care and further still we have focused on raising the bar for how we operate. From the degree that we automate our processes to the manner by which we structure our organization and incentive associates performance and the impact of this focus on execution is showing up in the strong growth of profitability of the company.

On a trailing 12-month basis, revenue was up 20% year-over-year. This quarter saw organic growth that was 6% sequentially versus the second quarter of 2019 and up 14% organically versus the year ago third quarter of 2018. From two years ago, we’ve increased our gross margins from 66% to greater than 74% and we’ve increased our adjusted EBITDA margin from 24% to 33%. We’ve increased our trailing 12-month net cash provided from operations to more than $102 million and we’ve increased our free cash flow to $45 million reflecting a greater than 1000% increase from the year ago period and we’ve started our debt pay down ahead of schedule with a payment of an additional $50 million from our excess cash flow from operations.

For the third consecutive quarter, we’ve reported results that are at the high end or ahead of our guidance for revenue and profitability and for the third consecutive quarter we’re again raising the ranges for our net income, net income per share, adjusted EBITDA, non-GAAP net income and non-GAAP net income per share ranges. For all of this, accredit our strong customer partnerships with whom we’re honored to work and I credit my colleagues, all of the associates of Inovalon who are doing a tremendous job every day. But despite all these positive, it is now time for us to take a victory lap. We’re not here to celebrate we have a lot of work ahead to realize the significant opportunity that we have in front of us. We are indeed just getting started.

So I messaged you today, is that we’re excited and pleased with what we have accomplished, but we remain focused on execution. With that allow me to touch in some of the exciting advancements and how they speak to us strong and positive 2020 and beyond. First; is the continued advancement of our portfolio platform capabilities and the markets responds to them. During 2019, we’ve been launching significant cloud based capabilities in all areas of our client base, from pharmacy platform supporting specialty pharmacy to ScripMed exchange platform supporting hubs and electronic risk evaluation and mitigation strategies or EREMs capabilities.

Additionally, we’re exciting news of the companies Elastic Container Technology or ECT now readily being selected by clients desiring to burst or accelerate analytical runs. We’ve also seen new platform offerings supporting population health initiatives, our automated EHR data extraction modules and our natural language processing of non-structured clinical data modules are all seeing meaningful sales. We’re in the midst of launching new cloud-based interface supporting larger team utilization of our NLP [ph] tools expanding applications of our AI capabilities. Are very excited about the arrival of real time patient specific data supplementation toolsets and the growing availability of Inovalon’s capabilities through a transactional APIs. All of these examples are exciting areas of differentiated value delivery that are benefiting our clients, driving demand resulting in client stickiness and sales growth.

Second, is the continued expansion of the client patient populations that are connected to the Inovalon ONE platform. As Inovalon continues to add new client logos to its customer base, 81 new logos so far this year and expand the number of population within an organization that are utilizing the Inovalon ONE platform, the reach of Inovalon’s value benefit expands. Recently, Inovalon has entered into new contracts incorporating very large additional new member populations which will become more evident as implementation occurs in 2020. The continued strong expansion of patient populations allows Inovalon’s solutions to expand its positive benefit of clinical quality improvement and economic performance for clients, setting the scene for even greater expansion of business with the respect of organization. A classic land and expand that has achieved as positive value is demonstrated. We are excited about these population expansions, what they reflect as far as Inovalon reception by the market place and what they portend for the financial performance in 2020.

Lastly, I wanted all your attention to the meaningful differentiation and positive value impact that the Inovalon ONE platform is bringing to the clients of the marketplace and why this is translating into both expanding market demand and meaningful positive impact on the healthcare ecosystem. As reported on Monday, for the sixth year in a row clients utilizing Inovalon’s platform outperform the rest of the market place and the improvement of their clinical quality performance scores known as Star Scores. While the nation as a whole improved their clinical quality scores as reported by the Federal Government’s Center for Medicare and Medicaid services or CMS on October 11, clients utilizing Inovalon software improved nearly 300% more than those not using Inovalon software.

Inovalon’s breadth of data, connectivity, analytics and data driven intervention tools are delivering highly differentiated capabilities resulting in highly differentiated market share expansion stickiness and land and expand opportunity. As Inovalon integrates additional populations into its client based and platform, the scene is increasingly set for the growing network effect, increasingly deepening our motes [ph] and meaningfully differentiating our value delivery. These differentiated capabilities are but one example, the breadth of the Inovalon ONE platform is growing. The number of patients on the platform is expanding, the barriers between silos within the ecosystem are coming down and the cross-pollination between clients and network effect of growth and value delivery is occurring. This translating into our clients realizing differentiated performance and Inovalon experiencing the same as a result.

With that, I’ll end my comments as I began them. We’re proud of the execution that we’re seeing and the value it is delivering to our clients and to the strength of the performance that’s resulting for Inovalon. While our third quarter performance marks an important demonstration of Inovalon 2.0 strength. We’re not viewing today as the data celebrate, but rather an exciting point on the path of many steps. We have much on which we need to focus and much on which we need to execute to deliver this great opportunity on behalf of our clients, our associates and our shareholders.

With that, please allow me to turn the call over to Jonathan to review the results of the quarter and our outlook for the balance of the year and 2020 ahead. Jonathan?

Jonathan Boldt

Thank you, Keith and good afternoon, everyone. I’d like to begin by highlighting a few key points building in Keith’s opening remarks. First, the third quarter’s financial results reflect another quarter of solid execution with revenue adjusted EBITDA and non-GAAP EPS at the high end or above our previous provided guidance ranges. Second, we’re updating our full year 2019 guidance for the third consecutive quarter this year we’re tightening our revenue guidance within our range and revising upward or GAAP and non-GAAP earning’s guidance range and increasing our adjusted EBITDA range.

Third; in the setting of our strong continued cash flow and our positive financial outlook we initiated in acceleration of our debt repayment on October 4, 2019 with a $50 million payment incremental to our mandatory obligation and fourth; the company is again providing forward annual guidance before the year begins with strong continued sales and client retention rates, we’re pleased to provide 2020 organic revenue guidance for growth of 9% to 12%, net income growth of 100% to 155%, adjusted EBITDA guidance for growth of 9% to 14% and non-GAAP diluted net income per share growth of 12% to 20%.

Now turning to our third quarter results. Third quarter, 2019 revenue was $166.5 million, an organic increase of 14% year-over-year and 6% sequentially. Subscription based platform revenue grew to 84% of third quarter compared to 83% in the third quarter of 2018, the year-over-year organic revenue increase of $20.6 million was driven by an increase of $11.9 million of revenue from existing customers reflecting expand these relationships and an increase of $8.7 million in revenue from new customers reflecting continued adoption of our platform offerings.

On a trailing 12-month basis, third quarter 2019 trailing 12-month revenue was $605.2 million, an increase of 20% compared to the third quarter of 2018 trailing 12-month period. Trailing 12-month revenue growth continue to be driven by continued strong new client sales growth and strong client contractual renewal retention rates. New sales, annual contract value or ACV during the quarter came in at $44.1 million and $28.1 million excluding services. While ACV is down year-over-year it is important to remember that numerous factors and dynamics such as deal size and signature timing can result in quarter-to-quarter variability of this metric.

Turning to gross margin, third quarter 2019 gross margin was a strong 74.2%. Strong gross margin continues to be driven by higher value product shift as well as increasing scale and efficiency of the company’s platform offerings. As the company’s performance has demonstrated through 2019, the company’s platform offerings and delivery structure position the company nicely for continued profitable, scalable growth. Sales and marketing expense for the third quarter was $16.2 million, an increase of $4.4 million or 37% year-over-year and $1.8 million sequentially.

Sales and marketing as a percentage of revenue was 9.7% for the third quarter of 2019 compared to 8.1% in the third quarter of 2018. Third quarter 2019 trailing 12-month sales and marketing expense was $57.8 million or 9.6% of revenue which represents an increase of $16.3 million or 39% compared to the third quarter 2018 trailing 12-month period or $41.5 million or 8.2% of revenue. Our increased investments in sales and marketing engine continues to be driven by the company’s focus in delivering strong organic revenue growth.

General and administrative expenses for the third quarter of 2019 continue to demonstrate very positive operational leverage and was only $49.3 million which represents an increase of only $2.1 million or 4% year-over-year. G&A expense is a percentage of revenue was only 29.6% in the third quarter of 2019 compared with 32.4% in the third quarter of 2018. Increase revenue, strong gross margin and continue operating expense efficiency drove strong profitability during the quarter.

Adjusted EBITDA for the third quarter $56.3 million an increase of $3.8 million or 7% year-over-year inclusive of the increased investment in sales and marketing expense of $4.4 million. Adjusted EBITDA margin for the third quarter was an impressive 33.8%. on a trailing 12-month basis, third quarter 2019 adjusted EBITDA was $191.9 million and an increase of 38% when compared to $138.6 million during the preceding 12-month period, which includes the increased investment of sales and marketing activities of $16.3 million.

Third quarter 2019 trailing 12-month adjusted EBITDA margin was 31.7% which represents 430 basis point increase compared to the year ago period. Third quarter 2019 non-GAAP net income per share was $0.15 which increased $0.04 per share or 36% from the year ago period. And third quarter 2019 trailing 12-month non-GAAP net income per share was $0.43 and an increase of 65% compared to $0.26 during the preceding 12-month period.

Turning to cash flow, net cash provided by operating activities in the third quarter of 2019 was $32.4 million which is after our debt service interest payments of $16.4 million and after an incremental cash payment for acquisition related contingent consideration of $2.5 million. Third quarter CapEx was $14.7 million or 9% of revenue continuing to return the company back towards historical as previously projected. For the trailing 12 months ended September 30, 2019 Inovalon generated $45 million in positive free cash flow, an increase of $41.8 million or 1,304% as compared to $3.2 million free cash flow in the year ago period.

Importantly, this free cash flow was after incremental cash outflows of $34.6 million in cash interest payments. Further highlighting the company’s business models very strong cash flow generation capability. Additionally, over the same trailing 12-month basis CapEx decreased by $21.9 million or 29% as we continue to see CapEx returned to normalized levels. Additional details on trailing 12-month results and CapEx can be found on Slides 10 and 23 of our earnings supplement deck.

On the balance sheet, Inovalon’s financial position remains solid. The company exited Q3 with cash and cash equivalence of $133.6 million. Total outstanding debt of $970.2 million reported balance sheet debt of $944.9 million and the company had not drawn any of its $100 million revolving credit facility. Bringing this all together, as of the end of the quarter the company’s net debt position was $836.6 million and our net debt ratio as to find under our credit agreement was approximately 4.23 to 1.

As we announced earlier today, subsequent to the end of the quarter, the company initiated an accelerated pay down of our debt with an incremental repayment of $50 million above our mandatory payment schedule of $2.4 million per quarter. This incremental payment was made from surplus cash flow from operations and as of today, the company continues to have no amount drawn on its $100 million revolving credit facility. Using current one-month LIBOR rates, this principal reduction will drive an estimated decrease in annual cash interest expense of $2.8 million and thereby increasing return to our shareholders.

Now let me conclude by sharing updates on the company’s 2019 guidance and a full year 2020 financial outlook. For the full year 2019, first we’re tightening our revenue range previous provided to be $638 million to $643 million reflecting a year-over-year as reported revenue growth of 21% to 22% and organic revenue growth of 13% to 14%. Second, we’re once again increasing our guidance for GAAP and non-GAAP net income, GAAP and non-GAAP net income per share and adjusted EBITDA.

And third, we’re reaffirming our prior guidance ranges for capital expenditures and net cash provided by operating activities. This results in fourth quarter 2019 guidance as follows; we see $169 million to $174 million in revenue reflecting year-over-year growth of 24% to 28% compared to the fourth quarter of 2018. We see adjusted EBITDA to be between $56 million to $62 million a year-over-year increase of 44% to 60% and third, we see non-GAAP diluted net income per share of $0.12 to $0.15 a year-over-year increase of 140% to 200%.

Looking ahead, our 2020 financial outlook is as follows; first, we see revenue of $698 million to $718 million representing organic revenue growth of 9% to 12%. Second, we see 2020 adjusted EBITDA of $231 million to $241 million representing growth of 9% to 14%. Third; we see non-GAAP diluted net income per share of $0.57 to $0.61 representing year-over-year increase of 12% to 20%. And finally, we expect CapEx to be flat year-over-year with our full year 2020 CapEx range of $52 million to $58 million or 7% to 8% of expected 2020 revenue.

We encourage you to refer to today’s earnings release in our third quarter supplement earnings deck for more details in our 2019 and 2020 guidance ranges. With that, let me turn the call back over to our operator to conduct our Q&A session.

Question-and-Answer Session


[Operator Instructions] and our first question comes from Ricky Goldwasser with Morgan Stanley.

Ricky Goldwasser

So thank you very much for the early comments on guidance. But this questions on there, first of all when we think about next year. I know that last year you talked about kind of like the visibility that you had when you provided us the early guides of, can you just give us some color on that? And then second of all, when we think about the margin expansion opportunity obviously into fourth quarter, you’re showing very nice margin expansion it seemed more muted next year. So can you maybe talk about how we should be thinking about the margins when you’re introducing new product? And what that means to the margin and how we should think about the margin progression because when we think about the 2020 outlook, it seems there are lot of new products and service offerings that you’re selling to your customer base.

Keith Dunleavy

Great, Ricky. Thanks for the questions. I think I have a four or five of them [indiscernible] quickly. So first thanks for taking the time out for the call. Visibility is really good. We have very strong client retention rates strong pricing power in the market we very excited about all the above. Last year as you know we were transitioning from a period of negative 10% organic growth to positive 13%, 14% growth. So a swing from a 23%, 24% that we rightfully wanted to provide a lot of visibility to the market.

This year after having delivered on that, we think really nicely and hit and/or beat quarter-after-quarter and raised as we marched our way through the year. We spent some time looking at competitor metric benchmarks. We took a look at what sort of market information, our peers in this space were giving out and we really wanted to take the opportunity to then realign with them as we put out these numbers today. But again for clarify really strong pipeline, really strong visibility, really strong retention rates and then also last thing. I’ll give on the visibility and processing through 2020 before moving onto your other parts of your questions.

In the supplement deck Slide 21 we gave you revenue cadence that you should expect throughout the year, so there’s a graphic in there, an illustrative graphic that basically shows the Street should look for 9% to 12% organically each quarter over the 2019 quarter. So just a nice progressive cadence like you saw in 2019, you’ll see the same thing in 2020 just higher, 9% to 12%. The second thing you asked is on profitability, we’ve made comments on the 33% EBITDA and the muted number I think is the number are the words you used. We’ve seen really strong progression of our profitability here in 2019 marching it up virtually every single quarter with strong ability to show operational leverage, increase connectivity and increase automation, bringing more and more of that to the forefront.

We’ve been pretty loud if you will in the marketplace about how we want to spend this expanding profitability on further accelerating our growth and investing in new products and new markets and that’s what you’re going to see us do. So really strong ability to generate profitability, we hope that that’s been very clear to the marketplace. We have very comfortable levers if you will on those profitability metrics and we want to spend a good amount of money on further accelerating our growth and taking advantage of further broadening our breadth. So strong profitability is what we’re conveying and strong control on that profitability also.

And then the last part of your question had to do with new products and if I’m interpreting it right, new products versus existing products. So a number of different things are receiving our investments. Certainly investments in expanding our sales and marketing capacity and sophistication in expanding our product offerings as well to your implication. New products do tend to be a little less profitable on their initial launch, but with as broad of a client base that we have what we find is a very strong inbound indication to us from the market as to what capabilities they’re looking for, that gives us the advantage to use the portfolio of modules that we have those lego [ph] blocks if you will in the Inovalon ONE platform and bring a product to market quickly and nicely profitably year one. So we’re very content there on new product launches and content on what you’ll see profitability from them.


Thank you and our next question comes from Stephanie Demko with Citi. Your line is open.

Stephanie Demko

Very similar to the prior question, just looking at the mid 20’, your 2020 guidance, it does imply some top line deceleration from where you were this year. So I’d just love to know the balance that’s driven from conservatism versus well large numbers or some visibility that you’re seeing as you grant [ph] off some of these larger contracts.

Keith Dunleavy

Yes, well first of all Stephanie. Great to have you on the call.

Stephanie Demko

Happy to be here.

Keith Dunleavy

And we definitely appreciate the question and the various versions of it, as I’m sure you all know this is a function of continued demonstration of credibility and reliability to the marketplace and making sure that we under promise and over deliver to the market, to our clients to all involved. Certainly Street expectations from us was a bit lower than we’re conveying here. So we’re good $20 million in revenue above where consensus was and very significantly ahead on EBITDA and earnings and if that’s the message, we want to strongly send to the marketplace that things are going very well, we expect them to go very well. Mathematically you’re correct, it’s not an unfair conclusion coming from mathematically, but we also want you to hear very strong confidence and excitement about what we’re seeing from our customer base going into the year, but let’s under promise and over deliver.

Stephanie Demko

Understood, that makes sense in order to kind of create that [indiscernible] record. Now one quick follow-up on a different topic, just thinking about your EHR data extraction tools that you have. With players like Sterner [ph] and Allscripts now entering the foray into healthcare data, does that make them competitor or does your tool make it more of an opportunity for partnership?

Keith Dunleavy

We really see this the ladder Stephanie, so in any entity out there obviously those EHR's you mentioned are great organization that have great market presence, but still typically they would have only roughly around 15% of any one patients’ clinical data and it’s really tough for an organization that has a small window, an important window, but a small window on a patient’s clinical life to do analytical capabilities on that. It’s hard to predict whether or not a patient is diabetes is being properly managed or how to improve upon it, stuff to predict whether or not if they’re chemotherapeutic agents should be changed or adjusted and so forth.

So the platforms of an EHR are excellent partners and utilizers [ph] frankly of API calls into the Inovalon platform that gives them the ability to aggregate the data that they do have together with the analysis of the broader assessment that Inovalon can bring and that’s also not only the strength of the API tool sets, but what you heard us mention in our prepared remarks about supplemental data. Supplemental data something you’re going to hear a lot about as we move forward into 2020, we’ve started rolling that into our product offerings here in the pharmaceutical space already. The ability to aggregate a holistic view on a patient from across multiple different EHR brands, multiple different HIE networks, multiple different claims sources, lab sources, administrative data sources, decision support, platform sources and our data sources all in just a couple of seconds aggregate that, analyze it, sit back and answer from anywhere securely in a transactional API format.

We see that capability is unique in the marketplace and we see it’s applicable in any mobile device, any EHR device, any clinical point of care environment and we’re excited to be putting that to work in the marketplace.

Stephanie Demko

It’s good to hear, well thank you for taking the question, Steve.


Thank you. Our next question comes from Frank Sparacino with First Analysis. Your line is open.

Frank Sparacino

Keith, maybe just one from me. Earlier, you talked about ScripMed knows, wondering if you could give an update just on the pharmacy side of things. And then also, perhaps touch on. I think it’s been a while since we’ve talked about some of the value based contracts in pharma. I know you had some news recently with AstraZeneca, but I was more interested in some of the contracts that were signed perhaps a year or two ago, in terms of how those are performing. Thanks.

Keith Dunleavy

Great, Frank. Thanks for the question. And first of all, all those areas we’re seeing really nice double-digit growth so important me to start the answer to that question. The pharmacy space is likely to be the strongest area of growth here as we go forward, so obviously very substantive double-digit growth, that set of implementations and new client additions to it is nothing short of very robust and what is interesting, intentionally or unintentionally is the second part of your question actually is now tying into that first part, which is we’re seeing that the OBC marketplace is now becoming as you heard in my opening remarks, a reflection of the breaking down of silos between the different parts of the ecosystem. So because of the fact that we now have so many pairs on our platform and pharmacy on our platform and life sciences on our platform, we’re finding that serving as that single source of truth and that trusted independent mediator for the data aggregation and analysis reporting around OBC contracts is proving an additional value add. So we anticipate you’ll hear a lot more about that and actually off to our ScripMed Conference down in Florida this weekend I think just about every major pharmacy company will be as well as many life sciences companies and that’s one of the major talks of the town as we’re rolling that out with partners. So it’s looking good, very strong double-digit growth in 2020, we’re excited about it.

Frank Sparacino

Thank you.


Thank you. Our next question comes from Ryan Daniels with William Blair. Your line is open.

Q –Unidentified Participant

This is [indiscernible] for Ryan. Thanks for taking the question. Just wanted to maybe take a step back and talk a little bit about kind of competitive landscape. Given the investments you know you talked for a couple quarters here and sales and marketing and product development. I’m kind of just curious if you’ve kind of seen any sort of meaningful change in your competitive positioning and maybe more specifically if you’ve seen material uptick or change in your win rate given those investment.

Q –Unidentified Participant


Keith Dunleavy

Sure, Jared [ph] thank you, thanks for being on the call. So the competitive landscape for us, we reclassified it in three different pieces, we laid this out, I think it’s on Slide 23, if I’m not mistaken on our Investor Day deck from December last year. We break it into three categories clients [indiscernible] work themselves in sourcing or [indiscernible] part. Number two, the classic competitor right the poster board, large company, brand named competitor and category number three, small individual point source solutions that could be brought together to serve capabilities that a client might need.

We reported back in December last year that we were seeing a trend change in the marketplace that was a positive in our favor, in that competitive landscape for reasons we laid out at the time. A lot of organizations have tried to in source and found that to be more challenging then they taught more expensive, harder to find the right talent, subject matter expertise not having the connectivity and not having access to the primary source data, that we had. The poster child competitors really have not changed a whole lot in the marketplace, we reported at the time and we’re very respectable organizations that we kept strong and good eye on, but certainly one that was not moving against us any dispropriate [ph] way and in fact, the opposite.

And then the last one, the smaller players, we reported it again. I’m just reiterating what we said roughly a year ago, that space we were seeing a movement by the marketplace away from or not liking as much if you’re not selecting as much the smaller players and the word that we were hearing was, organizations are reticent to entrust their data, entrust their business critical operations and platforms to smaller organizations that have less investment in things like cyber security and data governance and disaster recovery and so on and so forth. That environment Jared [ph] has not really changed. We actually have seen upticks in our win rates over 2019 in many areas, we’re very respectful of the competition, we work hard to stay ahead of it. But we have been winning some very [indiscernible] and recurrent themed wins in the marketplace against competition and we’ll continue to work hard to make that the case. But it’s been a positive story for us in 2019.

Q –Unidentified Participant

Great, appreciate the color.


Thank you and our next question comes from Sandy Draper with SunTrust. Your line is open.

Q –Sandy Draper

A lot of my questions have been asked, maybe just a fine tune on the last question. I know Jonathan you mentioned ACB [ph] was down year-over-year, but there’s quarterly volatility. In fact, we appreciate. Can you just one remind me, what there any specific large deals that made third quarter a tough comp and then following up, was there [indiscernible] competitively [indiscernible] in terms of deal flow slowing down but the visibility for [indiscernible] is improving, just any commentary around those two things will be great?

Jonathan Boldt

Sandy, great to talk to you. For your first question, Q3 was a tough compare from an ACB [ph] perspective there were some large deals in Q3, 2018. But the continued velocity of all of our other deals in Q3, 2019 were impressive for sure. I’d actually say that our October is currently shaping up [indiscernible] record ACB [ph] sales for the last five years so it’s pretty strong or very strong I should say, but continued velocity, strength of the pipeline continues to be impressive and the delivery of our salesforce team is been really kind of top notch.

Q –Sandy Draper

That’s really helpful and them my one follow-up on the capital fund. It’s nice to see [indiscernible] debt pay down don’t necessarily expect that quarter-to-quarter, but generally would you say that’s going to be a strategy or you’re going to be looking at, every time you generate free cash flow that’s going to be the primary or use of your capital. Thanks.

Jonathan Boldt

Yes, Sandy that’s one area that we continue to focus on and how we’re deploying our capital and we’re sitting in a very strong position really from our cash flow. We continue to have a lot of flexibilities to how we deliver and deploy that cash flow for shareholder return and as we continue to accumulate excess cash flow or capital in our balance sheet. We’ll look for areas to maximize the return for our shareholders.

Q –Sandy Draper

Great, thanks.

Keith Dunleavy

That being our final question, please allow me to give a few comments before we close. Number one, Inovalon is increasingly been seeing as the leading provider of cloud based platform capabilities empowering data driven healthcare. Number two, the market demand for these capabilities as you heard us comment on tonight is very strong and it’s translating into double-digit organic revenue growth and we’re very excited how that is playing out. Number three, as we continue to expand our scale and efficiencies, you’re also seeing all of that growth translate into a very nice operational leverage and profitability which we also see continuing nicely here into 2020. We’re excited about the momentum. We’re excited about the positive outlook, not only for the remaining portions here of 2019, but for 2020 and beyond.

We remain committed to execution. Execution we know is really the name of our game that is important for being our focus here and the remainder of this year and into next. We expect to give you very strong revenue growth and very strong profitability as well as very strong value for our clients. Thank you, this evening for your time and thanks as always for your interest in Inovalon. Good night, everybody.


Ladies and gentlemen, this concludes today’s conference call. Thank you for participating. You may now all disconnect and everyone have a great day.

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