INOVALON HOLDINGS, INC.
(Exact name of registrant as specified in its charter)

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, or a smaller reporting company. See the definitions of "large accelerated filer," "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act.

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 30, 2016, the registrant had 66,905,308 shares of Class A common stock outstanding and 85,437,106 shares of Class B common stock outstanding.

	March 31, 2016		December 31, 2015

	(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents	$	126,885	$	114,034
Short-term investments		611,598		614,130
Accounts receivable (net of allowances of $1,320 and $1,022 at March 31, 2016 and December 31, 2015, respectively)		73,177		81,305
Prepaid expenses and other current assets		21,217		16,162
Income tax receivable		17,251		18,377

Total current assets		850,128		844,008
Non-current assets:
Property, equipment and capitalized software, net		65,278		65,031
Goodwill		137,733		137,733
Intangible assets, net		60,028		61,855
Other assets		3,940		4,250

Total assets	$	1,117,107	$	1,112,877



LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable	$	17,716	$	21,136
Accrued compensation		10,281		13,538
Other current liabilities		14,168		11,444
Deferred revenue		7,044		5,507
Deferred rent		843		797
Credit facilities		18,750		15,000
Capital lease obligation		109		109

Total current liabilities		68,911		67,531
Non-current liabilities:
Credit facilities, less current portion		258,750		266,250
Capital lease obligation, less current portion		309		296
Deferred rent		2,251		2,446
Deferred income taxes		36,275		37,198

Total liabilities		366,496		373,721

Commitments and contingencies (Note 5)
Stockholders' equity:
Common stock, $0.000005 par value, 900,000,000 shares authorized, zero shares issued and outstanding at each of March 31, 2016 and December 31, 2015, respectively		—		—
Class A common stock, $0.000005 par value, 750,000,000 shares authorized, 66,129,038 and 53,482,669 shares issued and outstanding at March 31, 2016 and December 31, 2015, respectively		—		—
Class B common stock, $0.000005 par value, 150,000,000 shares authorized, 86,235,350 and 98,230,363 shares issued and outstanding at March 31, 2016 and December 31, 2015, respectively		1		1
Preferred stock, $0.0001 par value, 100,000,000 shares authorized, zero shares issued and outstanding at March 31, 2016 and December 31, 2015, respectively		—		—
Additional paid-in-capital		499,899		493,197
Retained earnings		249,905		247,540
Other comprehensive income (loss)		806		(1,582	)

Total stockholders' equity		750,611		739,156

Total liabilities and stockholders' equity	$	1,117,107	$	1,112,877

	Three Months Ended March 31,

	2016			2015
Revenue	$	102,657		$	93,633
Expenses:
Cost of revenue(1)		41,923			31,851
Sales and marketing(1)		6,559			1,850
Research and development(1)		5,932			5,411
General and administrative(1)		36,552			24,258
Depreciation and amortization		8,394			4,915

Total operating expenses		99,360			68,285

Income from operations		3,297			25,348

Other income and (expenses):
Realized losses on short-term investments		(4	)		—
Gain on disposal of equipment		534			—
Interest income		1,442			8
Interest expense		(1,259	)		(1,103	)

Income before taxes		4,010			24,253
Provision for income taxes		1,645			10,494

Net income	$	2,365		$	13,759



Net income attributable to common stockholders, basic and diluted	$	2,356		$	13,759



Net income per share attributable to common stockholders, basic and diluted:
Basic net income per share	$	0.02		$	0.10



Diluted net income per share	$	0.02		$	0.10



Weighted average shares of common stock outstanding:
Basic		151,282			135,331



Diluted		152,355			138,902

	Three Months Ended March 31,

	2016			2015
Cash flows from operating activities:
Net income	$	2,365		$	13,759
Adjustments to reconcile net income to net cash provided by operating activities:
Stock-based compensation expense		2,092			1,772
Depreciation		6,567			4,373
Amortization of intangibles		1,827			542
Amortization of premiums on short-term investments		871			—
Realized losses on short-term investments		4			—
Tax payments for equity award issuances		88			—
Deferred income taxes		(1,252	)		(493	)
Excess tax benefits from stock-based compensation		(911	)		—
Loss on disposal of long-lived assets		—			4
Gain on disposal of equipment		(534	)		—
Changes in assets and liabilities:
Accounts receivable		8,128			(21,703	)
Prepaid expenses and other current assets		(5,054	)		277
Income taxes receivable		2,037			6,797
Other assets		78			(171	)
Accounts payable		(2,194	)		(1,685	)
Accrued compensation		(3,877	)		(6,368	)
Other liabilities		2,676			655
Deferred rent		(149	)		(109	)
Deferred revenue		1,537			613
Income taxes payable		—			2,554

Net cash provided by operating activities		14,299			817

Cash flows from investing activities:
Purchases of short-term investments		(80,065	)
Sales and maturities of short-term investments		84,671
Purchases of property and equipment		(4,053	)		(1,338	)
Investment in capitalized software		(2,790	)		(5,158	)

Net cash used in investing activities		(2,237	)		(6,496	)

Cash flows from financing activities:
Proceeds from issuance of common stock, net of underwriters' discount		—			362,082
Proceeds from issuance of treasury stock, net of underwriters' discount		—			282,172
Payment of offering costs		—			(3,002	)
Repayment of credit facility borrowings		(3,750	)		(5,000	)
Proceeds from exercise of stock options		3,841			—
Capital lease obligations paid		(31	)		(26	)
Tax payments for equity award issuances		(182	)		—
Excess tax benefits from stock-based compensation		911			—

Net cash provided by financing activities		789			636,226

Increase in cash and cash equivalents		12,851			630,547
Cash and cash equivalents, beginning of period		114,034			162,567

Cash and cash equivalents, end of period	$	126,885		$	793,114



Supplementary cash flow disclosure:
Cash paid during the period for:
Income taxes, net of refunds	$	861		$	1,583
Interest		1,195			1,076
Non-cash investing activities:
Accounts payable for purchases of and investment in property, equipment and capitalized software		933			1,557
Accrued compensation for investment in capitalized software		53			464
Offering costs not yet paid		—			2,180

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. 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, 2016 and the results of operations, comprehensive income and cash flows for the three month periods ended March 31, 2016 and 2015. The results of operations for the three month period ended March 31, 2016 are not necessarily indicative of the results to be expected for the full year. The preparation of consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts of assets and liabilities, disclosures of contingent assets and liabilities as of the date of the financial statements, and the reported amounts of revenue and expenses during the reported period. Actual results could differ from management's estimates, and such differences could be material to the Company's consolidated financial position and results of operations.

The accompanying 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.

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 2015 Annual Report on Form 10-K, except for the following:

In February 2016, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update No. 2016-02, Leases (Topic 842) ("ASU 2016-02"). ASU 2016-02 requires the identification of arrangements that should be accounted for as leases by lessees. This guidance is effective for public companies for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018. In general, for lease arrangements exceeding a twelve month term, these arrangements will be recognized as assets and liabilities on the balance sheet of the lessee. Under ASU 2016-02, a right-of-use asset and lease obligation will be recorded for all leases, whether operating or financing, while the income statement will reflect lease expense for operating leases and amortization/interest expense for financing leases. The balance sheet amount recorded for existing leases at the date of adoption of ASU 2016-02 will be calculated using the applicable incremental borrowing rate at the date of adoption. In addition, ASU 2016-02 requires the use of the modified retrospective method, which will require adjustment to all comparative periods presented in the

consolidated financial statements. The Company is currently assessing the impact that adopting this new accounting standard will have on its consolidated financial statements and note disclosures.

In March 2016, the FASB issued Accounting Standards Update No. 2016-08, Revenue from Contracts with Customers (Topic 606): Principal versus Agent Considerations (Reporting Revenue Gross versus Net) ("ASU 2016-08"). This guidance is effective for public companies for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2017. ASU 2016-08 clarifies the implementation guidance on principal versus agent considerations. The guidance includes indicators to assist an entity in determining whether it controls a specified good or service before it is transferred to the customers. The Company is currently assessing the impact that adopting this new accounting standard will have on its consolidated financial statements and note disclosures.

In March 2016, the FASB issued Accounting Standards Update No. 2016-09, Compensation—Stock Compensation (Topic 718) ("ASU 2016-09"). This guidance is effective for public companies for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2016, with early adoption permitted. ASU 2016-09 identifies areas for simplification involving several aspects of accounting for share-based payment transactions, including income tax consequences, classification of awards as either equity or liabilities, an option to recognize gross stock compensation expense with actual forfeitures recognized as they occur, as well as certain classifications on the statement of cash flows. The Company is currently assessing the impact that adopting this new accounting standard will have on its consolidated financial statements and note disclosures. The adoption of this new accounting standard could have a material impact on the Company's consolidated financial statements.

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 restricted share awards of Class A common stock (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

2. NET INCOME PER SHARE (in thousands, except per share amounts) (Continued)

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.

The following table reconciles the weighted average shares outstanding for basic and diluted EPS for the periods indicated:

	Three Months Ended March 31,

	2016			2015
*Basic*
Numerator:
Net income	$	2,365		$	13,759
Undistributed earnings allocated to participating securities		(9	)		—

Net income attributable to common stockholders—basic	$	2,356		$	13,759



Denominator:
Weighted average shares used in computing net income per share attributable to common stockholders—basic		151,282			135,331

Net income per share attributable to common stockholders—basic	$	0.02		$	0.10



*Diluted*
Numerator:
Net income attributable to common stockholders—diluted	$	2,356		$	13,759



Denominator:
Number of shares used for basic EPS computation		151,282			135,331
Effect of dilutive securities		1,073			3,571

Weighted average shares used in computing net income per share attributable to common stockholders—diluted		152,355			138,902

Net income per share attributable to common stockholders—diluted	$	0.02		$	0.10

The computation of diluted EPS does not include certain unvested awards, for the three months ended March 31, 2016 and 2015, because their inclusion would have an anti-dilutive effect on EPS. The awards excluded because of their anti-dilutive effect are as follows:

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:

The Company has certain available-for-sale securities in a gross unrealized loss position, all of which have been in such position for less than 12 months. 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, 2016.

The following table shows the fair values and the gross unrealized losses of available-for-sale securities that have been in a gross unrealized loss position for less than 12 months, aggregated by investment category as of March 31, 2016:

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, 2016:

	Level 1		Level 2		Level 3			Total

Cash Equivalents:
Money market funds	$	19,298	$	—	$	—		$	19,298
Short-term investments:
Corporate notes and bonds		—		407,553		—			407,553
U.S. agency obligations		—		97,592		—			97,592
U.S. treasury securities		—		70,340		—			70,340
Commercial paper		—		29,858		—			29,858
Certificates of deposit		—		6,255		—			6,255
Other Current Liabilities:
Contingent consideration		—		—		(2,300	)		(2,300	)

Total	$	19,298	$	611,598	$	(2,300	)	$	628,596

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, 2015:

	Level 1		Level 2		Level 3			Total

Cash Equivalents:
Money market funds	$	2,521	$	—	$	—		$	2,521
Short-term investments:
Corporate notes and bonds		—		387,876		—			387,876
U.S. agency obligations		—		121,329		—			121,329
U.S. treasury securities		—		60,185		—			60,185
Commercial paper		—		36,821		—			36,821
Certificates of deposit		—		7,919		—			7,919
Other Current Liabilities:
Contingent consideration		—		—		(2,300	)		(2,300	)

Total	$	2,521	$	614,130	$	(2,300	)	$	614,351

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.

On September 1, 2015, the Company recorded contingent consideration at its fair value in conjunction with the acquisition of Avalere Health, Inc. The Company determines fair value of its contingent consideration, using Level 3 inputs under the fair value hierarchy, consisting of information provided by observing certain operating metrics along with management's own assumptions. The Company adjusts the estimated fair value of its contingent consideration quarterly, if there is a change in the aforementioned factors considered in determining the fair value of the contingent consideration. The change in value, if any, is reflected in the Company's statements of operations as gain (loss) from contingent consideration valuation as a component of general and administrative expenses. For the three months ended March 31, 2016 there was no change in the fair value of the contingent consideration.

Litigation—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.

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 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, 2015, as filed with the Securities and Exchange Commission (the "SEC") on February 26, 2016. 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.

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," "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:

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, 2015, 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 that combines advanced cloud-based data analytics and data-driven intervention platforms to achieve meaningful impact in clinical and quality outcomes, utilization, and financial performance across the healthcare landscape. We deliver value to our clients by turning data into insights and those insights into action. Currently, our clients include health plans, hospitals, physicians, patients, pharmaceutical companies and researchers.

Our large proprietary datasets, advanced integration technologies, sophisticated predictive analytics, and deep subject matter expertise allow us to provide seamless, end-to-end platforms that bring the benefits of big data and large-scale analytics to the point of care. Our data analytics platforms identify gaps in care, quality, data integrity, and financial performance in our clients' datasets. Our data-driven intervention platforms enable our clients to take the insights derived from the analytics and implement unique, patient-level solutions, drive impact and enhance patient engagement. Through these capabilities, and those of our subsidiary Avalere, which offers data-driven advisory services and business intelligence to more than 200 pharmaceutical and life sciences enterprises, as well as an extensive array of client relationships with payors, providers and research institutions, we are able to drive high-value impact, improving quality and economics for health plans, accountable care organizations ("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 and data-driven intervention platform services.

For the three months ended March 31, 2016, we generated revenue of $102.7 million from the sale of our services compared to $93.6 million for the three months ended March 31, 2015. Given the scope of our market opportunity, we have historically invested more each year on innovation and infrastructure, in order to support our growth.

On May 4, 2016 we announced that our Board of Directors has 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 will be made in open-market or privately negotiated transactions in compliance with Rule 10b-18 of the Securities Exchange Act of 1934, as amended, subject to market conditions, applicable legal requirements, and other relevant factors. 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.

(1): MORE² Registry® dataset metrics and Trailing 12 month PAM, each of which is presented in the table, are key operating metrics that management uses to assess our level of operational activity. While we believe that each of these metrics is indicative of our overall level of analytical activity and the underlying growth in our business, increases or decreases in these metrics do not necessarily correlate to proportional increases or decreases in revenue, or net income. For instance, although increased levels of analytical activity historically have corresponded to increases in revenue over the long term, 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). Accordingly, while we believe the presentation of these operating metrics is helpful to investors in understanding our business; these metrics have limitations and should not be considered as substitutes for analysis of our financial results reported under GAAP. In addition, we believe that other companies, including companies in our industry, do not present similar operating metrics and that there is no commonly accepted method of calculating these metrics, which may reduce their usefulness as comparative measures.
(2): Unique patient count is defined as each unique, longitudinally matched, de-identified natural person represented in our MORE² Registry® as of the end of the period presented.
(3): Medical event count is defined as the total number of discrete medical events as of the end of the period presented (for example, a discrete medical event typically results from the presentation of a patient to a physician for the diagnosis of diabetes and congestive heart failure in a single visit, the presentation of a patient to an emergency department for chest pain, etc.).
(4): PAM is defined as the sum of the analytical processes performed on each respective patient within patient populations covered by clients under contract. As used in the metric, an "analytical process" is a distinct set of data calculations undertaken by us which is initiated and completed by our analytical platform to examine a specific question such as whether a patient is believed to have a condition such as diabetes, or worsening of the disease, during a specific time period.

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 MORE² 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 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,

	2016			2015
Investment in Innovation:
Research and development(1)	$	5,932		$	5,411
Capitalized software development(2)		5,300			4,508
Research and development infrastructure investments(3)		379			100

Total investment in innovation	$	11,611		$	10,019



As a percentage of revenue
Research and development(1)		6	%		6	%
Capitalized software development(2)		5	%		5	%
Research and development infrastructure investments(3)		—	%		—	%

Total investment in innovation		11	%		11	%

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.

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. The trend of higher client focus on "watchful waiting" has increasingly shifted intervention platform usage to later in the year.

Macro-Economic and Macro-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.

Our discussion and analysis of our financial condition and results of operations are based on our condensed consolidated financial statements, which have been prepared in accordance with GAAP. In connection with the preparation of our 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 condensed consolidated financial statements. The accounting estimates used in the preparation of our 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 condensed consolidated financial statements are presented fairly and in accordance with GAAP. However, because 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 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, 2015, filed with the SEC on February 26, 2016.

We earn revenue primarily through the sale or subscription licensing of our cloud-based data analytics and data-driven intervention platform services.

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). The Company expects the expanding emphasis on data-driven analytics services, and therefore the increased share of Inovalon revenue from such services, to continue on a year-to-year basis. 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.

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 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 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 revenue at a greater rate than our cost of revenue, on an annual basis, excluding the impact of stock-based compensation expense.

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 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 data analytics and data-driven intervention platforms and enhancing our existing data analytics and data-driven intervention platforms. 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.

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.

We expect our general and administrative expense to increase as we expand our business and incur the incremental costs associated with being a public company. However, excluding certain increases as a result of being a public company, and increases related to stock-based compensation and acquisition related costs, we expect our general and administrative expense to grow at a lower rate than revenue, on an annual basis.

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.

Interest expense represents interest incurred on our Credit Facilities (as defined below).

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.

The following table set forth our consolidated statement of operations data for each of the periods presented (dollars in thousands):

	Three Months Ended March 31,						2015 to 2016 Change

	2016			2015			$			%
Revenue	$	102,657		$	93,633		$	9,024		10	%
Expenses:
Cost of revenue(1)	41,923			31,851			10,072			32	%
Sales and marketing(1)	6,559			1,850			4,709			255	%
Research and development(1)	5,932			5,411			521			10	%
General and administrative(1)	36,552			24,258			12,294			51	%
Depreciation and amortization	8,394			4,915			3,479			71	%

Total operating expenses	99,360			68,285			31,075			46	%

Income from operations	3,297			25,348			(22,051		)	(87	)%

Other income and (expenses):
Realized losses on short-term investments	(4		)	—			(4		)		*
Gain on disposal of equipment	534			—			534				*
Interest income	1,442			8			1,434				*
Interest expense	(1,259		)	(1,103		)	(156		)	14	%

Income before taxes	4,010			24,253			(20,243		)	(83	)%
Provision for income taxes	1,645			10,494			(8,849		)	(84	)%

Net income	$	2,365		$	13,759		$	(11,394	)	(83	)%

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,

	2016			2015
Revenue		100	%		100	%
Expenses:
Cost of revenue		41	%		34	%
Sales and marketing		6	%		2	%
Research and development		6	%		6	%
General and administrative		36	%		26	%
Depreciation and amortization		8	%		5	%

Total operating expenses		97	%		73	%

Income from operations		3	%		27	%

Other income and (expenses):
Realized losses on short-term investments		*	%		—	%
Gain on disposal of equipment		1	%		—	%
Interest income		1	%		—	%
Interest expense		(1	)%		(1	)%

Income before taxes		4	%		26	%
Provision for income taxes		2	%		11	%

Net income		2	%		15	%

Revenue during the three months ended March 31, 2016 increased by approximately $9.0 million, or 10%, compared with the three months ended March 31, 2015. The increase was primarily attributable to an increase in revenue from new clients of $13.8 million along with a net decrease of $4.8 million from existing clients.

During the three months ended March 31, 2016, cost of revenue increased by approximately $10.1 million, or 32%, compared with the three months ended March 31, 2015. The $10.1 million increase in cost of revenue was primarily due to the corresponding increase in revenue of $9.0 million or 10%, that comprised a greater volume of data-driven intervention platform services as a percentage of revenue, and also resulted from a $3.5 million increase in employee-related expenses attributable to the September 2015 acquired data-driven advisory services service business. Cost of revenue as a percentage of revenue was 41% and 34% for the three months ended March 31, 2016 and 2015, respectively.

During the three months ended March 31, 2016, sales and marketing expenses increased by approximately $4.7 million, compared with the three months ended March 31, 2015. The increase was

primarily attributable to the growth of our sales and marketing team partially due to the acquisition of Avalere. The growth of our sales and marketing team was driven by our investment in additional sales personnel to focus on adding new clients and capturing an increased amount of our market opportunity.

During the three months ended March 31, 2016, research and development expense increased by approximately $0.5 million, or 10%, compared with the three months ended March 31, 2015. The 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.

During the three months ended March 31, 2016, general and administrative expenses increased by approximately $12.3 million, or 51%, compared with the three months ended March 31, 2015. The increase in general and administrative expenses of $12.3 million includes incremental expenses that are not comparable to the prior year, comprised of $0.6 million for integration related severance costs, $3.2 million of post-acquisition contingent consideration expense related to the acquisition of Avalere, $0.2 million of incremental stock-based compensation expense, $0.1 million for employer taxes related to stock option awards exercised by employees, and $0.8 million of employee severance expenses. In addition, compared to the three months ended March 31, 2015, we increased our investment in incremental personnel to support our growth, including the acquisition of Avalere, resulting in an overall increase for employee-related expenses of $7.4 million.

During the three months ended March 31, 2016, depreciation and amortization expense increased by approximately $3.5 million, or 71%, compared with the three months ended March 31, 2015. The increase is attributable to $1.9 million amortization of intangible assets related to the acquisition of Avalere, and increased amortization of capitalized software of $1.6 million, as compared with the three months ended March 31, 2015.

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 has since been reimbursed by our insurance carrier. As a result, the disposal of the equipment resulted in a gain of $0.5 million.

During the three months ended March 31, 2016, interest income increased by approximately $1.4 million, compared with the three months ended March 31, 2015. Interest income for the three months ended March 31, 2016 is attributable to earnings derived from the Company's available-for-sale short-term investments.

During the three months ended March 31, 2016, interest expense increased by approximately $0.2 million, compared with the three months ended March 31, 2015. The increase was attributable to interest expense on our Term Loan Facility (as defined below).

During the three months ended March 31, 2016, provision for income taxes decreased by approximately $8.8 million, or 84%, compared to the three months ended March 31, 2015. The decrease was primarily driven by the decrease in income before taxes and to a lesser extent the effective tax rate of 41% for the three months ended March 31, 2016 compared to 43% in the same period of the prior year.

Our principal sources of liquidity have been cash generated by operating activities, proceeds from our initial public offering and Credit Facilities. Our cash generated from such means has been sufficient to fund our growth, including our capital expenditures. As of March 31, 2016, our cash, cash equivalents and short-term investments totaled $738.5 million, of which $611.6 million represented short-term, available-for-sale, investment grade, domestic debt-securities, compared to $793.1 million of cash and cash equivalents as of March 31, 2015.

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 is 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.

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, 2016, we had outstanding indebtedness under the Term Loan Facility and capital lease obligations of $277.5 million and $0.4 million, respectively, and had outstanding indebtedness under our Term Loan Facility and capital lease obligations of $295.0 million and $0.1 million, respectively as of March 31, 2015. The Term Loan Facility has a five-year term. The Term Loan Facility is an amortizing facility with principal payments quarterly and interest payments monthly. A scheduled principal payment of $3.8 million and interest payments totaling $1.2 million were paid during the three months ended March 31, 2016. As of March 31, 2016, we were in compliance with the covenants under the Credit Agreement.

Cash provided by operating activities during the three months ended March 31, 2016 was approximately $14.3 million, an increase in cash inflow of approximately $13.5 million compared with the three months ended March 31, 2015. Cash provided by operating activities was driven by net income of approximately $2.4 million, as adjusted for the exclusion of non-cash expenses totaling approximately $8.8 million, which was augmented by approximately $3.1 million related to the effect of changes in working capital and other balance sheet accounts.

Cash used in investing activities in the three months ended March 31, 2016 was approximately $2.2 million, a decrease in cash outflow of approximately $4.3 million compared with the three months ended March 31, 2015. The cash used for investing purposes was primarily due to purchases of property and equipment of $4.1 million, investments in capitalized software of approximately $2.8 million, and was offset by proceeds generated from sales and maturities of available-for-sale securities, net of purchases, of approximately $4.6 million.

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.

Cash provided by financing activities during the three months ended March 31, 2016 was approximately $0.8 million, a decrease of approximately $635.4 million in cash inflow compared with the three months ended March 31, 2015. The cash provided by financing activities during the three months ended March 31, 2016 is primarily comprised of approximately $3.8 million of proceeds received from the exercise of stock options and $0.9 million of excess tax benefits from stock-based compensation, partially offset by $3.8 million for the repayment of credit facility borrowings and $0.2 million of employer tax payments related to the issuance of vested equity awards.

During the three months ended March 31, 2016, 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, 2015 filed with the SEC on February 26, 2016.

Recently issued accounting standards and their expected impact, if any, are discussed in Note 1, "Basis of Presentation", of the notes to our 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, 2015, filed with the SEC on February 26, 2016.

Variable Rate Debt Risk. Our variable rate debt includes our Term Loan Facility and our Revolving Credit Facility. As of March 31, 2016, we had $277.5 million outstanding under our Term Loan Facility at an effective interest rate of 1.7%. 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, 2016, there was no balance outstanding on the Revolving Credit Facility.

Marketable Securities Risk. We had short-term investments totaling approximately $611.6 million as of March 31, 2016. 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 $4.9 million market value reduction in our investment portfolio as of March 31, 2016. An immediate decrease of 100-basis points in interest rates would have increased the market value by approximately $10.3 million as of March 31, 2016. 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.

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, 2016, our disclosure controls and procedures are designed at a reasonable assurance level and are effective to provide 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.

There have been no changes in the our 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, 2016 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

From time to time, we may be involved in various legal proceedings and subject to claims that arise in the ordinary course of business. Although the results of litigation and claims are inherently unpredictable and uncertain, we are not currently a party to any legal proceedings the outcome of which, if determined adversely to us, are believed to, either individually or taken together, have a material adverse effect on our business, operating results, cash flows or financial condition. Regardless of the outcome, litigation has the potential to have an adverse impact on us because of defense and settlement costs, diversion of management resources, and other factors.

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, 2015. 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, 2015.

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. 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.

The following table sets forth certain information with respect to common stock purchased by the Company for the three-month period ended March 31, 2016.

		Description of Document

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

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.


(Mark One)
ý		QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2016
or
o		TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to


Delaware (State or other jurisdiction of incorporation or organization)		47-1830316 (I.R.S. Employer Identification No.)
4321 Collington Road, Bowie, Maryland (Address of principal executive offices)		20716 (Zip Code)


Large accelerated filer o		Accelerated filer o		Non-accelerated filer ý (Do not check if a smaller reporting company)		Smaller reporting company o



PART I—FINANCIAL INFORMATION
Item 1.	Condensed Consolidated Financial Statements (unaudited)	1
	Condensed Consolidated Balance Sheets as of March 31, 2016 and December 31, 2015	1
	Condensed Consolidated Statements of Income for the three months ended March 31, 2016 and 2015	2
	Condensed Consolidated Statements of Comprehensive Income for the three months ended March 31, 2016 and 2015	3
	Condensed Consolidated Statements of Cash Flows for the three months ended March 31, 2016 and 2015	4
	Notes to Condensed Consolidated Financial Statements	5
Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	12
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	24
Item 4.	Controls and Procedures	25
PART II—OTHER INFORMATION
Item 1.	Legal Proceedings	26
Item 1A.	Risk Factors	26
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	26
Item 3.	Defaults Upon Senior Securities	27
Item 4.	Mine Safety Disclosures	27
Item 5.	Other Information	27
Item 6.	Exhibits	27
SIGNATURES		29

	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Estimated Fair Value

Available-for-sale securities:
Corporate notes and bonds	$	407,461	$	620	$	(528	)	$	407,553
U.S. agency obligations		97,562		43		(13	)		97,592
U.S. treasury securities		70,291		76		(27	)		70,340
Commercial paper		29,798		66		(6	)		29,858
Certificates of deposit		6,251		4		—			6,255

Total available-for-sale securities	$	611,363	$	809	$	(574	)	$	611,598

	Three Months Ended March 31,

	2016		2015
Awards excluded from the computation of diluted net income per share because their inclusion would have been anti-dilutive		110		23

	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Estimated Fair Value

Available-for-sale securities:
Corporate notes and bonds	$	390,185	$	12	$	(2,321	)	$	387,876
U.S. agency obligations		121,521		11		(203	)		121,329
U.S. treasury securities		60,362		2		(179	)		60,185
Commercial paper		36,849		—		(28	)		36,821
Certificates of deposit		7,928		—		(9	)		7,919

Total available-for-sale securities	$	616,845	$	25	$	(2,740	)	$	614,130

	March 31, 2016		December 31, 2015

Due in one year or less	$	217,876	$	206,679
Due after one year through three years		393,722		407,451

Total	$	611,598	$	614,130

	Estimated Fair Value		Gross Unrealized Losses

Corporate notes and bonds	$	257,125	$	(528	)
U.S. agency obligations		30,585		(13	)
U.S. treasury securities		50,977		(27	)
Commercial paper		12,475		(6	)
Certificates of deposit		961		—

	$	352,123	$	(574	)

	As of March 31,

	2016		2015
	(in thousands)
MORE² Registry® dataset metrics(1)
Unique patient count(2)		132,361		121,918
Medical event count(3)		11,300,216		9,656,623
Trailing 12 month Patient Analytics Months (PAM)(1)(4)		22,125,006		17,829,812

Period			Average Price Paid per Share

January	—			—	—	—
February	33,148	(1)	$	17.96	—	—
March	—			—	—	—

Total	33,148	(1)	$	17.96	—	—


Date: May 5, 2016	INOVALON HOLDINGS, INC.
	By:	/s/ KEITH R. DUNLEAVY, M.D. Keith R. Dunleavy, M.D. Chief Executive Officer and Chairman (Principal Executive Officer)
	By:	/s/ THOMAS R. KLOSTER Thomas R. Kloster Chief Financial Officer (Principal Financial Officer & Principal Accounting Officer)