(Mark One) | |
x | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended June 30, 2018 | |
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 x | Accelerated filer o | Non-accelerated filer o (Do not check if a smaller reporting company) | Smaller reporting company o Emerging growth company o |
Page | ||
June 30, 2018 | December 31, 2017 | ||||||
ASSETS | |||||||
Current assets: | |||||||
Cash and cash equivalents | $ | 68,007 | $ | 208,944 | |||
Short-term investments | 15,674 | 267,288 | |||||
Accounts receivable (net of allowances of $3,788 and $2,038 at June 30, 2018 and December 31, 2017, respectively) | 114,121 | 90,054 | |||||
Prepaid expenses and other current assets | 17,982 | 10,441 | |||||
Income tax receivable | 12,868 | 11,987 | |||||
Total current assets | 228,652 | 588,714 | |||||
Non-current assets: | |||||||
Property, equipment and capitalized software, net | 139,626 | 125,768 | |||||
Goodwill | 934,693 | 184,932 | |||||
Intangible assets, net | 584,678 | 89,326 | |||||
Other assets | 17,034 | 6,338 | |||||
Total assets | $ | 1,904,683 | $ | 995,078 | |||
LIABILITIES AND STOCKHOLDERS’ EQUITY | |||||||
Current liabilities: | |||||||
Accounts payable and accrued expenses | $ | 27,033 | $ | 34,109 | |||
Accrued compensation | 18,602 | 18,592 | |||||
Other current liabilities | 41,325 | 15,277 | |||||
Deferred revenue | 18,195 | 6,954 | |||||
Deferred rent | 540 | 1,818 | |||||
Credit facilities | 9,800 | 45,000 | |||||
Capital lease obligation | 1,796 | 336 | |||||
Total current liabilities | 117,291 | 122,086 | |||||
Non-current liabilities: | |||||||
Credit facilities, less current portion | 940,038 | 191,250 | |||||
Capital lease obligation, less current portion | 14,940 | 12,109 | |||||
Deferred rent, less current portion | 2,838 | 219 | |||||
Other liabilities | 20,029 | — | |||||
Deferred income taxes | 115,624 | 26,642 | |||||
Total liabilities | 1,210,760 | 352,306 | |||||
Commitments and contingencies (Note 7) | |||||||
Stockholders’ equity: | |||||||
Common stock, $0.000005 par value, 900,000,000 shares authorized, zero shares issued and outstanding at each of June 30, 2018 and December 31, 2017, respectively | — | — | |||||
Class A common stock, $0.000005 par value, 750,000,000 shares authorized; 86,592,250 shares issued and 71,972,075 shares outstanding at June 30, 2018; 77,588,018 shares issued and 62,967,843 shares outstanding at December 31, 2017 | — | — | |||||
Class B common stock, $0.000005 par value, 150,000,000 shares authorized; 80,608,685 shares issued and outstanding at June 30, 2018; 80,957,495 shares issued and outstanding at December 31, 2017 | 1 | 1 | |||||
Preferred stock, $0.0001 par value, 100,000,000 shares authorized, zero shares issued and outstanding at June 30, 2018 and December 31, 2017, respectively | — | — | |||||
Additional paid-in-capital | 611,035 | 534,159 | |||||
Retained earnings | 282,335 | 308,905 | |||||
Treasury stock, at cost, 14,620,175 shares at June 30, 2018 and December 31, 2017, respectively | (199,817 | ) | (199,817 | ) | |||
Other comprehensive loss | 369 | (476 | ) | ||||
Total stockholders’ equity | 693,923 | 642,772 | |||||
Total liabilities and stockholders’ equity | $ | 1,904,683 | $ | 995,078 |
Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||
2018 | 2017 | 2018 | 2017 | ||||||||||||
Revenue | $ | 152,798 | $ | 110,578 | $ | 245,553 | $ | 218,884 | |||||||
Expenses: | |||||||||||||||
Cost of revenue(1) | 39,015 | 37,198 | 72,506 | 75,483 | |||||||||||
Sales and marketing(1) | 12,045 | 8,849 | 19,947 | 16,436 | |||||||||||
Research and development(1) | 7,545 | 7,282 | 13,966 | 15,070 | |||||||||||
General and administrative(1) | 60,174 | 35,874 | 109,570 | 71,719 | |||||||||||
Depreciation and amortization | 26,906 | 12,479 | 43,286 | 24,964 | |||||||||||
Restructuring expense | 9,464 | — | 9,464 | — | |||||||||||
Total operating expenses | 155,149 | 101,682 | 268,739 | 203,672 | |||||||||||
(Loss) Income from operations | (2,351 | ) | 8,896 | (23,186 | ) | 15,212 | |||||||||
Other income and (expenses): | |||||||||||||||
Realized losses on short-term investments | — | — | (1,035 | ) | — | ||||||||||
Loss on disposal of equipment | (382 | ) | (138 | ) | (467 | ) | (138 | ) | |||||||
Loss on extinguishment of debt | (129 | ) | — | (129 | ) | — | |||||||||
Interest income | 154 | 1,342 | 1,549 | 2,680 | |||||||||||
Interest expense | (15,568 | ) | (1,519 | ) | (17,450 | ) | (2,932 | ) | |||||||
(Loss) Income before taxes | (18,276 | ) | 8,581 | (40,718 | ) | 14,822 | |||||||||
(Benefit from) Provision for income taxes | (7,810 | ) | 3,095 | (13,418 | ) | 5,694 | |||||||||
Net (loss) income | $ | (10,466 | ) | $ | 5,486 | $ | (27,300 | ) | $ | 9,128 | |||||
Net (loss) income attributable to common stockholders, basic and diluted | $ | (10,466 | ) | $ | 5,338 | $ | (27,300 | ) | $ | 8,913 | |||||
Net (loss) income per share attributable to common stockholders, basic and diluted: | |||||||||||||||
Basic net (loss) income per share | $ | (0.07 | ) | $ | 0.04 | $ | (0.19 | ) | $ | 0.06 | |||||
Diluted net (loss) income per share | $ | (0.07 | ) | $ | 0.04 | $ | (0.19 | ) | $ | 0.06 | |||||
Weighted average shares of common stock outstanding: | |||||||||||||||
Basic | 147,181 | 142,632 | 143,301 | 143,680 | |||||||||||
Diluted | 147,181 | 143,072 | 143,301 | 144,123 |
(1) | Includes stock-based compensation expense as follows: | |||||||||||||||
Cost of revenue | $ | (87 | ) | $ | 410 | $ | 53 | $ | 715 | |||||||
Sales and marketing | (401 | ) | 505 | 68 | 895 | |||||||||||
Research and development | 330 | 307 | 958 | 580 | ||||||||||||
General and administrative | 2,802 | 2,525 | 5,313 | 5,154 | ||||||||||||
Total stock-based compensation expense | $ | 2,644 | $ | 3,747 | $ | 6,392 | $ | 7,344 |
Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||
2018 | 2017 | 2018 | 2017 | ||||||||||||
Net (loss) income | $ | (10,466 | ) | $ | 5,486 | $ | (27,300 | ) | $ | 9,128 | |||||
Other comprehensive income: | |||||||||||||||
Realized (gains) losses on cash flow hedges reclassified from accumulated other comprehensive income, net of tax of $(268), $0, $(268) and $0, respectively | 570 | — | 570 | — | |||||||||||
Net change in unrealized gains and (losses) on cash flow hedges, net of tax of $64, $0, $64 and $0, respectively | (135 | ) | — | (135 | ) | — | |||||||||
Realized losses on short-term investments reclassified from accumulated other comprehensive income, net of tax of $0, $0, $(319) and $0, respectively | — | — | 716 | — | |||||||||||
Net change in unrealized (losses) and gains on available-for-sale investments, net of tax of $(14), $136, $91 and $272, respectively | 31 | 35 | (204 | ) | 211 | ||||||||||
Reclassification of income tax effects of the Tax Cuts and Jobs Act of 2017 | — | — | (102 | ) | — | ||||||||||
Comprehensive (loss) income | $ | (10,000 | ) | $ | 5,521 | $ | (26,455 | ) | $ | 9,339 |
Six Months Ended June 30, | |||||||
2018 | 2017 | ||||||
Cash flows from operating activities: | |||||||
Net (loss) income | $ | (27,300 | ) | $ | 9,128 | ||
Adjustments to reconcile net income to net cash provided by operating activities: | |||||||
Stock-based compensation expense | 6,392 | 7,344 | |||||
Depreciation | 25,638 | 17,442 | |||||
Amortization of intangibles | 17,648 | 7,522 | |||||
Amortization of premiums on short-term investments | 264 | 1,017 | |||||
Amortization of debt issuance costs and debt discount | 1,024 | — | |||||
Deferred income taxes | (13,151 | ) | (2,513 | ) | |||
Restructuring expense, non-cash | 8,583 | — | |||||
Loss on sale of short-term investments | 1,035 | — | |||||
Loss on disposal of equipment | 467 | 138 | |||||
Loss on extinguishment of debt | 129 | — | |||||
Change in fair value of contingent consideration | 8,700 | — | |||||
Changes in assets and liabilities: | |||||||
Accounts receivable | (7,312 | ) | (10,107 | ) | |||
Prepaid expenses and other current assets | (3,222 | ) | 683 | ||||
Income taxes receivable | (330 | ) | 7,328 | ||||
Other assets | (5,727 | ) | (2,313 | ) | |||
Accounts payable and accrued expenses | (10,676 | ) | 5,660 | ||||
Accrued compensation | 2,336 | 112 | |||||
Other current and non-current liabilities | 9,592 | 114 | |||||
Deferred rent | 1,793 | (446 | ) | ||||
Deferred revenue | 4,241 | 10 | |||||
Net cash provided by operating activities | 20,124 | 41,119 | |||||
Cash flows from investing activities: | |||||||
Maturities of short-term investments | 87,901 | 105,245 | |||||
Sales of short-term investments | 161,772 | — | |||||
Purchases of property and equipment | (16,476 | ) | (9,180 | ) | |||
Investment in capitalized software | (22,532 | ) | (15,394 | ) | |||
Acquisition, net of cash acquired of $23,850 | (1,082,740 | ) | — | ||||
Net cash (used in) provided by investing activities | (872,075 | ) | 80,671 | ||||
Cash flows from financing activities: | |||||||
Repurchase of common stock | — | (45,173 | ) | ||||
Proceeds from credit facility borrowings, net of discount | 965,300 | — | |||||
Repayment of credit facility borrowings | (236,250 | ) | (15,000 | ) | |||
Payments for debt issuance costs | (18,269 | ) | — | ||||
Proceeds from exercise of stock options | 1,613 | 3,016 | |||||
Capital lease obligations paid | (311 | ) | (58 | ) | |||
Tax payments for equity award issuances | (1,069 | ) | (246 | ) | |||
Net cash provided by (used in) financing activities | 711,014 | (57,461 | ) | ||||
(Decrease) Increase in cash and cash equivalents | (140,937 | ) | 64,329 | ||||
Cash and cash equivalents, beginning of period | 208,944 | 127,683 | |||||
Cash and cash equivalents, end of period | $ | 68,007 | $ | 192,012 | |||
Supplementary cash flow disclosure: | |||||||
Cash paid during the period for: | |||||||
Income taxes, net of refunds | $ | 107 | $ | 379 | |||
Interest | 11,131 | 2,840 | |||||
Non-cash investing activities: | |||||||
Capital lease obligations incurred | 4,602 | — | |||||
Accruals for purchases of property, equipment | 7,292 | 4,773 | |||||
Accruals for investment in capitalized software | 1,841 | 1,302 | |||||
Acquisition consideration | 83,580 | — |
Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||
2018 | 2017(1) | 2018 | 2017 | ||||||||||||
Platform solutions(2) | $ | 138,209 | $ | 96,072 | $ | 217,175 | $ | 187,504 | |||||||
Services(3) | 14,589 | 14,506 | 28,378 | 31,380 | |||||||||||
Total revenue | $ | 152,798 | $ | 110,578 | $ | 245,553 | $ | 218,884 |
(1) | Prior period amounts have not been adjusted under the modified retrospective method. |
(2) | Platform solutions include arrangements for technology-based offerings representing subscription-based cloud-based platform offerings and legacy platform solutions that are not cloud-based and not billed under a subscription-based contract structure. |
(3) | Services include advisory, implementation, and support services under time and materials, fixed price, or retainer-based contracts. |
Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||
2018 | 2017 | 2018 | 2017 | ||||||||||||
Basic | |||||||||||||||
Numerator: | |||||||||||||||
Net (loss) income | $ | (10,466 | ) | $ | 5,486 | $ | (27,300 | ) | $ | 9,128 | |||||
Undistributed earnings allocated to participating securities | — | (148 | ) | — | (215 | ) | |||||||||
Net (loss) income attributable to common stockholders—basic | $ | (10,466 | ) | $ | 5,338 | $ | (27,300 | ) | $ | 8,913 | |||||
Denominator: | |||||||||||||||
Weighted average shares used in computing net income per share attributable to common stockholders—basic | 147,181 | 142,632 | 143,301 | 143,680 | |||||||||||
Net (loss) income per share attributable to common stockholders—basic | $ | (0.07 | ) | $ | 0.04 | $ | (0.19 | ) | $ | 0.06 | |||||
Diluted | |||||||||||||||
Numerator: | |||||||||||||||
Net (loss) income attributable to common stockholders—diluted | $ | (10,466 | ) | $ | 5,338 | $ | (27,300 | ) | $ | 8,913 | |||||
Denominator: | |||||||||||||||
Number of shares used for basic EPS computation | 147,181 | 142,632 | 143,301 | 143,680 | |||||||||||
Effect of dilutive securities | — | 440 | — | 443 | |||||||||||
Weighted average shares used in computing net income per share attributable to common stockholders—diluted | 147,181 | 143,072 | 143,301 | 144,123 | |||||||||||
Net (loss) income per share attributable to common stockholders—diluted | $ | (0.07 | ) | $ | 0.04 | $ | (0.19 | ) | $ | 0.06 |
Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||
2018 | 2017 | 2018 | 2017 | ||||||||
Awards excluded from the computation of diluted net (loss) income per share because their inclusion would have been anti-dilutive | 141 | 135 | 132 | 213 |
Amortized Cost | Gross Unrealized Gains | Gross Unrealized Losses | Estimated Fair Value | ||||||||||||
Available-for-sale securities: | |||||||||||||||
Corporate notes and bonds | $ | 15,770 | $ | — | $ | (96 | ) | $ | 15,674 | ||||||
Total available-for-sale securities | $ | 15,770 | $ | — | $ | (96 | ) | $ | 15,674 |
Amortized Cost | Gross Unrealized Gains | Gross Unrealized Losses | Estimated Fair Value | ||||||||||||
Available-for-sale securities: | |||||||||||||||
Corporate notes and bonds | $ | 232,048 | $ | 3 | $ | (572 | ) | $ | 231,479 | ||||||
U.S. agency obligations | 15,341 | — | (99 | ) | 15,242 | ||||||||||
U.S. treasury securities | 20,735 | — | (168 | ) | 20,567 | ||||||||||
Total available-for-sale securities | $ | 268,124 | $ | 3 | $ | (839 | ) | $ | 267,288 |
June 30, 2018 | December 31, 2017 | ||||||
Due in one year or less | $ | 15,177 | $ | 204,725 | |||
Due after one year through two years | 497 | 62,563 | |||||
Total | $ | 15,674 | $ | 267,288 |
Estimated Fair Value | Gross Unrealized Losses | ||||||
Corporate notes and bonds | $ | 15,674 | $ | (96 | ) |
June 30, 2018 | December 31, 2017 | ||||||
2018 Term Facility(1) | $ | 949,838 | $ | — | |||
2018 Revolving Facility | — | — | |||||
2014 Term Loan Facility | — | 236,250 | |||||
2014 Revolving Credit Facility | — | — | |||||
Total Credit Facilities | 949,838 | 236,250 | |||||
Less: current portion | 9,800 | 45,000 | |||||
Non-current Credit Facilities | $ | 940,038 | $ | 191,250 |
(1) | The 2018 Term Facility is presented net of unamortized deferred financing fees and original issue discount (“OID”) of $30.2 million. |
Level 1 | Level 2 | Level 3 | Total | ||||||||||||
Cash equivalents: | |||||||||||||||
Money market funds | $ | 24,934 | $ | — | $ | — | $ | 24,934 | |||||||
Short-term investments: | |||||||||||||||
Corporate notes and bonds | — | 15,674 | — | 15,674 | |||||||||||
Other assets: | |||||||||||||||
Interest rate swaps | — | 3,462 | — | 3,462 | |||||||||||
Other current liabilities: | |||||||||||||||
Interest rate swaps | — | (2,823 | ) | — | (2,823 | ) | |||||||||
Contingent consideration | — | — | (16,100 | ) | (16,100 | ) | |||||||||
Other liabilities | |||||||||||||||
Contingent consideration | — | — | (17,212 | ) | (17,212 | ) | |||||||||
Total | $ | 24,934 | $ | 16,313 | $ | (33,312 | ) | $ | 7,935 |
Level 1 | Level 2 | Level 3 | Total | ||||||||||||
Cash equivalents: | |||||||||||||||
Money market funds | $ | 162,347 | $ | — | $ | — | $ | 162,347 | |||||||
Short-term investments: | |||||||||||||||
Corporate notes and bonds | — | 231,479 | — | 231,479 | |||||||||||
U.S. agency obligations | — | 15,242 | — | 15,242 | |||||||||||
U.S. treasury securities | — | 20,567 | — | 20,567 | |||||||||||
Other current liabilities: | |||||||||||||||
Contingent consideration | — | — | (7,400 | ) | (7,400 | ) | |||||||||
Total | $ | 162,347 | $ | 267,288 | $ | (7,400 | ) | $ | 422,235 |
Fair Value Measurements Using Unobservable Inputs (Level 3) | |||||||
June 30, 2018 | December 31, 2017 | ||||||
Balance, beginning of period | $ | (7,400 | ) | $ | (12,600 | ) | |
Fair value adjustment (recognized in general and administrative expenses) | (8,700 | ) | 5,200 | ||||
Contingent consideration attributable to and assumed from ABILITY Acquisition | (17,212 | ) | — | ||||
Total | $ | (33,312 | ) | $ | (7,400 | ) |
June 30, 2018 | |||
Carrying amount | $ | 949,838 | |
Fair value | $ | 918,968 |
Asset Derivative | Liability Derivative | |||||||||||
Balance Sheet Location | Fair Value | Balance Sheet Location | Fair Value | |||||||||
Interest rate swap contract | Other assets | $ | 3,462 | Other current liabilities | $ | (2,823 | ) |
Gain (Loss) recognized in OCI | Statement of Operations Location | (Gain) Loss reclassified from OCI | ||||||||
Interest rate swap contract | $ | (199 | ) | Interest expense | $ | 838 |
Balance as of December 31, 2017 | $ | — | |
Accruals for severance | 1,764 | ||
Accruals for lease termination | 1,405 | ||
Severance payments | (273 | ) | |
Lease termination accretion | (8 | ) | |
Balance as of June 30, 2018 | $ | 2,888 |
Purchase Price | $ | 1,220,800 | |
Working capital adjustment | (630 | ) | |
Subtotal | 1,220,170 | ||
Fair value adjustments: | |||
Restricted stock marketability discount | (30,000 | ) | |
Total fair value purchase price | $ | 1,190,170 |
Cash | $ | 1,107,220 | |
Issuance of Class A common stock | 70,000 | ||
Contingent consideration | 13,580 | ||
Working capital adjustment | (630 | ) | |
Total fair value purchase price | $ | 1,190,170 |
Preliminary Fair Value | |||
Cash and cash equivalents | $ | 23,850 | |
Accounts receivable | 16,739 | ||
Income tax receivable | 551 | ||
Prepaid expenses and other current assets | 3,025 | ||
Property and equipment | 3,095 | ||
Goodwill | 749,761 | ||
Intangible assets | 513,000 | ||
Other assets | 1,252 | ||
Accounts payable and accrued expenses | (6,863 | ) | |
Deferred revenue | (7,000 | ) | |
Other current liabilities | (507 | ) | |
Other liabilities | (5,291 | ) | |
Deferred tax liabilities | (101,442 | ) | |
Total consideration transferred | $ | 1,190,170 |
Estimated Useful Life | Preliminary Fair Value | ||||
Customer relationships | 12-14 years | $ | 408,000 | ||
Technology | 12-14 years | 86,000 | |||
Trade names | 16-18 years | 19,000 | |||
Total intangible assets | $ | 513,000 |
Total | |||
Revenue | $ | 37,520 | |
Income before taxes | $ | 5,798 |
Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||
2018 | 2017 | 2018 | 2017 | ||||||||||||
Revenue | $ | 152,798 | $ | 145,038 | $ | 282,917 | $ | 287,005 | |||||||
Income (Loss) before taxes | $ | (16,543 | ) | $ | (1,331 | ) | $ | (43,619 | ) | $ | (10,221 | ) |
• | our future financial performance, including our ability to continue and manage our growth; |
• | our ability to retain our client base and sell additional services to them; |
• | the effect of the concentration of our revenue among our top clients; |
• | our ability to innovate and adapt our platforms and toolsets; |
• | the effects of regulations applicable to us, including regulations relating to data protection and data privacy; |
• | the effects of consolidation in the healthcare industry; |
• | the ability to successfully integrate our acquisitions, ABILITY and CCS, and the ability of the acquired business to perform as expected; |
• | the ability to enter into new agreements with existing or new platforms, products, and solutions in the timeframes expected, or at all; |
• | the successful implementation and adoption of new platforms, products and solutions; |
• | the effects of changes in tax legislation for jurisdictions within which we operate, including recent changes in U.S. tax laws; |
• | the ability to protect the privacy of our clients’ data and prevent security breaches; |
• | the effect of current or future litigation; |
• | the effect of competition on our business; |
• | the efficacy of our platforms and toolsets; and |
• | the timing and size of business realignment and restructuring charges. |
June 30, | |||||
2018 | 2017 | ||||
(in thousands) | |||||
MORE2 Registry® dataset metrics(1) | |||||
Unique patient count(2) | 252,603 | 230,000 | |||
Medical event count(3) | 39,333,463 | 30,000,000 | |||
Trailing 12 month Patient Analytics Months (PAM)(1)(4) | 46,152,155 | 31,226,926 |
(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 generally accepted accounting principles (“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. As of June 30, 2018, these metrics do not incorporate data related to the ABILITY Acquisition. |
(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. As of June 30, 2017, the Company was processing large unique patient count and medical event count dataset transmissions. For this reason, June 30, 2017 unique patient count and medical event count amounts varied from historical calculation methodologies, and represented estimates pending final MORE2 Registry® dataset incorporation and processing. |
(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 within our platform solutions 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. |
Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||
2018 | 2017 | 2018 | 2017 | ||||||||||||
Investment in Innovation: | |||||||||||||||
Research and development(1) | $ | 7,545 | $ | 7,282 | $ | 13,966 | $ | 15,070 | |||||||
Capitalized software development(2) | 11,366 | 8,793 | 21,662 | 14,933 | |||||||||||
Research and development infrastructure investments(3) | 727 | 5,828 | 9,492 | 9,586 | |||||||||||
Total investment in innovation | $ | 19,638 | $ | 21,903 | $ | 45,120 | $ | 39,589 | |||||||
As a percentage of revenue | |||||||||||||||
Research and development(1) | 5 | % | 7 | % | 6 | % | 7 | % | |||||||
Capitalized software development(2) | 7 | % | 8 | % | 9 | % | 7 | % | |||||||
Research and development infrastructure investments(3) | — | % | 5 | % | 4 | % | 4 | % | |||||||
Total investment in innovation | 12 | % | 20 | % | 19 | % | 18 | % |
(1) | Research and development primarily includes employee costs related to the development and enhancement of our service offerings. |
(2) | Capitalized software development includes capitalized costs incurred to develop and enhance functionality for our platform solutions. |
(3) | Research and development infrastructure investments include strategic capital expenditures related to hardware and software platforms under development or enhancement. |
Three Months Ended June 30, | Change from 2017 to 2018 | Six Months Ended June 30, | Change from 2017 to 2018 | ||||||||||||||||||||||||||
2018 | 2017 | $ | % | 2018 | 2017 | $ | % | ||||||||||||||||||||||
Revenue | $ | 152,798 | $ | 110,578 | $ | 42,220 | 38 | % | $ | 245,553 | $ | 218,884 | $ | 26,669 | 12 | % | |||||||||||||
Expenses: | |||||||||||||||||||||||||||||
Cost of revenue(1) | 39,015 | 37,198 | 1,817 | 5 | % | 72,506 | 75,483 | (2,977 | ) | (4 | )% | ||||||||||||||||||
Sales and marketing(1) | 12,045 | 8,849 | 3,196 | 36 | % | 19,947 | 16,436 | 3,511 | 21 | % | |||||||||||||||||||
Research and development(1) | 7,545 | 7,282 | 263 | 4 | % | 13,966 | 15,070 | (1,104 | ) | (7 | )% | ||||||||||||||||||
General and administrative(1) | 60,174 | 35,874 | 24,300 | 68 | % | 109,570 | 71,719 | 37,851 | 53 | % | |||||||||||||||||||
Depreciation and amortization | 26,906 | 12,479 | 14,427 | 116 | % | 43,286 | 24,964 | 18,322 | 73 | % | |||||||||||||||||||
Restructuring expense | 9,464 | — | * | *% | 9,464 | — | * | *% | |||||||||||||||||||||
Total operating expenses | 155,149 | 101,682 | 53,467 | 53 | % | 268,739 | 203,672 | 65,067 | 32 | % | |||||||||||||||||||
(Loss) Income from operations | (2,351 | ) | 8,896 | (11,247 | ) | (126 | )% | (23,186 | ) | 15,212 | (38,398 | ) | (252 | )% | |||||||||||||||
Other income and (expenses): | |||||||||||||||||||||||||||||
Realized losses on short-term investments | — | — | * | *% | (1,035 | ) | — | * | *% | ||||||||||||||||||||
Loss on disposal of equipment | (382 | ) | (138 | ) | * | *% | (467 | ) | (138 | ) | * | *% | |||||||||||||||||
Loss on extinguishment of debt | (129 | ) | — | * | *% | (129 | ) | — | * | *% | |||||||||||||||||||
Interest income | 154 | 1,342 | (1,188 | ) | (89 | )% | 1,549 | 2,680 | (1,131 | ) | (42 | )% | |||||||||||||||||
Interest expense | (15,568 | ) | (1,519 | ) | (14,049 | ) | 925 | % | (17,450 | ) | (2,932 | ) | (14,518 | ) | 495 | % | |||||||||||||
(Loss) Income before taxes | (18,276 | ) | 8,581 | (26,857 | ) | (313 | )% | (40,718 | ) | 14,822 | (55,540 | ) | (375 | )% | |||||||||||||||
(Benefit from) Provision for income taxes | (7,810 | ) | 3,095 | (10,905 | ) | (352 | )% | (13,418 | ) | 5,694 | (19,112 | ) | (336 | )% | |||||||||||||||
Net (loss) income | $ | (10,466 | ) | $ | 5,486 | $ | (15,952 | ) | (291 | )% | $ | (27,300 | ) | $ | 9,128 | $ | (36,428 | ) | (399 | )% |
(1) | Includes stock-based compensation expense as follows: | |||||||||||||||||||||||||||||
Cost of revenue | $ | (87 | ) | $ | 410 | $ | (497 | ) | (121 | )% | $ | 53 | $ | 715 | $ | (662 | ) | (93 | )% | |||||||||||
Sales and marketing | (401 | ) | 505 | (906 | ) | (179 | )% | 68 | 895 | (827 | ) | (92 | )% | |||||||||||||||||
Research and development | 330 | 307 | 23 | 7 | % | 958 | 580 | 378 | 65 | % | ||||||||||||||||||||
General and administrative | 2,802 | 2,525 | 277 | 11 | % | 5,313 | 5,154 | 159 | 3 | % | ||||||||||||||||||||
Total stock-based compensation expense | $ | 2,644 | $ | 3,747 | $ | (1,103 | ) | (29 | )% | $ | 6,392 | $ | 7,344 | $ | (952 | ) | (13 | )% |
Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||
2018 | 2017 | 2018 | 2017 | ||||||||
Revenue | 100 | % | 100 | % | 100 | % | 100 | % | |||
Expenses: | |||||||||||
Cost of revenue | 26 | % | 34 | % | 30 | % | 34 | % | |||
Sales and marketing | 8 | % | 8 | % | 8 | % | 8 | % | |||
Research and development | 5 | % | 7 | % | 6 | % | 7 | % | |||
General and administrative | 39 | % | 32 | % | 45 | % | 33 | % | |||
Depreciation and amortization | 18 | % | 11 | % | 18 | % | 11 | % | |||
Restructuring expense | 6 | % | — | % | 4 | % | — | % | |||
Total operating expenses | 102 | % | 92 | % | 111 | % | 93 | % | |||
(Loss) Income from operations | (2 | )% | 8 | % | (11 | )% | 7 | % | |||
Other income and (expenses): | |||||||||||
Realized losses on short-term investments | — | % | — | % | *% | *% | |||||
Loss on disposal of equipment | *% | — | % | *% | *% | ||||||
Loss on extinguishment of debt | *% | — | % | *% | — | % | |||||
Interest income | *% | 1 | % | 1 | % | 1 | % | ||||
Interest expense | (10 | )% | (1 | )% | (7 | )% | (1 | )% | |||
(Loss) Income before taxes | (12 | )% | 8 | % | (17 | )% | 7 | % | |||
(Benefit from) Provision for income taxes | (5 | )% | 3 | % | (5 | )% | 3 | % | |||
Net (loss) income | (7 | )% | 5 | % | (12 | )% | 4 | % |
Exhibit Number | Description of Document | ||
10.1 | |||
10.2 | |||
31.1 | * | ||
31.2 | * | ||
32.1 | ** | ||
32.2 | ** | ||
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 |
* | Filed herewith. |
** | This certification is deemed not filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended (Exchange Act), or otherwise subject to the liability of that section, nor shall it be deemed incorporated by reference into any filing under the Securities Act of 1933, as amended (Securities Act), or the Exchange Act. |
Date: August 1, 2018 | INOVALON HOLDINGS, INC. | ||
By: | /s/ KEITH R. DUNLEAVY, M.D. | ||
Keith R. Dunleavy, M.D. Chief Executive Officer & Chairman (Principal Executive Officer) | |||
By: | /s/ JONATHAN R. BOLDT | ||
Jonathan R. Boldt Interim Chief Financial Officer (Principal Financial Officer) |
/s/ KEITH R. DUNLEAVY, M.D. |
Keith R. Dunleavy, M.D. |
Chief Executive Officer & Chairman |
(Principal Executive Officer) |
/s/ JONATHAN R. BOLDT |
Jonathan R. Boldt |
Interim Chief Financial Officer |
(Principal Financial Officer) |
1. | the Report fully complies with the requirements of Section 13(a) or Section 15(d) of the Securities Exchange Act of 1934, as amended; and |
2. | the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. |
/s/ KEITH R. DUNLEAVY, M.D. |
Keith R. Dunleavy, M.D. |
Chief Executive Officer & Chairman |
(Principal Executive Officer) |
1. | the Report fully complies with the requirements of Section 13(a) or Section 15(d) of the Securities Exchange Act of 1934, as amended; and |
2. | the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. |
/s/ JONATHAN R. BOLDT |
Jonathan R. Boldt |
Interim Chief Financial Officer |
(Principal Financial Officer) |
Document and Entity Information - shares |
6 Months Ended | |
---|---|---|
Jun. 30, 2018 |
Jul. 20, 2018 |
|
Entity Registrant Name | Inovalon Holdings, Inc. | |
Entity Central Index Key | 0001619954 | |
Document Type | 10-Q | |
Document Period End Date | Jun. 30, 2018 | |
Amendment Flag | false | |
Current Fiscal Year End Date | --12-31 | |
Entity Current Reporting Status | Yes | |
Entity Filer Category | Large Accelerated Filer | |
Document Fiscal Year Focus | 2018 | |
Document Fiscal Period Focus | Q2 | |
Class A Common | ||
Entity Common Stock, Shares Outstanding (in shares) | 72,055,158 | |
Class B Common | ||
Entity Common Stock, Shares Outstanding (in shares) | 80,608,685 |
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS - USD ($) shares in Thousands, $ in Thousands |
3 Months Ended | 6 Months Ended | |||||
---|---|---|---|---|---|---|---|
Jun. 30, 2018 |
Jun. 30, 2017 |
Jun. 30, 2018 |
Jun. 30, 2017 |
||||
Income Statement [Abstract] | |||||||
Revenue | $ 152,798 | $ 110,578 | $ 245,553 | $ 218,884 | |||
Expenses: | |||||||
Cost of revenue | [1] | 39,015 | 37,198 | 72,506 | 75,483 | ||
Sales and marketing | [1] | 12,045 | 8,849 | 19,947 | 16,436 | ||
Research and development | [1] | 7,545 | 7,282 | 13,966 | 15,070 | ||
General and administrative | [1] | 60,174 | 35,874 | 109,570 | 71,719 | ||
Depreciation and amortization | 26,906 | 12,479 | 43,286 | 24,964 | |||
Restructuring expense | 9,464 | 0 | 9,464 | 0 | |||
Total operating expenses | 155,149 | 101,682 | 268,739 | 203,672 | |||
(Loss) Income from operations | (2,351) | 8,896 | (23,186) | 15,212 | |||
Other income and (expenses): | |||||||
Realized losses on short-term investments | 0 | 0 | (1,035) | 0 | |||
Loss on disposal of equipment | (382) | (138) | (467) | (138) | |||
Gain (loss) on extinguishment of debt | (129) | 0 | (129) | 0 | |||
Interest income | 154 | 1,342 | 1,549 | 2,680 | |||
Interest expense | (15,568) | (1,519) | (17,450) | (2,932) | |||
(Loss) Income before taxes | (18,276) | 8,581 | (40,718) | 14,822 | |||
(Benefit from) Provision for income taxes | (7,810) | 3,095 | (13,418) | 5,694 | |||
Net (loss) income | (10,466) | 5,486 | (27,300) | 9,128 | |||
Net (loss) income attributable to common stockholders, basic and diluted | $ (10,466) | $ 5,338 | $ (27,300) | $ 8,913 | |||
Net (loss) income per share attributable to common stockholders, basic and diluted: | |||||||
Basic net (loss) income per share (in dollars per share) | $ (0.07) | $ 0.04 | $ (0.19) | $ 0.06 | |||
Diluted net (loss) income per share (in dollars per share) | $ (0.07) | $ 0.04 | $ (0.19) | $ 0.06 | |||
Weighted average shares of common stock outstanding: | |||||||
Basic (in shares) | 147,181 | 142,632 | 143,301 | 143,680 | |||
Diluted (in shares) | 147,181 | 143,072 | 143,301 | 144,123 | |||
|
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Parenthetical) - USD ($) $ in Thousands |
3 Months Ended | 6 Months Ended | ||
---|---|---|---|---|
Jun. 30, 2018 |
Jun. 30, 2017 |
Jun. 30, 2018 |
Jun. 30, 2017 |
|
Includes stock-based compensation expense as follows: | ||||
Total stock-based compensation expense | $ 2,644 | $ 3,747 | $ 6,392 | $ 7,344 |
Cost of revenue | ||||
Includes stock-based compensation expense as follows: | ||||
Total stock-based compensation expense | (87) | 410 | 53 | 715 |
Sales and marketing | ||||
Includes stock-based compensation expense as follows: | ||||
Total stock-based compensation expense | (401) | 505 | 68 | 895 |
Research and development | ||||
Includes stock-based compensation expense as follows: | ||||
Total stock-based compensation expense | 330 | 307 | 958 | 580 |
General and administrative | ||||
Includes stock-based compensation expense as follows: | ||||
Total stock-based compensation expense | $ 2,802 | $ 2,525 | $ 5,313 | $ 5,154 |
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME - USD ($) $ in Thousands |
3 Months Ended | 6 Months Ended | ||
---|---|---|---|---|
Jun. 30, 2018 |
Jun. 30, 2017 |
Jun. 30, 2018 |
Jun. 30, 2017 |
|
Net (loss) income | $ (10,466) | $ 5,486 | $ (27,300) | $ 9,128 |
Other comprehensive income: | ||||
Other Comprehensive Income (Loss), Reclassification Adjustment from AOCI on Derivatives, Net of Tax | 570 | 0 | 570 | 0 |
Other Comprehensive Income (Loss), Unrealized Gain (Loss) on Derivatives Arising During Period, Net of Tax | (135) | 0 | (135) | 0 |
Realized losses on short-term investments reclassified from accumulated other comprehensive income, net of tax of $0, $0, $(319) and $0, respectively | 0 | 0 | 716 | 0 |
Net change in unrealized (losses) and gains on available-for-sale investments, net of tax of $(14), $136, $91 and $272, respectively | 31 | 35 | (204) | 211 |
Reclassification of income tax effects of the Tax Cuts and Jobs Act of 2017 | 0 | 0 | (102) | 0 |
Comprehensive (loss) income | $ (10,000) | $ 5,521 | $ (26,455) | $ 9,339 |
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (Parenthetical) - USD ($) $ in Thousands |
3 Months Ended | 6 Months Ended | ||
---|---|---|---|---|
Jun. 30, 2018 |
Jun. 30, 2017 |
Jun. 30, 2018 |
Jun. 30, 2017 |
|
Other Comprehensive Income (Loss), Reclassification Adjustment from AOCI on Derivatives, Tax | $ (268) | $ 0 | $ (268) | $ 0 |
Other Comprehensive Income (Loss), Unrealized Gain (Loss) on Derivatives Arising During Period, Tax | 64 | 0 | 64 | 0 |
Realized gains on short-term investments reclassified from accumulated other comprehensive income, tax | 0 | 0 | (319) | 0 |
Net change in unrealized gains on available-for-sale investments, tax | $ (14) | $ 136 | $ 91 | $ 272 |
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Parenthetical) - USD ($) $ in Thousands |
6 Months Ended | |
---|---|---|
Jun. 30, 2018 |
Jun. 30, 2017 |
|
Cash Acquired from Acquisition | $ 23,850 | $ 0 |
BASIS OF PRESENTATION |
6 Months Ended |
---|---|
Jun. 30, 2018 | |
Organization, Consolidation and Presentation of Financial Statements [Abstract] | |
BASIS OF PRESENTATION | BASIS OF PRESENTATION The accompanying unaudited condensed consolidated financial statements have been prepared by Inovalon Holdings, Inc. (“Inovalon” or the “Company”) in accordance with accounting principles generally accepted in the United States (“GAAP”) for interim financial reporting and as required by Rule 10-01 of Regulation S-X. Accordingly, the unaudited condensed consolidated financial statements may not include all of the information and notes required by GAAP for audited financial statements. The year-end December 31, 2017 condensed consolidated balance sheet data included herein was derived from audited financial statements but does not include all disclosures required by GAAP for complete financial statements. In the opinion of the Company’s management, the accompanying unaudited condensed consolidated financial statements contain all adjustments, consisting of items of a normal and recurring nature, necessary to present fairly the Company’s financial position as of June 30, 2018, the results of operations and comprehensive (loss) income for the three and six month periods ended June 30, 2018 and 2017, and cash flows for the six months ended June 30, 2018 and 2017. The results of operations for the three and six month periods ended June 30, 2018 and 2017 are not necessarily indicative of the results to be expected for the full year. The preparation of condensed consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts of assets and liabilities, and related disclosures, as of the date of the financial statements, and the amounts of revenue and expenses reported during the period. Actual results could differ from estimates. The information contained herein should be read in conjunction with the audited financial statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2017 (the “2017 Form 10-K”). Certain prior period amounts have been reclassified within the operating section of the condensed consolidated statements of cash flows, and within the investing section of the statements of cash flows to conform with current period presentation. Such reclassifications had no impact on net cash provided by operating activities or net cash (used in) provided by investing activities as previously reported. The accompanying unaudited condensed consolidated financial statements include the accounts of Inovalon Holdings, Inc. and its wholly owned subsidiaries. All intercompany accounts and transactions have been eliminated in consolidation. The Company’s management considers events or transactions that occur after the balance sheet date but before the financial statements are issued to provide additional evidence relative to certain estimates or to identify matters that require additional disclosure. Subsequent events have been evaluated through the date of issuance of these financial statements. Recently Adopted Accounting Standards In May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2014-09, Revenue from Contracts with Customers and subsequent clarifying guidance (“ASU 2014-09”). The core principle is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The Company adopted this standard on January 1, 2018 using the modified retrospective approach. Refer to “Note 2—Revenue.” In August 2016, the FASB issued ASU 2016-15, Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments. The update amends the guidance in Accounting Standards Codification (“ASC”) 230, Statement of Cash Flows, and clarifies how entities should classify certain cash receipts and cash payments on the statement of cash flows with the objective of reducing the existing diversity in practice related to eight specific cash flow issues. The Company adopted the requirements of the new standard in the first quarter of 2018 and there was no material impact on its consolidated financial statements. In August 2017, the FASB issued ASU 2017-12, Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities. The update amends the current hedge accounting model and eliminates the requirement to separately measure and report hedge ineffectiveness. This guidance also requires, for qualifying hedges, the entire change in the fair value of a hedging instrument to be presented in the same income statement line item as the hedged item. The update also eases documentation and assessment requirements, modifies certain disclosure requirements, and modifies the method of accounting for components excluded from the assessment of hedge effectiveness. The Company adopted the requirements of the new standard in the second quarter of 2018 concurrent with entering into four interest rate swaps. Refer to “Note 6—Fair Value Measurements.” In February 2018, the FASB issued ASU 2018-02, Income Statement-Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income. The guidance is effective for all public companies for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018. This guidance allows for a reclassification from accumulated other comprehensive income to retained earnings for stranded tax effects resulting from the Tax Cuts and Jobs Act of 2017 (the “Tax Act”) which was signed into law on December 22, 2017. Early adoption is permitted in any interim period or fiscal year before the effective date. The Company early adopted the requirements of the new standard in the first quarter of 2018, and elected to reclassify the income tax effects of the Tax Act of $0.1 million from other comprehensive income to retained earnings. Refer to the condensed consolidated statements of comprehensive (loss) income. Recently Issued Accounting Standards There have been no developments to recently issued accounting standards, including the expected dates of adoption and estimated effects on the Company’s consolidated financial statements and note disclosures, from those disclosed in the 2017 Form 10-K, that would be expected to impact the Company except for the following: In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842). ASU 2016-02 requires the recognition of lease assets and lease liabilities on the balance sheet and enhanced disclosure about leasing arrangements. The lease asset represents a right of use asset and the lease liability represents the obligation to make lease payments. This guidance is effective for public companies for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018 using a modified retrospective approach. The modified retrospective approach requires retrospective application to comparative periods presented in the consolidated financial statements. The Company is in the process of identifying its portfolio of leases that will be recorded to the balance sheet, reviewing applicable lease agreements, evaluating the election to utilize practical expedients, and implementing changes to our processes and internal controls. The Company plans to adopt the new standard effective January 1, 2019 and is currently evaluating the impact of adoption on the consolidated financial statements and notes disclosures. In June 2018, the FASB issued ASU 2018-07, Compensation–Stock Compensation (Topic 718). ASU 2018-07 expands the scope of ASC 718, Compensation–Stock Compensation, to include share-based payment transactions for acquired goods and services from non-employees. This update includes changing the accounting for non-employee stock-based compensation as it relates to the award measurement date, the fair value measurement of the awards, and forfeitures, among other changes to align the accounting with ASC 718. This guidance is effective for public companies for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018. The Company is in the process of evaluating the timing and impact of adoption on the consolidated financial statements and notes disclosures. |
REVENUE |
6 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Jun. 30, 2018 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Revenue from Contract with Customer [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
REVENUE | REVENUE The Company adopted ASU 2014-09 as of January 1, 2018 using the modified retrospective approach. Revenues for periods beginning after January 1, 2018 are presented under ASC 606, Revenue from Contracts with Customers, while prior period amounts are not adjusted and continue to be reported in accordance with our historic accounting under ASC 605. The Company recorded a cumulative effect net adjustment to increase retained earnings by $0.6 million as of January 1, 2018. The impact as a result of adopting ASC 606 was an increase of $0.2 million and $0.4 million in revenue and an increase of $0.1 million and $0.2 million in expense resulting from deferred commissions for the three and six months ended June 30, 2018, respectively. These adjustments primarily related to commissions for certain contracts which are now expensed over the remaining life of the contracts and credits provided to customers which are recorded as a reduction to revenue over the applicable service period. For the remaining contracts, the Company has elected to use the practical expedient to recognize the incremental costs of obtaining a contract as an expense when incurred if the amortization period of the asset that the entity otherwise would have recognized is one year or less. On April 2, 2018, concurrent with the ABILITY Acquisition (as defined in “Note 9—Business Combinations”), the Company was required to comply with ASC 606 and adopted ASU 2014-09 with respect to ABILITY. There was no material impact on the consolidated financial statements as a result of adopting ASU 2014-09. The Company primarily derives its revenues through the sale or subscription licensing of its platform solutions and services. The following table disaggregates revenue by offering (in thousands):
Performance Obligations A performance obligation is a contractual promise to transfer a distinct good or service to the customer. A contract’s transaction price is allocated to each distinct performance obligation based on standalone selling price and revenue is recognized when the performance obligations under the terms of a contract are satisfied. The determination of standalone selling price for each performance obligation requires judgment based on the terms of the contract. The majority of the Company’s platform solutions contracts contain a series of separately identifiable and distinct services that represent performance obligations that are satisfied over time. The Company allocates revenue to platform solutions by determining the standalone selling price of each performance obligation. Revenue is generally recognized on our platform offerings over the contract term. For these contracts, the Company has determined that it will use the practical expedient under ASC 606-10-55-18 to recognize revenue when it has the right to invoice. The Company qualifies for this practical expedient because the right to invoice corresponds directly with the value transferred to the customer. The Company allocates revenue to its service arrangements for advisory, implementation, and support services based on contractually agreed upon billing rates applied to direct labor hours expended plus the costs of other items used in the performance of the contract. The Company concluded that it will recognize revenue when it has the right to invoice the customer using the allowable practical expedient since the right to invoice the customer corresponds with the performance obligations completed. Revenues under fixed-price and retainer-based contracts are recognized ratably over the contract period or upon contract completion. Certain of the Company’s arrangements entitle a client to receive a refund if the Company fails to satisfy contractually specified performance obligations. The refund is limited to a portion or all of the consideration paid. In this case, revenue is recognized when performance obligations are satisfied. Historically, the Company has met contractually specified performance obligations. Contract Balances The timing of revenue recognition, billings and cash collections results in billed accounts receivable, unbilled receivables, and deferred revenue. Invoices to clients are generated in accordance with the terms of the applicable contract, which may not be directly related to the performance of services. Unbilled receivables are invoiced when the achievement of specific events as defined by each contract occurs. The Company had an unbilled receivables balance of $8.1 million and $14.1 million as of June 30, 2018 and December 31, 2017, respectively. The decrease in the unbilled receivables balance was primarily driven by the timing of billings, which was partially offset by $2.1 million related to the acquisition of ABILITY. Refer to “Note 9—Business Combinations.” Unbilled receivables are classified as accounts receivable on the condensed consolidated balance sheet. Advanced billings to clients in excess of revenue earned are recorded as deferred revenue until the aforementioned revenue recognition criteria are met. The Company had deferred commissions of $2.1 million as of June 30, 2018 and no deferred commissions as of December 31, 2017. The change in deferred commissions was primarily driven by $1.3 million related to the acquisition of ABILITY. The Company had a deferred revenue balance of $18.2 million and $7.0 million as of June 30, 2018 and December 31, 2017, respectively. The change in the deferred revenue balance was primarily driven by $7.6 million related to the acquisition of ABILITY. Revenue recognized during the three and six months ended June 30, 2018 that was included in the deferred revenue balance at the beginning of the year, or as of the acquisition date as it relates to ABILITY, was $4.4 million and $6.2 million, respectively. |
NET (LOSS) INCOME PER SHARE |
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Earnings Per Share [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
NET (LOSS) INCOME PER SHARE | NET (LOSS) INCOME PER SHARE 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 (loss) 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. If the Company incurs a loss from continuing operations, diluted EPS is computed in the same manner as basic EPS. Potentially dilutive securities include stock options, restricted stock units (“RSUs”) and restricted stock awards (“RSAs”). Under the treasury stock method, dilutive securities are assumed to be exercised at the beginning of the periods and as if funds obtained thereby were used to purchase common stock at the average market price during the period. Securities are excluded from the computations of diluted earnings per share if their effect would be anti-dilutive to EPS. The Company has issued RSAs under the 2015 Omnibus Incentive Plan. The Company considers issued and unvested RSAs to be participating securities as the holders of these RSAs have a non-forfeitable right to dividends in the event of the Company’s declaration of a dividend on shares of Class A and Class B common stock. Subsequent to the issuance of the participating securities, the Company applied the two-class method required in calculating net (loss) income per share of Class A and Class B common stock. Under the two-class method, net income attributable to common stockholders is determined by allocating undistributed earnings, calculated as net income, less earnings attributable to participating securities. The net income per share attributable to common stockholders is allocated based on the contractual participation rights of the Class A common stock and Class B common stock as if the income for the period has been distributed. As the liquidation and dividend rights are identical for both classes of common stock, the net income attributable to common stockholders is allocated on a proportionate basis. If the Company incurs a loss from continuing operations, losses are not allocated to participating securities. The following table reconciles the weighted average shares outstanding for basic and diluted EPS for the periods indicated (in thousands, except per share amounts):
The computation of diluted EPS does not include certain awards, on a weighted average basis, because their inclusion would have an anti-dilutive effect on EPS. The awards excluded because of their anti-dilutive effect are as follows (in thousands):
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SHORT-TERM INVESTMENTS |
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Investments, Debt and Equity Securities [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
SHORT-TERM INVESTMENTS | SHORT-TERM INVESTMENTS As of June 30, 2018, short-term investments consisted of the following (in thousands):
As of December 31, 2017, short-term investments consisted of the following (in thousands):
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 (in thousands):
The Company has certain available-for-sale securities in a gross unrealized loss position. The Company reviews its debt securities classified as short-term investments on a regular basis to evaluate whether or not any security has experienced an other-than-temporary decline in fair value. The Company considers factors such as the length of time and extent to which the market value has been less than the cost, the financial position and near-term prospects of the issuer and the Company’s intent to sell, or whether it is more likely than not the Company will be required to sell the investment before recovery of the investment’s amortized-cost basis. If the Company determines that an other-than-temporary decline exists, or if write downs related to credit losses are necessary, in one of these securities, the unrealized losses attributable to the respective investment would be reclassified to realized losses on short-term investments within the statement of operations. There were no impairments considered other-than-temporary as of June 30, 2018. The following table shows the fair values and the gross unrealized losses of available-for-sale securities that were in a gross unrealized loss position, as of June 30, 2018, aggregated by investment category (in thousands):
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DEBT |
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Debt Disclosure [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
DEBT | DEBT On September 19, 2014, the Company entered into a Credit and Guaranty Agreement with a group of lenders and Goldman Sachs Bank USA, as administrative agent (the “2014 Credit Agreement”). The terms of the 2014 Credit Agreement provided 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 “2014 Term Loan Facility”) and a senior unsecured revolving credit facility in the maximum principal amount of $100.0 million (the “2014 Revolving Credit Facility” and, together with the 2014 Term Loan Facility, the “2014 Credit Facilities”). The 2014 Term Loan Facility had a five-year term and was an amortizing facility with principal payments quarterly and interest payments monthly. On April 2, 2018, the Company paid in full all existing debt obligations under the 2014 Credit Agreement and terminated all commitments to extend further credit thereunder. On April 2, 2018, the Company entered into a credit agreement (the “2018 Credit Agreement”) with a group of lenders and Morgan Stanley Senior Funding, Inc. (“MSSF”), as administrative agent, providing for (i) a term loan B facility with the Company as borrower in a total principal amount of $980.0 million (the “2018 Term Facility”); and (ii) a revolving credit facility with the Company as borrower in a total principal amount of up to $100.0 million (the “2018 Revolving Facility” and, together with the 2018 Term Facility, the “2018 Credit Facilities”). The 2018 Revolving Facility will terminate on April 2, 2023 and the 2018 Term Facility will mature on April 2, 2025. The entire $980.0 million 2018 Term Facility was borrowed on April 2, 2018, and was used to pay off all of the Company’s existing debt obligations under the 2014 Credit Facilities as well as to provide the financing necessary to fund, in part, the cash consideration paid to acquire ABILITY. As of June 30, 2018 the entire $100.0 million Revolving Facility remained available. A loss on the early extinguishment of debt of $0.1 million was recognized during the three and six months ended June 30, 2018 related to the write-off of unamortized deferred financing fees. At the option of the Company, the loans outstanding under the 2018 Term Facility will bear interest either at: (i) Adjusted London Interbank Offer Rate (“LIBOR”) plus an applicable rate of 3.50% (or 3.25% if the Senior Secured Net Leverage Ratio, as defined in the 2018 Credit Agreement, is equal to or falls below 4.00 to 1.00) or (ii) the Alternate Base Rate (“ABR”) plus an applicable margin. The Company may elect interest periods of one, two, three or six months for Adjusted LIBOR borrowings. As set forth in the 2018 Credit Agreement, the ABR is the higher of: (i) the rate that MSSF as Administrative Agent announces from time to time as its prime or base commercial lending rate, as in effect from time to time, (ii) the Federal Funds Effective Rate plus ½ of 1.0% and (iii) one-month Adjusted LIBOR plus 1.0%. The following table discloses the outstanding debt at each balance date as follows (in thousands):
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The Company incurred an OID of $14.7 million and deferred financing fees of $16.4 million related to the 2018 Term Facility, which are shown as a direct reduction to the face amount and amortized as interest expense, primarily using the effective interest method, over the life of the 2018 Credit Agreement. The Company incurred $1.9 million in deferred financing fees related to the 2018 Revolving Facility, which is amortized as interest expense using the straight-line method. During the three and six months ended June 30, 2018, the Company recognized $0.4 million in OID amortization expense and $0.5 million in deferred financing fees related to the 2018 Term Facility. The Company recognized $0.1 million in amortization expense related to the 2018 Revolving Facility during the three and six months ended June 30, 2018. The Company and its Restricted Subsidiaries (as defined in the 2018 Credit Agreement) are subject to certain affirmative and negative covenants under the 2018 Credit Agreement, and the 2018 Credit Agreement includes certain customary representations and warranties of the Company. As of June 30, 2018, the Company is in compliance with the covenants under the 2018 Credit Agreement. |
FAIR VALUE MEASUREMENTS |
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Fair Value Disclosures [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
FAIR VALUE MEASUREMENTS | FAIR VALUE MEASUREMENTS The following table presents the fair value hierarchy for financial assets and liabilities measured at fair value on a recurring basis as of June 30, 2018 (in thousands):
The following table presents the fair value hierarchy for financial assets and liabilities measured at fair value on a recurring basis as of December 31, 2017 (in thousands):
The Company determines the fair value of its security holdings based on pricing from its pricing vendors. The valuation techniques used to measure the fair value of financial instruments having Level 2 inputs were derived from non-binding consensus prices that are corroborated by observable market data or quoted market prices for similar instruments. Such market prices may be quoted prices in active markets for identical assets (Level 1 inputs) or pricing determined using inputs other than quoted prices that are observable either directly or indirectly (Level 2 inputs). The Company performs procedures to ensure that appropriate fair values are recorded such as comparing prices obtained from other sources. The following table presents our financial instruments measured at fair value using unobservable inputs (Level 3) (in thousands):
2018 Credit Facilities The Company records debt on the balance sheet at carrying value. The estimated fair value of the Company’s debt is determined based on Level 2 inputs including current market rates for similar types of borrowings. The following table presents the carrying value and fair value of the Company’s debt (including the current portion thereof) as of June 30, 2018 (in thousands):
Interest Rate Swaps In connection with the 2018 Credit Agreement, the Company entered into four interest rate swaps during the second quarter of 2018, each of which mature in March 2025, to mitigate the risk of a rise in interest rates. These interest rate swaps mitigate the exposure on the variable component of interest on the Company’s 2018 Credit Facility. The interest rate swaps fix the LIBOR rate component of interest on $700.0 million of the 2018 Term Facility at a weighted average rate of approximately 2.8%. See “Note 5—Debt” for additional information. These interest rate swaps are designated as cash flow hedges and are deemed highly effective under ASC 815, Derivatives and Hedging. The interest rate swaps are recorded on the balance sheet at fair value as either assets or liabilities and any changes to the fair value are recorded through accumulated other comprehensive income and reclassified into interest expense in the same period in which the hedged transaction is recognized in earnings. Cash flows from interest rate swaps are reported in the same category as the cash flows from the items being hedged. The following table presents the fair value of interest rate swaps on the balance sheet as of June 30, 2018 (in thousands):
The following table presents the location and amount of gains and losses on interest rate swaps included in other comprehensive income (“OCI”) and the statement of operations for the three and six months ended June 30, 2018 (in thousands):
The net amount of accumulated other comprehensive income expected to be reclassified to interest expense in the next 12 months is $2.9 million. |
COMMITMENTS AND CONTINGENCIES |
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Jun. 30, 2018 | |
Commitments and Contingencies Disclosure [Abstract] | |
COMMITMENTS AND CONTINGENCIES | COMMITMENTS AND CONTINGENCIES Legal Proceedings—From time to time the Company is involved in various litigation matters arising out of the normal course of business. The Company consults with legal counsel on those issues related to litigation and seeks input from other experts and advisors with respect to such matters. Estimating the probable losses or a range of probable losses resulting from litigation, government actions and other legal proceedings is inherently difficult and requires an extensive degree of judgment, particularly where the matters involve indeterminate claims for monetary damages, may involve discretionary amounts, present novel legal theories, are in the early stages of the proceedings, or are subject to appeal. Whether any losses, damages or remedies ultimately resulting from such matters could reasonably have a material effect on the Company’s business, financial condition, results of operations, or cash flows will depend on a number of variables, including, for example, the timing and amount of such losses or damages (if any) and the structure and type of any such remedies. The Company’s management does not presently expect any litigation matters to have a material adverse impact on the condensed consolidated financial statements of the Company. There have been no significant or material developments to current legal proceedings, including the estimated effects on the Company’s condensed consolidated financial statements and note disclosures, subsequent to the disclosure previously provided in Note 10 of the Notes to the Consolidated Financial Statements in the 2017 Form 10-K. |
RESTRUCTURING EXPENSE RESTRUCTURING EXPENSE (Notes) |
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Restructuring and Related Activities [Abstract] | |||||||||||||||||||||||||||||||||
RESTRUCTURING EXPENSE | RESTRUCTURING EXPENSE During the second quarter of 2018, the Company completed actions under restructuring programs as part of its continuing efficiency-enhancement and cost-reduction initiatives, both as part of its ongoing margin expansion goals, as well as related to the recent acquisition and ongoing integration of ABILITY. The initiatives primarily related to workforce reductions, site closures, streamlining of software development initiatives, changes in the structure of certain business functions, and strategic initiatives to achieve cost and product development synergies in connection with the ABILITY Acquisition (as defined in “Note 9—Business Combinations”). During the three and six months ended June 30, 2018, the Company incurred $9.5 million in restructuring expense which includes $6.4 million related to a streamlining of software development initiatives, $1.8 million in severance expense, and $1.3 million for lease termination costs and accelerated depreciation related to associated leasehold improvements. As of June 30, 2018, the Company had a remaining restructuring liability associated with severance and lease termination costs of $2.9 million. The following table presents restructuring liability activity for the six months ended June 30, 2018 (in thousands):
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BUSINESS COMBINATIONS |
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BUSINESS COMBINATIONS | BUSINESS COMBINATIONS 2018 Acquisition ABILITY Network, Inc. On April 2, 2018, the Company completed the acquisition (the “ABILITY Acquisition”) of Butler Group Holdings, Inc., a Delaware corporation (“Butler”), and its wholly-owned subsidiaries, including, without limitation, ABILITY Network Inc., a Delaware corporation (“ABILITY”), for aggregate consideration of $1.19 billion (the “Purchase Price”). ABILITY is a leading cloud-based Software-as-a-service (“SaaS”) technology company helping to simplify the administrative and clinical complexities of healthcare. Through the myABILITY® software platform, an integrated set of cloud-based applications for providers, ABILITY provides core connectivity, administrative, clinical, and quality analysis, management, and performance improvement capabilities to more than 44,000 acute, post-acute and ambulatory point-of-care provider facilities. The extensive datasets, on-demand compute capability, advanced analytics, and broad healthcare ecosystem connectivity enabled by the Inovalon ONE® Platform are expected to provide a significant expansion of application offerings within the myABILITY® software platform while also expanding the nature and reach of high-value solutions for Inovalon’s existing payer, pharma, and device client-base. The combination of Inovalon and ABILITY creates a vertically integrated cloud-based platform empowering the achievement of real-time, value-based care from payers, manufacturers, and diagnostics all the way to the patient’s point of care. A summary of the composition of the stated Purchase Price and fair value of the stated Purchase Price is as follows (in thousands):
The composition of the fair value of the consideration transferred is as follows (in thousands):
The ABILITY Acquisition was accounted for using the acquisition method of accounting under ASC No. 805, Business Combinations, which requires that assets acquired and liabilities assumed are recognized at their estimated fair values. The excess of the aggregate consideration over the estimated fair values has been allocated to goodwill. In addition, ASC No. 805 requires that the consideration transferred be measured at the closing date of the ABILITY Acquisition at the then-current market prices. The preliminary value of consideration and the purchase price allocation is subject to adjustment until the Company has completed its analysis within the measurement period. The Company is in the process of reviewing its assumptions related to the fair value of the consideration including any working capital adjustments and estimates of tax related matters. The Purchase Price allocation is preliminary and the finalization of the Company’s Purchase Price allocation may result in changes in the valuation of assets acquired and liabilities assumed. The Company will finalize the Purchase Price allocation as soon as practicable in accordance with ASC No. 805, but not to exceed one year following the ABILITY Acquisition. The preliminary estimates of fair value represent the Company’s best preliminary estimates and preliminary valuations. The following table summarizes the net assets acquired and liabilities assumed (in thousands):
The amounts attributed to identified intangible assets are summarized in the table below (in thousands):
Acquisition-related costs were expensed as incurred. For the three and six months ended June 30, 2018, the Company incurred acquisition-related costs of $1.2 million and $4.5 million, respectively. Acquisition-related costs are recognized within “General and administrative” expenses in the accompanying consolidated statements of operations. The following table presents revenue and income before taxes of ABILITY since the acquisition date, April 2, 2018, included in the consolidated statements of operations (in thousands):
The following pro forma financial information is based on Inovalon’s and Butler’s historical consolidated financial statements as adjusted to give effect to pro forma events that are (1) directly attributable to the ABILITY Acquisition, (2) factually supportable, and (3) with respect to the unaudited pro forma condensed combined statements of operations, expected to have a continuing impact on the combined results. The pro forma adjustments include, but are not limited to: (i) amortization of acquired intangible assets, (ii) net increase to interest expense resulting from the extinguishment of the 2014 Credit Facilities and historical Butler debt, borrowings under the 2018 Term Facility and the amortization of related debt issuance costs, and (iii) elimination of non-recurring acquisition and integration-related expenses. The following pro forma financial information is unaudited and gives effect to the transactions as if they had occurred on January 1, 2017 (in thousands):
The unaudited pro forma revenue and income (loss) before taxes was prepared for informational purposes only based on estimates and assumptions that the Company believes to be reasonable and is not necessarily indicative of the results of operations that would have occurred if the ABILITY Acquisition had been completed on the date indicated nor of the future financial position or results of operations following completion of the ABILITY Acquisition. 2017 Acquisition ComplexCare Solutions Acquisition On July 6, 2017, the Company completed the acquisition of ComplexCare Solutions, Inc. and ComplexCare Solutions IPA, LLC (together, “CCS”). CCS is a company that provides technology-enabled interventions and member engagement coordination services for a number of payers and employers throughout the United States. The fair value included in the consolidated financial statements represents the Company’s best estimates and valuations in conformity with ASC No. 820, Fair Value Measurements and Disclosures. The final purchase price was allocated to identifiable assets acquired and liabilities assumed based upon valuation procedures performed. The Company acquired all of the capital stock of CCS for approximately $4.5 million in cash and the settlement of an existing payable to CCS of $2.3 million. The Company acquired approximately $9.8 million of assets, including approximately $1.5 million of cash and approximately $3.9 million of liabilities. The net assets acquired exceeded the consideration paid by approximately $1.4 million, and as such the Company recorded a bargain purchase gain in general and administrative expenses for the year ended December 31, 2017. |
BASIS OF PRESENTATION (Policies) |
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Organization, Consolidation and Presentation of Financial Statements [Abstract] | |
Basis of Presentation | The accompanying unaudited condensed consolidated financial statements have been prepared by Inovalon Holdings, Inc. (“Inovalon” or the “Company”) in accordance with accounting principles generally accepted in the United States (“GAAP”) for interim financial reporting and as required by Rule 10-01 of Regulation S-X. Accordingly, the unaudited condensed consolidated financial statements may not include all of the information and notes required by GAAP for audited financial statements. The year-end December 31, 2017 condensed consolidated balance sheet data included herein was derived from audited financial statements but does not include all disclosures required by GAAP for complete financial statements. In the opinion of the Company’s management, the accompanying unaudited condensed consolidated financial statements contain all adjustments, consisting of items of a normal and recurring nature, necessary to present fairly the Company’s financial position as of June 30, 2018, the results of operations and comprehensive (loss) income for the three and six month periods ended June 30, 2018 and 2017, and cash flows for the six months ended June 30, 2018 and 2017. The results of operations for the three and six month periods ended June 30, 2018 and 2017 are not necessarily indicative of the results to be expected for the full year. The preparation of condensed consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts of assets and liabilities, and related disclosures, as of the date of the financial statements, and the amounts of revenue and expenses reported during the period. Actual results could differ from estimates. The information contained herein should be read in conjunction with the audited financial statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2017 (the “2017 Form 10-K”). Certain prior period amounts have been reclassified within the operating section of the condensed consolidated statements of cash flows, and within the investing section of the statements of cash flows to conform with current period presentation. Such reclassifications had no impact on net cash provided by operating activities or net cash (used in) provided by investing activities as previously reported. The accompanying unaudited condensed consolidated financial statements include the accounts of Inovalon Holdings, Inc. and its wholly owned subsidiaries. All intercompany accounts and transactions have been eliminated in consolidation. The Company’s management considers events or transactions that occur after the balance sheet date but before the financial statements are issued to provide additional evidence relative to certain estimates or to identify matters that require additional disclosure. Subsequent events have been evaluated through the date of issuance of these financial statements. |
Recently Issued Accounting Standards | Recently Adopted Accounting Standards In May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2014-09, Revenue from Contracts with Customers and subsequent clarifying guidance (“ASU 2014-09”). The core principle is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The Company adopted this standard on January 1, 2018 using the modified retrospective approach. Refer to “Note 2—Revenue.” In August 2016, the FASB issued ASU 2016-15, Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments. The update amends the guidance in Accounting Standards Codification (“ASC”) 230, Statement of Cash Flows, and clarifies how entities should classify certain cash receipts and cash payments on the statement of cash flows with the objective of reducing the existing diversity in practice related to eight specific cash flow issues. The Company adopted the requirements of the new standard in the first quarter of 2018 and there was no material impact on its consolidated financial statements. In August 2017, the FASB issued ASU 2017-12, Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities. The update amends the current hedge accounting model and eliminates the requirement to separately measure and report hedge ineffectiveness. This guidance also requires, for qualifying hedges, the entire change in the fair value of a hedging instrument to be presented in the same income statement line item as the hedged item. The update also eases documentation and assessment requirements, modifies certain disclosure requirements, and modifies the method of accounting for components excluded from the assessment of hedge effectiveness. The Company adopted the requirements of the new standard in the second quarter of 2018 concurrent with entering into four interest rate swaps. Refer to “Note 6—Fair Value Measurements.” In February 2018, the FASB issued ASU 2018-02, Income Statement-Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income. The guidance is effective for all public companies for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018. This guidance allows for a reclassification from accumulated other comprehensive income to retained earnings for stranded tax effects resulting from the Tax Cuts and Jobs Act of 2017 (the “Tax Act”) which was signed into law on December 22, 2017. Early adoption is permitted in any interim period or fiscal year before the effective date. The Company early adopted the requirements of the new standard in the first quarter of 2018, and elected to reclassify the income tax effects of the Tax Act of $0.1 million from other comprehensive income to retained earnings. Refer to the condensed consolidated statements of comprehensive (loss) income. Recently Issued Accounting Standards There have been no developments to recently issued accounting standards, including the expected dates of adoption and estimated effects on the Company’s consolidated financial statements and note disclosures, from those disclosed in the 2017 Form 10-K, that would be expected to impact the Company except for the following: |
REVENUE (Tables) |
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Revenue from Contract with Customer [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Disaggregation of Revenue | The following table disaggregates revenue by offering (in thousands):
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NET (LOSS) INCOME PER SHARE (Tables) |
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Earnings Per Share [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of numerators and denominators of the basic and diluted EPS | The following table reconciles the weighted average shares outstanding for basic and diluted EPS for the periods indicated (in thousands, except per share amounts):
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Schedule of antidilutive securities excluded from computation of earnings per share | The awards excluded because of their anti-dilutive effect are as follows (in thousands):
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SHORT-TERM INVESTMENTS (Tables) |
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Investments, Debt and Equity Securities [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of short-term investments | As of June 30, 2018, short-term investments consisted of the following (in thousands):
As of December 31, 2017, short-term investments consisted of the following (in thousands):
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Summary of estimated fair value of short-term investments, designated as available-for-sale and classified by the contractual maturity | 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 (in thousands):
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Schedule of fair values and gross unrealized losses of available-for-sale securities aggregated by investment category | The following table shows the fair values and the gross unrealized losses of available-for-sale securities that were in a gross unrealized loss position, as of June 30, 2018, aggregated by investment category (in thousands):
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DEBT (Tables) |
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Debt Disclosure [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of Line of Credit Facilities | The following table discloses the outstanding debt at each balance date as follows (in thousands):
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FAIR VALUE MEASUREMENTS (Tables) |
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Fair Value Disclosures [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of fair value hierarchy for financial assets and liabilities measured at fair value on a recurring basis | The following table presents the fair value hierarchy for financial assets and liabilities measured at fair value on a recurring basis as of June 30, 2018 (in thousands):
The following table presents the fair value hierarchy for financial assets and liabilities measured at fair value on a recurring basis as of December 31, 2017 (in thousands):
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Schedule of financial instruments measured at fair value using unobservable inputs (Level 3) | The following table presents our financial instruments measured at fair value using unobservable inputs (Level 3) (in thousands):
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Fair Value, by Balance Sheet Grouping | The following table presents the carrying value and fair value of the Company’s debt (including the current portion thereof) as of June 30, 2018 (in thousands):
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Description of Location of Interest Rate Derivatives on Balance Sheet | The following table presents the fair value of interest rate swaps on the balance sheet as of June 30, 2018 (in thousands):
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Reclassification out of Accumulated Other Comprehensive Income | The following table presents the location and amount of gains and losses on interest rate swaps included in other comprehensive income (“OCI”) and the statement of operations for the three and six months ended June 30, 2018 (in thousands):
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RESTRUCTURING EXPENSE RESTRUCTURING EXPENSE (Tables) |
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Restructuring and Related Activities [Abstract] | |||||||||||||||||||||||||||||||||
Restructuring and Related Costs | The following table presents restructuring liability activity for the six months ended June 30, 2018 (in thousands):
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BUSINESS COMBINATIONS BUSINESS COMBINATIONS (Tables) |
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Schedule of Business Acquisitions, by Acquisition | The composition of the fair value of the consideration transferred is as follows (in thousands):
A summary of the composition of the stated Purchase Price and fair value of the stated Purchase Price is as follows (in thousands):
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Schedule of Recognized Identified Assets Acquired and Liabilities Assumed | The following table summarizes the net assets acquired and liabilities assumed (in thousands):
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Schedule of Finite-Lived Intangible Assets Acquired as Part of Business Combination | The amounts attributed to identified intangible assets are summarized in the table below (in thousands):
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Business Acquisition, Pro Forma Information | The following pro forma financial information is unaudited and gives effect to the transactions as if they had occurred on January 1, 2017 (in thousands):
The following table presents revenue and income before taxes of ABILITY since the acquisition date, April 2, 2018, included in the consolidated statements of operations (in thousands):
|
BASIS OF PRESENTATION (Details) - USD ($) $ in Thousands |
3 Months Ended | 6 Months Ended | ||
---|---|---|---|---|
Jun. 30, 2018 |
Jun. 30, 2017 |
Jun. 30, 2018 |
Jun. 30, 2017 |
|
Organization, Consolidation and Presentation of Financial Statements [Abstract] | ||||
Reclassification of income tax effects of the Tax Cuts and Jobs Act of 2017 | $ 0 | $ 0 | $ 102 | $ 0 |
REVENUE - Disaggregation of Revenue (Details) - USD ($) $ in Thousands |
3 Months Ended | 6 Months Ended | ||
---|---|---|---|---|
Jun. 30, 2018 |
Jun. 30, 2017 |
Jun. 30, 2018 |
Jun. 30, 2017 |
|
Revenue, Initial Application Period Cumulative Effect Transition [Line Items] | ||||
Total revenue | $ 152,798 | $ 110,578 | $ 245,553 | $ 218,884 |
Platform Solutions | ||||
Revenue, Initial Application Period Cumulative Effect Transition [Line Items] | ||||
Total revenue | 138,209 | 96,072 | 217,175 | 187,504 |
Services | ||||
Revenue, Initial Application Period Cumulative Effect Transition [Line Items] | ||||
Total revenue | $ 14,589 | $ 14,506 | $ 28,378 | $ 31,380 |
NET (LOSS) INCOME PER SHARE - Anti-dilutive Securities (Details) - shares shares in Thousands |
3 Months Ended | 6 Months Ended | ||
---|---|---|---|---|
Jun. 30, 2018 |
Jun. 30, 2017 |
Jun. 30, 2018 |
Jun. 30, 2017 |
|
Equity awards | ||||
NET INCOME PER SHARE | ||||
Awards excluded from the computation of diluted net income per share because their inclusion would have been anti-dilutive (in shares) | 141 | 135 | 132 | 213 |
SHORT-TERM INVESTMENTS - Available-for-sale Securities (Details) - USD ($) $ in Thousands |
Jun. 30, 2018 |
Dec. 31, 2017 |
---|---|---|
Available-for-sale securities: | ||
Amortized Cost | $ 15,770 | $ 268,124 |
Gross Unrealized Gains | 0 | 3 |
Gross Unrealized Losses | (96) | (839) |
Estimated Fair Value | 15,674 | 267,288 |
Corporate notes and bonds | ||
Available-for-sale securities: | ||
Amortized Cost | 15,770 | 232,048 |
Gross Unrealized Gains | 0 | 3 |
Gross Unrealized Losses | (96) | (572) |
Estimated Fair Value | $ 15,674 | 231,479 |
U.S. agency obligations | ||
Available-for-sale securities: | ||
Amortized Cost | 15,341 | |
Gross Unrealized Gains | 0 | |
Gross Unrealized Losses | (99) | |
Estimated Fair Value | 15,242 | |
U.S. treasury securities | ||
Available-for-sale securities: | ||
Amortized Cost | 20,735 | |
Gross Unrealized Gains | 0 | |
Gross Unrealized Losses | (168) | |
Estimated Fair Value | $ 20,567 |
SHORT-TERM INVESTMENTS - Estimated Fair Value by Contractual Maturity Date (Details) - USD ($) $ in Thousands |
Jun. 30, 2018 |
Dec. 31, 2017 |
---|---|---|
Investments, Debt and Equity Securities [Abstract] | ||
Due in one year or less | $ 15,177 | $ 204,725 |
Due after one year through two years | 497 | 62,563 |
Available-for-sale Securities, Debt Securities, Current | 15,674 | |
Total | $ 15,674 | $ 267,288 |
SHORT-TERM INVESTMENTS - Other-than-temporary Impairments (Details) |
6 Months Ended |
---|---|
Jun. 30, 2018
USD ($)
| |
Investments, Debt and Equity Securities [Abstract] | |
Other-than-temporary impairments | $ 0 |
SHORT-TERM INVESTMENTS - Fair Values and Gross Unrealized Losses of Available-for-sale Securities in a Gross Loss Position (Details) - Corporate notes and bonds $ in Thousands |
Jun. 30, 2018
USD ($)
|
---|---|
Fair Values and Gross Unrealized Losses of Available-for-sale Securities in a Gross Loss Position | |
Estimated Fair Value | $ 15,674 |
Gross Unrealized Losses | $ (96) |
DEBT - Schedule of Debt (Details) - USD ($) |
Jun. 30, 2018 |
Dec. 31, 2017 |
---|---|---|
Line of Credit Facility [Line Items] | ||
Long-term Line of Credit | $ 949,838,000 | $ 236,250,000 |
Credit facilities | 9,800,000 | 45,000,000 |
Credit facilities, less current portion | 940,038,000 | 191,250,000 |
Morgan Stanley Senior Funding, Inc. | Revolving Credit Facility | ||
Line of Credit Facility [Line Items] | ||
Long-term Line of Credit | 0 | 0 |
Morgan Stanley Senior Funding, Inc. | Secured Debt | ||
Line of Credit Facility [Line Items] | ||
Unamortized Loan Commitment and Origination Fees and Unamortized Discounts or Premiums | 30,200,000 | |
Long-term Line of Credit | 949,838,000 | 0 |
Goldman Sachs Bank USA | Revolving Credit Facility | ||
Line of Credit Facility [Line Items] | ||
Long-term Line of Credit | 0 | 0 |
Goldman Sachs Bank USA | Unsecured Debt | ||
Line of Credit Facility [Line Items] | ||
Long-term Line of Credit | $ 0 | $ 236,250,000 |
FAIR VALUE MEASUREMENTS - Unobservable Inputs (Level 3) (Details) - USD ($) $ in Thousands |
6 Months Ended | 12 Months Ended | |
---|---|---|---|
Jun. 30, 2018 |
Jun. 30, 2017 |
Dec. 31, 2017 |
|
Fair Value Measurements Using Unobservable Inputs (Level 3) | |||
Contingent consideration liability | $ (8,700) | $ 0 | |
Level 3 | |||
Fair Value Measurements Using Unobservable Inputs (Level 3) | |||
Balance, beginning of period | (7,400) | $ (12,600) | $ (12,600) |
Fair value adjustment (recognized in general and administrative expenses) | (8,700) | 5,200 | |
Total | (33,312) | (7,400) | |
Contingent Consideration Attributable to Acquisition | Level 3 | |||
Fair Value Measurements Using Unobservable Inputs (Level 3) | |||
Contingent consideration liability | $ 17,212 | $ 0 |
FAIR VALUE MEASUREMENTS FAIR VALUE MEASUREMENTS - Debt (Details) $ in Thousands |
Jun. 30, 2018
USD ($)
|
---|---|
Additional Fair Value Elements [Abstract] | |
Carrying amount | $ 949,838 |
Fair value | $ 918,968 |
FAIR VALUE MEASUREMENTS FAIR VALUE MEASUREMENTS - Interest Rate Swaps Narrative (Details) |
6 Months Ended |
---|---|
Jun. 30, 2018
USD ($)
| |
Derivatives, Fair Value [Line Items] | |
Estimate of time to transfer | 12 months |
Interest rate cash flow hedge gain (loss) to be reclassified during next 12 months, net | $ 2,900,000 |
Interest Rate Swap | |
Derivatives, Fair Value [Line Items] | |
Amount of hedged item | $ 700,000,000 |
Derivative, fixed interest rate | 2.80% |
FAIR VALUE MEASUREMENTS FAIR VALUE MEASUREMENTS - Fair Value of Interest Rate Swaps (Details) - Interest Rate Swap $ in Thousands |
6 Months Ended |
---|---|
Jun. 30, 2018
USD ($)
| |
Derivative Asset [Abstract] | |
Fair Value | $ 3,462 |
Derivative Liability [Abstract] | |
Fair Value | (2,823) |
Gain (Loss) recognized in OCI | (199) |
(Gain) Loss reclassified from OCI | $ 838 |
RESTRUCTURING EXPENSE RESTRUCTURING EXPENSE (Details) - USD ($) $ in Thousands |
3 Months Ended | 6 Months Ended | ||
---|---|---|---|---|
Jun. 30, 2018 |
Jun. 30, 2017 |
Jun. 30, 2018 |
Jun. 30, 2017 |
|
Restructuring and Related Activities [Abstract] | ||||
Restructuring expense | $ 9,464 | $ 0 | $ 9,464 | $ 0 |
Capitalized computer software, impairments | 6,400 | |||
Lease termination costs and accelerated depreciation related to leasehold improvements | 1,300 | 1,300 | ||
Restructuring Reserve [Roll Forward] | ||||
Balance as of December 31, 2017 | 0 | |||
Accruals for severance | 1,800 | 1,764 | ||
Accruals for lease termination | 1,405 | |||
Severance payments | (273) | |||
Lease termination accretion | (8) | |||
Balance as of June 30, 2018 | $ 2,888 | $ 2,888 |
BUSINESS COMBINATIONS - Additional Information (Details) facility in Thousands, $ in Thousands |
3 Months Ended | 6 Months Ended | 12 Months Ended | |
---|---|---|---|---|
Jul. 06, 2017
USD ($)
|
Jun. 30, 2018
USD ($)
|
Jun. 30, 2018
USD ($)
facility
|
Dec. 31, 2017
USD ($)
|
|
ABILITY Network | ||||
Business Acquisition [Line Items] | ||||
Consideration transferred | $ 1,190,170 | |||
Number of provider facilities | facility | 44 | |||
Acquisition related costs | $ 1,200 | $ 4,500 | ||
Payments to acquire businesses, gross | 1,107,220 | |||
Cash acquired | $ 23,850 | $ 23,850 | ||
ComplexCare Solutions, Inc. | ||||
Business Acquisition [Line Items] | ||||
Payments to acquire businesses, gross | $ 4,500 | |||
Liabilities incurred | 2,300 | |||
Assets acquired | 9,800 | |||
Cash acquired | 1,500 | |||
Liabilities assumed | $ 3,900 | |||
Bargain purchase, gain recognized, amount | $ 1,400 |
BUSINESS COMBINATIONS - Stated Purchase Price and Fair Value of the Purchase Price (Details) - ABILITY Network $ in Thousands |
6 Months Ended |
---|---|
Jun. 30, 2018
USD ($)
| |
Business Acquisition [Line Items] | |
Purchase Price | $ 1,220,800 |
Working capital adjustment | (630) |
Subtotal | 1,220,170 |
Restricted stock marketability discount | (30,000) |
Total fair value purchase price | $ 1,190,170 |
BUSINESS COMBINATIONS - Fair Value of Consideration Transferred (Details) - USD ($) $ in Thousands |
6 Months Ended | |
---|---|---|
Jun. 30, 2018 |
Jun. 30, 2017 |
|
Business Acquisition [Line Items] | ||
Contingent consideration | $ (8,700) | $ 0 |
ABILITY Network | ||
Business Acquisition [Line Items] | ||
Cash | 1,107,220 | |
Issuance of Class A common stock | 70,000 | |
Contingent consideration | 13,580 | |
Working capital adjustment | (630) | |
Total fair value purchase price | $ 1,190,170 |
BUSINESS COMBINATIONS - Purchase Price Allocation (Details) - USD ($) $ in Thousands |
Jun. 30, 2018 |
Dec. 31, 2017 |
---|---|---|
Business Acquisition [Line Items] | ||
Goodwill | $ 934,693 | $ 184,932 |
ABILITY Network | ||
Business Acquisition [Line Items] | ||
Cash acquired | 23,850 | |
Accounts receivable | 16,739 | |
Income tax receivable | 551 | |
Prepaid expenses and other current assets | 3,025 | |
Property and equipment | 3,095 | |
Goodwill | 749,761 | |
Intangible assets | 513,000 | |
Other assets | 1,252 | |
Accounts payable and accrued expenses | (6,863) | |
Deferred revenue | (7,000) | |
Other current liabilities | (507) | |
Other liabilities | (5,291) | |
Deferred tax liabilities | (101,442) | |
Total consideration transferred | $ 1,190,170 |
BUSINESS COMBINATIONS - Results of Acquiree (Details) - ABILITY Network $ in Thousands |
3 Months Ended |
---|---|
Jun. 30, 2018
USD ($)
| |
Business Acquisition [Line Items] | |
Revenue | $ 37,520 |
Income before taxes | $ 5,798 |
BUSINESS COMBINATIONS - Proforma Impact (Details) - ABILITY Network - USD ($) $ in Thousands |
3 Months Ended | 6 Months Ended | ||
---|---|---|---|---|
Jun. 30, 2018 |
Jun. 30, 2017 |
Jun. 30, 2018 |
Jun. 30, 2017 |
|
Business Acquisition [Line Items] | ||||
Revenue | $ 152,798 | $ 145,038 | $ 282,917 | $ 287,005 |
Income (Loss) before taxes | $ (16,543) | $ (1,331) | $ (43,619) | $ (10,221) |
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