10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q

(Mark One)
x	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2017
or
o	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from                             to

Commission File Number 001-36841

_______________________________________________________

INOVALON HOLDINGS, INC.

(Exact name of registrant as specified in its charter)

_______________________________________________________

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

(301) 809-4000

Registrant's telephone number, including area code

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x    No o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x    No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer" and "smaller reporting company" and "emerging growth company" in Rule 12b-2 of the Exchange Act.

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

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes o    No x

As of October 27, 2017, the registrant had 64,657,899 shares of Class A common stock outstanding and 81,215,212 shares of Class B common stock outstanding.

INOVALON HOLDINGS, INC.

FORM 10-Q

FOR THE THREE AND NINE MONTHS ENDEDSEPTEMBER 30, 2017

TABLE OF CONTENTS

		Page
PART I—FINANCIAL INFORMATION
Item 1.	Condensed Consolidated Financial Statements (unaudited)	1
	Condensed Consolidated Balance Sheets as of September 30, 2017 and December 31, 2016	1
	Condensed Consolidated Statements of Income for the three and nine months ended September 30, 2017 and 2016	2
	Condensed Consolidated Statements of Comprehensive Income for the three and nine months ended September 30, 2017 and 2016	3
	Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2017 and 2016	4
	Notes to Condensed Consolidated Financial Statements	5
Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	12
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	23
Item 4.	Controls and Procedures	24
PART II—OTHER INFORMATION
Item 1.	Legal Proceedings	25
Item 1A.	Risk Factors	25
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	25
Item 3.	Defaults Upon Senior Securities	26
Item 4.	Mine Safety Disclosures	26
Item 5.	Other Information	26
Item 6.	Exhibits	27
SIGNATURES		28

PART I—FINANCIAL INFORMATION

Item 1.    Condensed Consolidated Financial Statements

INOVALON HOLDINGS, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited, in thousands, except share and par value amounts)

	September 30, 2017			December 31, 2016
ASSETS
Current assets:
Cash and cash equivalents	$	232,555		$	127,683
Short-term investments	293,101			445,315
Accounts receivable (net of allowances of $2,669 and $5,865 at September 30, 2017 and December 31, 2016, respectively)	83,818			85,591
Prepaid expenses and other current assets	11,747			12,100
Income tax receivable	4,104			15,165
Total current assets	625,325			685,854
Non-current assets:
Property, equipment and capitalized software, net	101,419			76,420
Goodwill	184,932			184,557
Intangible assets, net	93,176			103,549
Other assets	5,706			2,964
Total assets	$	1,010,558		$	1,053,344
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable	$	30,509		$	16,474
Accrued compensation	21,297			15,211
Other current liabilities	7,708			9,468
Deferred revenue	8,807			11,850
Deferred rent	1,520			1,016
Credit facilities	41,250			30,000
Capital lease obligation	108			115
Total current liabilities	111,199			84,134
Non-current liabilities:
Credit facilities, less current portion	202,500			236,250
Capital lease obligation, less current portion	136			215
Deferred rent	261			1,457
Other liabilities	11,932			13,158
Deferred income taxes	32,440			34,553
Total liabilities	358,468			369,767
Commitments and contingencies (Note 5)
Stockholders' equity:
Common stock, $0.000005 par value, 900,000,000 shares authorized, zero shares issued and outstanding at each of September 30, 2017 and December 31, 2016, respectively	—			—
Class A common stock, $0.000005 par value, 750,000,000 shares authorized; 77,425,861 shares issued and 64,681,372 shares outstanding at September 30, 2017; 72,271,298 shares issued and 64,786,705 shares outstanding at December 31, 2016	—			—
Class B common stock, $0.000005 par value, 150,000,000 shares authorized; 81,215,212 shares issued and outstanding at September 30, 2017; 83,303,628 shares issued and outstanding at December 31, 2016	1			1
Preferred stock, $0.0001 par value, 100,000,000 shares authorized, zero shares issued and outstanding at September 30, 2017 and December 31, 2016, respectively	—			—
Additional paid-in-capital	532,084			516,300
Retained earnings	291,456			274,087
Treasury stock, Class A common stock, at cost, 12,744,489 and 7,508,985 shares at September 30, 2017 and December 31, 2016, respectively	(171,217		)	(106,231		)
Other comprehensive loss	(234		)	(580		)
Total stockholders' equity	652,090			683,577
Total liabilities and stockholders' equity	$	1,010,558		$	1,053,344

See notes to condensed consolidated financial statements.

1

INOVALON HOLDINGS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(Unaudited, in thousands, except per-share amounts)

	Three Months Ended September 30,						Nine Months Ended September 30,
	2017			2016			2017			2016
Revenue	$	115,855		$	105,013		$	334,739		$	331,495
Expenses:
Cost of revenue(1)	38,431			35,433			113,914			120,570
Sales and marketing(1)	7,929			7,037			24,365			19,712
Research and development(1)	5,780			7,404			20,850			21,047
General and administrative(1)	36,283			37,209			108,002			105,222
Depreciation and amortization	13,550			8,904			38,514			25,794
Total operating expenses	101,973			95,987			305,645			292,345
Income from operations	13,882			9,026			29,094			39,150
Other income and (expenses):
Realized gains on short-term investments	—			9			—			4
(Loss) Gain on disposal of equipment	(243		)	—			(381		)	534
Interest income	1,365			1,450			4,045			4,424
Interest expense	(1,617		)	(1,302		)	(4,549		)	(3,806		)
Income before taxes	13,387			9,183			28,209			40,306
Provision for income taxes	5,146			1,376			10,840			13,883
Net income	$	8,241		$	7,807		$	17,369		$	26,423
Net income attributable to common stockholders, basic and diluted	$	7,968		$	7,771		$	16,905		$	26,308
Net income per share attributable to common stockholders, basic and diluted:
Basic net income per share	$	0.06		$	0.05		$	0.12		$	0.17
Diluted net income per share	$	0.06		$	0.05		$	0.12		$	0.17
Weighted average shares of common stock outstanding:
Basic	141,226			150,732			142,861			151,240
Diluted	141,699			151,562			143,327			152,122

________________________________________________

(1)	Includes stock-based compensation expense as follows:
	Cost of revenue	$	474	$	94	$	1,189	$	334
	Sales and marketing	561		140		1,456		446
	Research and development	349		186		929		927
	General and administrative	3,597		1,704		8,751		4,645
	Total stock-based compensation expense	$	4,981	$	2,124	$	12,325	$	6,352

See notes to condensed consolidated financial statements.

2

INOVALON HOLDINGS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Unaudited, in thousands)

	Three Months Ended September 30,					Nine Months Ended September 30,
	2017		2016			2017		2016
Net income	$	8,241	$	7,807		$	17,369	$	26,423
Other comprehensive income:
Realized gains on short-term investments reclassified from accumulated other comprehensive income, net of tax of $0, $5, $0 and $3, respectively	—		(10		)	—		(7		)
Net change in unrealized gains on available-for-sale investments, net of tax of ($61), ($380), ($274) and ($2,182), respectively	135		832			346		3,350
Comprehensive income	$	8,376	$	8,629		$	17,715	$	29,766

See notes to condensed consolidated financial statements.

3

INOVALON HOLDINGS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited, in thousands)

	Nine Months Ended September 30,
	2017			2016
Cash flows from operating activities:
Net income	$	17,369		$	26,423
Adjustments to reconcile net income to net cash provided by operating activities:
Stock-based compensation expense	12,325			6,352
Depreciation	27,129			20,368
Amortization of intangibles	11,385			5,426
Amortization of premiums on short-term investments	1,571			2,502
Realized gains on short-term investments	—			(4		)
Tax payments for equity award issuances	—			95
Deferred income taxes	(1,540		)	(3,110		)
Excess tax benefits from stock-based compensation	—			(1,135		)
Loss (Gain) on disposal of equipment	381			(534		)
Change in fair value of contingent consideration	(2,900		)	706
Bad debt expense	—			79
Changes in assets and liabilities:
Accounts receivable	5,259			1,332
Prepaid expenses and other current assets	1,931			(3,604		)
Income taxes receivable	11,174			7,677
Other assets	(2,722		)	4,189
Accounts payable	5,653			(5,903		)
Accrued compensation	1,346			2,090
Other liabilities	(4,210		)	5,866
Deferred rent	(696		)	(557		)
Deferred revenue	(2,507		)	361
Net cash provided by operating activities	80,948			68,619
Cash flows from investing activities:
Maturities of short-term investments	150,696			248,998
Sales of short-term investments	—			31,549
Purchases of short-term investments	—			(164,737		)
Purchases of property and equipment	(17,544		)	(11,267		)
Investment in capitalized software	(21,741		)	(14,220		)
Acquisitions, net of cash acquired of $1,535	(3,490		)	—
Net cash provided by investing activities	107,921			90,323
Cash flows from financing activities:
Repurchase of common stock	(64,986		)	(51,118		)
Repayment of credit facility borrowings	(22,500		)	(11,250		)
Proceeds from exercise of stock options	3,781			5,111
Acquisition-related contingent consideration	—			(2,300		)
Capital lease obligations paid	(84		)	(31		)
Tax payments for equity award issuances	(208		)	(137		)
Excess tax benefits from stock-based compensation	—			1,135
Net cash used in financing activities	(83,997		)	(58,590		)
Increase in cash and cash equivalents	104,872			100,352
Cash and cash equivalents, beginning of period	127,683			114,034
Cash and cash equivalents, end of period	$	232,555		$	214,386
Supplementary cash flow disclosure:
Cash paid during the period for:
Income taxes, net of refunds	$	725		$	10,014
Interest	4,416			3,600
Non-cash investing activities:
Accruals for purchases of property, equipment	8,295			816
Accruals for investment in capitalized software	3,892			492

See notes to condensed consolidated financial statements.

4

INOVALON HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

1.BASIS OF PRESENTATION

The accompanying unaudited condensed consolidated financial statements have been prepared by Inovalon Holdings, Inc. (the "Company") in accordance with accounting principles generally accepted in the United States ("GAAP") for interim financial reporting and as required by Rule 10-01 of Regulation S-X. Accordingly, the unaudited condensed consolidated financial statements may not include all of the information and notes required by GAAP for audited financial statements. The year-end December 31, 2016 condensed consolidated balance sheet data included herein was derived from audited financial statements but does not include all disclosures required by GAAP for complete financial statements. In the opinion of the Company's management, the accompanying unaudited condensed consolidated financial statements contain all adjustments, consisting of items of a normal and recurring nature, necessary to present fairly the Company's financial position as of September 30, 2017, the results of operations and comprehensive income for the three and nine month periods ended September 30, 2017 and 2016, and cash flows for the nine months ended September 30, 2017 and 2016. The results of operations for the three and nine month periods ended September 30, 2017 and 2016 are not necessarily indicative of the results to be expected for the full year. The preparation of condensed consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts of assets and liabilities, and related disclosures, as of the date of the financial statements, and the amounts of revenue and expenses reported during the period. Actual results could differ from estimates. The information contained herein should be read in conjunction with the audited financial statements included in the Company's Annual Report on Form 10-K for the year ended December 31, 2016 (the "2016 Form 10-K").

The accompanying unaudited condensed consolidated financial statements include the accounts of Inovalon Holdings, Inc. and its wholly owned subsidiaries. All intercompany accounts and transactions have been eliminated in consolidation.

The Company's management considers events or transactions that occur after the balance sheet date but before the financial statements are issued to provide additional evidence relative to certain estimates or to identify matters that require additional disclosure. Subsequent events have been evaluated through the date of issuance of these financial statements.

Recently Issued Accounting Standards

There have been no developments to recently issued accounting standards, including the expected dates of adoption and estimated effects on the Company's consolidated financial statements and note disclosures, from those disclosed in the 2016 Form 10-K, that would be expected to impact the Company except for the following:

In May 2014, the Financial Accounting Standards Board ("FASB") issued ASU 2014-09, Revenue from Contracts with Customers and subsequent clarifying guidance ("ASU 2014-09"). This revenue recognition guidance supersedes existing GAAP guidance, including most industry-specific guidance. 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 guidance identifies five steps to apply in achieving this principle. ASU 2014-09 is effective for fiscal years beginning after December 15, 2017. ASU 2014-09 may be applied either retrospectively or through the use of a modified-retrospective method. The Company currently expects to adopt the new standard using a modified retrospective approach on January 1, 2018. The Company is currently evaluating the impacts of the application of the new standard to its existing customer contracts and will continue to review new contracts entered into prior to the adoption of the new standard. The Company is currently in the process of finalizing policies and implementing changes to our processes, including a process for future contract reviews, and internal control over financial reporting. The potential impacts of the new standard are still being assessed related to the accounting arrangements that include variable consideration, capitalization of costs of commissions that were previously expensed as incurred, upfront contract costs and contract fulfillment costs. The Company will provide additional disclosures as required by the new standard upon adoption.

In January 2017, the FASB issued ASU 2017-01, Business Combinations (Topic 805): Clarifying the Definition of a Business. The new standard narrows the definition of a business and provides a framework for evaluation. This ASU is effective for financial statements issued for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. The Company will apply the requirements of the new standard in the fourth quarter of 2017 on a prospective basis.

 In January 2017, the FASB issued ASU 2017-04, Intangibles—Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment. The new standard simplifies the subsequent measurement of goodwill by eliminating the second step of the goodwill impairment test. This ASU will be applied prospectively and is effective for annual or interim goodwill

5

impairment tests in fiscal years beginning after December 15, 2019. Early adoption is permitted for interim or annual goodwill impairment tests performed on testing dates after January 1, 2017 and the Company early adopted the requirements of the new standard in the fourth quarter of 2017 as it performs its annual impairment analysis. The Company is in the process of evaluating each of its reporting units based on current and forecasted financial information and will finalize the valuations and impairment analysis during the fourth quarter of 2017.

2.NET 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 income by the weighted average number of shares of common stock (Class A common stock and Class B common stock) outstanding during the period. Diluted EPS is computed by dividing net income by the sum of the weighted average number of shares of common stock outstanding and potentially dilutive securities outstanding during the period under the treasury stock method. Potentially dilutive securities include stock options, restricted stock units ("RSUs") and restricted stock awards ("RSAs"). Under the treasury stock method, dilutive securities are assumed to be exercised at the beginning of the periods and as if funds obtained thereby were used to purchase common stock at the average market price during the period. Securities are excluded from the computations of diluted earnings per share if their effect would be anti-dilutive to EPS.

The Company has issued RSAs under the 2015 Omnibus Incentive Plan. The Company considers issued and unvested RSAs to be participating securities as the holders of these RSAs have a non-forfeitable right to dividends in the event of the Company's declaration of a dividend on shares of Class A and Class B common stock. Subsequent to the issuance of the participating securities, the Company applied the two-class method required in calculating net income per share of Class A and Class B common stock. Under the two-class method, net income attributable to common stockholders is determined by allocating undistributed earnings, calculated as net income, less earnings attributable to participating securities. The net income per share attributable to common stockholders is allocated based on the contractual participation rights of the Class A common stock and Class B common stock as if the income for the period has been distributed. As the liquidation and dividend rights are identical for both classes of common stock, the net income attributable to common stockholders is allocated on a proportionate basis.

The following table reconciles the weighted average shares outstanding for basic and diluted EPS for the periods indicated (in thousands, except per share amounts):

	Three Months Ended September 30,						Nine Months Ended September 30,
	2017			2016			2017			2016
Basic
Numerator:
Net income	$	8,241		$	7,807		$	17,369		$	26,423
Undistributed earnings allocated to participating securities	(273		)	(36		)	(464		)	(115		)
Net income attributable to common stockholders	$	7,968		$	7,771		$	16,905		$	26,308
Denominator:
Weighted average shares used in computing net income per share attributable to common stockholders—basic	141,226			150,732			142,861			151,240
Net income per share attributable to common stockholders—basic	$	0.06		$	0.05		$	0.12		$	0.17
Diluted
Numerator:
Net income attributable to common stockholders	$	7,968		$	7,771		$	16,905		$	26,308
Denominator:
Number of shares used for basic EPS computation	141,226			150,732			142,861			151,240
Effect of dilutive securities	473			830			466			882
Weighted average shares used in computing net income per share attributable to common stockholders—diluted	141,699			151,562			143,327			152,122
Net income per share attributable to common stockholders—diluted	$	0.06		$	0.05		$	0.12		$	0.17

6

The computation of diluted EPS does not include certain awards, on a weighted average basis, for the three and nine months ended September 30, 2017 and 2016, respectively, because their inclusion would have an anti-dilutive effect on EPS. The awards excluded because of their anti-dilutive effect are as follows (in thousands):

	Three Months Ended September 30,		Nine Months Ended September 30,
	2017	2016	2017	2016
Awards excluded from the computation of diluted net income per share because their inclusion would have been anti-dilutive	42	240	138	138

3.SHORT-TERM INVESTMENTS

As of September 30, 2017, short-term investments consisted of the following (in thousands):

	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Estimated Fair Value
Available-for-sale securities:
Corporate notes and bonds	$	257,468	$	61	$	(313	)	$	257,216
U.S. agency obligations	15,322		—		(55		)	15,267
U.S. treasury securities	20,725		—		(107		)	20,618
Total available-for-sale securities	$	293,515	$	61	$	(475	)	$	293,101

As of December 31, 2016, short-term investments consisted of the following (in thousands):

	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Estimated Fair Value
Available-for-sale securities:
Corporate notes and bonds	$	349,571	$	36	$	(918	)	$	348,689
U.S. agency obligations	34,864		22		(78		)	34,808
U.S. treasury securities	53,681		6		(100		)	53,587
Commercial paper	6,312		—		(3		)	6,309
Certificates of deposit	1,921		1		—			1,922
Total available-for-sale securities	$	446,349	$	65	$	(1,099	)	$	445,315

The following table summarizes the estimated fair value of our short-term investments, designated as available-for-sale and classified by the contractual maturity date of the securities as of the dates shown (in thousands):

	September 30, 2017		December 31, 2016
Due in one year or less	$	181,387	$	176,696
Due after one year through three years	111,714		268,619
Total	$	293,101	$	445,315

The Company has certain available-for-sale securities in a gross unrealized loss position. The Company reviews its debt securities classified as short-term investments on a regular basis to evaluate whether or not any security has experienced an other-than-temporary decline in fair value. The Company considers factors such as the length of time and extent to which the market value has been less than the cost, the financial position and near-term prospects of the issuer and the Company's intent to sell, or whether it is more likely than not the Company will be required to sell the investment before recovery of the investment's amortized-cost basis. If the Company determines that an other-than-temporary decline exists, or if write downs related to credit losses are necessary, in one of these securities, the unrealized losses attributable to the respective investment would be reclassified to realized losses on short-term investments within the statement of operations. There were no impairments considered other-than-temporary as of September 30, 2017.

7

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 September 30, 2017, aggregated by investment category (in thousands):

	Estimated Fair Value		Gross Unrealized Losses
Corporate notes and bonds	$	186,286	$	(313	)
U.S. agency obligations	15,267		(55		)
U.S. treasury securities	20,618		(107		)
	$	222,171	$	(475	)

4.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 September 30, 2017 (in thousands):

	Level 1		Level 2		Level 3			Total
Cash Equivalents:
Money market funds	$	160,828	$	—	$	—		$	160,828
Short-term investments:
Corporate notes and bonds	—		257,216		—			257,216
U.S. agency obligations	—		15,267		—			15,267
U.S. treasury securities	—		20,618		—			20,618
Certificates of deposit	—		—		—			—
Liabilities:
Contingent consideration	—		—		(9,700		)	(9,700		)
Total	$	160,828	$	293,101	$	(9,700	)	$	444,229

The following table presents the fair value hierarchy for financial assets and liabilities measured at fair value on a recurring basis as of December 31, 2016 (in thousands):

	Level 1		Level 2		Level 3			Total
Cash Equivalents:
Money market funds	$	44,108	—		—			$	44,108
Short-term investments:
Corporate notes and bonds	—		348,689		—			348,689
U.S. agency obligations	—		34,808		—			34,808
U.S. treasury securities	—		53,587		—			53,587
Commercial paper	—		6,309		—			6,309
Certificates of deposit	—		1,922		—			1,922
Other Current Liabilities:
Contingent consideration	—		—		(12,600		)	(12,600		)
Total	$	44,108	$	445,315	$	(12,600	)	$	476,823

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.

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The following table presents our financial instruments measured at fair value using unobservable inputs (Level 3) (in thousands):

	Fair Value Measurements Using Unobservable Inputs (Level 3)
	September 30, 2017			December 31, 2016
Balance, beginning of period	$	(12,600	)	$	(2,300	)
Accretion expense (recognized in general and administrative expenses)	2,900			(706		)
Settlement (payment) of liability	—			3,006
Contingent consideration attributable to Creehan acquisition	—			(12,600		)
Total	$	(9,700	)	$	(12,600	)

5.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.

On June 24, 2016, a purported securities class action complaint (Xiang v. Inovalon Holdings, Inc., et.al., No. 1:16-cv-04923) was filed in the United States District Court for the Southern District of New York against the Company, certain officers, directors and underwriters in the Company's initial public offering (the "Complaint"). The Complaint was brought on behalf of a purported class consisting of all persons or entities who purchased shares of the Company's Class A common stock pursuant or traceable to the Registration Statement relating to the Company's initial public offering on February 18, 2015. The Complaint asserted violations of Sections 11 and 15 of the Securities Act based on allegedly false or misleading statements and omissions with respect to, among other things, the Company's revenues from sales in the city and state of New York and the Company's effective tax rate. The Complaint sought certification as a class action and unspecified compensatory damages plus interest and attorneys' fees. On June 28, 2016, a nearly identical complaint was filed in the same court captioned Patel v. Inovalon Holdings, Inc., et. al., No. 1:16-cv-05065. On July 5, 2016, the court consolidated the Xiang and Patel actions. On September 20, 2016, the court appointed a lead plaintiff and lead counsel. On December 21, 2016, lead plaintiff filed a consolidated class action complaint (the "Amended Complaint") purporting to assert violations of Sections 11, 12(a)(2), and 15 of the Securities Act of 1933, as amended, based on allegedly false or misleading statements and omissions with respect to substantially the same topics as alleged in the Complaint. On February 21, 2017, and as required by the court's individual practices, the Company invoked the pre-motion process required prior to filing a motion to dismiss. On May 23, 2017, the court issued a decision and order construing the pre-motion letter submitted by the defendants as a motion to dismiss, granting dismissal of the Section 12 claims against the individual defendants, but denying dismissal of the remaining claims. On June 6, 2017, defendants filed a joint motion for reconsideration and supporting memorandum of law seeking reconsideration of the court’s decision and arguing that plaintiff’s claims are time-barred. Also on June 6, 2017, defendants submitted a letter to the court requesting, in the alternative to the motion for reconsideration, a pre-motion conference concerning defendants’ anticipated motion for certification of an interlocutory appeal to resolve a controlling question of law. On July 11, 2017, the Company and its officers and directors filed their answer to the Amended Complaint denying that plaintiffs are entitled to any relief. On July 28, 2017, the court issued a decision and order denying both the motion for reconsideration and defendant’s request for an interlocutory appeal. In light of, among other things, the early stage of the litigation, the Company is unable to predict the outcome of these consolidated actions and is unable to make a meaningful estimate of the amount or range of loss, if any, that could result from this proceeding.

On June 29, 2017, Virginia Rodriquez filed a putative shareholder derivative suit in the Supreme Court of the State of New York, County of Westchester, against certain of the Company’s present and former directors and officers (the “Derivative Complaint”). The Company was named as a nominal defendant. The Derivative Complaint makes allegations similar to the allegations in the securities class action Amended Complaint described above and asserts claims for breach of fiduciary duty,

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unjust enrichment, abuse of control and gross mismanagement, and seeks unspecified damages, an order directing the Company "to reform and improve" certain corporate governance and internal procedures, restitution from the defendants and disgorgement of all profits, benefits and other compensation received and costs and disbursements incurred in connection with the action, including attorneys' fees. On September 12, 2017, the Company and the individual defendants filed a joint motion to dismiss the Derivative Complaint solely, as directed by the court, on the basis of a binding forum selection provision contained in the Company’s Second Amended and Restated Certificate of Incorporation, which motion is pending before the court. The Company is a nominal defendant in the derivative action and, in light of, among other things, the early stage of the litigation, the Company is unable to predict the outcome of this action and is unable to make a meaningful estimate of the amount or range of loss, if any, that could result from this proceeding.

6.BUSINESS COMBINATIONS

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 which 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, in conformity with ASC No. 820, Fair Value Measurements and Disclosures, represent the Company's best estimates and valuations. In accordance with ASC No. 805, Business Combinations, the preliminary allocation of the consideration value is subject to adjustment until the Company has completed its analysis, but not to exceed one year after the date of acquisition. The total purchase price has been allocated on a preliminary basis to identifiable assets acquired and liabilities assumed based upon valuation procedures performed to-date. 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 $9.3 million of assets, including approximately $1.5 million of cash, and approximately $4.8 million of liabilities.

Creehan Acquisition

On October 3, 2016, the Company completed its acquisition of Creehan Holding Co., Inc. ("Creehan"). Creehan, through its subsidiary Creehan & Company Corporation, is a leading provider of specialty pharmacy software solutions to the pharmaceutical industry. Pursuant to the terms of the Stock Purchase Agreement between the Company and Creehan (the "Stock Purchase Agreement"), Creehan became a wholly owned subsidiary of Inovalon.

Pursuant to the terms of the Stock Purchase Agreement, Inovalon acquired all of the issued and outstanding capital stock of Creehan for an aggregate purchase price of $130 million, which was comprised of $120 million in cash and $10 million in shares of Class A common stock of the Company. The Company completed the acquisition of Creehan through the use of cash on hand and the issuance of 651,355 shares of Class A common stock, subject to resale restrictions. Certain components, which are referred to below as contingent consideration, of the aggregate purchase price are subject to the achievement of financial performance objectives. The Company acquired Creehan for the assembled workforce, technology platform, client base, and to accelerate entry into the specialty pharmacy software market. Transaction costs in connection with the acquisition are expensed as incurred and are included in general and administrative expenses. The results of operations related to Creehan are included in our consolidated statements of operations beginning from the date of acquisition.

A summary of the final composition of the stated purchase price and fair value of the stated purchase price is as follows (in thousands):

Share Purchase Agreement purchase price	$	130,000
Working capital adjustment	755
Subtotal	130,755
Fair value adjustments:
Marketability restrictions on equity consideration	(2,236		)
Contingent consideration probability of achievement adjustment.	(12,400		)
Post-acquisition compensation expense	(5,952		)
Total fair value purchase price	$	110,167

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During the nine months ended September 30, 2017, the Company finalized the working capital adjustment resulting in an increase of approximately $0.4 million to the initial purchase price allocation. After adjusting for this difference the composition of the fair value of the consideration transferred is as follows (in thousands):

Cash	$	89,803
Issuance of Class A common stock	7,764
Contingent consideration	12,600
Total fair value purchase price	$	110,167

Recording of Assets Acquired and Liabilities Assumed

As of September 30, 2017, the Company had finalized the fair value of acquired assets, assumed liabilities and tax related matters. The following table summarizes the purchase price allocation to assets acquired and liabilities assumed, including identification of measurement period adjustments (in thousands):

	Recorded Value
Cash and cash equivalents	$	861
Accounts receivable	9,048
Other current assets	171
Property, equipment and capitalized software	641
Intangible assets(1)	50,900
Goodwill(2)	51,362
Total assets acquired	112,983
Current liabilities	(916		)
Deferred revenue	(1,900		)
Total liabilities assumed	(2,816		)
Net assets acquired	$	110,167

______________________________________

(1) Identifiable intangible assets were measured using a combination of an income approach and a market approach.

(2) Goodwill is the excess of the consideration transferred over the net assets recognized and represents the future economic benefits, primarily as a result of other assets acquired that could not be individually identified and separately recognized. Goodwill is not amortized. The goodwill attributable to the Creehan acquisition is deductible for tax purposes.

The amounts attributed to identified intangible assets are summarized in the table below (in thousands):

	Weighted Average Useful Life	Recorded Value
Customer relationships	8 years	$	36,500
Tradename	4 years	4,000
Technology	4 years	8,800
In-process Research and Development	indefinite	1,600
Total intangible assets		$	50,900

The following table summarizes the activity related to the carrying value of our goodwill during the nine months ended September 30, 2017 (in thousands):

Goodwill as of January 1, 2017	$	184,557
Measurement period adjustments	375
Goodwill as of September 30, 2017	$	184,932

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7.STOCKHOLDERS' EQUITY

Treasury Stock—On May 4, 2016, the Company announced that its Board of Directors authorized a program to repurchase up to $100 million of Inovalon's Class A common stock through December 31, 2016. Repurchases under the Company's share repurchase program have been made in open-market or privately negotiated transactions. The Company has and expects to continue to fund repurchases through a combination of cash on hand, cash generated by operations and sales of short-term investments, if needed. On November 2, 2016, the Company announced that its Board of Directors authorized an expansion of the share repurchase program to repurchase up to an additional $100 million of shares of Inovalon's Class A Common Stock (bringing the total to $200 million) through December 31, 2017. The share repurchase program does not obligate the Company to acquire any particular amount of Class A common stock.

During the three months ended September 30, 2017, the Company repurchased 1,538,497 shares of Class A common stock for an aggregate cost of $19.8 million at an average cost of $12.88 per share, excluding commissions. During the nine months ended September 30, 2017, the Company repurchased 5,235,504 shares of Class A common stock, for an aggregate cost of $65.0 million at an average cost of $12.41 per share, excluding commissions. At September 30, 2017, approximately $28.8 million remained available to repurchase shares under the share repurchase program. Shares that are repurchased under the repurchase program were recorded as treasury stock, based on the stock trading dates, and are available for future issuance, until retired.

Item 2.    Management's Discussion and Analysis of Financial Condition and Results of Operations

The following discussion and analysis should be read in conjunction with our unaudited condensed consolidated financial statements and the related notes included elsewhere in this Quarterly Report on Form 10-Q and with our audited consolidated financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2016, as filed with the Securities and Exchange Commission (the "SEC") on February 23, 2017 (the "2016 Form 10-K"). Unless we otherwise indicate or the context requires, references to the "Company," "Inovalon," "we," "our," and "us" refer to Inovalon Holdings, Inc. and its consolidated subsidiaries.

Note Regarding Forward-Looking Statements

This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the "Securities Act"), and Section 21E of the Securities Exchange Act of 1934, as amended (the "Exchange Act"). All statements contained in this Quarterly Report other than statements of historical fact, including but not limited to statements regarding our future results of operations and financial position, our business strategy and plans, market growth, and our objectives for future operations, are forward-looking statements. The words "believe," "may," "see," "will," "estimate," "continue," "anticipate," "intend," "expect," and similar expressions are intended to identify forward-looking statements. We have based these forward-looking statements largely on our current expectations and projections about future events and trends that we believe may affect our financial condition, results of operations, business strategy, short-term and long-term business operations and objectives and financial needs. Moreover, we operate in a very competitive and rapidly changing environment. New risks emerge from time to time. It is not possible for our management to predict all risks, nor can we assess the impact of all factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements we may make. In light of these risks, uncertainties and assumptions, the future events and trends discussed in this Quarterly Report may not occur and actual results could differ materially and adversely from those anticipated or implied in the forward-looking statements.

Factors that may cause actual results to differ from expected results include, among others:

• our future financial performance, including our ability to continue and manage our growth;

• our ability to retain our client base;

• 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 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;

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• the effects of changes in tax legislation for jurisdictions within which we operate;

• the ability to protect the privacy of our clients' data and prevent security breaches;

• the continuation of our share repurchase program;

• the effect of current or future securities class action and other litigation;

• the effect of competition on our business; and

• the efficacy of our platforms and toolsets.

Forward-looking statements are only current predictions and are subject to known and unknown risks, uncertainties, and other factors that may cause our actual results, levels of activity, performance, or achievements to be materially different from those anticipated by such statements. These factors include, among other factors, those set forth in our 2016 Form 10-K, under the heading Part I, Item 1A, "Risk Factors."

You should not rely upon forward-looking statements as predictions of future events. The events and circumstances reflected in the forward-looking statements may not be achieved or occur. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance, or achievements. We are under no duty to, and we disclaim any obligation to, update any of these forward- looking statements after the date of this Quarterly Report or to conform these statements to actual results or revised expectations.

Overview

We are a leading technology company providing cloud-based platforms empowering a data-driven transformation from volume-based to value-based models throughout the healthcare industry. Through the Inovalon ONE™ Platform, Inovalon brings to the marketplace a national-scale capability to interconnect with the healthcare ecosystem on a very large scale, aggregate and analyze data in petabyte volumes to arrive at sophisticated insights in real-time, drive impact wherever it is analytically identified best to intervene, and intuitively visualize data and information to inform business strategy and execution. Leveraging its platform capabilities, large proprietary data sets, and industry-leading subject matter expertise, Inovalon enables the assessment and improvement of clinical and quality outcomes and financial performance across the healthcare ecosystem. From health plans and provider organizations, to pharmaceutical, medical device, and diagnostics companies, Inovalon's unique achievement of value is delivered through the effective progression of “Turning Data into Insight, and Insight into Action^®.” Providing technology that supports nearly 500 healthcare organizations, Inovalon's platforms are informed by data pertaining to more than 903,000 physicians, more than 385,000 clinical facilities, and 231 million individuals.

We generate the substantial majority of our revenue through the sale or subscription licensing of our cloud-based data analytics, intervention and reporting platforms and related support services.

Quarterly Key Metrics

We review certain metrics quarterly, including the key metrics shown in the table below. We believe that these metrics are indicative of our overall level of analytical activity and the underlying growth in our business.

	September 30,
	2017	2016
	(in thousands)
MORE2 Registry® dataset metrics(1)
Unique patient count(2)	230,916	139,534
Medical event count(3)	34,316,048	11,965,465
Trailing 12 month Patient Analytics Months (PAM)(1)(4)	36,624,786	25,286,198

____________________________________

(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

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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.

(2) Unique patient count is defined as each unique, longitudinally matched, de-identified natural person represented in our MORE² Registry^® as of the end of the period presented.

(3) Medical event count is defined as the total number of discrete medical events as of the end of the period presented (for example, a discrete medical event typically results from the presentation of a patient to a physician for the diagnosis of diabetes and congestive heart failure in a single visit, the presentation of a patient to an emergency department for chest pain, etc.).

(4) PAM is defined as the sum of the analytical processes performed on each respective patient within patient populations covered by clients under contract. As used in the metric, an "analytical process" is a distinct set of data calculations undertaken by us which is initiated and completed by our analytical platform to examine a specific question such as whether a patient is believed to have a condition such as diabetes, or worsening of the disease, during a specific time period.

Trends and Factors Affecting Our Future Performance

A number of factors influence our growth and performance. We see many of these factors as being more quantitatively driven, such as the rate of growth of the underlying data counts within our datasets, the ongoing investment in innovation, the number of statement of work contracts maintained by us, and our level of analytical activity. Additionally, there are several factors that influence our growth and performance that are less quantitatively driven, including seasonality, macro-economic forces, and trends within healthcare (such as payment models, incentivization, and regulatory oversight), that can be driven by changes in federal and state laws and regulations, as well as private sector market forces.

Growth of Datasets.    Healthcare costs in the United States have been increasing significantly for many years. This rise in healthcare costs has driven a broad transition from consumption-based payment models to quality and value-based payment models across the healthcare landscape. As a result, the specific disease and comorbidity status, clinical and quality outcomes, resource utilization, and care details of the individual patient have become increasingly relevant to the various constituents across the healthcare delivery system. Concurrently, the count and complexity of diseases, diagnostics, and treatments—as well as payment models and regulatory oversight requirements—have soared. In this setting, granular data has become critical to determining and improving quality and financial performance in healthcare. Our MORE² Registry^® is our largest principal dataset and serves as a proxy for our general growth of datasets within Inovalon. The growth of our datasets that inform our analytical capabilities and comparative analytics is a key aspect of our provision of value to our clients and is indicative of our overall growth and capabilities.

Innovation and Platform Development.    Our business model is based upon our ability to deliver value to our clients through the combination of advanced, cloud-based data analytics and data-driven intervention platforms focused on the achievement of meaningful and measurable improvements in clinical quality outcomes and financial performance in healthcare. Our ability to deliver this value is dependent in part on our ability to continue to innovate, design new capabilities, and bring these capabilities to market in an enterprise scale. Our continued ability to innovate our platform and bring differentiated capabilities to market is an important aspect of our business success.

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Our investment in innovation includes costs for research and development, capitalized software development, and capital expenditures related to hardware and software platforms on which our data analytics and data-driven interventions capabilities are deployed as summarized below (in thousands, except percentages).

	Three Months Ended September 30,						Nine Months Ended September 30,
	2017			2016			2017			2016
Investment in Innovation:
Research and development(1)	$	5,780		$	7,404		$	20,850		$	21,047
Capitalized software development(2)	9,637			5,248			24,570			16,780
Research and development infrastructure investments(3)	4,454			512			14,040			3,491
Total investment in innovation	$	19,871		$	13,164		$	59,460		$	41,318
As a percentage of revenue
Research and development(1)	5		%	7		%	6		%	6		%
Capitalized software development(2)	8		%	5		%	7		%	5		%
Research and development infrastructure investments(3)	4		%	1		%	5		%	1		%
Total investment in innovation	17		%	13		%	18		%	12		%

_______________________________________

(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 data analytics and data-driven intervention platforms.

(3) Research and development infrastructure investments include strategic capital expenditures related to hardware and software platforms under development or enhancement.

Data Analytics and Data-Driven Intervention Mix.    Our business and operational models are highly scalable and leverage variable costs to support revenue generating activities. Our data analytic service costs are less variable in nature and require lower incremental capital expenditures. As a result, following initial development and deployment investments, our big data analytics platform and data technology capabilities allow us to process significant volumes of transactions with lower incremental costs. Conversely, our data-driven intervention costs are generally variable in nature and require incremental costs to generate additional revenue. As a result, the mix of our data analytics and data interventions activities affects our financial performance.

Client and Analytical Process Count Growth.    Our business is generally driven by the number of underlying patients for which our analytics and data-driven intervention platforms are being utilized. As such, we track the number of analytical processes that we run on patients each month in fulfillment of our client contracts, as totaled for the trailing 12 months. This metric is referred to as the Trailing 12 month Patient Analytics Months, or PAM. We believe that PAM is indicative of our overall level of analytical activity, and we expect our period-to-period comparisons of our PAM to be indicative of underlying growth of our business, although changes in levels of analytical activity do not always directly translate to changes in financial performance of our business. Differences in fees charged for different analytical packages exist and differences in how analytics trigger the applicability of our data-driven intervention platforms may result in increases in analytical activity that do not result in proportional increases in revenue, or net income (and vice versa). Therefore, in situations in which a new engagement is initiated for analytical processes that have a higher than average fee rate, revenue could expand disproportionately faster than the increase in PAM. Likewise, if engagements for analytical processes that have a higher than average fee rate are concluded then such conclusions can negatively affect revenue disproportionately more than PAM.

Seasonality.    The nature of our customers' end-market results in seasonality reflected in both revenue and cost of revenue differences during the year. Regulatory impact of data submission deadlines in, for example, March, June, September, and January drive predictable timing of analytics and data processing activity variances from quarter to quarter. Further, regulatory clinical encounter deadlines of June 30th and December 31st drive predictable intervention concentrations variances from quarter to quarter. The timing of these factors results in analytical and intervention activity mix variances which predictably impact financial performance from quarter to quarter. Finally, quarter to quarter financial performance may increasingly vary from historical seasonal trends as we further expand into adjacent markets and increase the portion of our revenue generated from new offerings.

Regulatory, Economic and Industry Trends.    Our clients are affected, sometimes directly, and sometimes counter-intuitively, by macro-economic trends such as economic growth (or economic recession), inflation, and unemployment. Further, industry trends in federal and state laws and regulations, as well as emerging trends in private sector payment models, affect

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our clients' businesses and their need for technologies and services to support these challenges. These factors have various effects on our business, and on occasion have resulted in the slowing or cessation of the decision-making process by clients adopting our technologies and services. On the other hand, changes in macro-economic trends and the industry landscape have accelerated the need for our technologies and services from time-to-time, particularly as regulators introduce complex requirements with which our clients must comply.

Shift to Fully Automated Data-Driven Intervention Platform Services.    We view the decreased proportion of revenue derived from partially automated data-driven intervention platform services as a positive reflection of our cloud-based interconnectivity and automation capabilities. The proportion of our revenue derived from pure data analytics and fully automated data-driven intervention platform services revenue is expected to continue to expand over time as a percentage of total revenue as a result of our continued expansion of our cloud-based interconnectivity technologies and the continued expansion of interconnectivity within the healthcare landscape. In order to drive value for our clients and serve them irrespective of their level of connectivity, we continue to provide cloud-based partially automated data-driven intervention platform services, converting the performance of such services to cloud-based fully automated data-driven intervention platform services wherever possible. As the healthcare infrastructure becomes more interconnected and our integration and interconnectivity technologies continue to expand, we believe that we will be able to achieve more rapid implementation, and greater value impact, at more efficient costs.

Critical Accounting Policies and Estimates

Our discussion and analysis of our financial condition and results of operations are based on our unaudited condensed consolidated financial statements, which have been prepared in accordance with GAAP. In connection with the preparation of our unaudited condensed consolidated financial statements, we are required to make assumptions and estimates about future events, and apply judgments that affect the reported amounts of assets and liabilities, the disclosures of contingent assets and liabilities as of the date of the financial statements, and the reported amounts of revenues and expenses during the reporting periods. We base our assumptions, estimates, and judgments on historical experience, current trends, and other factors we believe to be relevant at the time we prepare our unaudited condensed consolidated financial statements. The accounting estimates used in the preparation of our unaudited condensed consolidated financial statements will change as new events occur, as more experience is acquired, as additional information is obtained, and as our operating environment changes. On a regular basis, we review the accounting policies, assumptions, and evaluate and update our assumptions, estimates, and judgments to ensure that our unaudited condensed consolidated financial statements are presented fairly and in accordance with GAAP. However, because future events and their effects cannot be determined with certainty, actual results could differ from our assumptions and estimates, and such differences could be material.

Critical accounting policies are those policies that affect our more significant judgments and estimates used in the preparation of our unaudited condensed consolidated financial statements. For a more detailed discussion of our critical accounting policies, please refer to our 2016 Form 10-K.

Components of Results of Operations

Revenue

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

Our cloud-based data analytics services are performed either at the beginning of a data-driven intervention process, which typically aligns with regulatory submission deadlines, or on a monthly basis, depending on the particular client's needs. Cloud-based data analytics revenue is driven primarily by the number of unique patients in a client's dataset, a minimum data analytics processing fee, the number of identified gaps in care, quality, data integrity, and financial performance identified in a client's dataset, and a contractually negotiated transactional price for each identified gap or unique patient. Subscription licensing revenue is driven primarily by the number of clients, the number of unique patients in a client's population dataset, the number of analytical services contracted for by a client, and the contractually negotiated price of such services.

Cloud-based data-driven intervention platform service revenue represents revenue that is generated from fully automated processes (i.e., those processes that require no material variable-based labor components) and partially automated processes (i.e., those processes that require a degree of variable-based labor components). As many of our analytical capabilities are designed to identify gaps in care, quality, utilization, compliance, and/or other gaps that may impact our clients' achievement of greater healthcare quality and financial performance, our cloud-based data driven intervention platform services revenue is driven primarily by the results of our cloud-based data analytics processes and our clients' desire to utilize our cloud-based data-driven intervention platforms to resolve such identified gaps. Informed by our analytics, our cloud-based data-driven intervention platforms are designed to enable the resolution of specific gaps through the aggregation of specific data or achievement of specific impact. Revenue from our intervention platform utilization is generally driven by the quantity and type

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of completed interventions enabled by our platform, and a contractually negotiated transactional price for each such intervention.

Advisory service and business intelligence solutions revenue represents revenue that is generated from strategic advisory, analysis and educational services. Revenue from our advisory services arrangements is generally provided under time and materials, fixed-price, or retainer-based contracts, based on contractually negotiated prices for each such arrangement.

Cost of Revenue

Cost of revenue consists primarily of expenses for employees who provide direct contractual services to our clients, including salaries, benefits, discretionary incentive compensation, employment taxes, severance, and equity compensation costs. Cost of revenue also includes expenses associated with the integration, and verification of data and other service costs incurred to fulfill our revenue contracts. Cost of revenue does not include allocated amounts for occupancy expense and depreciation and amortization. Many of the elements of our cost of revenue are relatively variable and semi-variable, and can be reduced in the near-term to help offset any decline in our revenue.

Our business and operational models are designed to be highly scalable and leverage variable costs to support revenue generating activities. While we expect to grow our headcount over time to capitalize on our market opportunities, we believe our increased investment in automation, electronic health record integration capabilities, and economies of scale in our operating model, will position us to grow our cloud-based data analytics and cloud-based data-driven intervention platform services revenue at a greater rate than our cost of revenue, over time, excluding the impact of stock-based compensation expense.

Sales and Marketing

Sales and marketing expense consists primarily of employee-related expenses, including salaries, benefits, commissions, discretionary incentive compensation, employment taxes, severance, and equity compensation costs for our employees engaged in sales, sales support, business development, and marketing. Sales and marketing expense also includes operating expenses for marketing programs, research, trade shows and brand messages, and public relations costs. Our sales and marketing expense excludes any allocation of occupancy expense and depreciation and amortization.

We expect our sales and marketing expenses to increase as we strategically invest to expand our business. We expect to hire additional sales personnel and related support personnel to capture an increasing amount of our market opportunity. As we scale our sales and marketing activities in the short to medium term, we expect these expenses to increase in both absolute dollars and as a percentage of revenue.

Research and Development

Research and development expense (one component of our investment in innovation) consists primarily of employee-related expenses, including salaries, benefits, discretionary incentive compensation, employment taxes, severance, and equity compensation costs for our software developers, engineers, analysts, project managers, and other employees engaged in the development and enhancement of our service offerings. Research and development expense also includes certain third party consulting fees. Our research and development expense excludes any allocation of occupancy expense and depreciation and amortization.

We expect to continue our focus on developing new product offerings and enhancing our existing product offerings. As a result, we expect our research and development expense to increase in absolute dollars, although it may vary from period to period as a percentage of revenue.

General and Administrative

Our general and administrative expense consists primarily of employee-related expenses including salaries, benefits, discretionary incentive compensation, employment taxes, severance, and equity compensation costs, for employees who are responsible for management information systems, administration, human resources, finance, legal, and executive management. General and administrative expense also includes occupancy expenses (including rent, utilities, communications, and facilities maintenance), professional fees, consulting fees, insurance, travel, and other expenses. Our general and administrative expense excludes depreciation and amortization.

We expect our general and administrative expense to increase in absolute dollars driven by the expansion of our business and increases in stock-based compensation expense. However, we expect general and administrative expense, as a percentage of revenue, to decrease over time.

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Depreciation and Amortization Expense

Our depreciation and amortization expense consists primarily of depreciation of fixed assets, amortization of capitalized software development costs, and amortization of acquisition-related intangible assets.

We expect our depreciation and amortization expense to increase as we expand our business organically and through acquisitions.

Interest Income

Interest income represents interest earned net of amortization of purchased interest from our available-for-sale short-term investments.

We expect our interest income to fluctuate in proportion to the amount of funds we invest, according to our corporate investment policy, in available-for-sale short-term investments and considering prevailing available interest rate yields on such investment grade debt securities.

Interest Expense

Interest expense represents interest incurred on our Credit Facilities (as defined below, under the heading "Liquidity and Capital Resources—Debt").

We expect our interest expense to fluctuate in proportion to the outstanding principal balance of the Credit Facilities and the prevailing LIBOR interest rate.

Provision for Income Taxes

Provision for income taxes consists of federal and state income taxes in the United States and foreign income taxes from the territory of Puerto Rico, including deferred income taxes reflecting the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes, and excess tax benefits or deficiencies derived from exercises of stock options and vesting of restricted stock.

We expect that our effective tax rate may fluctuate due to the recognition of excess tax benefits and tax deficiencies associated with stock-based compensation transactions which are considered to be discrete items. Excluding discrete items impacting the effective tax rate, we expect our long-term tax rate to reflect the applicable statutory rates.

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RESULTS OF OPERATIONS

The following table sets forth our consolidated statement of operations data for each of the periods presented (in thousands, except percentages):

	Three Months Ended September 30,						Change from 2016 to 2017					Nine Months Ended September 30,						Change from 2016 to 2017
	2017			2016			$			%		2017			2016			$			%
Revenue	$	115,855		$	105,013		$	10,842		10	%	$	334,739		$	331,495		$	3,244		1	%
Expenses:
Cost of revenue(1)	38,431			35,433			2,998			8	%	113,914			120,570			(6,656		)	(6	)%
Sales and marketing(1)	7,929			7,037			892			13	%	24,365			19,712			4,653			24	%
Research and development(1)	5,780			7,404			(1,624		)	(22	)%	20,850			21,047			(197		)	(1	)%
General and administrative(1)	36,283			37,209			(926		)	(2	)%	108,002			105,222			2,780			3	%
Depreciation and amortization	13,550			8,904			4,646			52	%	38,514			25,794			12,720			49	%
Total operating expenses	101,973			95,987			5,986			6	%	305,645			292,345			13,300			5	%
Income from operations	13,882			9,026			4,856			54	%	29,094			39,150			(10,056		)	(26	)%
Other income and (expenses):
Realized gains on short-term investments	—			9			*			*%		—			4			*			*%
(Loss) Gain on disposal of equipment	(243		)	—			*			*%		(381		)	534			*			*%
Interest income	1,365			1,450			(85		)	(6	)%	4,045			4,424			(379		)	(9	)%
Interest expense	(1,617		)	(1,302		)	(315		)	24	%	(4,549		)	(3,806		)	(743		)	20	%
Income before taxes	13,387			9,183			4,204			46	%	28,209			40,306			(12,097		)	(30	)%
Provision for income taxes	5,146			1,376			3,770			274	%	10,840			13,883			(3,043		)	(22	)%
Net income	$	8,241		$	7,807		$	434		6	%	$	17,369		$	26,423		$	(9,054	)	(34	)%

________________________________________________

(1)	Includes stock-based compensation expense as follows:
	Cost of revenue	$	474	$	94	$	380	404	%	$	1,189	$	334	$	855	256	%
	Sales and marketing	561		140		421		301	%	1,456		446		1,010		226	%
	Research and development	349		186		163		88	%	929		927		2		—	%
	General and administrative	3,597		1,704		1,893		111	%	8,751		4,645		4,106		88	%
	Total stock-based compensation expense	$	4,981	$	2,124	$	2,857	135	%	$	12,325	$	6,352	$	5,973	94	%

* Asterisk denotes not meaningful.

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The following table sets forth our consolidated statement of operations data for each of the periods presented as a percentage of revenue:

	Three Months Ended September 30,				Nine Months Ended September 30,
	2017		2016		2017		2016
Revenue	100	%	100	%	100	%	100	%
Expenses:
Cost of revenue	33	%	34	%	34	%	36	%
Sales and marketing	7	%	7	%	7	%	6	%
Research and development	5	%	7	%	6	%	6	%
General and administrative	31	%	35	%	32	%	32	%
Depreciation and amortization	12	%	8	%	12	%	8	%
Total operating expenses	88	%	91	%	91	%	88	%
Income from operations	12	%	9	%	9	%	12	%
Other income and (expenses):
Realized gains on short-term investments	—	%	*%		—	%	*%
(Loss) Gain on disposal of equipment	*%		—	%	*%		*%
Interest income	1	%	1	%	1	%	1	%
Interest expense	(1	)%	(1	)%	(1	)%	(1	)%
Income before taxes	12	%	9	%	9	%	12	%
Provision for income taxes	4	%	1	%	3	%	4	%
Net income	8	%	8	%	6	%	8	%

* Asterisk denotes not meaningful.

Comparison of the Three and Nine Months Ended September 30, 2017 and 2016

Revenue

Revenue for the three months ended September 30, 2017 was approximately $115.9 million, an increase of 10% compared with revenue of approximately $105.0 million for the three months ended September 30, 2016. This increase was primarily attributable to approximately $15.5 million in revenue within the acquired businesses of Creehan and CCS, and approximately $2.4 million in revenue contributed from new clients signed, which was partially offset by a decrease of approximately $7.0 million in revenue from the combination of factors including the transition of client contracts to newer product offerings and more subscription-based agreements versus the year-ago period, and the conclusion of client contracts included in the year-ago period.

Revenue for the nine months ended September 30, 2017 was approximately $334.7 million, an increase of 1% compared with revenue of approximately $331.5 million for the nine months ended September 30, 2016. This increase was primarily attributable to approximately $30.4 million in revenue within the acquired businesses of Creehan and CCS, and approximately $9.9 million in revenue contributed from new clients signed, which was partially offset by a decrease of approximately $37.1 million in revenue from the combination of factors including the transition of client contracts to newer product offerings and more subscription-based agreements versus the year-ago period, and the conclusion of client contracts included in the year-ago period.

Cost of Revenue

During the three months ended September 30, 2017, cost of revenue increased by approximately $3.0 million, or 8%, compared with the three months ended September 30, 2016. The increase in cost of revenue was primarily attributable to the combined incremental cost of revenue of $7.8 million attributable to the acquired businesses of Creehan and CCS, increase in fulfillment of $1.4 million, and increase in professional third-party costs of $0.8 million, which was partially offset by a decrease of employee-related expenses of $7.4 million driven by technology-enabled platform efficiency initiatives. Cost of revenue as a percentage of revenue was 33% and 34% for the three months ended September 30, 2017 and 2016, respectively.

During the nine months ended September 30, 2017, cost of revenue decreased by approximately $6.7 million, or 6%, compared with the nine months ended September 30, 2016. The decrease in cost of revenue was primarily attributable to a decrease of employee-related expenses of $24.7 million driven by technology-enabled platform efficiency initiatives, which was partially offset by the combined incremental cost of revenue of $13.9 million attributable to the acquired businesses of

20

Creehan and CCS, increase in fulfillment of $3.0 million, and increase in professional third-party costs of $1.0 million. Cost of revenue as a percentage of revenue was 34% and 36% for the nine months ended September 30, 2017 and 2016, respectively.

Sales and Marketing

During the three months ended September 30, 2017, sales and marketing expenses increased by approximately $0.9 million, or 13%, compared with the three months ended September 30, 2016. During the nine months ended September 30, 2017, sales and marketing expenses increased by approximately $4.7 million, or 24%, compared with the nine months ended September 30, 2016. The increase was driven by our investment to expand our sales organization and partner team to focus on adding new clients and capturing an increased amount of market opportunity. Sales and marketing as a percentage of revenue was 7% for both the three months ended September 30, 2017 and 2016. Sales and marketing as a percentage of revenue was 7% and 6% for the nine months ended September 30, 2017 and 2016, respectively.

Research and Development

During the three months ended September 30, 2017, research and development expense decreased by approximately $1.6 million, or 22%, compared with the three months ended September 30, 2016. The decrease was primarily attributable to an increased focus of development on the Inovalon ONE™ Platform, resulting in an increase to capitalized software projects, which was partially offset by the incremental expense attributable to the acquired businesses of Creehan and CCS.

During the nine months ended September 30, 2017, research and development expense decreased by approximately $0.2 million, or 1%, compared with the nine months ended September 30, 2016. The decrease was primarily attributable to an increased focus of development on the Inovalon ONE™ Platform, resulting in an increase to capitalized software projects, which was partially offset by incremental growth in employee-related expenses necessary to support our on-going investment in innovation and the incremental expense attributable to the acquired businesses of Creehan and CCS.

General and Administrative

During the three months ended September 30, 2017, general and administrative expenses decreased by approximately $0.9 million, or 2%, compared with the three months ended September 30, 2016. The decrease was primarily attributable to a decrease of compensation expense related to compensatory contingent consideration that included earn-outs with continuing service requirements related to our acquisitions of approximately $4.3 million and a decrease related to contingent consideration accretion of approximately $4.3 million. The decrease in general and administrative expenses was partially offset by incremental expenses of approximately $8.0 million related to the acquired businesses of Creehan and CCS. General and administrative as a percentage of revenue was 31% and 35% for the three months ended September 30, 2017 and 2016, respectively.

During the nine months ended September 30, 2017, general and administrative expenses increased by approximately $2.8 million, or 3%, compared with the nine months ended September 30, 2016. The increase was primarily attributable to incremental expenses of approximately $13.2 million related to the acquired businesses of Creehan and CCS and an increase of approximately $4.1 million related to stock-based compensation. The increase in general and administrative expense was partially offset by a decrease in compensation expense related to compensatory contingent consideration that includes earn-outs with continuing service requirements related to our acquisitions of approximately $9.7 million and a decrease of approximately $3.6 million related to contingent consideration accretion. General and administrative as a percentage of revenue was 32% for both the nine months ended September 30, 2017 and 2016.

Depreciation and Amortization

During the three months ended September 30, 2017, depreciation and amortization expense increased by approximately $4.6 million, or 52%, compared with the three months ended September 30, 2016. The increase was primarily attributable to approximately $2.0 million of amortization of acquired intangible assets and approximately $0.9 million of incremental amortization of capitalized software.

During the nine months ended September 30, 2017, depreciation and amortization expense increased by approximately $12.7 million, or 49%, compared with the nine months ended September 30, 2016. The increase was primarily attributable to approximately $5.9 million of amortization of acquired intangible assets, $3.1 million of incremental amortization of capitalized software, and approximately $0.3 million of depreciation of other assets related to the acquisition of Creehan.

(Loss) Gain on Disposal of Equipment

During the three months ended September 30, 2017, we incurred a loss of approximately $0.2 million related to the disposal of equipment. During the three months ended September 30, 2016, there were no equipment disposals.

During the nine months ended September 30, 2017, we incurred a loss of approximately $0.4 million related to the disposal of equipment. During the nine months ended September 30, 2016, we replaced certain data-center equipment. The replacement of the equipment was covered under our insurance and the cost of our replacement equipment was reimbursed by

21

our insurance carrier. As a result, the disposal and replacement of the equipment resulted in a gain of approximately $0.5 million during the nine months ended September 30, 2016.

Interest Income

During the three months ended September 30, 2017, interest income decreased by approximately $0.1 million, compared with the three months ended September 30, 2016. During the nine months ended September 30, 2017, interest income decreased by approximately $0.4 million, compared with the nine months ended September 30, 2016. A portion of our available-for-sale short-term investments have been used to fund strategic initiatives such as the acquisition of Creehan and the share repurchase program. The decrease in our interest income was primarily attributable to the decline in the overall value of our available-for-sale short term investment portfolios that resulted in a decrease in earnings derived from our available-for-sale short-term investments.

Interest Expense

During the three months ended September 30, 2017, interest expense increased by approximately $0.3 million, compared with the three months ended September 30, 2016. During the nine months ended September 30, 2017, interest expense increased by approximately $0.7 million, compared with the nine months ended September 30, 2016. The increase in interest expense was primarily attributable to an increase in the interest rate on our Term Loan Facility (as defined below under the heading "Liquidity and Capital Resources—Debt") which is variable and fluctuates alongside changes to LIBOR.

Provision for Income Taxes

During the three months ended September 30, 2017, provision for income taxes increased by approximately $3.8 million, or 274%, compared to the three months ended September 30, 2016. Our effective tax rate for the three months ended September 30, 2017 was approximately 38.4%, as compared to approximately 15.0% for the three months ended September 30, 2016. During the three months ended September 30, 2016, we completed our 2015 federal and state tax returns. Through this process, we identified additional tax benefits that resulted in a lower effective tax rate for the three months ended September 30, 2016.

During the nine months ended September 30, 2017, provision for income taxes decreased by approximately $3.0 million, or 22%, compared to the nine months ended September 30, 2016. Our effective tax rate for the nine months ended September 30, 2017 was approximately 38.4%, as compared to approximately 34.4% for the nine months ended September 30, 2016. During the nine months ended September 30, 2016, we completed our 2015 federal and state tax returns. Through this process, we identified additional tax benefits that resulted in a lower effective tax rate for the nine months ended September 30, 2016.

Liquidity and Capital Resources

Sources of Liquidity

Our principal sources of liquidity have been cash generated by operating activities, proceeds from our initial public offering and proceeds from our Credit Facilities. Our cash generated from such means has been sufficient to fund our growth, including our capital expenditures. As of September 30, 2017, our cash, cash equivalents and short-term investments totaled $525.7 million, of which $293.1 million represented short-term, available-for-sale, investment grade, domestic debt-securities, compared to $713.3 million of cash, cash equivalents, and short-term investments as of September 30, 2016, of which $498.9 million represented short-term, available-for-sale, investment grade, domestic debt-securities.

We believe our current cash, cash equivalents, and short-term investments balance, expected cash generated by operating activities and availability of cash under our Credit Facilities are sufficient to fund our operations, finance our strategic initiatives, fund our investment in innovation and new service offerings, and fund our share repurchase program, for the foreseeable future. There can be no assurance that we will continue to generate cash flows at or above current levels or that we will be able to maintain our ability to borrow under our Credit Facilities.

Debt

On September 19, 2014, we entered into a Credit and Guaranty Agreement with a group of lenders including Goldman Sachs Bank USA, as administrative agent (the "Credit Agreement"). The terms of the Credit Agreement provide-for credit facilities in the aggregate maximum principal amount of $400.0 million, consisting of a senior unsecured term loan facility in the original principal amount of $300.0 million (the "Term Loan Facility") and a senior unsecured revolving credit facility in the maximum principal amount of $100.0 million (the "Revolving Credit Facility" and, together with the Term Loan Facility, the "Credit Facilities").

As of September 30, 2017, we had outstanding indebtedness under the Term Loan Facility and capital lease obligations of approximately $243.8 million and approximately $0.2 million, respectively. As of September 30, 2016, we had outstanding

22

indebtedness under the Term Loan Facility and capital lease obligations of approximately $270.0 million and approximately $0.4 million, respectively. No amounts were outstanding under the Revolving Credit Facility as of September 30, 2017 or September 30, 2016. The Term Loan Facility has a five-year term and is an amortizing facility with quarterly principal payments and monthly interest payments. Scheduled principal payments totaling $22.5 million and scheduled interest payments totaling approximately $4.4 million were paid during the nine months ended September 30, 2017. As of September 30, 2017, we were in compliance with the covenants under the Credit Agreement.

Cash Flows

Operating Cash Flow Activities

Cash provided by operating activities during the nine months ended September 30, 2017 was approximately $80.9 million, representing an increase in cash inflow of approximately $12.3 million compared with the nine months ended September 30, 2016. Cash provided by operating activities was driven by net income of approximately $17.4 million, as adjusted for the exclusion of non-cash expenses totaling approximately $48.4 million and approximately $15.2 million related to the effect of changes in working capital and other balance sheet accounts.

Investing Cash Flow Activities

Cash provided by investing activities during the nine months ended September 30, 2017 was approximately $107.9 million compared with approximately $90.3 million during the nine months ended September 30, 2016. Cash provided by investing activities was primarily due to proceeds generated from maturities of available-for-sale securities of approximately $150.7 million, partially offset by approximately $39.3 million of investments in property and equipment and capitalized software.

We make investments in innovation, including research and development expense, capital software development costs, and research and development infrastructure investments, on a recurring basis. We expect our investment in innovation to increase in the foreseeable future to support our continued growth and new service offerings.

Financing Cash Flow Activities

Cash used in financing activities during the nine months ended September 30, 2017 was approximately $84.0 million, compared with approximately $58.6 million during the nine months ended September 30, 2016. Cash used in financing activities was primarily due to approximately $65.0 million related to share repurchases and approximately $22.5 million for the repayment of Credit Facility borrowings.

We have funded and expect to continue to fund repurchases of shares of Class A common stock under our share repurchase program through a combination of cash on hand, cash generated by operations and sales of short-term investments, if needed. During the nine months ended September 30, 2017, the Company repurchased an aggregate of 5,235,504 shares of Class A common stock for an aggregate cost of $65.0 million or an average purchase cost of $12.41 per share, excluding commissions. As of September 30, 2017, the Company had repurchased an aggregate of 12,744,489 shares of Class A common stock for approximately $171.2 million or an average cost of $13.43 per share, excluding commissions. As of September 30, 2017, approximately $28.8 million remained available to repurchase shares under the share repurchase program. The share repurchase program does not obligate us to acquire any particular amount of Class A common stock.

Contractual Obligations

During the nine months ended September 30, 2017, there have been no material changes, outside of the ordinary course of business, in our contractual obligations previously disclosed under the caption "Contractual Obligations" in our 2016 Form 10-K.

Off-Balance Sheet Arrangements

As of September 30, 2017, we did not have any off-balance sheet arrangements.

Recently Issued Accounting Standards

Recently issued accounting standards and their expected impact, if any, are discussed in Note 1, "Basis of Presentation", in the notes to our unaudited condensed consolidated financial statements, included under Item 1 within this Quarterly Report on Form 10-Q and in Note 2, "Summary of Significant Accounting Policies," in the notes to our consolidated financial statements, included under Item 15 within our 2016 Form 10-K.

Item 3.    Quantitative and Qualitative Disclosures About Market Risk

Variable Rate Debt Risk.    Our variable rate debt includes our Term Loan Facility and our Revolving Credit Facility. As of September 30, 2017, we had $243.8 million outstanding under our Term Loan Facility at an effective interest rate of

23

approximately 2.5%. As a result, if market interest rates were to increase by 1.0%, or 100 basis points, interest expense would decrease future earnings and cash flows, net of estimated tax benefits, by approximately $1.5 million annually, assuming that we do not enter into contractual hedging arrangements. As of September 30, 2017, there was no balance outstanding on the Revolving Credit Facility.

Marketable Securities Risk.    We had short-term investment portfolios, including cash held in money market funds, totaling approximately $453.9 million as of September 30, 2017. This amount was invested primarily in marketable securities including corporate notes and bonds, U.S. agency obligations, U.S. treasury securities and money market funds. Our investments are made for capital preservation purposes. We do not enter into investments for trading or speculative purposes.

Our short-term investments are subject to market risk due to changes in interest rates, which could affect our results of operations. Fixed rate securities may have their market value adversely affected due to a rise in interest rates, while floating rate securities may produce less income than expected if interest rates fall. Due in part to these factors, our future investment income may fluctuate due to changes in interest rates or we may suffer losses in principal if we are forced to sell securities that decline in market value due to changes in interest rates. However because we classify our marketable securities as "available-for-sale," no gains or losses are recognized due to changes in interest rates unless such securities are sold prior to maturity or declines in fair value are determined to be other-than-temporary.

An immediate increase of 100-basis points in interest rates would have resulted in an approximate $1.4 million market value reduction in our investment portfolio as of September 30, 2017. An immediate decrease of 100-basis points in interest rates would have increased the market value by approximately $2.0 million as of September 30, 2017. This estimate is based on a sensitivity model that measures market value changes when changes in interest rates occur. Fluctuations in the value of our investment securities caused by a change in interest rates (gains or losses on the carrying value) are recorded in accumulated other comprehensive income (loss), and are realized only if we sell the underlying securities prior to their maturity.

Item 4.    Controls and Procedures

Disclosure Controls and Procedures

Our management, with the participation of our chief executive officer ("CEO") and chief financial officer ("CFO"), has evaluated the effectiveness of our disclosure controls and procedures, (as defined in Rules 13a- 15(e) and 15d- 15(e) under the Exchange Act), as of the end of the period covered by this Quarterly Report on Form 10-Q. Based on such evaluation, our CEO and CFO have concluded that, as of September 30, 2017, our disclosure controls and procedures were designed at a reasonable assurance level to ensure that material information relating to Inovalon Holdings, Inc., including its consolidated subsidiaries, is made known to our CEO and CFO by others within those entities, particularly during the period in which this report was being prepared and that our disclosure controls and procedures were effective in providing reasonable assurance that information we are required to disclose in reports that we file or submit under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in the rules and forms of the SEC, and that such information is accumulated and communicated to our management, including our CEO and CFO, as appropriate, to allow timely decisions regarding required disclosure.

Changes in Internal Control

There have been no changes in the Company's internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) of the Exchange Act) during the nine months ended September 30, 2017 that have materially affected, or are reasonably likely to materially affect, the Company's internal control over financial reporting.

24

PART II—OTHER INFORMATION

Item 1.    Legal Proceedings

See "Note 5—Commitments and Contingencies" in the Notes to our unaudited condensed consolidated financial statements included under Part I, Item 1 within this Quarterly Report on Form 10-Q.

Item 1A.    Risk Factors

For a discussion of potential risks and uncertainties related to our Company see the information in Part I, Item 1A ("Risk Factors") of our 2016 Form 10-K for the year ended December 31, 2016. There have been no material changes to the risk factors previously disclosed in our 2016 Form 10-K.

Item 2.    Unregistered Sales of Equity Securities and Use of Proceeds

Unregistered Sales of Equity Securities

None.

Use of Proceeds from Registered Securities

On February 18, 2015, we completed our initial public offering ("IPO") of 22,222,222 shares of Class A common stock and, upon the underwriters' exercise of their option to purchase additional shares, issued an additional 3,142,581 shares of Class A common stock for a total of 25,364,803 shares issued. All of the shares issued in the IPO were primary shares offered by us as none of our stockholders sold any shares in the IPO. The offering price of the shares sold in the IPO was $27.00 per share, resulting in net proceeds to us, after underwriters' discounts and commissions and other expenses payable by us, of $639.1 million. All of the shares were sold pursuant to our registration statement on Form S-1, as amended (File No. 333-201321), that was declared effective by the SEC on February 11, 2015. Goldman, Sachs & Co., Morgan Stanley & Co. LLC, and Citigroup Global Markets Inc. acted as joint book-running managers for the IPO and as representatives of the underwriters. The principal purposes of our IPO were to create a public market for our Class A common stock and thereby enable future access to the public equity markets by us and our stockholders, and obtain additional capital. On September 1, 2015, we used approximately $126.2 million of the net proceeds from the IPO to complete the acquisition of Avalere Health, Inc. On October 1, 2016, we committed $120.0 million as partial consideration for our acquisition of Creehan. Through September 30, 2017, in aggregate, we have used approximately $171.2 million of the net proceeds from the IPO to repurchase outstanding Class A common shares under our share repurchase program. We intend to use the remaining net proceeds to us from our IPO for working capital and other general corporate purposes; other than funding the share repurchase program, we do not currently have any specific uses of the remaining net proceeds. Additionally, we may use a portion of the remaining net proceeds for additional acquisitions of complementary businesses, technologies, or other assets, or to repay outstanding indebtedness.

Purchases of Equity Securities by the Issuer or Affiliated Purchasers

The following table presents a summary of share repurchases made by the Company during the quarter ended September 30, 2017:

Period	Total Number of Shares Purchased	Average Price Paid per Share		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs	Maximum Number of Shares (or approximate dollar value) that May Yet be Purchased under the Plans or Programs(2)
July	867,936	$	12.76	867,936	$	37,523,608
August	628,808	12.98		628,808	29,363,187
September(1)	74,428	13.90		74,428	28,783,049
Total	1,571,172	$	12.90	1,571,172	$	28,783,049

_______________________________________

(1) On September 1, 2017, we directed the administrator of the Company's Employee Stock Purchase Plan ("ESPP") to purchase 32,675 shares of Class A common stock in the open market for a total of approximately $0.5 million, for issuance to the ESPP participants at a discounted price of $11.52 per share. The Company may, in its discretion, based on market conditions, relative transaction costs and the Company's need for additional capital, continue to instruct the plan

25

administrator to make semi-annual open market purchases of Class A common stock for ESPP participants to coincide with the ESPP's designated semi-annual purchase dates. 

(2) On May 4, 2016, we announced that our Board of Directors authorized a program to repurchase up to $100 million of Inovalon's Class A common stock through December 31, 2016. On November 2, 2016, we announced that our Board of Directors authorized an expansion of the share repurchase program to repurchase up to an additional $100 million of shares of Inovalon's Class A common stock (bringing the total to $200 million) through December 31, 2017. As of September 30, 2017, the Company had repurchased 12,744,489 shares at an average purchase price of $13.43 per share for a total purchase price of approximately $171.2 million under this program. The Company intends to use a combination of cash on hand, cash generated by operations and sales of short-term investments to fund additional repurchases under this program through open market or privately negotiated transactions.

Item 3.    Defaults Upon Senior Securities

Not applicable.

Item 4.    Mine Safety Disclosures

Not applicable.

Item 5.    Other Information

None.

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Item 6.    Exhibits

EXHIBIT INDEX

Exhibit Number		Description of Document
31.1	*	Certification of Chief Executive Officer pursuant to Rule 13a-14(a)/15d-14(a) of the Securities Exchange Act of 1934, as amended, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2	*	Certification of Chief Financial Officer pursuant to Rule 13a-14(a)/15d-14(a) of the Securities Exchange Act of 1934, as amended, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1	**	Certification of Chief Executive Officer pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2	**	Certification of Chief Financial Officer pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101.INS	*	XBRL Instance Document
101.SCH	*	XBRL Taxonomy Extension Schema
101.CAL	*	XBRL Taxonomy Extension Calculation Linkbase
101.DEF	*	XBRL Taxonomy Extension Definition Linkbase
101.LAB	*	XBRL Taxonomy Extension Label Linkbase
101.PRE	*	XBRL Taxonomy Extension Presentation Linkbase

_____________________________________

* 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.

27

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

Date: November 2, 2017	INOVALON HOLDINGS, INC.
	By:	/s/ KEITH R. DUNLEAVY, M.D.
		Keith R. Dunleavy, M.D. Chief Executive Officer & Chairman (Principal Executive Officer)
	By:	/s/ CHRISTOPHER E. GREINER
		Christopher E. Greiner Chief Financial & Operating Officer (Principal Financial Officer)

28

EX-31.1

EXHIBIT 31.1 

CERTIFICATION 

I, Keith R. Dunleavy, M.D., certify that:

        1.     I have reviewed this Quarterly Report on Form 10-Q of Inovalon Holdings, Inc.;

        2.     Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

        3.     Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations, and cash flows of the registrant as of, and for, the periods presented in this report;

        4.     The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

        (a)   Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

        (b)   Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

        (c)   Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

        (d)   Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and

        5.     The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's Board of Directors (or persons performing the equivalent functions):

       (a)   All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize, and report financial information; and

        (b)   Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

/s/ KEITH R. DUNLEAVY, M.D.

Keith R. Dunleavy, M.D.

Chief Executive Officer & Chairman

(Principal Executive Officer)

Date: November 2, 2017

EX-31.2

EXHIBIT 31.2 

CERTIFICATION 

I, Christopher E. Greiner, certify that:

        1.     I have reviewed this Quarterly Report on Form 10-Q of Inovalon Holdings, Inc.;

        2.     Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

        3.     Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations, and cash flows of the registrant as of, and for, the periods presented in this report;

        4.     The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

        (a)   Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

        (b)   Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

        (c)   Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

        (d)   Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and

        5.     The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's Board of Directors (or persons performing the equivalent functions):

       (a)   All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize, and report financial information; and

        (b)   Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

/s/ CHRISTOPHER E. GREINER

Christopher E. Greiner

Chief Financial & Operating Officer

(Principal Financial Officer)

Date: November 2, 2017

EX-32.1

EXHIBIT 32.1 

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 

        In connection with the Quarterly Report of Inovalon Holdings, Inc. (the "Company") on Form 10-Q for the period ended September 30, 2017 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Keith R. Dunleavy, M.D., the Chief Executive Officer and Chairman of the Company, certify, to my knowledge, pursuant to 18 U.S.C. §1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

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)

Date: November 2, 2017

EX-32.2

EXHIBIT 32.2 

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 

        In connection with the Quarterly Report of Inovalon Holdings, Inc. (the "Company") on Form 10-Q for the period ended September 30, 2017 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Christopher E. Greiner, the Chief Financial and Operating Officer of the Company, certify, to my knowledge, pursuant to 18 U.S.C. §1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

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/ CHRISTOPHER E. GREINER

Christopher E. Greiner

Chief Financial & Operating Officer

(Principal Financial Officer)

Date: November 2, 2017

XML

Document and Entity Information - shares	9 Months Ended
	Sep. 30, 2017	Oct. 27, 2017
Entity Registrant Name	Inovalon Holdings, Inc.
Entity Central Index Key	0001619954
Document Type	10-Q
Document Period End Date	Sep. 30, 2017
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	2017
Document Fiscal Period Focus	Q3
Class A Common
Entity Common Stock, Shares Outstanding (in shares)		64,657,899
Class B Common
Entity Common Stock, Shares Outstanding (in shares)		81,215,212

XML

CONDENSED CONSOLIDATED BALANCE SHEETS - USD ($) $ in Thousands	Sep. 30, 2017	Dec. 31, 2016
Current assets:
Cash and cash equivalents	$ 232,555	$ 127,683
Short-term investments	293,101	445,315
Accounts receivable (net of allowances of $2,669 and $5,865 at September 30, 2017 and December 31, 2016, respectively)	83,818	85,591
Prepaid expenses and other current assets	11,747	12,100
Income tax receivable	4,104	15,165
Total current assets	625,325	685,854
Non-current assets:
Property, equipment and capitalized software, net	101,419	76,420
Goodwill	184,932	184,557
Intangible assets, net	93,176	103,549
Other assets	5,706	2,964
Total assets	1,010,558	1,053,344
Current liabilities:
Accounts payable	30,509	16,474
Accrued compensation	21,297	15,211
Other current liabilities	7,708	9,468
Deferred revenue	8,807	11,850
Deferred rent	1,520	1,016
Credit facilities	41,250	30,000
Capital lease obligation	108	115
Total current liabilities	111,199	84,134
Non-current liabilities:
Credit facilities, less current portion	202,500	236,250
Capital lease obligation, less current portion	136	215
Deferred rent	261	1,457
Other liabilities	11,932	13,158
Deferred income taxes	32,440	34,553
Total liabilities	358,468	369,767
Commitments and contingencies (Note 5)
Stockholders' equity:
Common stock	0	0
Preferred stock, $0.0001 par value, 100,000,000 shares authorized, zero shares issued and outstanding at September 30, 2017 and December 31, 2016, respectively	0	0
Additional paid-in-capital	532,084	516,300
Retained earnings	291,456	274,087
Other comprehensive loss	(234)	(580)
Total stockholders' equity	652,090	683,577
Total liabilities and stockholders' equity	1,010,558	1,053,344
Class A Common
Stockholders' equity:
Common stock	0	0
Treasury stock, Class A common stock, at cost, 12,744,489 and 7,508,985 shares at September 30, 2017 and December 31, 2016, respectively	(171,217)	(106,231)
Class B Common
Stockholders' equity:
Common stock	$ 1	$ 1

XML

CONDENSED CONSOLIDATED BALANCE SHEETS (Parenthetical) - USD ($) $ in Thousands	Sep. 30, 2017	Dec. 31, 2016
Accounts receivable, allowances
Accounts receivable, allowances (in dollars)	$ 2,669	$ 5,865
Common stock
Common stock, par value (in dollars per share)	$ 0.000005	$ 0.000005
Common stock, authorized (in shares)	900,000,000	900,000,000
Common stock, issued (in shares)	0	0
Common stock, outstanding (in shares)	0	0
Preferred stock
Preferred stock, par value (in dollars per share)	$ 0.0001	$ 0.0001
Preferred stock, authorized (in shares)	100,000,000	100,000,000
Preferred stock, issued (in shares)	0	0
Preferred stock, outstanding (in shares)	0	0
Class A Common
Common stock
Common stock, par value (in dollars per share)	$ 0.000005	$ 0.000005
Common stock, authorized (in shares)	750,000,000	750,000,000
Common stock, issued (in shares)	77,425,861	72,271,298
Common stock, outstanding (in shares)	64,681,372	64,786,705
Treasury stock
Treasury stock (in shares)	12,744,489	7,508,985
Class B Common
Common stock
Common stock, par value (in dollars per share)	$ 0.000005	$ 0.000005
Common stock, authorized (in shares)	150,000,000	150,000,000
Common stock, issued (in shares)	81,215,212	83,303,628
Common stock, outstanding (in shares)	81,215,212	83,303,628

XML

CONDENSED CONSOLIDATED STATEMENTS OF INCOME - USD ($) shares in Thousands, $ in Thousands		3 Months Ended		9 Months Ended
		Sep. 30, 2017	Sep. 30, 2016	Sep. 30, 2017	Sep. 30, 2016
Income Statement [Abstract]
Revenue		$ 115,855	$ 105,013	$ 334,739	$ 331,495
Expenses:
Cost of revenue	[1]	38,431	35,433	113,914	120,570
Sales and marketing	[1]	7,929	7,037	24,365	19,712
Research and development	[1]	5,780	7,404	20,850	21,047
General and administrative	[1]	36,283	37,209	108,002	105,222
Depreciation and amortization		13,550	8,904	38,514	25,794
Total operating expenses		101,973	95,987	305,645	292,345
Income from operations		13,882	9,026	29,094	39,150
Other income and (expenses):
Realized gains on short-term investments		0	9	0	4
(Loss) Gain on disposal of equipment		(243)	0	(381)	534
Interest income		1,365	1,450	4,045	4,424
Interest expense		(1,617)	(1,302)	(4,549)	(3,806)
Income before taxes		13,387	9,183	28,209	40,306
Provision for income taxes		5,146	1,376	10,840	13,883
Net income		8,241	7,807	17,369	26,423
Net income attributable to common stockholders, basic and diluted		$ 7,968	$ 7,771	$ 16,905	$ 26,308
Net income per share attributable to common stockholders, basic and diluted:
Basic net income per share (in dollars per share)		$ 0.06	$ 0.05	$ 0.12	$ 0.17
Diluted net income per share (in dollars per share)		$ 0.06	$ 0.05	$ 0.12	$ 0.17
Weighted average shares of common stock outstanding:
Basic (in shares)		141,226	150,732	142,861	151,240
Diluted (in shares)		141,699	151,562	143,327	152,122

[1] (1)Includes stock-based compensation expense as follows: Cost of revenue$474 $94 $1,189 $334 Sales and marketing561 140 1,456 446 Research and development349 186 929 927 General and administrative3,597 1,704 8,751 4,645 Total stock-based compensation expense$4,981 $2,124 $12,325 $6,352

XML

CONDENSED CONSOLIDATED STATEMENTS OF INCOME (Parenthetical) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2017	Sep. 30, 2016	Sep. 30, 2017	Sep. 30, 2016
Includes stock-based compensation expense as follows:
Total stock-based compensation expense	$ 4,981	$ 2,124	$ 12,325	$ 6,352
Cost of revenue
Includes stock-based compensation expense as follows:
Total stock-based compensation expense	474	94	1,189	334
Sales and marketing
Includes stock-based compensation expense as follows:
Total stock-based compensation expense	561	140	1,456	446
Research and development
Includes stock-based compensation expense as follows:
Total stock-based compensation expense	349	186	929	927
General and administrative
Includes stock-based compensation expense as follows:
Total stock-based compensation expense	$ 3,597	$ 1,704	$ 8,751	$ 4,645

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CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2017	Sep. 30, 2016	Sep. 30, 2017	Sep. 30, 2016
Statement of Comprehensive Income [Abstract]
Net income	$ 8,241	$ 7,807	$ 17,369	$ 26,423
Other comprehensive income:
Realized gains on short-term investments reclassified from accumulated other comprehensive income, net of tax of $0, $5, $0 and $3, respectively	0	(10)	0	(7)
Net change in unrealized gains on available-for-sale investments, net of tax of ($61), ($380), ($274) and ($2,182), respectively	135	832	346	3,350
Comprehensive income	$ 8,376	$ 8,629	$ 17,715	$ 29,766

XML

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (Parenthetical) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2017	Sep. 30, 2016	Sep. 30, 2017	Sep. 30, 2016
Statement of Comprehensive Income [Abstract]
Realized gains on short-term investments reclassified from accumulated other comprehensive income, tax	$ 0	$ 5	$ 0	$ 3
Net change in unrealized gains on available-for-sale investments, tax	$ 61	$ 380	$ 274	$ 2,182

XML

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS - USD ($) $ in Thousands	9 Months Ended
	Sep. 30, 2017	Sep. 30, 2016
Cash flows from operating activities:
Net income	$ 17,369	$ 26,423
Adjustments to reconcile net income to net cash provided by operating activities:
Stock-based compensation expense	12,325	6,352
Depreciation	27,129	20,368
Amortization of intangibles	11,385	5,426
Amortization of premiums on short-term investments	1,571	2,502
Realized gains on short-term investments	0	(4)
Tax payments for equity award issuances	0	95
Deferred income taxes	(1,540)	(3,110)
Excess tax benefits from stock-based compensation	0	(1,135)
Loss (Gain) on disposal of equipment	381	(534)
Change in fair value of contingent consideration	(2,900)	706
Bad debt expense	0	79
Changes in assets and liabilities:
Accounts receivable	5,259	1,332
Prepaid expenses and other current assets	1,931	(3,604)
Income taxes receivable	11,174	7,677
Other assets	(2,722)	4,189
Accounts payable	5,653	(5,903)
Accrued compensation	1,346	2,090
Other liabilities	(4,210)	5,866
Deferred rent	(696)	(557)
Deferred revenue	(2,507)	361
Net cash provided by operating activities	80,948	68,619
Cash flows from investing activities:
Maturities of short-term investments	150,696	248,998
Sales of short-term investments	0	31,549
Purchases of short-term investments	0	(164,737)
Purchases of property and equipment	(17,544)	(11,267)
Investment in capitalized software	(21,741)	(14,220)
Acquisitions, net of cash acquired of $1,535	(3,490)	0
Net cash provided by investing activities	107,921	90,323
Cash flows from financing activities:
Repurchase of common stock	(64,986)	(51,118)
Repayment of credit facility borrowings	(22,500)	(11,250)
Proceeds from exercise of stock options	3,781	5,111
Acquisition-related contingent consideration	0	(2,300)
Capital lease obligations paid	(84)	(31)
Tax payments for equity award issuances	(208)	(137)
Excess tax benefits from stock-based compensation	0	1,135
Net cash used in financing activities	(83,997)	(58,590)
Increase in cash and cash equivalents	104,872	100,352
Cash and cash equivalents, beginning of period	127,683	114,034
Cash and cash equivalents, end of period	232,555	214,386
Supplementary cash flow disclosure:
Cash paid during the period for: Income taxes, net of refunds	725	10,014
Cash paid during the period for: Interest	4,416	3,600
Non-cash investing activities:
Accruals for purchases of property, equipment	8,295	816
Accruals for investment in capitalized software	$ 3,892	$ 492

XML

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (parenthetical) - USD ($) $ in Thousands	9 Months Ended
	Sep. 30, 2017	Sep. 30, 2016
Statement of Cash Flows [Abstract]
Cash Acquired from Acquisition	$ 1,535	$ 0

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BASIS OF PRESENTATION

9 Months Ended

Sep. 30, 2017

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. (the "Company") in accordance with accounting principles generally accepted in the United States ("GAAP") for interim financial reporting and as required by Rule 10-01 of Regulation S-X. Accordingly, the unaudited condensed consolidated financial statements may not include all of the information and notes required by GAAP for audited financial statements. The year-end December 31, 2016 condensed consolidated balance sheet data included herein was derived from audited financial statements but does not include all disclosures required by GAAP for complete financial statements. In the opinion of the Company's management, the accompanying unaudited condensed consolidated financial statements contain all adjustments, consisting of items of a normal and recurring nature, necessary to present fairly the Company's financial position as of September 30, 2017, the results of operations and comprehensive income for the three and nine month periods ended September 30, 2017 and 2016, and cash flows for the nine months ended September 30, 2017 and 2016. The results of operations for the three and nine month periods ended September 30, 2017 and 2016 are not necessarily indicative of the results to be expected for the full year. The preparation of condensed consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts of assets and liabilities, and related disclosures, as of the date of the financial statements, and the amounts of revenue and expenses reported during the period. Actual results could differ from estimates. The information contained herein should be read in conjunction with the audited financial statements included in the Company's Annual Report on Form 10-K for the year ended December 31, 2016 (the "2016 Form 10-K").

The accompanying unaudited condensed consolidated financial statements include the accounts of Inovalon Holdings, Inc. and its wholly owned subsidiaries. All intercompany accounts and transactions have been eliminated in consolidation.

The Company's management considers events or transactions that occur after the balance sheet date but before the financial statements are issued to provide additional evidence relative to certain estimates or to identify matters that require additional disclosure. Subsequent events have been evaluated through the date of issuance of these financial statements.

Recently Issued Accounting Standards

There have been no developments to recently issued accounting standards, including the expected dates of adoption and estimated effects on the Company's consolidated financial statements and note disclosures, from those disclosed in the 2016 Form 10-K, that would be expected to impact the Company except for the following:

In May 2014, the Financial Accounting Standards Board ("FASB") issued ASU 2014-09, Revenue from Contracts with Customers and subsequent clarifying guidance ("ASU 2014-09"). This revenue recognition guidance supersedes existing GAAP guidance, including most industry-specific guidance. 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 guidance identifies five steps to apply in achieving this principle. ASU 2014-09 is effective for fiscal years beginning after December 15, 2017. ASU 2014-09 may be applied either retrospectively or through the use of a modified-retrospective method. The Company currently expects to adopt the new standard using a modified retrospective approach on January 1, 2018. The Company is currently evaluating the impacts of the application of the new standard to its existing customer contracts and will continue to review new contracts entered into prior to the adoption of the new standard. The Company is currently in the process of finalizing policies and implementing changes to our processes, including a process for future contract reviews, and internal control over financial reporting. The potential impacts of the new standard are still being assessed related to the accounting arrangements that include variable consideration, capitalization of costs of commissions that were previously expensed as incurred, upfront contract costs and contract fulfillment costs. The Company will provide additional disclosures as required by the new standard upon adoption.

In January 2017, the FASB issued ASU 2017-01, Business Combinations (Topic 805): Clarifying the Definition of a Business. The new standard narrows the definition of a business and provides a framework for evaluation. This ASU is effective for financial statements issued for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. The Company will apply the requirements of the new standard in the fourth quarter of 2017 on a prospective basis.

 In January 2017, the FASB issued ASU 2017-04, Intangibles—Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment. The new standard simplifies the subsequent measurement of goodwill by eliminating the second step of the goodwill impairment test. This ASU will be applied prospectively and is effective for annual or interim goodwill impairment tests in fiscal years beginning after December 15, 2019. Early adoption is permitted for interim or annual goodwill impairment tests performed on testing dates after January 1, 2017 and the Company early adopted the requirements of the new standard in the fourth quarter of 2017 as it performs its annual impairment analysis. The Company is in the process of evaluating each of its reporting units based on current and forecasted financial information and will finalize the valuations and impairment analysis during the fourth quarter of 2017.

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NET INCOME PER SHARE

9 Months Ended

Sep. 30, 2017

Earnings Per Share [Abstract]

NET INCOME PER SHARE

NET 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 income by the weighted average number of shares of common stock (Class A common stock and Class B common stock) outstanding during the period. Diluted EPS is computed by dividing net income by the sum of the weighted average number of shares of common stock outstanding and potentially dilutive securities outstanding during the period under the treasury stock method. Potentially dilutive securities include stock options, restricted stock units ("RSUs") and restricted stock awards ("RSAs"). Under the treasury stock method, dilutive securities are assumed to be exercised at the beginning of the periods and as if funds obtained thereby were used to purchase common stock at the average market price during the period. Securities are excluded from the computations of diluted earnings per share if their effect would be anti-dilutive to EPS.

The Company has issued RSAs under the 2015 Omnibus Incentive Plan. The Company considers issued and unvested RSAs to be participating securities as the holders of these RSAs have a non-forfeitable right to dividends in the event of the Company's declaration of a dividend on shares of Class A and Class B common stock. Subsequent to the issuance of the participating securities, the Company applied the two-class method required in calculating net income per share of Class A and Class B common stock. Under the two-class method, net income attributable to common stockholders is determined by allocating undistributed earnings, calculated as net income, less earnings attributable to participating securities. The net income per share attributable to common stockholders is allocated based on the contractual participation rights of the Class A common stock and Class B common stock as if the income for the period has been distributed. As the liquidation and dividend rights are identical for both classes of common stock, the net income attributable to common stockholders is allocated on a proportionate basis.

The following table reconciles the weighted average shares outstanding for basic and diluted EPS for the periods indicated (in thousands, except per share amounts):

	Three Months Ended September 30,						Nine Months Ended September 30,
	2017			2016			2017			2016
Basic
Numerator:
Net income	$	8,241		$	7,807		$	17,369		$	26,423
Undistributed earnings allocated to participating securities	(273		)	(36		)	(464		)	(115		)
Net income attributable to common stockholders	$	7,968		$	7,771		$	16,905		$	26,308
Denominator:
Weighted average shares used in computing net income per share attributable to common stockholders—basic	141,226			150,732			142,861			151,240
Net income per share attributable to common stockholders—basic	$	0.06		$	0.05		$	0.12		$	0.17
Diluted
Numerator:
Net income attributable to common stockholders	$	7,968		$	7,771		$	16,905		$	26,308
Denominator:
Number of shares used for basic EPS computation	141,226			150,732			142,861			151,240
Effect of dilutive securities	473			830			466			882
Weighted average shares used in computing net income per share attributable to common stockholders—diluted	141,699			151,562			143,327			152,122
Net income per share attributable to common stockholders—diluted	$	0.06		$	0.05		$	0.12		$	0.17

The computation of diluted EPS does not include certain awards, on a weighted average basis, for the three and nine months ended September 30, 2017 and 2016, respectively, because their inclusion would have an anti-dilutive effect on EPS. The awards excluded because of their anti-dilutive effect are as follows (in thousands):

	Three Months Ended September 30,		Nine Months Ended September 30,
	2017	2016	2017	2016
Awards excluded from the computation of diluted net income per share because their inclusion would have been anti-dilutive	42	240	138	138

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SHORT-TERM INVESTMENTS

9 Months Ended

Sep. 30, 2017

Investments, Debt and Equity Securities [Abstract]

SHORT-TERM INVESTMENTS

SHORT-TERM INVESTMENTS

As of September 30, 2017, short-term investments consisted of the following (in thousands):

	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Estimated Fair Value
Available-for-sale securities:
Corporate notes and bonds	$	257,468	$	61	$	(313	)	$	257,216
U.S. agency obligations	15,322		—		(55		)	15,267
U.S. treasury securities	20,725		—		(107		)	20,618
Total available-for-sale securities	$	293,515	$	61	$	(475	)	$	293,101

As of December 31, 2016, short-term investments consisted of the following (in thousands):

	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Estimated Fair Value
Available-for-sale securities:
Corporate notes and bonds	$	349,571	$	36	$	(918	)	$	348,689
U.S. agency obligations	34,864		22		(78		)	34,808
U.S. treasury securities	53,681		6		(100		)	53,587
Commercial paper	6,312		—		(3		)	6,309
Certificates of deposit	1,921		1		—			1,922
Total available-for-sale securities	$	446,349	$	65	$	(1,099	)	$	445,315

The following table summarizes the estimated fair value of our short-term investments, designated as available-for-sale and classified by the contractual maturity date of the securities as of the dates shown (in thousands):

	September 30, 2017		December 31, 2016
Due in one year or less	$	181,387	$	176,696
Due after one year through three years	111,714		268,619
Total	$	293,101	$	445,315

The Company has certain available-for-sale securities in a gross unrealized loss position. The Company reviews its debt securities classified as short-term investments on a regular basis to evaluate whether or not any security has experienced an other-than-temporary decline in fair value. The Company considers factors such as the length of time and extent to which the market value has been less than the cost, the financial position and near-term prospects of the issuer and the Company's intent to sell, or whether it is more likely than not the Company will be required to sell the investment before recovery of the investment's amortized-cost basis. If the Company determines that an other-than-temporary decline exists, or if write downs related to credit losses are necessary, in one of these securities, the unrealized losses attributable to the respective investment would be reclassified to realized losses on short-term investments within the statement of operations. There were no impairments considered other-than-temporary as of September 30, 2017.

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 September 30, 2017, aggregated by investment category (in thousands):

	Estimated Fair Value		Gross Unrealized Losses
Corporate notes and bonds	$	186,286	$	(313	)
U.S. agency obligations	15,267		(55		)
U.S. treasury securities	20,618		(107		)
	$	222,171	$	(475	)

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FAIR VALUE MEASUREMENTS

9 Months Ended

Sep. 30, 2017

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 September 30, 2017 (in thousands):

	Level 1		Level 2		Level 3			Total
Cash Equivalents:
Money market funds	$	160,828	$	—	$	—		$	160,828
Short-term investments:
Corporate notes and bonds	—		257,216		—			257,216
U.S. agency obligations	—		15,267		—			15,267
U.S. treasury securities	—		20,618		—			20,618
Certificates of deposit	—		—		—			—
Liabilities:
Contingent consideration	—		—		(9,700		)	(9,700		)
Total	$	160,828	$	293,101	$	(9,700	)	$	444,229

The following table presents the fair value hierarchy for financial assets and liabilities measured at fair value on a recurring basis as of December 31, 2016 (in thousands):

	Level 1		Level 2		Level 3			Total
Cash Equivalents:
Money market funds	$	44,108	—		—			$	44,108
Short-term investments:
Corporate notes and bonds	—		348,689		—			348,689
U.S. agency obligations	—		34,808		—			34,808
U.S. treasury securities	—		53,587		—			53,587
Commercial paper	—		6,309		—			6,309
Certificates of deposit	—		1,922		—			1,922
Other Current Liabilities:
Contingent consideration	—		—		(12,600		)	(12,600		)
Total	$	44,108	$	445,315	$	(12,600	)	$	476,823

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):

	Fair Value Measurements Using Unobservable Inputs (Level 3)
	September 30, 2017			December 31, 2016
Balance, beginning of period	$	(12,600	)	$	(2,300	)
Accretion expense (recognized in general and administrative expenses)	2,900			(706		)
Settlement (payment) of liability	—			3,006
Contingent consideration attributable to Creehan acquisition	—			(12,600		)
Total	$	(9,700	)	$	(12,600	)

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COMMITMENTS AND CONTINGENCIES

9 Months Ended

Sep. 30, 2017

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.

On June 24, 2016, a purported securities class action complaint (Xiang v. Inovalon Holdings, Inc., et.al., No. 1:16-cv-04923) was filed in the United States District Court for the Southern District of New York against the Company, certain officers, directors and underwriters in the Company's initial public offering (the "Complaint"). The Complaint was brought on behalf of a purported class consisting of all persons or entities who purchased shares of the Company's Class A common stock pursuant or traceable to the Registration Statement relating to the Company's initial public offering on February 18, 2015. The Complaint asserted violations of Sections 11 and 15 of the Securities Act based on allegedly false or misleading statements and omissions with respect to, among other things, the Company's revenues from sales in the city and state of New York and the Company's effective tax rate. The Complaint sought certification as a class action and unspecified compensatory damages plus interest and attorneys' fees. On June 28, 2016, a nearly identical complaint was filed in the same court captioned Patel v. Inovalon Holdings, Inc., et. al., No. 1:16-cv-05065. On July 5, 2016, the court consolidated the Xiang and Patel actions. On September 20, 2016, the court appointed a lead plaintiff and lead counsel. On December 21, 2016, lead plaintiff filed a consolidated class action complaint (the "Amended Complaint") purporting to assert violations of Sections 11, 12(a)(2), and 15 of the Securities Act of 1933, as amended, based on allegedly false or misleading statements and omissions with respect to substantially the same topics as alleged in the Complaint. On February 21, 2017, and as required by the court's individual practices, the Company invoked the pre-motion process required prior to filing a motion to dismiss. On May 23, 2017, the court issued a decision and order construing the pre-motion letter submitted by the defendants as a motion to dismiss, granting dismissal of the Section 12 claims against the individual defendants, but denying dismissal of the remaining claims. On June 6, 2017, defendants filed a joint motion for reconsideration and supporting memorandum of law seeking reconsideration of the court’s decision and arguing that plaintiff’s claims are time-barred. Also on June 6, 2017, defendants submitted a letter to the court requesting, in the alternative to the motion for reconsideration, a pre-motion conference concerning defendants’ anticipated motion for certification of an interlocutory appeal to resolve a controlling question of law. On July 11, 2017, the Company and its officers and directors filed their answer to the Amended Complaint denying that plaintiffs are entitled to any relief. On July 28, 2017, the court issued a decision and order denying both the motion for reconsideration and defendant’s request for an interlocutory appeal. In light of, among other things, the early stage of the litigation, the Company is unable to predict the outcome of these consolidated actions and is unable to make a meaningful estimate of the amount or range of loss, if any, that could result from this proceeding.

On June 29, 2017, Virginia Rodriquez filed a putative shareholder derivative suit in the Supreme Court of the State of New York, County of Westchester, against certain of the Company’s present and former directors and officers (the “Derivative Complaint”). The Company was named as a nominal defendant. The Derivative Complaint makes allegations similar to the allegations in the securities class action Amended Complaint described above and asserts claims for breach of fiduciary duty, unjust enrichment, abuse of control and gross mismanagement, and seeks unspecified damages, an order directing the Company "to reform and improve" certain corporate governance and internal procedures, restitution from the defendants and disgorgement of all profits, benefits and other compensation received and costs and disbursements incurred in connection with the action, including attorneys' fees. On September 12, 2017, the Company and the individual defendants filed a joint motion to dismiss the Derivative Complaint solely, as directed by the court, on the basis of a binding forum selection provision contained in the Company’s Second Amended and Restated Certificate of Incorporation, which motion is pending before the court. The Company is a nominal defendant in the derivative action and, in light of, among other things, the early stage of the litigation, the Company is unable to predict the outcome of this action and is unable to make a meaningful estimate of the amount or range of loss, if any, that could result from this proceeding.

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BUSINESS COMBINATIONS

9 Months Ended

Sep. 30, 2017

Business Combinations [Abstract]

BUSINESS COMBINATIONS

BUSINESS COMBINATIONS

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 which 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, in conformity with ASC No. 820, Fair Value Measurements and Disclosures, represent the Company's best estimates and valuations. In accordance with ASC No. 805, Business Combinations, the preliminary allocation of the consideration value is subject to adjustment until the Company has completed its analysis, but not to exceed one year after the date of acquisition. The total purchase price has been allocated on a preliminary basis to identifiable assets acquired and liabilities assumed based upon valuation procedures performed to-date. 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 $9.3 million of assets, including approximately $1.5 million of cash, and approximately $4.8 million of liabilities.

Creehan Acquisition

On October 3, 2016, the Company completed its acquisition of Creehan Holding Co., Inc. ("Creehan"). Creehan, through its subsidiary Creehan & Company Corporation, is a leading provider of specialty pharmacy software solutions to the pharmaceutical industry. Pursuant to the terms of the Stock Purchase Agreement between the Company and Creehan (the "Stock Purchase Agreement"), Creehan became a wholly owned subsidiary of Inovalon.

Pursuant to the terms of the Stock Purchase Agreement, Inovalon acquired all of the issued and outstanding capital stock of Creehan for an aggregate purchase price of $130 million, which was comprised of $120 million in cash and $10 million in shares of Class A common stock of the Company. The Company completed the acquisition of Creehan through the use of cash on hand and the issuance of 651,355 shares of Class A common stock, subject to resale restrictions. Certain components, which are referred to below as contingent consideration, of the aggregate purchase price are subject to the achievement of financial performance objectives. The Company acquired Creehan for the assembled workforce, technology platform, client base, and to accelerate entry into the specialty pharmacy software market. Transaction costs in connection with the acquisition are expensed as incurred and are included in general and administrative expenses. The results of operations related to Creehan are included in our consolidated statements of operations beginning from the date of acquisition.

A summary of the final composition of the stated purchase price and fair value of the stated purchase price is as follows (in thousands):

Share Purchase Agreement purchase price	$	130,000
Working capital adjustment	755
Subtotal	130,755
Fair value adjustments:
Marketability restrictions on equity consideration	(2,236		)
Contingent consideration probability of achievement adjustment.	(12,400		)
Post-acquisition compensation expense	(5,952		)
Total fair value purchase price	$	110,167

During the nine months ended September 30, 2017, the Company finalized the working capital adjustment resulting in an increase of approximately $0.4 million to the initial purchase price allocation. After adjusting for this difference the composition of the fair value of the consideration transferred is as follows (in thousands):

Cash	$	89,803
Issuance of Class A common stock	7,764
Contingent consideration	12,600
Total fair value purchase price	$	110,167

Recording of Assets Acquired and Liabilities Assumed

As of September 30, 2017, the Company had finalized the fair value of acquired assets, assumed liabilities and tax related matters. The following table summarizes the purchase price allocation to assets acquired and liabilities assumed, including identification of measurement period adjustments (in thousands):

	Recorded Value
Cash and cash equivalents	$	861
Accounts receivable	9,048
Other current assets	171
Property, equipment and capitalized software	641
Intangible assets(1)	50,900
Goodwill(2)	51,362
Total assets acquired	112,983
Current liabilities	(916		)
Deferred revenue	(1,900		)
Total liabilities assumed	(2,816		)
Net assets acquired	$	110,167

______________________________________

(1) Identifiable intangible assets were measured using a combination of an income approach and a market approach.

(2) Goodwill is the excess of the consideration transferred over the net assets recognized and represents the future economic benefits, primarily as a result of other assets acquired that could not be individually identified and separately recognized. Goodwill is not amortized. The goodwill attributable to the Creehan acquisition is deductible for tax purposes.

The amounts attributed to identified intangible assets are summarized in the table below (in thousands):

	Weighted Average Useful Life	Recorded Value
Customer relationships	8 years	$	36,500
Tradename	4 years	4,000
Technology	4 years	8,800
In-process Research and Development	indefinite	1,600
Total intangible assets		$	50,900

The following table summarizes the activity related to the carrying value of our goodwill during the nine months ended September 30, 2017 (in thousands):

Goodwill as of January 1, 2017	$	184,557
Measurement period adjustments	375
Goodwill as of September 30, 2017	$	184,932

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STOCKHOLDERS' EQUITY

9 Months Ended

Sep. 30, 2017

Stockholders' Equity Note [Abstract]

STOCKHOLDERS' EQUITY

STOCKHOLDERS' EQUITY

Treasury Stock—On May 4, 2016, the Company announced that its Board of Directors authorized a program to repurchase up to $100 million of Inovalon's Class A common stock through December 31, 2016. Repurchases under the Company's share repurchase program have been made in open-market or privately negotiated transactions. The Company has and expects to continue to fund repurchases through a combination of cash on hand, cash generated by operations and sales of short-term investments, if needed. On November 2, 2016, the Company announced that its Board of Directors authorized an expansion of the share repurchase program to repurchase up to an additional $100 million of shares of Inovalon's Class A Common Stock (bringing the total to $200 million) through December 31, 2017. The share repurchase program does not obligate the Company to acquire any particular amount of Class A common stock.

During the three months ended September 30, 2017, the Company repurchased 1,538,497 shares of Class A common stock for an aggregate cost of $19.8 million at an average cost of $12.88 per share, excluding commissions. During the nine months ended September 30, 2017, the Company repurchased 5,235,504 shares of Class A common stock, for an aggregate cost of $65.0 million at an average cost of $12.41 per share, excluding commissions. At September 30, 2017, approximately $28.8 million remained available to repurchase shares under the share repurchase program. Shares that are repurchased under the repurchase program were recorded as treasury stock, based on the stock trading dates, and are available for future issuance, until retired.

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BASIS OF PRESENTATION (Policies)

9 Months Ended

Sep. 30, 2017

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. (the "Company") in accordance with accounting principles generally accepted in the United States ("GAAP") for interim financial reporting and as required by Rule 10-01 of Regulation S-X. Accordingly, the unaudited condensed consolidated financial statements may not include all of the information and notes required by GAAP for audited financial statements. The year-end December 31, 2016 condensed consolidated balance sheet data included herein was derived from audited financial statements but does not include all disclosures required by GAAP for complete financial statements. In the opinion of the Company's management, the accompanying unaudited condensed consolidated financial statements contain all adjustments, consisting of items of a normal and recurring nature, necessary to present fairly the Company's financial position as of September 30, 2017, the results of operations and comprehensive income for the three and nine month periods ended September 30, 2017 and 2016, and cash flows for the nine months ended September 30, 2017 and 2016. The results of operations for the three and nine month periods ended September 30, 2017 and 2016 are not necessarily indicative of the results to be expected for the full year. The preparation of condensed consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts of assets and liabilities, and related disclosures, as of the date of the financial statements, and the amounts of revenue and expenses reported during the period. Actual results could differ from estimates. The information contained herein should be read in conjunction with the audited financial statements included in the Company's Annual Report on Form 10-K for the year ended December 31, 2016 (the "2016 Form 10-K").

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 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 2016 Form 10-K, that would be expected to impact the Company except for the following:

In May 2014, the Financial Accounting Standards Board ("FASB") issued ASU 2014-09, Revenue from Contracts with Customers and subsequent clarifying guidance ("ASU 2014-09"). This revenue recognition guidance supersedes existing GAAP guidance, including most industry-specific guidance. 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 guidance identifies five steps to apply in achieving this principle. ASU 2014-09 is effective for fiscal years beginning after December 15, 2017. ASU 2014-09 may be applied either retrospectively or through the use of a modified-retrospective method. The Company currently expects to adopt the new standard using a modified retrospective approach on January 1, 2018. The Company is currently evaluating the impacts of the application of the new standard to its existing customer contracts and will continue to review new contracts entered into prior to the adoption of the new standard. The Company is currently in the process of finalizing policies and implementing changes to our processes, including a process for future contract reviews, and internal control over financial reporting. The potential impacts of the new standard are still being assessed related to the accounting arrangements that include variable consideration, capitalization of costs of commissions that were previously expensed as incurred, upfront contract costs and contract fulfillment costs. The Company will provide additional disclosures as required by the new standard upon adoption.

In January 2017, the FASB issued ASU 2017-01, Business Combinations (Topic 805): Clarifying the Definition of a Business. The new standard narrows the definition of a business and provides a framework for evaluation. This ASU is effective for financial statements issued for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. The Company will apply the requirements of the new standard in the fourth quarter of 2017 on a prospective basis.

 In January 2017, the FASB issued ASU 2017-04, Intangibles—Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment. The new standard simplifies the subsequent measurement of goodwill by eliminating the second step of the goodwill impairment test. This ASU will be applied prospectively and is effective for annual or interim goodwill impairment tests in fiscal years beginning after December 15, 2019. Early adoption is permitted for interim or annual goodwill impairment tests performed on testing dates after January 1, 2017 and the Company early adopted the requirements of the new standard in the fourth quarter of 2017 as it performs its annual impairment analysis. The Company is in the process of evaluating each of its reporting units based on current and forecasted financial information and will finalize the valuations and impairment analysis during the fourth quarter of 2017.

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NET INCOME PER SHARE (Tables)

9 Months Ended

Sep. 30, 2017

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):

	Three Months Ended September 30,						Nine Months Ended September 30,
	2017			2016			2017			2016
Basic
Numerator:
Net income	$	8,241		$	7,807		$	17,369		$	26,423
Undistributed earnings allocated to participating securities	(273		)	(36		)	(464		)	(115		)
Net income attributable to common stockholders	$	7,968		$	7,771		$	16,905		$	26,308
Denominator:
Weighted average shares used in computing net income per share attributable to common stockholders—basic	141,226			150,732			142,861			151,240
Net income per share attributable to common stockholders—basic	$	0.06		$	0.05		$	0.12		$	0.17
Diluted
Numerator:
Net income attributable to common stockholders	$	7,968		$	7,771		$	16,905		$	26,308
Denominator:
Number of shares used for basic EPS computation	141,226			150,732			142,861			151,240
Effect of dilutive securities	473			830			466			882
Weighted average shares used in computing net income per share attributable to common stockholders—diluted	141,699			151,562			143,327			152,122
Net income per share attributable to common stockholders—diluted	$	0.06		$	0.05		$	0.12		$	0.17

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):

	Three Months Ended September 30,		Nine Months Ended September 30,
	2017	2016	2017	2016
Awards excluded from the computation of diluted net income per share because their inclusion would have been anti-dilutive	42	240	138	138

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SHORT-TERM INVESTMENTS (Tables)

9 Months Ended

Sep. 30, 2017

Investments, Debt and Equity Securities [Abstract]

Schedule of short-term investments

As of September 30, 2017, short-term investments consisted of the following (in thousands):

	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Estimated Fair Value
Available-for-sale securities:
Corporate notes and bonds	$	257,468	$	61	$	(313	)	$	257,216
U.S. agency obligations	15,322		—		(55		)	15,267
U.S. treasury securities	20,725		—		(107		)	20,618
Total available-for-sale securities	$	293,515	$	61	$	(475	)	$	293,101

As of December 31, 2016, short-term investments consisted of the following (in thousands):

	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Estimated Fair Value
Available-for-sale securities:
Corporate notes and bonds	$	349,571	$	36	$	(918	)	$	348,689
U.S. agency obligations	34,864		22		(78		)	34,808
U.S. treasury securities	53,681		6		(100		)	53,587
Commercial paper	6,312		—		(3		)	6,309
Certificates of deposit	1,921		1		—			1,922
Total available-for-sale securities	$	446,349	$	65	$	(1,099	)	$	445,315

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):

	September 30, 2017		December 31, 2016
Due in one year or less	$	181,387	$	176,696
Due after one year through three years	111,714		268,619
Total	$	293,101	$	445,315

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 September 30, 2017, aggregated by investment category (in thousands):

	Estimated Fair Value		Gross Unrealized Losses
Corporate notes and bonds	$	186,286	$	(313	)
U.S. agency obligations	15,267		(55		)
U.S. treasury securities	20,618		(107		)
	$	222,171	$	(475	)

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FAIR VALUE MEASUREMENTS (Tables)

9 Months Ended

Sep. 30, 2017

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 September 30, 2017 (in thousands):

	Level 1		Level 2		Level 3			Total
Cash Equivalents:
Money market funds	$	160,828	$	—	$	—		$	160,828
Short-term investments:
Corporate notes and bonds	—		257,216		—			257,216
U.S. agency obligations	—		15,267		—			15,267
U.S. treasury securities	—		20,618		—			20,618
Certificates of deposit	—		—		—			—
Liabilities:
Contingent consideration	—		—		(9,700		)	(9,700		)
Total	$	160,828	$	293,101	$	(9,700	)	$	444,229

The following table presents the fair value hierarchy for financial assets and liabilities measured at fair value on a recurring basis as of December 31, 2016 (in thousands):

	Level 1		Level 2		Level 3			Total
Cash Equivalents:
Money market funds	$	44,108	—		—			$	44,108
Short-term investments:
Corporate notes and bonds	—		348,689		—			348,689
U.S. agency obligations	—		34,808		—			34,808
U.S. treasury securities	—		53,587		—			53,587
Commercial paper	—		6,309		—			6,309
Certificates of deposit	—		1,922		—			1,922
Other Current Liabilities:
Contingent consideration	—		—		(12,600		)	(12,600		)
Total	$	44,108	$	445,315	$	(12,600	)	$	476,823

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):

	Fair Value Measurements Using Unobservable Inputs (Level 3)
	September 30, 2017			December 31, 2016
Balance, beginning of period	$	(12,600	)	$	(2,300	)
Accretion expense (recognized in general and administrative expenses)	2,900			(706		)
Settlement (payment) of liability	—			3,006
Contingent consideration attributable to Creehan acquisition	—			(12,600		)
Total	$	(9,700	)	$	(12,600	)

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BUSINESS COMBINATIONS (Tables)

9 Months Ended

Sep. 30, 2017

Business Combinations [Abstract]

Schedule of preliminary composition of stated purchase price and fair value of stated purchase price

A summary of the final composition of the stated purchase price and fair value of the stated purchase price is as follows (in thousands):

Share Purchase Agreement purchase price	$	130,000
Working capital adjustment	755
Subtotal	130,755
Fair value adjustments:
Marketability restrictions on equity consideration	(2,236		)
Contingent consideration probability of achievement adjustment.	(12,400		)
Post-acquisition compensation expense	(5,952		)
Total fair value purchase price	$	110,167

Schedule of composition of the fair value of the consideration transferred

After adjusting for this difference the composition of the fair value of the consideration transferred is as follows (in thousands):

Cash	$	89,803
Issuance of Class A common stock	7,764
Contingent consideration	12,600
Total fair value purchase price	$	110,167

Schedule of purchase price allocation to assets acquired and liabilities assumed

The following table summarizes the purchase price allocation to assets acquired and liabilities assumed, including identification of measurement period adjustments (in thousands):

	Recorded Value
Cash and cash equivalents	$	861
Accounts receivable	9,048
Other current assets	171
Property, equipment and capitalized software	641
Intangible assets(1)	50,900
Goodwill(2)	51,362
Total assets acquired	112,983
Current liabilities	(916		)
Deferred revenue	(1,900		)
Total liabilities assumed	(2,816		)
Net assets acquired	$	110,167

______________________________________

(1) Identifiable intangible assets were measured using a combination of an income approach and a market approach.

(2) Goodwill is the excess of the consideration transferred over the net assets recognized and represents the future economic benefits, primarily as a result of other assets acquired that could not be individually identified and separately recognized. Goodwill is not amortized. The goodwill attributable to the Creehan acquisition is deductible for tax purposes.

Schedule of identified intangible assets

The amounts attributed to identified intangible assets are summarized in the table below (in thousands):

	Weighted Average Useful Life	Recorded Value
Customer relationships	8 years	$	36,500
Tradename	4 years	4,000
Technology	4 years	8,800
In-process Research and Development	indefinite	1,600
Total intangible assets		$	50,900

Summary of the activity related to the carrying value of goodwill

The following table summarizes the activity related to the carrying value of our goodwill during the nine months ended September 30, 2017 (in thousands):

Goodwill as of January 1, 2017	$	184,557
Measurement period adjustments	375
Goodwill as of September 30, 2017	$	184,932

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NET INCOME PER SHARE - Tabular Disclosure (Details) - USD ($) $ / shares in Units, shares in Thousands, $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2017	Sep. 30, 2016	Sep. 30, 2017	Sep. 30, 2016
Basic
Net income	$ 8,241	$ 7,807	$ 17,369	$ 26,423
Undistributed earnings allocated to participating securities	(273)	(36)	(464)	(115)
Net income attributable to common stockholders	$ 7,968	$ 7,771	$ 16,905	$ 26,308
Weighted average shares used in computing net income per share attributable to common stockholders - basic (in shares)	141,226	150,732	142,861	151,240
Net income per share attributable to common stockholders - basic (in dollars per share)	$ 0.06	$ 0.05	$ 0.12	$ 0.17
Diluted
Net income attributable to common stockholders	$ 7,968	$ 7,771	$ 16,905	$ 26,308
Effect of dilutive securities (in shares)	473	830	466	882
Weighted average shares used in computing net income per share attributable to common stockholders - diluted (in shares)	141,699	151,562	143,327	152,122
Net income per share attributable to common stockholders - diluted (in dollars per share)	$ 0.06	$ 0.05	$ 0.12	$ 0.17

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NET INCOME PER SHARE - Anti-dilutive Securities (Details) - shares shares in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2017	Sep. 30, 2016	Sep. 30, 2017	Sep. 30, 2016
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)	42	240	138	138

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SHORT-TERM INVESTMENTS - Available-for-sale Securities (Details) - USD ($) $ in Thousands	Sep. 30, 2017	Dec. 31, 2016
Available-for-sale securities:
Amortized Cost	$ 293,515	$ 446,349
Gross Unrealized Gains	61	65
Gross Unrealized Losses	(475)	(1,099)
Estimated Fair Value	293,101	445,315
Corporate notes and bonds
Available-for-sale securities:
Amortized Cost	257,468	349,571
Gross Unrealized Gains	61	36
Gross Unrealized Losses	(313)	(918)
Estimated Fair Value	257,216	348,689
U.S. agency obligations
Available-for-sale securities:
Amortized Cost	15,322	34,864
Gross Unrealized Gains	0	22
Gross Unrealized Losses	(55)	(78)
Estimated Fair Value	15,267	34,808
U.S. treasury securities
Available-for-sale securities:
Amortized Cost	20,725	53,681
Gross Unrealized Gains	0	6
Gross Unrealized Losses	(107)	(100)
Estimated Fair Value	$ 20,618	53,587
Commercial paper
Available-for-sale securities:
Amortized Cost		6,312
Gross Unrealized Gains		0
Gross Unrealized Losses		(3)
Estimated Fair Value		6,309
Certificates of deposit
Available-for-sale securities:
Amortized Cost		1,921
Gross Unrealized Gains		1
Gross Unrealized Losses		0
Estimated Fair Value		$ 1,922

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SHORT-TERM INVESTMENTS - Estimated Fair Value by Contractual Maturity Date (Details) - USD ($) $ in Thousands	Sep. 30, 2017	Dec. 31, 2016
Investments, Debt and Equity Securities [Abstract]
Due in one year or less	$ 181,387	$ 176,696
Due after one year through three years	111,714	268,619
Total	$ 293,101	$ 445,315

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SHORT-TERM INVESTMENTS - Other-than-temporary Impairments (Details)	9 Months Ended
	Sep. 30, 2017 USD ($)
Investments, Debt and Equity Securities [Abstract]
Other-than-temporary impairments	$ 0

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SHORT-TERM INVESTMENTS - Fair Values and Gross Unrealized Losses of Available-for-sale Securities in a Gross Loss Position (Details) $ in Thousands	9 Months Ended
	Sep. 30, 2017 USD ($)
Fair Values and Gross Unrealized Losses of Available-for-sale Securities in a Gross Loss Position
Estimated Fair Value	$ 222,171
Gross Unrealized Losses	(475)
Corporate notes and bonds
Fair Values and Gross Unrealized Losses of Available-for-sale Securities in a Gross Loss Position
Estimated Fair Value	186,286
Gross Unrealized Losses	(313)
U.S. agency obligations
Fair Values and Gross Unrealized Losses of Available-for-sale Securities in a Gross Loss Position
Estimated Fair Value	15,267
Gross Unrealized Losses	(55)
U.S. treasury securities
Fair Values and Gross Unrealized Losses of Available-for-sale Securities in a Gross Loss Position
Estimated Fair Value	20,618
Gross Unrealized Losses	$ (107)

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FAIR VALUE MEASUREMENTS - Fair Value Hierarchy (Details) - USD ($) $ in Thousands	Sep. 30, 2017	Dec. 31, 2016
Short-term investments:
Short-term investments	$ 293,101	$ 445,315
Corporate notes and bonds
Short-term investments:
Short-term investments	257,216	348,689
U.S. agency obligations
Short-term investments:
Short-term investments	15,267	34,808
U.S. treasury securities
Short-term investments:
Short-term investments	20,618	53,587
Commercial paper
Short-term investments:
Short-term investments		6,309
Certificates of deposit
Short-term investments:
Short-term investments		1,922
Recurring
Total
Total	444,229	476,823
Recurring | Money market funds
Cash Equivalents:
Cash equivalents	160,828	44,108
Recurring | Level 1
Total
Total	160,828	44,108
Recurring | Level 1 | Money market funds
Cash Equivalents:
Cash equivalents	160,828	44,108
Recurring | Level 2
Total
Total	293,101	445,315
Recurring | Level 2 | Money market funds
Cash Equivalents:
Cash equivalents	0	0
Recurring | Level 3
Total
Total	(9,700)	(12,600)
Recurring | Level 3 | Money market funds
Cash Equivalents:
Cash equivalents	0	0
Recurring | Contingent consideration
Liabilities / Other Current Liabilities:
Contingent consideration	(9,700)	(12,600)
Recurring | Contingent consideration | Level 1
Liabilities / Other Current Liabilities:
Contingent consideration	0	0
Recurring | Contingent consideration | Level 2
Liabilities / Other Current Liabilities:
Contingent consideration	0	0
Recurring | Contingent consideration | Level 3
Liabilities / Other Current Liabilities:
Contingent consideration	(9,700)	(12,600)
Recurring | Corporate notes and bonds
Short-term investments:
Short-term investments	257,216	348,689
Recurring | Corporate notes and bonds | Level 1
Short-term investments:
Short-term investments	0	0
Recurring | Corporate notes and bonds | Level 2
Short-term investments:
Short-term investments	257,216	348,689
Recurring | Corporate notes and bonds | Level 3
Short-term investments:
Short-term investments	0	0
Recurring | U.S. agency obligations
Short-term investments:
Short-term investments	15,267	34,808
Recurring | U.S. agency obligations | Level 1
Short-term investments:
Short-term investments	0	0
Recurring | U.S. agency obligations | Level 2
Short-term investments:
Short-term investments	15,267	34,808
Recurring | U.S. agency obligations | Level 3
Short-term investments:
Short-term investments	0	0
Recurring | U.S. treasury securities
Short-term investments:
Short-term investments	20,618	53,587
Recurring | U.S. treasury securities | Level 1
Short-term investments:
Short-term investments	0	0
Recurring | U.S. treasury securities | Level 2
Short-term investments:
Short-term investments	20,618	53,587
Recurring | U.S. treasury securities | Level 3
Short-term investments:
Short-term investments	0	0
Recurring | Commercial paper
Short-term investments:
Short-term investments		6,309
Recurring | Commercial paper | Level 1
Short-term investments:
Short-term investments		0
Recurring | Commercial paper | Level 2
Short-term investments:
Short-term investments		6,309
Recurring | Commercial paper | Level 3
Short-term investments:
Short-term investments		0
Recurring | Certificates of deposit
Short-term investments:
Short-term investments	0	1,922
Recurring | Certificates of deposit | Level 1
Short-term investments:
Short-term investments	0	0
Recurring | Certificates of deposit | Level 2
Short-term investments:
Short-term investments	0	1,922
Recurring | Certificates of deposit | Level 3
Short-term investments:
Short-term investments	$ 0	$ 0

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FAIR VALUE MEASUREMENTS - Unobservable Inputs (Level 3) (Details) - USD ($) $ in Thousands	9 Months Ended
	Sep. 30, 2017	Sep. 30, 2016
Fair Value Measurements Using Unobservable Inputs (Level 3)
Balance, beginning of period	$ (12,600)	$ (2,300)
Accretion expense (recognized in general and administrative expenses)	2,900	(706)
Settlement (payment) of liability	0	3,006
Contingent consideration attributable to Creehan acquisition	0	(12,600)
Total	$ (9,700)	$ (12,600)

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BUSINESS COMBINATIONS - General Disclosures (Details) - USD ($) $ in Thousands			9 Months Ended
	Jul. 06, 2017	Oct. 03, 2016	Sep. 30, 2017
ComplexCare Solutions, Inc.
Business Acquisition [Line Items]
Payments to acquire businesses, gross	$ 4,500
Liabilities incurred	2,300
Assets acquired	9,300
Cash acquired	1,500
Liabilities assumed	$ 4,800
Creehan Holding Co., Inc.
Business Acquisition [Line Items]
Payments to acquire businesses, gross		$ 89,803
Liabilities incurred		12,600
Assets acquired		112,983
Cash acquired		861
Liabilities assumed		2,816
Stated purchase price		130,000
Consideration paid in cash before working capital adjustments		120,000
Issuance of Class A common stock before working capital adjustments		$ 10,000
Issuance of Class A common stock (in shares)		651,355
Working capital adjustments			$ 375

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BUSINESS COMBINATIONS BUSINESS COMBINATIONS - Composition of the Stated Purchase Price and Fair Value of the Stated Purchase Price (Details) - Creehan Holding Co., Inc. $ in Thousands	Oct. 03, 2016 USD ($)
Business Acquisition [Line Items]
Share Purchase Agreement purchase price	$ 130,000
Working capital adjustment	755
Subtotal	130,755
Fair value adjustments:
Marketability restrictions on equity consideration	(2,236)
Contingent consideration probability of achievement adjustment.	(12,400)
Post-acquisition compensation expense	(5,952)
Total fair value purchase price	$ 110,167

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BUSINESS COMBINATIONS - Fair Value of Consideration Transferred (Details) - Creehan Holding Co., Inc. $ in Thousands	Oct. 03, 2016 USD ($)
Composition of the purchase price
Cash	$ 89,803
Issuance of Class A common stock	7,764
Contingent consideration	12,600
Total fair value purchase price	$ 110,167

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BUSINESS COMBINATIONS - Purchase Price Allocation (Details) - USD ($) $ in Thousands	Sep. 30, 2017	Dec. 31, 2016	Oct. 03, 2016
Preliminary Recording of Assets Acquired and Liabilities Assumed
Goodwill	$ 184,932	$ 184,557
Creehan Holding Co., Inc.
Preliminary Recording of Assets Acquired and Liabilities Assumed
Cash and cash equivalents			$ 861
Accounts receivable			9,048
Other current assets			171
Property, equipment and capitalized software			641
Intangible assets			50,900
Goodwill	$ 184,932	$ 184,557	51,362
Total assets acquired			112,983
Current liabilities			(916)
Deferred revenue			(1,900)
Total liabilities assumed			(2,816)
Net assets acquired			$ 110,167

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BUSINESS COMBINATIONS - Identified Intangible Assets (Details) - Creehan Holding Co., Inc. $ in Thousands	Oct. 03, 2016 USD ($)
Identified intangible assets
Recorded Value	$ 50,900
Customer relationships
Identified intangible assets
Weighted Average Useful Life (in years)	8 years
Recorded Value	$ 36,500
Tradename
Identified intangible assets
Weighted Average Useful Life (in years)	4 years
Recorded Value	$ 4,000
Technology
Identified intangible assets
Weighted Average Useful Life (in years)	4 years
Recorded Value	$ 8,800
In-process Research and Development
Identified intangible assets
Recorded Value	$ 1,600

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BUSINESS COMBINATIONS - Goodwill (Details) $ in Thousands	9 Months Ended
	Sep. 30, 2017 USD ($)
Summary of the activity related to the carrying value of goodwill
Goodwill at the beginning of the period	$ 184,557
Goodwill at the end of the period	184,932
Creehan Holding Co., Inc.
Summary of the activity related to the carrying value of goodwill
Goodwill at the beginning of the period	184,557
Measurement period adjustments	375
Goodwill at the end of the period	$ 184,932

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STOCKHOLDERS' EQUITY (Details) - Class A Common - USD ($)	3 Months Ended	9 Months Ended
	Sep. 30, 2017	Sep. 30, 2017	Nov. 02, 2016	May 04, 2016
STOCKHOLDERS' EQUITY (DEFICIT)
Share repurchase authorized amount			$ 200,000,000	$ 100,000,000
Amount of additional shares authorized			$ 100,000,000
Number of shares repurchased (in shares)	1,538,497	5,235,504
Amount of shares repurchased	$ 19,800,000	$ 65,000,000
Average cost of shares repurchased (in dollars per share)	$ 12.88	$ 12.41
Share repurchase remaining authorized amount	$ 28,800,000	$ 28,800,000