Delaware (State or other jurisdiction of incorporation) | 001-36841 (Commission File Number) | 47-1830316 (IRS Employer Identification No.) |
4321 Collington Road Bowie, Maryland | 20716 | |
(Address of principal executive offices) | (Zip Code) |
Exhibit No. | Description | |
99.1* | ||
99.2* |
INOVALON HOLDINGS, INC. | ||
Dated: February 20, 2018 | By: | /s/ KEITH R. DUNLEAVY, M.D. |
Keith R. Dunleavy, M.D. | ||
Chief Executive Officer and Chairman |
• | Fourth quarter revenue of $114.6 million, up 19% year-over-year |
• | Fourth quarter net income of $17.4 million, resulting in diluted net income of $0.12 per share, inclusive of a one-time benefit of $0.11 per share from changes to tax legislation |
• | Fourth quarter Non-GAAP net income of $7.8 million, resulting in Non-GAAP diluted net income of $0.06 per share |
• | Fourth quarter Adjusted EBITDA of $25.5 million, up 78% year-over-year |
• | Fourth quarter Adjusted EBITDA margin of 22.3%, up 740 basis points year-over-year |
• | MORE2 Registry® dataset unique patient count of more than 240 million, up 59% year-over-year |
• | Full year revenue of $449.4 million, up 5% year-over-year |
• | Full year net income of $34.8 million, resulting in diluted net income of $0.24 per share, inclusive of a one-time benefit of $0.11 per share from changes to tax legislation |
• | Full year Non-GAAP net income of $41.8 million, resulting in Non-GAAP diluted net income of $0.29 per share |
• | Full year Adjusted EBITDA of $109.0 million, up 9% year-over-year |
• | Full year Adjusted EBITDA margin of 24.3%, up 90 basis points year-over-year |
• | Full year Net cash provided by operating activities of $97.7 million, representing 21.7% of revenue |
• | Revenue for the fourth quarter of 2017 was $114.6 million, a year-over-year increase of 19% compared with $96.1 million for the fourth quarter of 2016. On an organic1 basis, revenue for the fourth quarter of 2017 grew 14% year-over-year. |
• | Cost of revenue for the fourth quarter of 2017 was $37.1 million, or 32.4% of revenue, compared with $38.6 million, or 40.2% of revenue, for the fourth quarter of 2016. This translates into gross margin for the fourth quarter of 2017 of 67.6%, a year-over-year increase of 780 basis points compared with 59.8% for the fourth quarter of 2016, and a sequential increase of 80 basis points compared with 66.8% for the third quarter of 2017. |
• | Net income for the fourth quarter of 2017 was $17.4 million, resulting in diluted net income per share of $0.12, compared with $0.7 million and $0.00 per share, respectively, for the fourth quarter of 2016. Net income and diluted net income per share for the fourth quarter of 2017 include a benefit of $15.5 million and $0.11 per share, respectively, as a result of the Tax Cuts and Jobs Act of 2017 (the "Tax Act") enacted on December 22, 2017, which is discussed in further detail below. |
• | Adjusted EBITDA for the fourth quarter of 2017 was $25.5 million, a year-over-year increase of 78% compared with $14.3 million for the fourth quarter of 2016. Adjusted EBITDA margin for the fourth quarter of 2017 was 22.3%, a year-over-year increase of 740 basis points compared with 14.9% for the fourth quarter of 2016. |
• | Non-GAAP net income for the fourth quarter of 2017 was $7.8 million, resulting in Non-GAAP diluted net income per share of $0.06, compared with $7.4 million and $0.05 per share, respectively, for the fourth quarter of 2016. |
• | Revenue for 2017 was $449.4 million, a year-over-year increase of 5% compared with $427.6 million for 2016. |
• | Cost of revenue for 2017 was $151.0 million, or 33.6% of revenue, compared with $159.2 million, or 37.2% of revenue for 2016. This translates into gross margin for 2017 of 66.4%, a year-over-year increase of 360 basis points compared with 62.8% for 2016. |
• | Net income for 2017 was $34.8 million resulting in diluted net income per share of $0.24, compared with $27.1 million and $0.18 per share, respectively, for 2016. Net income and diluted net income per share for 2017 include a benefit of $15.5 million and $0.11 per share, respectively, as a result of the Tax Act. |
• | Adjusted EBITDA for 2017 was $109.0 million, a year-over-year increase of 9% compared with $99.9 million for 2016. Adjusted EBITDA margin for 2017 was 24.3%, an increase of 90 basis points compared with 23.4% for 2016. |
• | Non-GAAP net income for 2017 was $41.8 million, resulting in Non-GAAP diluted net income per share of $0.29, compared with $51.0 million and $0.34 per share, respectively, for 2016. |
• | Net cash provided by operating activities was $97.7 million for 2017, a year-over-year increase of 5% compared with $92.8 million for 2016, and representing 21.7% of revenue. |
• | Strong Financial Performance In-Line with Company Expectations. Fourth quarter revenue of $114.6 million grew 19% year-over-year as reported and 14% year-over-year organically1, in-line with the Company’s preliminary expected results announced on January 8, 2018 as well as with the guidance previously provided in the Company’s Q3 2017 earnings report. Fourth quarter gross margin of 67.6% improved 780 basis points year-over-year and 80 basis points sequentially, demonstrating continued operating leverage from higher-margin offering mix, favorable pricing, and technology-enabled efficiencies that Inovalon has realized throughout 2017. Adjusted EBITDA of $25.5 million was at the mid-point of the Company’s previously-stated expectations, and Adjusted EBITDA margin of 22.3% was up 740 basis points year-over-year, driven by higher gross margin. The Company's strong financial performance continued to drive healthy cash flow, with full-year 2017 net cash provided by operating activities of $97.7 million, representing 21.7% of revenue and slightly ahead of Company expectations. |
• | Underlying Growth and Transition to Subscription-Based Platforms. Inovalon is successfully orchestrating a transition from legacy enterprise solutions to subscription-based cloud-based platform offerings. In 2016, the Company's revenue consisted of 12%, 34%, and 54%, from services, legacy enterprise solutions, and subscription-based cloud-based platform offerings, respectively. In 2017, these contributions were 15%, 19%, and 66%, respectively, reflecting a year-over-year growth of approximately 30% in subscription-based cloud-based platform offerings in 2017. Driving the expansion in subscription-based cloud-based platform offering adoption is an increase in the number of patients on the Inovalon ONE™ Platform, a number that reached over 94 million at the end of 2017, a year-over-year increase of over 450%. As clients contract for an increasing scope of capabilities enabled through the Inovalon ONE™ Platform, their realized value increases, as does subscription-based revenue to Inovalon. As of the end of 2017, the vast majority of clients represented by the more than 94 million patients on the Inovalon ONE™ Platform utilized only a small fraction of the Platform’s capabilities. |
• | Continued Strong Expansion of Connectivity and Deeper Clinical Datasets. During 2017, Inovalon significantly expanded its industry-leading datasets and healthcare ecosystem connectivity, both key differentiators for the Company. At the end of 2017, Inovalon had achieved direct electronic health record (EHR) system connectivity with more than |
• | Comments Regarding Overall Growth Dynamics in 2018. In 2017, the Company achieved a reacceleration of growth. Strong market adoption of the Company’s cloud-based platform offerings supported a 30% growth rate in the Company’s subscription-based cloud-based platform offerings and an organic revenue growth rate in the fourth quarter of 14% on a year-over-year basis. The Company's strong underlying business performance is expected to continue in 2018. Opposing these positive and accelerating growth factors, however, are the short-term effects of ACA-related decisions of certain health plans within Inovalon’s client base. Decisions by a limited number of clients to withdraw from ACA markets resulted in a decrease in contract activity, and in one case a contract non-renewal, that is expected to have an estimated combined negative impact of approximately 8% on Inovalon’s growth rate in 2018, predominantly seen in the first half of the year. The strong underlying organic growth of the Company is seen as surpassing this factor by the second half of the year, resulting in full year projected growth (excluding any unannounced acquisitions) of approximately 5% at the midpoint of guidance. Adjusting for the impact of these client-specific ACA decisions, Inovalon's growth rate in 2018 would be consistent with the Company's organic growth rate exiting the fourth quarter of 2017. |
• | Growth of Datasets: At December 31, 2017, the MORE2 Registry® dataset contained more than 240 million unique patient counts and nearly 38 billion medical event counts, increases of 59% and 183%, respectively, compared with December 31, 2016. |
• | Investment in Innovation: For the quarter ended December 31, 2017, Inovalon’s ongoing investment supporting innovations in advanced, cloud-based platforms empowering a data-driven transformation from volume-based to value-based models was $26.4 million, or 23.0% of revenue. For the full year 2017, Inovalon’s Investment in Innovation was $85.8 million, or 19.1% of revenue. |
• | Analytical Process Count Growth: Inovalon’s trailing 12-month Patient Analytics Months (PAM) count, which the Company believes is indicative of the Company’s overall level of analytical activity, grew to more than 42 billion as of December 31, 2017, an increase of 60% as compared with December 31, 2016. |
Financial Metric | 2018 Guidance | |
Revenue | $462 million to $482 million | |
Net income | $12 million to $16 million | |
Adjusted EBITDA | $113 million to $121 million | |
Non-GAAP net income | $44 million to $49 million | |
Diluted net income per share | $0.09 to $0.11 | |
Non-GAAP diluted net income per share | $0.31 to $0.35 |
(In thousands, except per-share amounts) | Three Months Ended December 31, | Twelve Months Ended December 31, | |||||||||||||
2017 | 2016 | 2017 | 2016 | ||||||||||||
Revenue | $ | 114,619 | $ | 96,093 | $ | 449,358 | $ | 427,588 | |||||||
Expenses: | |||||||||||||||
Cost of revenue(1) | 37,132 | 38,599 | 151,046 | 159,169 | |||||||||||
Sales and marketing(1) | 9,738 | 7,366 | 34,103 | 27,078 | |||||||||||
Research and development(1) | 6,533 | 8,101 | 27,383 | 29,148 | |||||||||||
General and administrative(1) | 41,946 | 32,053 | 149,948 | 137,275 | |||||||||||
Depreciation and amortization | 14,575 | 11,490 | 53,089 | 37,284 | |||||||||||
Total operating expenses | 109,924 | 97,609 | 415,569 | 389,954 | |||||||||||
Income from operations | 4,695 | (1,516 | ) | 33,789 | 37,634 | ||||||||||
Other income and (expenses): | |||||||||||||||
Realized gains on short-term investments | — | — | — | 4 | |||||||||||
(Loss) Gain on disposal of equipment | (25 | ) | — | (406 | ) | 534 | |||||||||
Interest income | 1,384 | 1,368 | 5,429 | 5,792 | |||||||||||
Interest expense | (1,676 | ) | (1,259 | ) | (6,225 | ) | (5,065 | ) | |||||||
Income before taxes | 4,378 | (1,407 | ) | 32,587 | 38,899 | ||||||||||
(Benefit from) Provision for income taxes | (13,071 | ) | (2,088 | ) | (2,231 | ) | 11,795 | ||||||||
Net income | $ | 17,449 | $ | 681 | $ | 34,818 | $ | 27,104 | |||||||
Net income attributable to common stockholders, basic and diluted | $ | 16,864 | $ | 674 | $ | 33,828 | $ | 26,943 | |||||||
Net income per share attributable to common stockholders, basic and diluted: | |||||||||||||||
Basic net income per share | $ | 0.12 | $ | — | $ | 0.24 | $ | 0.18 | |||||||
Diluted net income per share | $ | 0.12 | $ | — | $ | 0.24 | $ | 0.18 | |||||||
Weighted average shares of common stock outstanding: | |||||||||||||||
Basic | 140,338 | 146,495 | 142,225 | 150,048 | |||||||||||
Diluted | 140,928 | 147,103 | 142,737 | 150,955 |
(1) | Includes stock-based compensation expense as follows: | |||||||||||||||
Cost of revenue | $ | 463 | $ | 149 | $ | 1,652 | $ | 483 | ||||||||
Sales and marketing | 555 | 167 | 2,011 | 613 | ||||||||||||
Research and development | 364 | 257 | 1,293 | 1,184 | ||||||||||||
General and administrative | 3,611 | 3,129 | 12,362 | 7,774 | ||||||||||||
Total stock-based compensation expense | $ | 4,993 | $ | 3,702 | $ | 17,318 | $ | 10,054 |
(In thousands) | December 31, 2017 | December 31, 2016 | |||||
ASSETS | |||||||
Current assets: | |||||||
Cash and cash equivalents | $ | 208,944 | $ | 127,683 | |||
Short-term investments | 267,288 | 445,315 | |||||
Accounts receivable (net of allowances of $2,038 and $3,782 at December 31, 2017 and 2016, respectively) | 90,054 | 85,591 | |||||
Prepaid expenses and other current assets | 10,441 | 12,100 | |||||
Income tax receivable | 11,987 | 15,165 | |||||
Total current assets | 588,714 | 685,854 | |||||
Non-current assets: | |||||||
Property, equipment and capitalized software, net | 125,768 | 76,420 | |||||
Goodwill | 184,932 | 184,557 | |||||
Intangible assets, net | 89,326 | 103,549 | |||||
Other assets | 6,338 | 2,964 | |||||
Total assets | $ | 995,078 | $ | 1,053,344 | |||
LIABILITIES AND STOCKHOLDERS' EQUITY | |||||||
Current liabilities: | |||||||
Accounts payable | $ | 34,109 | $ | 16,474 | |||
Accrued compensation | 18,592 | 15,211 | |||||
Other current liabilities | 15,277 | 9,468 | |||||
Deferred revenue | 6,954 | 11,850 | |||||
Deferred rent | 1,818 | 1,016 | |||||
Credit facilities | 45,000 | 30,000 | |||||
Capital lease obligation | 336 | 115 | |||||
Total current liabilities | 122,086 | 84,134 | |||||
Non-current liabilities: | |||||||
Credit facilities, less current portion | 191,250 | 236,250 | |||||
Capital lease obligation, less current portion | 12,109 | 215 | |||||
Deferred rent | 219 | 1,457 | |||||
Other liabilities | — | 13,158 | |||||
Deferred income taxes | 26,642 | 34,553 | |||||
Total liabilities | 352,306 | 369,767 | |||||
Commitments and contingencies | |||||||
Stockholders' equity: | |||||||
Common stock, $0.000005 par value, 900,000,000 shares authorized, zero shares issued and outstanding at each of December 31, 2017 and 2016, respectively | — | — | |||||
Class A common stock, $0.000005 par value, 750,000,000 shares authorized; 77,588,018 shares issued and 62,967,843 shares outstanding at December 31, 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; 80,957,495 shares issued and outstanding at December 31, 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 December 31, 2017 and 2016, respectively | — | — | |||||
Additional paid-in-capital | 534,159 | 516,300 | |||||
Retained earnings | 308,905 | 274,087 | |||||
Treasury stock, at cost, 14,620,175 and 7,508,985 shares at December 31, 2017 and 2016, respectively | (199,817 | ) | (106,231 | ) | |||
Other comprehensive loss | (476 | ) | (580 | ) | |||
Total stockholders' equity | 642,772 | 683,577 | |||||
Total liabilities and stockholders' equity | $ | 995,078 | $ | 1,053,344 |
Year Ended December 31, | |||||||
(in thousands) | 2017 | 2016 | |||||
Cash flows from operating activities: | |||||||
Net income | $ | 34,818 | $ | 27,104 | |||
Adjustments to reconcile net income to net cash provided by operating activities: | |||||||
Stock-based compensation expense | 17,318 | 10,054 | |||||
Depreciation | 37,853 | 28,078 | |||||
Amortization of intangibles | 15,236 | 9,206 | |||||
Amortization of premiums or discounts on short-term investments | 1,958 | 3,163 | |||||
Realized gains on short-term investments | — | (4 | ) | ||||
Tax payments for equity award issuances | — | 127 | |||||
Deferred income taxes | (6,665 | ) | (1,740 | ) | |||
Loss (Gain) on disposal of equipment and long-lived assets | 406 | (534 | ) | ||||
Change in fair value of contingent consideration | (5,200 | ) | 706 | ||||
Bargain purchase gain | (1,434 | ) | — | ||||
Bad debt expense | — | 79 | |||||
Changes in assets and liabilities: | |||||||
Accounts receivable | (977 | ) | 4,683 | ||||
Prepaid expenses and other current assets | 3,346 | (6,198 | ) | ||||
Income taxes receivable | 3,293 | 3,639 | |||||
Other assets | (3,355 | ) | 4,071 | ||||
Accounts payable | 8,252 | (3,463 | ) | ||||
Accrued compensation | 3,030 | 243 | |||||
Other liabilities | (5,373 | ) | 10,479 | ||||
Deferred rent | (440 | ) | (770 | ) | |||
Deferred revenue | (4,360 | ) | 3,907 | ||||
Net cash provided by operating activities | 97,706 | 92,830 | |||||
Cash flows from investing activities: | |||||||
Acquisition, net of cash acquired of $1,535 and $861, respectively | (3,490 | ) | (88,509 | ) | |||
Maturities of short-term investments | 174,416 | 300,524 | |||||
Sales of short-term investments | 1,175 | 31,549 | |||||
Purchases of short-term investments | — | (164,737 | ) | ||||
Purchases of property and equipment | (32,565 | ) | (19,360 | ) | |||
Investment in capitalized software | (32,977 | ) | (19,668 | ) | |||
Net cash provided by investing activities | 106,559 | 39,799 | |||||
Cash flows from financing activities: | |||||||
Repurchase of common stock | (93,586 | ) | (106,231 | ) | |||
Repayment of credit facility borrowings | (30,000 | ) | (15,000 | ) | |||
Acquisition-related contingent consideration | — | (2,300 | ) | ||||
Proceeds from exercise of stock options | 4,967 | 6,165 | |||||
Capital lease obligations paid | (113 | ) | (116 | ) | |||
Tax payments for equity award issuances | (4,272 | ) | (1,498 | ) | |||
Net cash used in financing activities | (123,004 | ) | (118,980 | ) | |||
Increase in cash and cash equivalents | 81,261 | 13,649 | |||||
Cash and cash equivalents, beginning of period | 127,683 | 114,034 | |||||
Cash and cash equivalents, end of period | $ | 208,944 | $ | 127,683 | |||
Supplemental cash flow disclosure: | |||||||
Cash paid during the year for: | |||||||
Income taxes, net of refunds | $ | 962 | $ | 11,117 | |||
Interest | 5,972 | 4,835 | |||||
Non-cash investing activities: | |||||||
Capital lease obligations incurred | 12,231 | — | |||||
Accruals of purchases of property, equipment | 7,924 | 816 | |||||
Accruals for investment in capitalized software | 2,711 | 913 |
(In thousands, except percentages) | Three Months Ended December 31, | Twelve Months Ended December 31, | |||||||||||||
2017 | 2016 | 2017 | 2016 | ||||||||||||
Reconciliation of Net Income to Adjusted EBITDA: | |||||||||||||||
Net Income | $ | 17,449 | $ | 681 | $ | 34,818 | $ | 27,104 | |||||||
Depreciation and amortization | 14,575 | 11,490 | 53,089 | 37,284 | |||||||||||
Realized gains on short-term investments | — | — | — | (4 | ) | ||||||||||
Loss (Gain) on disposal of equipment | 25 | — | 406 | (534 | ) | ||||||||||
Interest income | (1,384 | ) | (1,368 | ) | (5,429 | ) | (5,792 | ) | |||||||
Interest expense | 1,676 | 1,259 | 6,225 | 5,065 | |||||||||||
(Benefit from) Provision for income taxes | (13,071 | ) | (2,088 | ) | (2,231 | ) | 11,795 | ||||||||
EBITDA | 19,270 | 9,974 | 86,878 | 74,918 | |||||||||||
Stock-based compensation | 4,993 | 3,702 | 17,318 | 10,054 | |||||||||||
Acquisition costs: | |||||||||||||||
Transaction costs | 356 | 546 | 1,177 | 1,622 | |||||||||||
Integration costs | 289 | — | 1,805 | — | |||||||||||
Contingent consideration accretion | (2,300 | ) | — | (5,200 | ) | 706 | |||||||||
Compensatory contingent consideration | 558 | (829 | ) | 1,966 | 10,258 | ||||||||||
Tax on equity exercises | — | 32 | 32 | 127 | |||||||||||
Other non-comparable items(1) | 2,365 | 899 | 5,038 | 2,259 | |||||||||||
Adjusted EBITDA | $ | 25,531 | $ | 14,324 | $ | 109,014 | $ | 99,944 | |||||||
Adjusted EBITDA margin | 22.3 | % | 14.9 | % | 24.3 | % | 23.4 | % |
(1) | Other “non-comparable items” include items that are not comparable across reporting periods or items that do not otherwise relate to the Company’s ongoing financial results, such as certain employee related expenses attributable to advancements in automation and operational efficiencies. Non-comparable items are excluded from Adjusted EBITDA in order to more effectively assess the Company’s period over period and ongoing operating performance. |
(In thousands, except per-share amounts) | Three Months Ended December 31, | Twelve Months Ended December 31, | |||||||||||||
2017 | 2016 | 2017 | 2016 | ||||||||||||
Reconciliation of Net Income to Non-GAAP net income: | |||||||||||||||
Net Income | $ | 17,449 | $ | 681 | $ | 34,818 | $ | 27,104 | |||||||
Stock-based compensation | 4,993 | 3,702 | 17,318 | 10,054 | |||||||||||
Acquisition costs: | |||||||||||||||
Transaction costs | 356 | 546 | 1,177 | 1,622 | |||||||||||
Integration costs | 289 | — | 1,805 | — | |||||||||||
Contingent consideration accretion | (2,300 | ) | — | (5,200 | ) | 706 | |||||||||
Compensatory contingent consideration | 558 | (829 | ) | 1,966 | 10,258 | ||||||||||
Amortization of acquired intangible assets | 3,851 | 3,780 | 15,236 | 9,206 | |||||||||||
Tax on equity exercises | — | 32 | 32 | 127 | |||||||||||
Other non-comparable items(1) | 2,365 | 899 | 5,038 | 2,259 | |||||||||||
Tax impact of add-back items | (4,328 | ) | (1,392 | ) | (14,949 | ) | (10,383 | ) | |||||||
Tax Act benefit | (15,461 | ) | — | (15,461 | ) | — | |||||||||
Non-GAAP net income | $ | 7,772 | $ | 7,419 | $ | 41,780 | $ | 50,953 | |||||||
GAAP basic net income per share | $ | 0.12 | $ | — | $ | 0.24 | $ | 0.18 | |||||||
GAAP diluted net income per share | $ | 0.12 | $ | — | $ | 0.24 | $ | 0.18 | |||||||
Non-GAAP basic net income per share | $ | 0.06 | $ | 0.05 | $ | 0.29 | $ | 0.34 | |||||||
Non-GAAP diluted net income per share | $ | 0.06 | $ | 0.05 | $ | 0.29 | $ | 0.34 |
(1) | Other “non-comparable items” include items that are not comparable across reporting periods or items that do not otherwise relate to the Company’s ongoing financial results, such as certain employee related expenses attributable to advancements in automation and operational efficiencies. Non-comparable items are excluded from Non-GAAP Net Income in order to more effectively assess the Company’s period over period and ongoing operating performance. |
December 31, | |||||
(in thousands) | 2017 | 2016 | |||
MORE2 Registry® dataset metrics | |||||
Unique patient count(1) | 240,180 | 150,961 | |||
Medical event count(2) | 37,813,583 | 13,345,220 | |||
Trailing 12 month Patient Analytics Months (PAM)(3) | 42,156,422 | 26,401,946 |
(1) | Unique patient count is defined as each unique, longitudinally matched, de-identified natural person represented in the MORE2 Registry® as of the end of the period presented. |
(2) | 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.). |
(3) | Patient Analytics Months, or 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 the Company which is initiated and completed by the Company’s 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. |
Three Months Ended December 31, | Twelve Months Ended December 31, | ||||||||||||||
(In thousands, except percentages) | 2017 | 2016 | 2017 | 2016 | |||||||||||
Investment in Innovation: | |||||||||||||||
Research and development(1) | $ | 6,533 | $ | 8,101 | $ | 27,383 | $ | 29,148 | |||||||
Capitalized software development(2) | 10,219 | 5,214 | 34,789 | 21,994 | |||||||||||
Research and development infrastructure investments(3) | 9,602 | 7,797 | 23,642 | 11,288 | |||||||||||
Total investment in innovation | $ | 26,354 | $ | 21,112 | $ | 85,814 | $ | 62,430 | |||||||
As a percentage of revenue | |||||||||||||||
Research and development(1) | 6 | % | 8 | % | 6 | % | 7 | % | |||||||
Capitalized software development(2) | 9 | % | 5 | % | 8 | % | 5 | % | |||||||
Research and development infrastructure investments(3) | 8 | % | 9 | % | 5 | % | 3 | % | |||||||
Total investment in innovation | 23 | % | 22 | % | 19 | % | 15 | % |
(1) | Research and development primarily includes employee costs related to the development and enhancement of the Company’s service offerings. |
(2) | Capitalized software development includes capitalized costs incurred to develop and enhance functionality for the Company’s data analytics and data-driven intervention platforms. |
(3) | Research and development infrastructure investments include strategic expenditures related to hardware and software platforms under development or enhancement. |
Guidance Range | |||||||
Year Ending December 31, 2018 | |||||||
(In millions) | Low | High | |||||
Reconciliation of Forward-Looking Guidance Net Income to Adjusted EBITDA: | |||||||
Net Income | $ | 12 | $ | 16 | |||
Depreciation and amortization | 65 | 65 | |||||
Loss on disposal of equipment | — | — | |||||
Interest expense | 6 | 6 | |||||
Interest income | (6 | ) | (5 | ) | |||
Provision for income taxes(1) | 5 | 7 | |||||
EBITDA | 82 | 89 | |||||
Stock-based compensation | 18 | 18 | |||||
Acquisition costs: | |||||||
Transaction costs | — | — | |||||
Integration costs | 3 | 3 | |||||
Contingent consideration accretion | 4 | 4 | |||||
Compensatory contingent consideration | 2 | 2 | |||||
Other non-comparable items(2) | 4 | 5 | |||||
Adjusted EBITDA | $ | 113 | $ | 121 | |||
Adjusted EBITDA margin | 24.5 | % | 25.1 | % |
(1) | A 30% tax rate is assumed in order to approximate the Company’s effective statutory corporate tax rate. |
(2) | Other “non-comparable items” include items that are not comparable across reporting periods or items that do not otherwise relate to the Company’s ongoing financial results, such as certain employee related expenses attributable to advancements in automation and operational efficiencies. Non-comparable items are excluded from Adjusted EBITDA in order to more effectively assess the Company’s period over period and ongoing operating performance. |
Guidance Range | |||||||
Year Ending December 31, 2018 | |||||||
(In millions, except per-share amounts) | Low | High | |||||
Reconciliation of Net Income to Non-GAAP net income: | |||||||
Net Income | $ | 12 | $ | 16 | |||
Stock-based compensation | 18 | 18 | |||||
Acquisition costs: | |||||||
Transaction costs | — | — | |||||
Integration costs | 3 | 3 | |||||
Contingent consideration accretion | 4 | 4 | |||||
Compensatory contingent consideration | 2 | 2 | |||||
Amortization of acquired intangible assets | 15 | 15 | |||||
Other non-comparable items(1) | 4 | 5 | |||||
Tax impact of add-back items(2) | (14 | ) | (14 | ) | |||
Non-GAAP net income | $ | 44 | $ | 49 | |||
GAAP diluted net income per share | $ | 0.09 | $ | 0.11 | |||
Non-GAAP diluted net income per share | $ | 0.31 | $ | 0.35 | |||
Weighted average shares of common stock outstanding - diluted | 140 | 140 |
(1) | Other “non-comparable items” include items that are not comparable across reporting periods or items that do not otherwise relate to the Company’s ongoing financial results, such as certain employee related expenses attributable to advancements in automation and operational efficiencies. Non-comparable items are excluded from non-GAAP net income in order to more effectively assess the Company’s period over period and ongoing operating performance. |
(2) | A 30% tax rate is assumed in order to approximate the Company’s effective statutory corporate tax rate. |
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