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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
(Mark One)
 
 
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the quarterly period ended
June 30, 2020
or
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
47-1830316
(State or other jurisdiction of
incorporation or organization)
(I.R.S. Employer
Identification No.)
4321 Collington Road,
 
Bowie,
Maryland
20716
(Address of principal executive offices)
(Zip Code)
(301809-4000
Registrant’s telephone number, including area code
Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class
 
Ticker Symbol
 
Name Of Each Exchange On Which Registered
Class A Common Stock, $0.000005 par value per share
 
INOV
 
NASDAQ Global Select Market
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     No 
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted 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 such files). Yes     No 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer
 
Accelerated filer
 
Non-accelerated filer
 
Smaller reporting company
 
 
 
 
 
 
 
 
 
Emerging growth company
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. 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes     No 
As of July 17, 2020, the registrant had 76,080,519 shares of Class A common stock outstanding and 79,270,861 shares of Class B common stock outstanding.
 


Table of Contents

INOVALON HOLDINGS, INC.
FORM 10-Q
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2020
TABLE OF CONTENTS
 
 
Page
 
 
 
 
 
 
 
 
 
 
 
 


Table of Contents

PART I—FINANCIAL INFORMATION
Item 1.    Consolidated Financial Statements
INOVALON HOLDINGS, INC.
CONSOLIDATED BALANCE SHEETS
(Unaudited, in thousands, except share and par value amounts)
 
June 30,
2020
 
December 31,
2019
ASSETS
 

 
 

Current assets:
 

 
 

Cash and cash equivalents
$
95,611

 
$
93,094

Accounts receivable (net of allowances of $3,824 at June 30, 2020 and $3,351 at December 31, 2019)
132,279

 
139,514

Prepaid expenses and other current assets
22,956

 
20,141

Income tax receivable
7,005

 
4,488

Total current assets
257,851

 
257,237

Non-current assets:
 

 
 

Property, equipment and capitalized software, net
159,193

 
147,741

Operating lease right-of-use assets
32,998

 
45,053

Goodwill
955,881

 
955,881

Intangible assets, net
466,060

 
483,041

Other assets
28,293

 
19,681

Total assets
$
1,900,276

 
$
1,908,634

LIABILITIES AND STOCKHOLDERS’ EQUITY
 

 
 

Current liabilities:
 

 
 

Accounts payable and accrued expenses
$
36,168

 
$
34,845

Accrued compensation
28,410

 
35,135

Other current liabilities
36,911

 
26,298

Deferred revenue
15,042

 
13,664

Credit facilities
9,800

 
9,800

Operating lease liabilities
6,288

 
8,085

Finance lease liabilities
4,213

 
2,533

Total current liabilities
136,832

 
130,360

Non-current liabilities:
 

 
 

Credit facilities, less current portion
880,273

 
883,937

Operating lease liabilities, less current portion
35,482

 
49,690

Finance lease liabilities, less current portion
26,715

 
12,266

Other liabilities
66,576

 
46,529

Deferred income taxes
82,862

 
97,693

Total liabilities
1,228,740

 
1,220,475

Commitments and contingencies (Note 7)


 


Stockholders’ equity:
 

 
 

Common stock, $0.000005 par value, 900,000,000 shares authorized, zero shares issued and outstanding at each of June 30, 2020 and December 31, 2019, respectively

 

Class A common stock, $0.000005 par value, 750,000,000 shares authorized; 90,709,951 shares issued and 76,089,776 shares outstanding at June 30, 2020; 90,327,728 shares issued and 75,707,553 shares outstanding at December 31, 2019
1

 
1

Class B common stock, $0.000005 par value, 150,000,000 shares authorized; 79,270,861 shares issued and outstanding at June 30, 2020; 79,369,411 shares issued and outstanding at December 31, 2019

 

Preferred stock, $0.0001 par value, 100,000,000 shares authorized, zero shares issued and outstanding at June 30, 2020 and December 31, 2019, respectively

 

Additional paid-in-capital
646,455

 
636,461

Retained earnings
278,653

 
278,246

Treasury stock, at cost, 14,620,175 shares at June 30, 2020 and December 31, 2019, respectively
(199,817
)
 
(199,817
)
Other comprehensive loss
(53,756
)
 
(26,732
)
Total stockholders’ equity
671,536

 
688,159

Total liabilities and stockholders’ equity
$
1,900,276

 
$
1,908,634

See notes to consolidated financial statements.

1

Table of Contents

INOVALON HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited, in thousands, except per-share amounts)
 
Three Months Ended
June 30,
 
Six Months Ended
June 30,
 
2020
 
2019
 
2020
 
2019
Revenue
$
162,215

 
$
156,977

 
$
316,402

 
$
302,468

Expenses:
 
 
 
 
 
 
 
Cost of revenue(1)
36,761

 
41,118

 
77,804

 
78,321

Sales and marketing(1)
15,073

 
14,306

 
30,232

 
27,832

Research and development(1)
8,835

 
7,898

 
15,939

 
16,099

General and administrative(1)
55,229

 
45,694

 
109,112

 
99,317

Depreciation and amortization
30,632

 
27,420

 
58,566

 
54,467

Total operating expenses
146,530

 
136,436

 
291,653

 
276,036

Income from operations
15,685

 
20,541

 
24,749

 
26,432

Other income and (expenses):
 
 
 
 
 

 
 

Interest income
96

 
664

 
386

 
1,274

Interest expense
(14,260
)
 
(16,649
)
 
(28,820
)
 
(33,191
)
Other expense, net
(148
)
 

 
(170
)
 
(11
)
Income (Loss) before taxes
1,373

 
4,556

 
(3,855
)
 
(5,496
)
(Benefit from) Provision for income taxes
(652
)
 
18

 
(4,197
)
 
(1,711
)
Net income (loss)
$
2,025

 
$
4,538

 
$
342

 
$
(3,785
)
Net income (loss) attributable to common stockholders, basic and diluted
$
1,964

 
$
4,403

 
$
331

 
$
(3,785
)
Net income (loss) per share attributable to common stockholders, basic and diluted:
 
 
 
 
 
 
 
Basic net income (loss) per share
$
0.01

 
$
0.03

 
$

 
$
(0.03
)
Diluted net income (loss) income per share
$
0.01

 
$
0.03

 
$

 
$
(0.03
)
Weighted average shares of common stock outstanding:
 
 
 
 
 
 
 
Basic
149,517

 
148,136

 
149,350

 
147,956

Diluted
149,685

 
148,478

 
149,521

 
147,956

________________________________________________
(1)
Includes stock-based compensation expense as follows:
 
 
 

 
 
 
 
 
Cost of revenue
$
153

 
$
78

 
$
318

 
$
155

 
Sales and marketing
752

 
339

 
1,372

 
639

 
Research and development
269

 
379

 
722

 
749

 
General and administrative
6,691

 
1,986

 
12,709

 
6,478

 
Total stock-based compensation expense
$
7,865

 
$
2,782

 
$
15,121

 
$
8,021


See notes to consolidated financial statements.

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INOVALON HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(Unaudited, in thousands)
 
Three Months Ended
June 30,
 
Six Months Ended
June 30,
 
2020
 
2019
 
2020
 
2019
Net income (loss)
$
2,025

 
$
4,538

 
$
342

 
$
(3,785
)
Other comprehensive income (loss):
 
 
 
 
 
 
 
Realized losses on cash flow hedges reclassified from accumulated other comprehensive income, net of tax of $(1,293), $(193), $(1,974), and $(363), respectively
2,747

 
409

 
4,193

 
768

Net change in unrealized losses on cash flow hedges, net of tax of $2,623, $5,799, $14,692 and $9,783, respectively
(5,571
)
 
(12,260
)
 
(31,217
)
 
(20,684
)
Net change in unrealized gains on available-for-sale investments, net of tax of $0, $(1), $0, and $(6), respectively

 
1

 

 
12

Comprehensive loss
$
(799
)
 
$
(7,312
)
 
$
(26,682
)
 
$
(23,689
)
See notes to consolidated financial statements.

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INOVALON HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(Unaudited, in thousands, except share amounts)
 
Issued Class A Common Stock
 
Issued Class B Common Stock
 
Treasury Stock
 
Additional Paid-in Capital
 
Retained Earnings
 
Accumulated Other Comprehensive Loss
 
Total Stockholders’ Equity
 
Shares
 
Amount
 
Shares
 
Amount
 
Shares
 
Amount
 
 
 
 
Balance—January 1, 2020
90,327,728

 
$
1

 
79,369,411

 
$

 
(14,620,175
)
 
$
(199,817
)
 
$
636,461

 
$
278,246

 
$
(26,732
)
 
$
688,159

Stock-based compensation expense

 

 

 

 

 

 
7,164

 

 

 
7,164

Exercise of stock options
23,183

 

 

 

 

 

 
183

 

 

 
183

Conversion of Class B to Class A common stock
98,550

 

 
(98,550
)
 

 

 

 

 

 

 

Issuance of shares related to restricted stock units and awards, net of forfeitures
574,082

 

 

 

 

 

 

 

 

 

Shares withheld for employee taxes upon conversion of restricted stock
(148,071
)
 

 

 

 

 

 
(2,947
)
 

 

 
(2,947
)
Other comprehensive loss

 

 

 

 

 

 

 

 
(24,200
)
 
(24,200
)
Adjustment to retained earnings for adoption of ASC 326

 

 

 

 

 

 

 
65

 

 
65

Net loss

 

 

 

 

 

 

 
(1,683
)
 

 
(1,683
)
Balance—March 31, 2020
90,875,472

 
$
1

 
79,270,861

 
$

 
(14,620,175
)
 
$
(199,817
)
 
$
640,861

 
$
276,628

 
$
(50,932
)
 
$
666,741

Stock-based compensation expense

 

 

 

 

 

 
7,757

 

 

 
7,757

Exercise of stock options

 

 

 

 

 

 

 

 

 

Conversion of Class B to Class A common stock

 

 

 

 

 

 

 

 

 

Issuance of shares related to restricted stock units and awards, net of forfeitures
(40,849
)
 

 

 

 

 

 

 

 

 

Shares withheld for employee taxes upon conversion of restricted stock
(124,672
)
 

 

 

 

 

 
(2,163
)
 

 

 
(2,163
)
Other comprehensive loss

 

 

 

 

 

 

 

 
(2,824
)
 
(2,824
)
Net income

 

 

 

 

 

 

 
2,025

 

 
2,025

Balance—June 30, 2020
90,709,951

 
$
1

 
79,270,861

 
$

 
(14,620,175
)
 
$
(199,817
)
 
$
646,455

 
$
278,653

 
$
(53,756
)
 
$
671,536



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INOVALON HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (Continued)
(Unaudited, in thousands, except share amounts)
 
Issued Class A Common Stock
 
Issued Class B Common Stock
 
Treasury Stock
 
Additional Paid-in Capital
 
Retained Earnings
 
Accumulated Other Comprehensive (Loss) Income
 
Total Stockholders’ Equity
 
Shares
 
Amount
 
Shares
 
Amount
 
Shares
 
Amount
 
 
 
 
Balance—January 1, 2019
86,679,575

 
$

 
80,608,685

 
$
1

 
(14,620,175
)
 
$
(199,817
)
 
$
618,674

 
$
270,471

 
$
(6,740
)
 
$
682,589

Stock-based compensation expense

 

 

 

 

 

 
5,163

 

 

 
5,163

Conversion of Class B to Class A common stock
460,000

 

 
(460,000
)
 

 

 

 

 

 

 

Issuance of shares related to restricted stock units and awards, net of forfeitures
759,409

 

 

 

 

 

 

 

 

 

Shares withheld for employee taxes upon conversion of restricted stock
(82,978
)
 

 

 

 

 

 
(1,086
)
 

 

 
(1,086
)
Other comprehensive loss

 

 

 

 

 

 

 

 
(8,054
)
 
(8,054
)
Net loss

 

 

 

 

 

 

 
(8,323
)
 

 
(8,323
)
Balance—March 31, 2019
87,816,006

 
$

 
80,148,685

 
$
1

 
(14,620,175
)
 
$
(199,817
)
 
$
622,751

 
$
262,148

 
$
(14,794
)
 
$
670,289

Stock-based compensation expense

 

 

 

 

 

 
2,740

 

 

 
2,740

Exercise of stock options
85,038

 

 
139,270

 

 

 

 
1,817

 

 

 
1,817

Conversion of Class B to Class A common stock
460

 

 
(460
)
 

 

 

 

 

 

 

Issuance of shares related to restricted stock units and awards, net of forfeitures
753,800

 

 

 

 

 

 

 

 

 

Shares withheld for employee taxes upon conversion of restricted stock
(105,349
)
 

 

 

 

 

 
(1,400
)
 

 

 
(1,400
)
Other comprehensive income

 

 

 

 

 

 

 

 
(11,850
)
 
(11,850
)
Net income

 

 

 

 

 

 

 
4,538

 

 
4,538

Balance—June 30, 2019
88,549,955

 
$

 
80,287,495

 
$
1

 
(14,620,175
)
 
$
(199,817
)
 
$
625,908

 
$
266,686

 
$
(26,644
)
 
$
666,134

See notes to consolidated financial statements.

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INOVALON HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited, in thousands)
 
Six Months Ended
June 30,
 
2020
 
2019
Cash flows from operating activities:
 

 
 

Net income (loss)
$
342

 
$
(3,785
)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
 

 
 

Stock-based compensation expense
15,121

 
8,021

Depreciation
30,766

 
28,234

Amortization of intangibles
27,800

 
26,233

Amortization of debt issuance costs and debt discount
2,338

 
2,155

Deferred income taxes
(2,139
)
 
(1,836
)
Change in fair value of contingent consideration
3

 
517

Other
1,008

 
1,703

Changes in assets and liabilities:
 

 
 

Accounts receivable
(2,293
)
 
(12,351
)
Prepaid expenses and other current assets
(110
)
 
(1,634
)
Income taxes receivable
(2,517
)
 
5,239

Other assets
(1,458
)
 
(3,552
)
Accounts payable and accrued expenses
3,649

 
2,432

Accrued compensation
(6,533
)
 
(4,105
)
Other current and non-current liabilities
(3,158
)
 
(6,665
)
Deferred revenue
472

 
(694
)
Payment for acquisition-related contingent consideration
(160
)
 

Net cash provided by operating activities
63,131

 
39,912

Cash flows from investing activities:
 

 
 

Maturities of short-term investments

 
6,464

Purchases of property and equipment
(12,787
)
 
(8,510
)
Investment in capitalized software
(22,677
)
 
(16,776
)
Purchase of intangible assets
(10,819
)
 

Net cash used in investing activities
(46,283
)
 
(18,822
)
Cash flows from financing activities:
 

 
 

Proceeds from credit facility borrowings
99,000

 

Repayment of credit facility borrowings
(103,900
)
 
(4,900
)
Payments for debt issuance costs
(1,000
)
 

Proceeds from exercise of stock options
183

 
1,817

Finance lease liabilities paid
(1,331
)
 
(1,262
)
Tax payments for equity award issuances
(5,110
)
 
(2,486
)
Payment for acquisition-related contingent consideration
(2,173
)
 

Net cash used in financing activities
(14,331
)
 
(6,831
)
Increase in cash and cash equivalents
2,517

 
14,259

Cash and cash equivalents, beginning of period
93,094

 
115,591

Cash and cash equivalents, end of period
$
95,611

 
$
129,850

Supplemental cash flow disclosure:
 

 
 

Income taxes paid (received), net
$
352

 
$
(5,254
)
Interest paid
26,994

 
31,465

Non-cash transactions:
 

 
 

Accruals for purchases of property and equipment
3,559

 
893

Accruals for investment in capitalized software
773

 
1,427

Leasehold improvements paid by lessor
305

 

See notes to consolidated financial statements.

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INOVALON HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements have been prepared by Inovalon Holdings, Inc. (“Inovalon” or the “Company”) in accordance with accounting principles generally accepted in the United States (“GAAP”) for interim financial reporting and as required by Rule 10-01 of Regulation S-X. Accordingly, the unaudited consolidated financial statements may not include all of the information and notes required by GAAP for audited financial statements. The year-end December 31, 2019 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 consolidated financial statements contain all adjustments, consisting of items of a normal and recurring nature, necessary to present fairly the Company’s financial position as of June 30, 2020, the results of operations, comprehensive income (loss), and stockholders’ equity for the three and six-month periods ended June 30, 2020 and 2019 and cash flows for the six month period ended June 30, 2020 and 2019. The results of operations for the three and six month periods ended June 30, 2020 and 2019 are not necessarily indicative of the results to be expected for the full year. The preparation of consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts of assets and liabilities, 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, 2019 (the “2019 Form 10-K”).
The accompanying unaudited consolidated financial statements include the accounts of Inovalon and its wholly owned subsidiaries. All intercompany accounts and transactions have been eliminated in consolidation.
The Company’s management considers events or transactions that occur after the balance sheet date but before the financial statements are issued to provide additional evidence relative to certain estimates or to identify matters that require additional disclosure. Subsequent events have been evaluated through the date of issuance of these financial statements.
Recently Adopted Accounting Standards
In June 2016, the FASB issued ASU 2016-13, Financial Instruments–Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments and subsequent clarifying guidance (“ASU 2016-13”). ASU 2016-13 replaced the incurred loss impairment method with a methodology that reflects the amortized cost basis net of expected credit losses that are calculated based on certain relevant information. The standard also amended the credit loss guidance for available-for-sale debt securities and requires the measurement and recognition of an expected allowance for credit losses for financial assets held at amortized cost. The Company adopted the requirements of the new standard on January 1, 2020 using the modified-retrospective approach and there was no material impact on the Company’s consolidated financial statements and notes disclosures.
In determining the estimate for expected credit losses, each quarter the Company evaluates historical loss rates for its trade receivables and unbilled receivables balance using an aging method and loss rate method and applies management judgment to determine the expected collectability of receivables. The Company considers various factors including historical invoice data, historical payment data, and days sales outstanding and considers other events that could impact future collectability. Additionally, the Company considers current economic conditions that could impact clients. While there may be fluctuations in macro-economic trends and regulatory changes, the Company believes historical trends are representative of collectability. Clients represent payer, pharmaceutical, and life science companies, along with provider networks. Due to the short-term nature of the Company’s standard payment terms and the low risk profile of clients the risk of loss reflects historical experience.
In the circumstance where a receivable is deemed uncollectable, the Company will reduce the allowance for expected credit loss by the same amount of the portion of the receivable being written off. As there is no standard definition for when a receivable is deemed uncollectable, the Company will use judgment to determine when all efforts of collection have been exhausted. If the Company subsequently receives consideration for a receivable that was previously written off, the Company would increase earnings by crediting credit loss expense.
In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework–Changes to the Requirements for Fair Value Measurement. This update changes the fair value measurement disclosure requirements of ASC 820. The standard consists of removals, modifications, and additions to the existing disclosure requirements. The Company adopted the requirements of the new standard on January 1, 2020 and there was no material impact on the Company’s notes disclosures. Refer to “Note 6—Fair Value Measurements.”
In August 2018, the FASB issued ASU 2018-15, Intangibles—Goodwill and Other— Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract. This update aligns the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract

7

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with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software. The standard requires that an entity in a hosting arrangement that is a service contract to follow the guidance in Subtopic 350-40 to determine which implementation costs to capitalize as an asset related to the service contract and which costs to expense. This guidance is effective for public companies for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019. The Company adopted the requirements of the new standard on January 1, 2020 and there was no material impact on the Company’s consolidated financial statements and notes disclosures.
In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes. This update removes certain exceptions and provides additional requirements that simplify the accounting for income taxes. This guidance is effective for public companies for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2020. Early adoption of the standard is permitted. The Company adopted the requirements of the new standard on January 1, 2020 and there was no material impact on the Company’s consolidated financial statements and notes disclosures.
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 2019 Form 10-K, that would be expected to impact the Company except for the following:
In March 2020, FASB issued ASU 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting (“ASU 2020-04”). ASU 2020-04 provides optional expedients and exceptions to simplify the accounting for contracts, hedging relationships, and other transactions affected by reference rate reform that meet certain criteria. The standard is applicable to contract modifications and hedging relationships entered into prior to or existing as of December 31, 2022 and allows for elections to be made at different points in time. During the first quarter of 2020, the Company elected to adopt the guidance in 848-50-25-2 to assert probability of the hedged interest transaction regardless of any expected modification in terms related to reference rate reform and applied the expedient in ASC 848-50-35-17 through 35-18 in assessing hedge effectiveness. The Company plans to adopt the remaining expedients as applicable when contracts are modified and will continue to evaluate the timing of adoption and impact on its consolidated financial statements.
2. REVENUE
The Company primarily derives its revenues through the sale or subscription licensing of its platform solutions and services. The following table disaggregates revenue by offering (in thousands):
 
Three Months Ended
June 30,
 
Six Months Ended
June 30,
 
2020
 
2019
 
2020
 
2019
Platform solutions(1)
$
147,148

 
$
140,289

 
$
287,765

 
$
270,241

Services(2)
15,067

 
16,688

 
28,637

 
32,227

Total revenue
$
162,215

 
$
156,977

 
$
316,402

 
$
302,468

______________________________________
(1)
Platform solutions include arrangements for technology-based offerings representing subscription-based cloud-based platform offerings and legacy platform solutions that are not cloud-based and not billed under a subscription-based contract structure.
(2)
Services include advisory, implementation, and support services under time and materials, fixed price, or retainer-based contracts.
Contract Balances
The Company had an unbilled receivables balance of $33.7 million and $36.0 million as of June 30, 2020 and December 31, 2019, respectively. The decrease in the unbilled receivables balance was due to the timing of billings. Unbilled receivables are classified as accounts receivable on the consolidated balance sheet. The Company had deferred commissions of $15.0 million and $11.8 million as of June 30, 2020 and December 31, 2019, respectively. The Company had a deferred contract asset balance of $13.0 million and $5.8 million as of June 30, 2020 and December 31, 2019, respectively. Short-term and long-term deferred commissions and deferred contract assets are classified as prepaid expenses and other current assets and other assets on the consolidated balance sheet, respectively.
The Company had a deferred revenue balance of $15.0 million and $13.7 million, which is presented net of certain contract assets of $8.7 million and $11.4 million, as of June 30, 2020 and December 31, 2019, respectively. Revenue recognized during the three and six months ended June 30, 2020 that was included in the deferred revenue balance at the beginning of the year was $6.9 million and $14.4 million, respectively.

8

Table of Contents

3. NET INCOME (LOSS) 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 (loss) by the weighted average number of shares of common stock (Class A common stock and Class B common stock) outstanding during the period. Diluted EPS is computed by dividing net income by the sum of the weighted average number of shares of common stock outstanding and potentially dilutive securities outstanding during the period under the treasury stock method. If the Company incurs a loss from continuing operations, diluted EPS is computed in the same manner as basic EPS. Potentially dilutive securities include stock options, restricted stock units (“RSUs”) and restricted stock awards (“RSAs”). Under the treasury stock method, dilutive securities are assumed to be exercised at the beginning of the periods and as if funds obtained thereby were used to purchase common stock at the average market price during the period. Securities are excluded from the computations of diluted earnings per share if their effect would be anti-dilutive to EPS.
On February 18, 2015, the date of the completion of the Company’s IPO, the Company’s 2015 Omnibus Incentive Plan (the “2015 Plan”) became effective. The 2015 Plan provided for the grant of incentive stock options, within the meaning of Section 422 of the Internal Revenue Code of 1986, as amended (the “Code”), to the Company’s employees and any parent and subsidiary employees, and for the grant of non-qualified stock options, stock appreciation rights, restricted stock, RSAs, RSUs, dividend equivalent rights, cash-based awards (including annual cash incentives and long-term cash incentives), and any combination thereof to the Company’s employees, directors, and consultants and to employees, directors, and consultants of certain affiliated entities. At the Company’s annual meeting of stockholders held on June 5, 2019, the Company’s stockholders, upon the recommendation of the Board of Directors of the Company (the “Board”), approved the Amended and Restated 2015 Omnibus Incentive Plan (the “Amended Plan”), which was previously adopted by the Board on February 14, 2019, subject to the approval by the stockholders. The Amended Plan (i) increases the maximum number of shares of the Company’s Class A common stock available for issuance by 6,000,000 shares to a total of 13,335,430; (ii) removes the provisions regarding Section 162(m) of the Code that are no longer relevant due to recent changes to the Code pursuant to the Tax Cuts and Jobs Act of 2017, which eliminated the “performance-based compensation” exception to the deduction limitation under Section 162(m) of the Code; and (iii) extends the term of the Amended Plan until the tenth anniversary of the date of Board approval of the Amended Plan.
The Company has issued RSAs under the Amended 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 (loss) per share of Class A and Class B common stock. Under the two-class method, net income attributable to common stockholders is determined by allocating undistributed earnings, calculated as net income, less earnings attributable to participating securities. The net income per share attributable to common stockholders is allocated based on the contractual participation rights of the Class A common stock and Class B common stock as if the income for the period has been distributed. As the liquidation and dividend rights are identical for both classes of common stock, the net income attributable to common stockholders is allocated on a proportionate basis. If the Company incurs a loss from continuing operations, losses are not allocated to participating securities.

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Table of Contents

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
June 30,
 
Six Months Ended
June 30,
 
2020
 
2019
 
2020
 
2019
Basic
 

 
 

 
 
 
 
Numerator:
 

 
 

 
 
 
 
Net income (loss)
$
2,025

 
$
4,538

 
$
342

 
$
(3,785
)
Undistributed earnings allocated to participating securities
(61
)
 
(135
)
 
(11
)
 

Net income (loss) attributable to common stockholders—basic
$
1,964

 
$
4,403

 
$
331

 
$
(3,785
)
Denominator:
 

 
 

 
 
 
 
Weighted average shares used in computing net income (loss) per share attributable to common stockholders—basic
149,517

 
148,136

 
149,350

 
147,956

Net income (loss) per share attributable to common stockholders—basic
$
0.01

 
$
0.03

 
$

 
$
(0.03
)
Diluted
 

 
 

 
 
 
 
Numerator:
 

 
 

 
 
 
 
Net income (loss) attributable to common stockholders—diluted
$
1,964

 
$
4,403

 
$
331

 
$
(3,785
)
Denominator:
 

 
 

 
 
 
 
Number of shares used for basic EPS computation
149,517

 
148,136

 
149,350

 
147,956

Effect of dilutive securities
168

 
342

 
171

 

Weighted average shares used in computing net income (loss) per share attributable to common stockholders—diluted
149,685

 
148,478

 
149,521

 
147,956

Net income (loss) per share attributable to common stockholders—diluted
$
0.01

 
$
0.03

 
$

 
$
(0.03
)

The computation of diluted EPS does not include certain awards, on a weighted average basis, because their inclusion would have an anti-dilutive effect on EPS. The awards excluded because of their anti-dilutive effect are as follows (in thousands):
 
Three Months Ended
June 30,
 
Six Months Ended
June 30,
 
2020
 
2019
 
2020
 
2019
Awards excluded from the computation of diluted net income (loss) per share because their inclusion would have been anti-dilutive

 
5

 

 
5


4. LEASES
The Company determines whether a contract is or contains a lease at inception. At the lease commencement date, the Company records a liability for the lease obligation and a corresponding asset representing the right to use the underlying asset over the lease term. Leases with an initial term of 12 months or less are not recorded on the consolidated balance sheet and are recognized in expense using a straight-line basis for all asset classes. Variable lease payments are expensed as incurred, which primarily include maintenance costs, services provided by the lessor, and other charges reimbursed to the lessor. 
The Company leases office space, data center facilities, printers, and equipment with remaining lease terms ranging from one year to twelve years, some of which contain renewal or purchase options. The exercise of these options is at the Company’s sole discretion. The Company has entered into sublease agreements for unoccupied leased office space and records sublease income netted against rent expense. Additionally, the Company is required to maintain a standby letter of credit in the amount of $1.0 million to satisfy the requirements of a certain lease agreement.
Certain of the Company’s leases contain lease and non-lease components. The Company has elected the practical expedient under ASC 842-10-15-37 for all asset classes which allows companies to account for lease and non-lease components as a single lease component.
The Company’s leases do not contain an implicit rate of return, therefore an incremental borrowing rate was determined. The Company assessed which rate would be most reflective of a reasonable rate the Company would be able to borrow based on asset class and lease term.
Finance lease right-of-use assets of $24.1 million are included in property, equipment, and capitalized software, net on the consolidated balance sheet.

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The following table presents components of lease expense for the three and six months ended June 30, 2020 and June 30, 2019 (in thousands):
 
Three Months Ended
June 30,
 
Six Months Ended
June 30,
 
2020
 
2019
 
2020
 
2019
Finance lease cost
 
 
 
 
 
 
 
Amortization of right-of-use assets
$
1,261

 
$
491

 
$
1,753

 
$
1,041

Interest on lease liabilities
274

 
127

 
381

 
261

Operating lease cost
2,545

 
3,502

 
5,263

 
5,613

Variable lease cost
373

 
469

 
776

 
963

Sublease income
(213
)
 
(317
)
 
(344
)
 
(634
)
Total lease cost
$
4,240

 
$
4,272

 
$
7,829

 
$
7,244


Supplemental cash flow information related to leases for the six months ended June 30, 2020 and June 30, 2019 are as follows (in thousands):
 
Six Months Ended
June 30,
 
2020
 
2019
Cash paid for amounts included in the measurement of lease liabilities:
 
 
 
Operating cash flows for operating leases
$
5,075

 
$
6,989

Operating cash flows for financing leases
472

 
260

Financing cash flows for financing leases
1,331

 
1,262

Right-of-use assets obtained in exchange for lease liabilities1:
 
 
 
Operating leases
$
(8,017
)
 
$
20,800

Finance leases
10,785

 
20


______________________________________
(1)
During the second quarter of 2020, the Company executed an amendment to an existing lease agreement resulting in the reclassification of certain lease components from an operating lease to a finance lease. As such, the Company recorded an adjustment to reduce the operating lease liability and the corresponding operating lease right-of-use asset and increase the finance lease liability and corresponding finance lease right-of-use asset.
Supplemental balance sheet information related to leases as of June 30, 2020 and December 31, 2019 are as follows:
 
June 30,
2020
 
December 31,
2019
Weighted average remaining lease term:
 
 
 
Operating leases
3 years

 
5 years

Financing leases
8 years

 
8 years

Weighted average discount rate:
 
 
 
Operating leases
4.4
%
 
4.7
%
Financing leases
3.1
%
 
3.1
%

5. DEBT
On April 2, 2018, the Company entered into a credit agreement (the “2018 Credit Agreement”) with a group of lenders and Morgan Stanley Senior Funding, Inc. (“MSSF”), as administrative agent, providing for (i) a term loan B facility with the Company as borrower in a total principal amount of $980.0 million (the “2018 Term Facility”); and (ii) a revolving credit facility with the Company as borrower in a total principal amount of up to $100.0 million (the “2018 Revolving Facility” and, together with the 2018 Term Facility, the “2018 Credit Facilities”). The 2018 Revolving Facility will terminate on April 2, 2023 and the 2018 Term Facility will mature on April 2, 2025. On March 16, 2020, the Company utilized an existing revolving facility to borrow $99.0 million on its 2018 Revolving Facility to ensure the availability of sufficient capital to deploy opportunistically from time to time, in light of unprecedented conditions due to the COVID-19 outbreak. The Company voluntarily repaid the full balance of the 2018 Revolving Facility and remaining interest on June 4, 2020. As of June 30, 2020, the Company had $100.0 million available to it consisting of $99.0 million on the 2018 Revolving Facility and a letter of credit of $1.0 million.

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On February 11, 2020, the Company executed an amendment to the 2018 Credit Agreement to reprice the applicable interest rate margins on the 2018 Credit Facilities, resulting in a decrease to the applicable interest rate margin by 50 basis points to 3.00% with an additional 25 basis point reduction upon achievement of a defined senior secured net leverage ratio. Other material provisions under the 2018 Credit Agreement, including covenants, the maturity date of April 2, 2025, with respect to the 2018 Term Facility, and April 2, 2023, with respect to the 2018 Revolving Facility, and amount of debt available to the Company, remained unchanged by the repricing amendment.
At the option of the Company, the loans outstanding under the 2018 Term Facility will bear interest either at: (i) Adjusted LIBOR plus an applicable rate of 3.00% or (ii) the Alternate Base Rate (“ABR”) plus an applicable margin. The Company may elect interest periods of one, two, three or six months for Adjusted LIBOR borrowings. As set forth in the 2018 Credit Agreement, the ABR is the higher of: (i) the rate that MSSF as administrative agent announces from time to time as its prime or base commercial lending rate, as in effect from time to time, (ii) the Federal Funds Effective Rate plus ½ of 1.0% and (iii) one-month Adjusted LIBOR plus 1.0%.
The following table discloses the outstanding debt at each balance date as follows (in thousands):
 
June 30,
2020
 
December 31,
2019
2018 Term Facility(1)
$
890,073

 
$
893,737

Less: current portion
9,800

 
9,800

Non-current Credit Facilities
$
880,273

 
$
883,937

______________________________________
(1)
The 2018 Term Facility is presented net of unamortized deferred financing fees and original issue discount (“OID”) of $22.8 million and $24.0 million as of June 30, 2020 and December 31, 2019, respectively.
The Company and its Restricted Subsidiaries (as defined in the 2018 Credit Agreement) are subject to certain affirmative and negative covenants under the 2018 Credit Agreement, and the 2018 Credit Agreement includes certain customary representations and warranties of the Company. As of June 30, 2020, the Company is in compliance with the covenants under the 2018 Credit Agreement.
6. FAIR VALUE MEASUREMENTS
The following table presents the fair value hierarchy for financial assets and liabilities measured at fair value on a recurring basis as of June 30, 2020 (in thousands):
 
Level 1
 
Level 2
 
Level 3
 
Total
Cash equivalents:
 

 
 

 
 

 
 

Money market funds
$
42,084

 
$

 
$

 
$
42,084

Other current liabilities:
 

 
 

 
 

 
 

Interest rate swaps

 
(18,608
)
 

 
(18,608
)
Contingent consideration

 

 
(10,636
)
 
(10,636
)
Other liabilities:
 
 
 
 
 
 
 
Interest rate swaps

 
(60,446
)
 

 
(60,446
)
Contingent consideration

 

 
(3,824
)
 
(3,824
)
Total
$
42,084

 
$
(79,054
)
 
$
(14,460
)
 
$
(51,430
)

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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, 2019 (in thousands):
 
Level 1
 
Level 2
 
Level 3
 
Total
Cash equivalents:
 

 
 

 
 

 
 

Money market funds
$
41,933

 
$

 
$

 
$
41,933

Other current liabilities:
 

 
 

 
 

 
 

Interest rate swaps

 
(8,354
)
 

 
(8,354
)
Contingent consideration

 

 
(3,719
)
 
(3,719
)
Other liabilities:
 
 
 
 
 
 
 
Interest rate swaps

 
(30,957
)
 

 
(30,957
)
Contingent consideration

 

 
(13,071
)
 
(13,071
)
Total
$
41,933

 
$
(39,311
)
 
$
(16,790
)
 
$
(14,168
)

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 financial instruments measured at fair value using unobservable inputs (Level 3) (in thousands):
 
Fair Value Measurements Using
Unobservable Inputs
(Level 3)
 
June 30,
2020
 
December 31,
2019
Balance, beginning of period
$
(16,790
)
 
$
(31,824
)
Fair value adjustment(1)
106

 
532

Accretion expense (recognized in general and administrative expenses)
(109
)
 
(647
)
Settlement of liability
2,333

 
15,149

Total
$
(14,460
)
 
$
(16,790
)
______________________________________
(1)
During 2019, the Company recognized an adjustment of $0.8 million in general and administrative expenses related to the change in fair value of contingent consideration, partially offset by an adjustment of $0.3 million recognized in goodwill, which was a purchase accounting adjustment attributable to the ABILITY Acquisition.
2018 Credit Facilities
The Company records debt on the balance sheet at carrying value. The estimated fair value of the Company’s debt is determined based on Level 2 inputs including current market rates for similar types of borrowings. The following table presents the carrying value and fair value of the Company’s debt (including the current portion thereof) as of June 30, 2020 (in thousands):
 
June 30,
2020
Carrying value
$
890,073

Fair value
$
861,146


Interest Rate Swaps
In connection with the 2018 Credit Agreement, the Company entered into four interest rate swaps during the second quarter of 2018, each of which mature in March 2025, to mitigate the risk of a rise in interest rates. These interest rate swaps mitigate the exposure on the variable component of interest on the Company’s 2018 Credit Facility. The interest rate swaps fix the LIBOR component of interest on $700.0 million of the 2018 Term Facility at a weighted average rate of approximately 2.8%. See “Note 5—Debt” for additional information. These interest rate swaps are designated as cash flow hedges and are deemed highly effective under ASC 815, Derivatives and Hedging.

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The interest rate swaps are recorded on the balance sheet at fair value as either assets or liabilities and any changes to the fair value are recorded through accumulated other comprehensive income and reclassified into interest expense in the same period in which the hedged transaction is recognized in earnings. Cash flows from interest rate swaps are reported in the same category as the cash flows from the items being hedged.
The following table presents the fair value of interest rate swaps on the balance sheet as of June 30, 2020 (in thousands):
 
Liability Derivative
 
Balance Sheet Location
 
Fair Value
Interest rate swap contract
Other current liabilities
 
$
(18,608
)
Interest rate swap contract
Other liabilities
 
$
(60,446
)

The following table presents the fair value of interest rate swaps on the balance sheet as of December 31, 2019 (in thousands):
 
Liability Derivative
 
Balance Sheet Location
 
Fair Value
Interest rate swap contract
Other current liabilities
 
$
(8,354
)
Interest rate swap contract
Other liabilities
 
$
(30,957
)

The following table presents the location and amount of gains and losses on interest rate swaps included in other comprehensive income (“OCI”) and the statement of operations for the three and six months ended June 30, 2020 and 2019 (in thousands):
Three Months Ended June 30, 2020
 
Gain (Loss) recognized in OCI
 
Statement of Operations Location
 
(Gain) Loss reclassified from OCI
Interest rate swap contract
 
$
(8,194
)
 
Interest expense
 
$
4,040

Six Months Ended June 30, 2020
 
Gain (Loss) recognized in OCI
 
Statement of Operations Location
 
(Gain) Loss reclassified from OCI
Interest rate swap contract
 
$
(45,909
)
 
Interest expense
 
$
6,167

Three Months Ended June 30, 2019
 
Gain (Loss) recognized in OCI
 
Statement of Operations Location
 
(Gain) Loss reclassified from OCI
Interest rate swap contract
 
$
(18,059
)
 
Interest expense
 
$
602

Six Months Ended June 30, 2019
 
Gain (Loss) recognized in OCI
 
Statement of Operations Location
 
(Gain) Loss reclassified from OCI
Interest rate swap contract
 
$
(30,467
)
 
Interest expense
 
$
1,131


The net amount of accumulated other comprehensive loss expected to be reclassified to interest expense in the next 12 months is $18.7 million.
7. 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 consolidated financial statements of the Company.
There have been no significant or material developments to current legal proceedings, including the estimated effects on the Company’s consolidated financial statements and note disclosures, subsequent to the disclosure previously provided in Note 11 of the Notes to the Consolidated Financial Statements in the 2019 Form 10-K.
Item 2.    Management’s Discussion and Analysis of Financial Condition and Results of Operations

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The following discussion and analysis should be read in conjunction with our unaudited 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, 2019, as filed with the Securities and Exchange Commission (the “SEC”) on February 20, 2019 (the “2019 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 and sell additional services to them;
the effect of the concentration of our revenue among our top clients;
our ability to innovate and adapt our platforms and toolsets;
the effects of regulations applicable to us, including regulations relating to data protection and data privacy;
the effects of consolidation in the healthcare industry;
the ability to successfully integrate our acquisitions and the ability of the acquired business to perform as expected;
the ability to enter into new agreements with existing or new platforms, products, and solutions in the timeframes expected, or at all;
the successful implementation and adoption of new platforms, products and solutions;
the effects of changes in tax legislation for jurisdictions within which we operate, including recent changes in U.S. tax laws;
the ability to protect the privacy of our clients’ data and prevent security breaches;
the effect of current or future litigation;
the effect of competition on our business;
the efficacy of our platforms and toolsets;
the effects and potential effects of the COVID-19 pandemic on our business, cash flow, liquidity and results of operations due to, among other things, effects on the economy generally and on our customers, including:
the possible effects of significant rising unemployment, the inability of consumers to timely pay our customers and the resulting potential inability of our customers to pay the fees under our contracts on time or in full;
the delay in the contracting for services by our customers as a result of the COVID-19 pandemic;
potential other delays in the sales cycle for new customers and products; and
other unforeseen impacts on our customers and potential customers and on our employees that could have a negative impact on us; and

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the timing and size of business realignment and restructuring charges.
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 2019 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 provider of cloud-based platforms empowering data-driven healthcare. Through the Inovalon ONE® Platform, Inovalon brings to the marketplace a national-scale capability to interconnect with the healthcare ecosystem, aggregate and analyze data in real-time, and empower the application of resulting insights to drive meaningful impact at the point of care. Leveraging its Platform, unparalleled proprietary datasets, and industry-leading subject matter expertise, Inovalon enables better care, efficiency, 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®.” Supporting thousands of clients, including 24 of the top 25 U.S. health plans, 22 of the top 25 global pharma companies, 19 of the top 25 U.S. healthcare provider systems, and many of the leading pharmacy organizations, device manufacturers, and other healthcare industry constituents, Inovalon’s technology platforms and analytics are informed by data pertaining to more than one million physicians, 559,000 clinical facilities, 319 million Americans, and nearly 56 billion medical events.
We generate the substantial majority of our revenue through the sale or subscription licensing of our platform solutions, as well as revenue from related arrangements for advisory, implementation, and support services.
COVID-19
The outbreak of the novel coronavirus disease (“COVID-19”) was labeled a global pandemic by the World Health Organization in March 2020 and has led to material and adverse impacts on the U.S. and global economies and created widespread uncertainty. In response to COVID-19, in the first quarter of 2020, we implemented our “Pandemic Plan,” which included transitioning our workforce to a remote working model and performing drills to ensure the preparedness of our workforce. As of the date of this Quarterly Report, we have not experienced significant disruption in our operations as a result of the COVID-19 pandemic, and we are conducting business with modifications to employee travel and employee work locations, among other modifications. In response to the pandemic and changes in telehealth-related and other policies and guidelines from the U.S. government, we launched data-driven and analytically informed telehealth capabilities within a number of our platform offerings in the first quarter of 2020. During the first and second quarters of 2020, certain of our business services and legacy offerings experienced a degree of softness, which we believe is temporary and represents demand delays (not demand loss). Although we expect these businesses and offerings to experience a degree of “catch-up” following the COVID-19 impact period, we can provide no assurance that demand delays experienced will begin to resolve after the second quarter, nor can we provide any assurance that the demand delays will not result in permanent demand loss, or as to the timing of the peak of the pandemic and the ultimate impact of the pandemic on the U.S. and global economy and on our business. In addition, the COVID-19 impact has had and is likely to continue to have adverse effects on our clients, suppliers and third-party business partners.
The extent to which COVID-19 impacts our business, operations, and financial results, including the duration and magnitude of such impact, will depend on numerous factors that the company may not be able to accurately predict, including those discussed in Part II Item 1A. Risk Factors in our Quarterly Report on Form 10-Q for the quarter ended March 31, 2020. We will continue to actively monitor the situation and may take further actions that alter our business operations as may be required by federal, state or local authorities or that we determine are in the best interests of our employees, clients, partners, and stockholders.
Quarterly Key Metrics
We review certain metrics quarterly, including the key metrics shown in the table below. We believe the key metrics illustrated in the table below are indicative of our overall level of analytical activity and our underlying growth in the business.

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June 30,
 
2020
 
2019
 
(in thousands)
MORE2 Registry® dataset metrics(1)
 

 
 

Unique patient count(2)
319,489

 
278,629

Medical event count(3)
55,909,357

 
45,776,969

Trailing twelve-month Patient Analytics Months (PAM)(1)(4)
72,342,794

 
55,068,958

____________________________________
(1)
MORE2 Registry® dataset metrics and Trailing twelve-month PAM, each of which is presented in the table, are key operating metrics that management uses to assess our level of operational activity. While we believe that each of these metrics is indicative of our overall level of analytical activity and the underlying growth in our business, increases or decreases in these metrics do not necessarily correlate to proportional increases or decreases in revenue, or net income. For instance, although increased levels of analytical activity historically have corresponded to increases in revenue over the long term, differences in fees charged for different analytical packages exist and differences in how analytics trigger the applicability of our data-driven intervention platforms may result in increases in analytical activity that do not result in proportional increases in revenue, or net income (and vice versa). Accordingly, while we believe the presentation of these operating metrics is helpful to investors in understanding our business, these metrics have limitations and should not be considered as substitutes for analysis of our financial results reported under generally accepted accounting principles (“GAAP”). In addition, we believe that other companies, including companies in our industry, do not present similar operating metrics and that there is no commonly accepted method of calculating these metrics, which may reduce their usefulness as comparative measures.
(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 within our platform solutions to examine a specific question such as whether a patient is believed to have a condition such as diabetes, or worsening of the disease, during a specific time period.
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, and our revenue mix of subscription-based platform offerings. Additionally, there are several factors that influence our growth and performance that are less quantitatively driven, including seasonality, macro-economic forces, including as a result of the COVID-19 pandemic, 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.

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Innovation and Platform Development.    Our business model is based upon our ability to deliver value to our clients through our platform solutions and related services 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, enter into new agreements with clients for new platforms, and bring these capabilities to market in an enterprise scale. Our continued ability to innovate our platform and bring differentiated capabilities to market is an important aspect of our business success.
Our investment in innovation includes costs for research and development, capitalized software development, and capital expenditures related to hardware and software platforms on which our platform solutions are deployed as summarized below (in thousands, except percentages).
 
Three Months Ended
June 30,
 
Six Months Ended
June 30,
 
2020
 
2019
 
2020
 
2019
Investment in Innovation:
 

 
 

 
 
 
 
Research and development(1)
$
8,835

 
$
7,898

 
$
15,939

 
$
16,099

Capitalized software development(2)
11,070

 
8,801

 
21,502

 
16,708

Research and development infrastructure investments(3)

 
411

 

 
1,581

Total investment in innovation
$
19,905

 
$
17,110

 
$
37,441

 
$
34,388

As a percentage of revenue
 

 
 

 
 
 
 
Research and development(1)
5
%
 
5
%
 
5
%
 
5
%
Capitalized software development(2)
7
%
 
6
%
 
7
%
 
6
%
Research and development infrastructure investments(3)
%
 
%
 
%
 
1
%
Total investment in innovation
12
%
 
11
%
 
12
%
 
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 platform solutions.
(3)
Research and development infrastructure investments include strategic capital expenditures related to hardware and software platforms under development or enhancement.
Mix of Subscription-Based Platform Offerings and Legacy Solutions.    In 2018, we executed an intentional transition in our offering portfolio from legacy platform solutions to subscription-based cloud-based platform offerings with add-on advisory services. Subscription-based cloud-based platform offerings are generally defined as modular, cloud-based solutions that utilize dynamic, high-speed cloud-based compute and storage, offer enhanced data visualization capabilities, and are tied to subscription-based contract structures where revenue is predominantly based on factors such as the number of patients under contract or similar relevant metrics (e.g., the number of prescriptions issued), the size of the client, and/or a specific period of time. Additionally, we expanded our offerings of cloud-based SaaS solutions enabled by the Inovalon ONE® Platform which utilize Artificial Intelligence and machine learning application. Legacy platform solutions are generally defined as solutions historically not cloud-based in nature and not tied to subscription-based contract structures. We believe subscription-based cloud-based platform offerings provide more advanced capabilities, higher value, and greater visibility to clients, as well as improved visibility, market differentiation, and financial performance for us. Over time, we expect that subscription-based cloud-based platform offerings will continue to represent an increasing share of our total revenue, contributing to an increasing base of recurring revenue.
Breadth of Healthcare Industry Connectivity.  The healthcare industry is undergoing a significant transition as it becomes increasingly data-driven. As part of this transition, participants across the healthcare industry, including health plans, pharmaceutical companies, medical device manufacturers, and diagnostic companies, are increasingly interested in achieving timely and seamless access to relevant data and being able to drive impact directly with providers and their patients. Concurrently, providers are also increasingly interested in access to more advanced analytical tools to support and improve their clinical and financial performance. Enhancing and expanding our industry connectivity with payer administrative systems, provider facilities, diagnostic systems, pharmacy systems, healthcare industry systems (e.g., electronic healthcare record systems, health information exchange systems, claims processing systems, decision support systems, etc.), and other healthcare clinical and business systems, offers the potential for increased differentiation in the healthcare marketplace as well as improved efficiency of our operations.
Client and Analytical Process Count Growth.    Our business is generally driven by the number of underlying patients for which our platform solutions 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. We believe that PAM is indicative of our overall

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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 partial seasonality reflected in both revenue and cost of revenue differences during the year. Regulatory impact of data submission deadlines in, for example, January, March, June, and September drive some degree of 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 have limited predictable impact in the aggregate on our financial performance from quarter to quarter. However, quarter to quarter financial performance may increasingly vary from historical seasonal trends as we continue to expand into adjacent markets and increase the portion of our revenue generated from new offerings. Further, we also expect the impact of seasonality to decrease over time as we expand our mix of revenue generated from a subscription-based model. The timing of new contract signings and their respective implementations can also lead to variances in our seasonal revenue performance.
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), including as a result of the COVID-19 pandemic, inflation, and unemployment. Further, industry trends in federal and state laws and regulations, as well as emerging trends in private sector payment models, affect our clients’ businesses and their need for technologies and services to support these challenges. These factors have various effects on our business, and on occasion have resulted in the slowing or cessation of the decision-making process by clients adopting our technologies and services. On the other hand, changes in macro-economic trends and the industry landscape have accelerated the need for our technologies and services from time-to-time, particularly as regulators introduce complex requirements with which our clients must comply.
Critical Accounting Policies and Estimates
Our discussion and analysis of our financial condition and results of operations are based on our unaudited consolidated financial statements, which have been prepared in accordance with GAAP. In connection with the preparation of our unaudited 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 consolidated financial statements. The accounting estimates used in the preparation of our unaudited 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 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 consolidated financial statements. For a more detailed discussion of our critical accounting policies, please refer to our 2019 Form 10-K.
Components of Results of Operations
Revenue
We earn revenue primarily through the sale or subscription licensing of our platform solutions, as well as revenue from related arrangements for advisory, implementation, and support services.
Platform solutions include arrangements for technology-based offerings representing subscription-based cloud-based platform offerings, including solutions offered through the myABILITY® software platform, and legacy platform solutions that are not cloud-based and not billed under a subscription-based contract structure. Our platform solutions revenue is driven primarily by cloud-based data connectivity, analytics, intervention, and visualization software that enables the identification and resolution of gaps in care, quality, utilization, compliance, and/or other gaps that may impact our clients’ achievement of greater healthcare quality and financial performance associated with value-based care. Revenue is predominantly based on the number of clients, the number of patients or similar relevant metrics (e.g., the number of prescriptions issued), the size of the client, the number of analytical services contracted for by a client and the contractually negotiated price of such services. Additionally, revenue is based

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on the number of identified and/or resolved gaps in care, quality, utilization, compliance, and/or other gaps resulting from our analytical services at a contractually negotiated transactional price for each identified and/or resolved gap.
The majority of our platform solutions contracts contain a series of separately identifiable and distinct services that represent performance obligations that are satisfied over time. Revenue is allocated to platform solutions by determining the standalone selling price of each performance obligation. Revenue is generally recognized on our platform offerings over the contract term. For certain contracts, we have determined that we will recognize revenue when we have the right to invoice.
As our platform solutions are increasingly integrated into our clients’ operations, the timing and delivery of implementations vary. 
Service revenue represents revenue that is generated from strategic advisory, implementation and support services. Revenue from our services arrangements is generally provided under time and materials, fixed-price, or retainer-based contracts, based on agreed upon billing rates applied to direct labor hours expended plus the costs of other items used in the performance of the contract. We recognize revenue when we have the right to invoice the customer using the allowable practical expedient since the right to invoice the customer corresponds with the performance obligations completed. Revenues under fixed-price and retainer-based contracts are recognized ratably over the contract period or upon contract completion.
During the first and second quarter of 2020, we experienced a degree of softness with respect to certain of our services businesses and legacy offerings which is expected to begin resolving thereafter. We believe this softness is temporary and represents demand delays (not demand loss). Although we expect these businesses and offerings to experience a degree of “catch-up” following the COVID-19 impact period, we can provide no assurance that these demand delays will begin to resolve after the second quarter, nor can we provide any assurance that the demand delays will not result in permanent demand loss, or as to the timing of the peak of the pandemic and the ultimate impact of the pandemic on the U.S. and global economy and on our business.
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 may 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 platform solutions revenue at a greater rate than our cost of revenue.
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 continue to increase in absolute dollar terms as we strategically invest to expand our business, although it may vary from period to period as a percentage of total revenues.
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 include 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.

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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, contingent consideration, transaction costs, integration costs, and other expenses. Our general and administrative expense excludes depreciation and amortization.
In the near term, we expect our general and administrative expense to continue to increase in absolute dollars to support business growth. Over the long term, we expect general and administrative expense to decrease as a percentage of revenue.
Depreciation and Amortization Expense
Our depreciation and amortization expense consists primarily of depreciation of fixed assets, amortization of capitalized software development costs, amortization of intangible assets, and amortization of finance leases.
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 premium for 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 2018 Credit Facility (as defined below, under the heading Liquidity and Capital Resources—Debt) and related interest rate swaps.
We expect our interest expense to increase in connection with the debt commitment discussed in “Note 5—Debt” and to fluctuate in proportion to our outstanding principal balance under the 2018 Credit Facilities (as defined below, under the heading Liquidity and Capital Resources—Debt) and the prevailing London Interbank Offer Rate (“LIBOR”) interest rate. We expect this increase to be partially offset by the decrease in the effective interest rate as a result of the repricing of our 2018 Credit Facility.
Provision for (Benefit from) 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.
Our effective tax rate has decreased due to the Coronavirus Aid, Relief and Economic Security Act (the “CARES Act”) which was signed into law on March 27, 2020 and includes net operating loss provisions. We realized tax benefits related to several provisions of the CARES Act which favorably impacted our effective tax rate. Additionally, our effective tax rate may fluctuate in the future due to changes in pre-tax book income, the impact of future tax law changes, and recognition of excess tax benefits or deficiencies associated with stock-based compensation transactions.


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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
June 30,
 
Change from
2019 to 2020
 
Six Months Ended
June 30,
 
Change from
2019 to 2020
 
2020
 
2019
 
$
 
%
 
2020
 
2019
 
$
 
%
Revenue
$
162,215

 
$
156,977

 
$
5,238

 
3
 %
 
$
316,402

 
$
302,468

 
$
13,934

 
5
 %
Expenses:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cost of revenue(1)
36,761

 
41,118

 
(4,357
)
 
(11
)%
 
77,804

 
78,321

 
(517
)
 
(1
)%
Sales and marketing(1)
15,073

 
14,306

 
767

 
5
 %
 
30,232

 
27,832

 
2,400

 
9
 %
Research and development(1)
8,835

 
7,898

 
937

 
12
 %
 
15,939

 
16,099

 
(160
)
 
(1
)%
General and administrative(1)
55,229

 
45,694

 
9,535

 
21
 %
 
109,112

 
99,317

 
9,795

 
10
 %
Depreciation and amortization
30,632

 
27,420

 
3,212

 
12
 %
 
58,566

 
54,467

 
4,099

 
8
 %
Total operating expenses
146,530

 
136,436

 
10,094

 
7
 %
 
291,653

 
276,036

 
15,617

 
6
 %
Income from operations
15,685

 
20,541

 
(4,856
)
 
(24
)%
 
24,749

 
26,432

 
(1,683
)
 
(6
)%
Other income and (expenses):
 

 
 

 
 

 
 

 
 
 
 
 
 
 
 
Interest income
96

 
664

 
(568
)
 
(86
)%
 
386

 
1,274

 
(888
)
 
(70
)%
Interest expense
(14,260
)
 
(16,649
)
 
2,389

 
(14
)%
 
(28,820
)
 
(33,191
)
 
4,371

 
(13
)%
Other expense, net
(148
)
 

 
*

 
*%

 
(170
)
 
(11
)
 
*

 
*%

Income (Loss) before taxes
1,373

 
4,556

 
(3,183
)
 
(70
)%
 
(3,855
)
 
(5,496
)
 
1,641

 
(30
)%
(Benefit from) Provision for income taxes
(652
)
 
18

 
*

 
*%

 
(4,197
)
 
(1,711
)
 
*

 
*%

Net income (loss)
$
2,025

 
$
4,538

 
$
(2,513
)
 
(55
)%
 
$
342

 
$
(3,785
)
 
$
4,127

 
109
 %
________________________________________________
(1)
Includes stock-based compensation expense as follows:
 
 
 
 
 
 
 
Cost of revenue
$
153

 
$
78

 
$
75

 
96
 %
 
$
318

 
$
155

 
$
163

 
105
 %
 
Sales and marketing
752

 
339

 
413

 
122
 %
 
1,372

 
639

 
733

 
115
 %
 
Research and development
269

 
379

 
(110
)
 
(29
)%
 
722

 
749

 
(27
)
 
(4
)%
 
General and administrative
6,691

 
1,986

 
4,705

 
237
 %
 
12,709

 
6,478

 
6,231

 
96
 %
 
Total stock-based compensation expense
$
7,865

 
$
2,782

 
$
5,083

 
183
 %
 
$
15,121

 
$
8,021

 
$
7,100

 
89
 %
* 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
June 30,
 
Six Months Ended
June 30,
 
2020
 
2019
 
2020
 
2019
Revenue
100
 %
 
100
 %
 
100
 %
 
100
 %
Expenses:
 
 
 
 
 
 
 
Cost of revenue
23
 %
 
26
 %
 
25
 %
 
26
 %
Sales and marketing
9
 %
 
9
 %
 
10
 %
 
9
 %
Research and development
5
 %
 
5
 %
 
5
 %
 
5
 %
General and administrative
34
 %
 
29
 %
 
34
 %
 
33
 %
Depreciation and amortization
19
 %
 
17
 %
 
19
 %
 
18
 %
Total operating expenses
90
 %
 
86
 %
 
93
 %
 
91
 %
Income from operations
10
 %
 
14
 %
 
7
 %
 
9
 %
Other income and (expenses):
 
 
 
 
 
 
 
Interest income
*%

 
*%

 
*%

 
*%

Interest expense
(9
)%
 
(11
)%
 
(9
)%
 
(11
)%
Other expense, net
*%

 
 %
 
*%

 
*%

Income (Loss) before taxes
1
 %
 
3
 %
 
(1
)%
 
(2
)%
(Benefit from) Provision for income taxes
*%

 
*%

 
(1
)%
 
(1
)%
Net income (loss)
1
 %
 
3
 %
 
*%

 
(1
)%
* Asterisk denotes not meaningful.
Comparison of the Three and Six Months Ended June 30, 2020 and 2019
Revenue
Revenue for the three months ended June 30, 2020 was $162.2 million, an increase of $5.2 million, or 3%, compared with revenue of $157.0 million for the three months ended June 30, 2019. This increase was primarily attributable to an increase of $23.7 million in revenue contributed from new clients signed resulting from continued adoption of subscription-based platform offerings including cloud-based SaaS solutions enabled by the Inovalon ONE® Platform, which was partially offset by a decrease of $18.5 million in revenue from existing clients partially due to decreases related to certain services and legacy platform offerings resulting from COVID-19.
Revenue for the six months ended June 30, 2020 was $316.4 million, an increase of $13.9 million, or 5%, compared with revenue of $302.5 million for the six months ended June 30, 2019. This increase was primarily attributable to an increase of $34.1 million in revenue contributed from new clients signed resulting from continued adoption of subscription-based platform offerings including cloud-based SaaS solutions enabled by the Inovalon ONE® Platform, which was partially offset by a decrease of $20.2 million in revenue from existing clients due to decreases related to certain services and legacy platform offerings resulting from COVID-19.
Cost of Revenue
During the three months ended June 30, 2020, cost of revenue decreased by $4.4 million, or 11%, compared with the three months ended June 30, 2019. The decrease in cost of revenue was primarily attributable to a decrease in employee-related expense of $2.7 million and a decrease in professional third-party costs of $1.6 million. Cost of revenue as a percentage of revenue was 23% and 26% for the three months ended June 30, 2020 and 2019, respectively.
During the six months ended June 30, 2020, cost of revenue decreased by $0.5 million, or 1%, compared with the six months ended June 30, 2019. The decrease in cost of revenue was primarily attributable to a decrease in employee-related expense of $0.6 million. Cost of revenue as a percentage of revenue was 25% and 26% for the six months ended June 30, 2020 and 2019, respectively.
Sales and Marketing
During the three months ended June 30, 2020, sales and marketing expense increased by $0.8 million, or 5%, compared with the three months ended June 30, 2019. The increase was primarily attributable to an increase in stock-based compensation of $0.4 million. Sales and marketing expense as a percentage of revenue was 9% for the three months ended June 30, 2020 and 2019.
During the six months ended June 30, 2020, sales and marketing expense increased by $2.4 million, or 9%, compared with the six months ended June 30, 2019. The increase was primarily attributable to an increase in employee-related expense of $1.7

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million and an increase in stock-based compensation of $0.7 million. Sales and marketing expense as a percentage of revenue was 10% and 9% for the six months ended June 30, 2020 and 2019, respectively.
Research and Development
During the three months ended June 30, 2020, research and development expense increased by $0.9 million, or 12%, compared with the three months ended June 30, 2019. The increase was primarily attributable to an increase in employee-related expense of $1.2 million and an increase in professional third-party costs of $0.7 million, which was partially offset by a decrease in integration costs of $0.8 million.
During the six months ended June 30, 2020, research and development expense decreased by $0.2 million, or 1%, compared with the six months ended June 30, 2019. The decrease was primarily attributable to a decrease in integration costs of $1.5 million and a decrease in employee-related expense of $0.5 million, which was partially offset by an increase in professional third-party costs of $1.9 million.
General and Administrative
During the three months ended June 30, 2020, general and administrative expenses increased by $9.5 million, or 21% compared with the three months ended June 30, 2019. The increase was primarily attributable to an increase in employee-related expense of $5.8 million and an increase in stock-based compensation of $4.7 million, which was partially offset by a decrease in transaction and integration costs of $0.5 million. General and administrative expense as a percentage of revenue was 34% and 29% for the three months ended June 30, 2020 and 2019, respectively.
During the six months ended June 30, 2020, general and administrative expenses increased by $9.8 million, or 10% compared with the six months ended June 30, 2019. The increase was primarily attributable to an increase in employee-related expense of $7.6 million and an increase in stock-based compensation of $6.2 million, which was partially offset by a decrease in transaction and integration costs of $2.7 million. General and administrative expense as a percentage of revenue was 34% and 33% for the six months ended June 30, 2020 and 2019, respectively.
Interest Expense
During the three months ended June 30, 2020, interest expense decreased by $2.4 million, compared with the three months ended June 30, 2019. During the six months ended June 30, 2020, interest expense decreased by $4.4 million, compared with the six months ended June 30, 2019. The decrease in interest expense was primarily attributable to the repricing of our 2018 Credit Facility (as defined below, under the heading Liquidity and Capital Resources—Debt) which resulted in a decrease to the applicable interest rate margin by 50 basis points to 3.00% and decreases in LIBOR resulting in lower interest.
(Benefit from) Provision for Income Taxes
During the three months ended June 30, 2020, the benefit from income taxes was $0.7 million compared to the provision for income taxes of $18.0 thousand for the three months ended June 30, 2019. During the six months ended June 30, 2020, the benefit from income taxes was $4.2 million compared to $1.7 million for the six months ended June 30, 2019. Our effective tax rate for the six months ended June 30, 2020 was approximately 108.9%, compared with approximately 31.1% for the six months ended June 30, 2019. The change in our effective tax rate is primarily due to the impact of several provisions of the CARES Act which includes net operating loss provisions, resulting in the recognition of a benefit in the current quarter and due to the change in income before taxes compared to the prior year.
Liquidity and Capital Resources
Sources of Liquidity
Our principal sources of liquidity have been cash generated by operating activities and proceeds from our 2018 Credit Facilities. Our cash generated from such means has been sufficient to fund our growth, including our capital expenditures. On March 16, 2020, we utilized an existing revolving facility to borrow $99.0 million on our 2018 Revolving Facility, to ensure the availability of sufficient capital to deploy opportunistically from time to time, in light of unprecedented conditions due to the COVID-19 outbreak. We voluntarily repaid the full balance of the 2018 Revolving Facility and remaining interest on June 4, 2020.
As of June 30, 2020, our cash and cash equivalents totaled $95.6 million, compared with $93.1 million of cash and cash equivalents as of December 31, 2019. We believe our current cash, cash equivalents, and expected cash generated by operating activities are sufficient to fund our operations, finance our strategic initiatives, and fund our investment in innovation and new service offerings, for the foreseeable future. There can be no assurance that we will continue to generate cash flows at or above current levels.

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Debt
On April 2, 2018, we entered into a credit agreement (the “2018 Credit Agreement”) with a group of lenders and Morgan Stanley Senior Funding, Inc., as administrative agent, to provide a secured credit facility which is comprised of: (i) a term loan B facility with us as borrower in a total principal amount of $980.0 million (the “2018 Term Facility”); and (ii) a revolving credit facility with us as borrower in a total principal amount of up to $100.0 million (the “2018 Revolving Facility” together with the 2018 Term Facility, the “2018 Credit Facilities”). On February 11, 2020, we executed an amendment to the 2018 Credit Agreement to reprice the applicable interest rate margins on the 2018 Credit Facilities by 50 basis points to 3.00% with an additional 25 basis point reduction upon achievement of a defined senior secured net leverage ratio. As discussed above under “—Sources of Liquidity,” on March 16, 2020, we utilized an existing revolving facility to borrow $99.0 million on our 2018 Revolving Facility and voluntarily repaid the full balance on June 4, 2020. As of June 30, 2020, we had $100.0 million available to us consisting of $99.0 million under the 2018 Revolving Facility and a letter of credit of $1.0 million. See “Note 5—Debt” in the Notes to our unaudited consolidated financial statements included under Part I, Item 1 within this Quarterly Report on Form 10-Q for additional information.
As of June 30, 2020, we had outstanding indebtedness under the 2018 Term Facility and finance lease liabilities of $890.1 million and $30.9 million, respectively. As of December 31, 2019, we had outstanding indebtedness under the 2018 Term Facility and finance lease liabilities of $893.7 million and $14.8 million, respectively. The 2018 Term Facility has a seven-year term and is an amortizing facility with quarterly principal payments and monthly interest payments. In addition to the repayment of the 2018 Revolving Facility of $99.0 million, scheduled principal payments totaling $4.9 million and scheduled interest payments totaling $27.0 million were paid during the six months ended June 30, 2020. As of June 30, 2020, we were in compliance with the covenants under the 2018 Credit Agreement.
Cash Flows
Operating Cash Flow Activities
Cash provided by operating activities during the six months ended June 30, 2020 was $63.1 million, representing an increase of $23.2 million compared with the six months ended June 30, 2019. The increase in cash provided by operating activities was primarily driven by changes in working capital. The working capital changes were primarily attributable to improved collections, during the six months ended June 30, 2020. Contributing to cash provided by operations were increased earnings and decreased cash paid for interest due to our debt repricing and a decrease in LIBOR.
Investing Cash Flow Activities
Cash used in investing activities during the six months ended June 30, 2020 was $46.3 million compared with $18.8 million during the six months ended June 30, 2019. The change in cash used in investing activities was primarily driven by purchases of intangible assets of $10.8 million, an increase in capital expenditures of $10.2 million, and a decrease in sales and maturities of short-term investments of $6.5 million.
We make investments in innovation, including research and development expense, capital software development costs, and research and development infrastructure investments, on a recurring basis.
Financing Cash Flow Activities
Cash used in financing activities during the six months ended June 30, 2020 was $14.3 million, compared with $6.8 million during the six months ended June 30, 2019. The change in cash from financing activities was primarily due to increased payments of $2.6 million related to the issuance of equity awards, payment of $2.2 million in acquisition-related contingent consideration, and payment of debt issuance costs of $1.0 million.
Contractual Obligations
During the six months ended June 30, 2020, 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 2019 Form 10-K.
Off-Balance Sheet Arrangements
As of June 30, 2020, 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 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 2019 Form 10-K.

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Item 3.    Quantitative and Qualitative Disclosures About Market Risk
Market risk includes risks that arise from changes in interest rates, equity prices and other market changes that affect market sensitive instruments. Our primary market risk exposure is related to changes in interest rates on our variable rate debt.
Variable Rate Debt Risk.    Our variable rate debt includes our 2018 Term Loan Facility and our 2018 Revolving Credit Facility. As of June 30, 2020, we had $912.9 million of outstanding principal indebtedness under our 2018 Term Loan Facility at an effective interest rate of 3.19%. 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 $6.2 million annually, assuming that we do not enter into contractual hedging arrangements.
To mitigate the risk of a rise in interest rates, we entered into four interest rate swap transactions during 2018, which mature in March 2025, fixing the LIBOR component of the interest on a total of $700.0 million of our 2018 Term Facility at a weighted average rate of 2.8%. While we have and may continue to enter into agreements intending to limit our exposure to higher interest rates, any such agreements may not completely offset the risks of interest rate volatility or other risks inherent to interest rate swap transactions.
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 June 30, 2020, 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 three months ended June 30, 2020 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting. In response to the COVID-19 pandemic, management has promoted social distancing and implemented work-from-home policies while maintaining historical internal control policies and procedures. These changes have not materially affected the Company’s internal control over financial reporting.

26

Table of Contents

PART II—OTHER INFORMATION
Item 1.    Legal Proceedings
See “Note 7—Commitments and Contingencies” in the Notes to our unaudited 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 2019 Form 10-K for the year ended December 31, 2019. There have been no material changes to the risk factors previously disclosed in our 2019 Form 10-K and in our Quarterly Report on Form 10-Q for the quarter ended March 31, 2020.
Item 2.    Unregistered Sales of Equity Securities and Use of Proceeds
Unregistered Sales of Equity Securities
None.
Use of Proceeds from Registered Securities
None.
Purchases of Equity Securities by the Issuer or Affiliated Purchasers
None.
Item 3.    Defaults Upon Senior Securities
Not applicable.
Item 4.    Mine Safety Disclosures
Not applicable.
Item 5.    Other Information
On July 29, 2020, Andre S. Hoffmann, a member of the Company's board of directors (the “Board”), resigned from the Board effective as of such date for personal reasons. Mr. Hoffmann’s resignation is not the result of any disagreement with the Company or the Company’s Board on any matter relating to the Company’s operations, policies or practices. At the time of his resignation, Mr. Hoffmann did not serve on any committees of the Board. In connection with Mr. Hoffmann’s resignation, on July 29, 2020, the size of the Company’s Board will be reduced from eight to seven directors effective as of such date. 
Mr. Hoffmann has served as a member of the Company’s Board since 2008. The Company is very grateful for Mr. Hoffmann’s years of service and many valuable contributions to the Company and to the Board.

27

Table of Contents

Item 6.    Exhibits
EXHIBIT INDEX
Exhibit
Number
 
Description of Document
31.1

*
 
 
 
31.2

*
 
 
 
32.1

**
 
 
 
32.2

**
 
 
 
101.INS

*
Inline XBRL Instance Document (the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document)
 
 
 
101.SCH

*
Inline XBRL Taxonomy Extension Schema Document
 
 
 
101.CAL

*
Inline XBRL Taxonomy Extension Calculation Linkbase Document
 
 
 
101.DEF

*
Inline XBRL Taxonomy Extension Definition Linkbase Document
 
 
 
101.LAB

*
Inline XBRL Taxonomy Extension Label Linkbase Document
 
 
 
101.PRE

*
Inline XBRL Taxonomy Extension Presentation Linkbase Document
 
 
 
104

*
Cover Page Interactive Data File (formatted as inline XBRL and contained in Exhibit 101)
_____________________________________
*
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.

28

Table of Contents

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: July 29, 2020
INOVALON HOLDINGS, INC.
 
By:
 
/s/ KEITH R. DUNLEAVY, M.D.
 
 
 
Keith R. Dunleavy, M.D.
 Chief Executive Officer & Chairman
(Principal Executive Officer)
 
 
 
 
 
By:
 
/s/ JONATHAN R. BOLDT
 
 
 
Jonathan R. Boldt
 Chief Financial Officer
(Principal Financial Officer)

29
Exhibit


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: July 29, 2020



Exhibit


EXHIBIT 31.2 

CERTIFICATION 

I, Jonathan R. Boldt, 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/ JONATHAN R. BOLDT
Jonathan R. Boldt
Chief Financial Officer
(Principal Financial Officer)

Date: July 29, 2020



Exhibit


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 June 30, 2020 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: July 29, 2020






Exhibit


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 June 30, 2020 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Jonathan R. Boldt, the Chief Financial 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/ JONATHAN R. BOLDT
Jonathan R. Boldt
Chief Financial Officer
(Principal Financial Officer)
Date: July 29, 2020




v3.20.2
Cover - shares
6 Months Ended
Jun. 30, 2020
Jul. 17, 2020
Entity Information [Line Items]    
Document Type 10-Q  
Document Quarterly Report true  
Document Period End Date Jun. 30, 2020  
Document Transition Report false  
Entity File Number 001-36841  
Entity Registrant Name Inovalon Holdings, Inc.  
Entity Incorporation, State or Country Code DE  
Entity Tax Identification Number 47-1830316  
Entity Address, Address Line One 4321 Collington Road,  
Entity Address, City or Town Bowie,  
Entity Address, State or Province MD  
Entity Address, Postal Zip Code 20716  
City Area Code 301  
Local Phone Number 809-4000  
Title of 12(b) Security Class A Common Stock, $0.000005 par value per share  
Trading Symbol INOV  
Security Exchange Name NASDAQ  
Entity Current Reporting Status Yes  
Entity Interactive Data Current Yes  
Entity Filer Category Large Accelerated Filer  
Entity Small Business false  
Entity Emerging Growth Company false  
Entity Shell Company false  
Entity Central Index Key 0001619954  
Amendment Flag false  
Current Fiscal Year End Date --12-31  
Document Fiscal Year Focus 2020  
Document Fiscal Period Focus Q2  
Class A Common    
Entity Information [Line Items]    
Entity Common Stock, Shares Outstanding (in shares)   76,080,519
Class B Common    
Entity Information [Line Items]    
Entity Common Stock, Shares Outstanding (in shares)   79,270,861
v3.20.2
CONSOLIDATED BALANCE SHEETS - USD ($)
$ in Thousands
Jun. 30, 2020
Dec. 31, 2019
Current assets:    
Cash and cash equivalents $ 95,611 $ 93,094
Accounts receivable (net of allowances of $3,824 at June 30, 2020 and $3,351 at December 31, 2019) 132,279 139,514
Prepaid expenses and other current assets 22,956 20,141
Income tax receivable 7,005 4,488
Total current assets 257,851 257,237
Non-current assets:    
Property, equipment and capitalized software, net 159,193 147,741
Operating lease right-of-use assets 32,998 45,053
Goodwill 955,881 955,881
Intangible assets, net 466,060 483,041
Other assets 28,293 19,681
Total assets 1,900,276 1,908,634
Current liabilities:    
Accounts payable and accrued expenses 36,168 34,845
Accrued compensation 28,410 35,135
Other current liabilities 36,911 26,298
Deferred revenue 15,042 13,664
Credit facilities 9,800 9,800
Operating lease liabilities 6,288 8,085
Finance lease liabilities 4,213 2,533
Total current liabilities 136,832 130,360
Non-current liabilities:    
Credit facilities, less current portion 880,273 883,937
Operating lease liabilities, less current portion 35,482 49,690
Finance lease liabilities, less current portion 26,715 12,266
Other liabilities 66,576 46,529
Deferred income taxes 82,862 97,693
Total liabilities 1,228,740 1,220,475
Commitments and contingencies (Note 7)
Stockholders’ equity:    
Common stock 0 0
Preferred stock, $0.0001 par value, 100,000,000 shares authorized, zero shares issued and outstanding at June 30, 2020 and December 31, 2019, respectively 0 0
Additional paid-in-capital 646,455 636,461
Retained earnings 278,653 278,246
Treasury stock, at cost, 14,620,175 shares at June 30, 2020 and December 31, 2019, respectively (199,817) (199,817)
Other comprehensive loss (53,756) (26,732)
Total stockholders’ equity 671,536 688,159
Total liabilities and stockholders’ equity 1,900,276 1,908,634
Class A Common    
Stockholders’ equity:    
Common stock 1 1
Class B Common    
Stockholders’ equity:    
Common stock $ 0 $ 0
v3.20.2
CONSOLIDATED BALANCE SHEETS (Parenthetical) - USD ($)
$ in Thousands
Jun. 30, 2020
Dec. 31, 2019
Accounts receivable, allowances $ 3,824 $ 3,351
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, 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, 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) 90,709,951 90,327,728
Common stock, outstanding (in shares) 76,089,776 75,707,553
Treasury stock (in shares) 14,620,175 14,620,175
Class B Common    
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) 79,270,861 79,369,411
Common stock, outstanding (in shares) 79,270,861 79,369,411
v3.20.2
CONSOLIDATED STATEMENTS OF OPERATIONS - USD ($)
shares in Thousands, $ in Thousands
3 Months Ended 6 Months Ended
Jun. 30, 2020
Jun. 30, 2019
Jun. 30, 2020
Jun. 30, 2019
Income Statement [Abstract]        
Revenue $ 162,215 $ 156,977 $ 316,402 $ 302,468
Expenses:        
Cost of revenue [1] 36,761 41,118 77,804 78,321
Sales and marketing [1] 15,073 14,306 30,232 27,832
Research and development [1] 8,835 7,898 15,939 16,099
General and administrative [1] 55,229 45,694 109,112 99,317
Depreciation and amortization 30,632 27,420 58,566 54,467
Total operating expenses 146,530 136,436 291,653 276,036
Income from operations 15,685 20,541 24,749 26,432
Other income and (expenses):        
Interest income 96 664 386 1,274
Interest expense (14,260) (16,649) (28,820) (33,191)
Other expense, net (148) 0 (170) (11)
Income (Loss) before taxes 1,373 4,556 (3,855) (5,496)
(Benefit from) Provision for income taxes (652) 18 (4,197) (1,711)
Net income (loss) 2,025 4,538 342 (3,785)
Net income (loss) attributable to common stockholders, basic and diluted $ 1,964 $ 4,403 $ 331 $ (3,785)
Net income (loss) per share attributable to common stockholders, basic and diluted:        
Basic net (loss) income per share (in dollars per share) $ 0.01 $ 0.03 $ 0 $ (0.03)
Diluted net (loss) income per share (in dollars per share) $ 0.01 $ 0.03 $ 0 $ (0.03)
Weighted average shares of common stock outstanding:        
Basic (in shares) 149,517 148,136 149,350 147,956
Diluted (in shares) 149,685 148,478 149,521 147,956
[1]
(1)
Includes stock-based compensation expense as follows:
 
 
 

 
 
 
 
 
Cost of revenue
$
153

 
$
78

 
$
318

 
$
155

 
Sales and marketing
752

 
339

 
1,372

 
639

 
Research and development
269

 
379

 
722

 
749

 
General and administrative
6,691

 
1,986

 
12,709

 
6,478

 
Total stock-based compensation expense
$
7,865

 
$
2,782

 
$
15,121

 
$
8,021


v3.20.2
CONSOLIDATED STATEMENTS OF OPERATIONS (Parenthetical) - USD ($)
$ in Thousands
3 Months Ended 6 Months Ended
Jun. 30, 2020
Jun. 30, 2019
Jun. 30, 2020
Jun. 30, 2019
Includes stock-based compensation expense as follows:        
Total stock-based compensation expense $ 7,865 $ 2,782 $ 15,121 $ 8,021
Cost of revenue        
Includes stock-based compensation expense as follows:        
Total stock-based compensation expense 153 78 318 155
Sales and marketing        
Includes stock-based compensation expense as follows:        
Total stock-based compensation expense 752 339 1,372 639
Research and development        
Includes stock-based compensation expense as follows:        
Total stock-based compensation expense 269 379 722 749
General and administrative        
Includes stock-based compensation expense as follows:        
Total stock-based compensation expense $ 6,691 $ 1,986 $ 12,709 $ 6,478
v3.20.2
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) - USD ($)
$ in Thousands
3 Months Ended 6 Months Ended
Jun. 30, 2020
Jun. 30, 2019
Jun. 30, 2020
Jun. 30, 2019
Statement of Comprehensive Income [Abstract]        
Net income (loss) $ 2,025 $ 4,538 $ 342 $ (3,785)
Other comprehensive income (loss):        
Realized losses on cash flow hedges reclassified from accumulated other comprehensive income, net of tax of $(1,293), $(193), $(1,974), and $(363), respectively 2,747 409 4,193 768
Net change in unrealized losses on cash flow hedges, net of tax of $2,623, $5,799, $14,692 and $9,783, respectively (5,571) (12,260) (31,217) (20,684)
Net change in unrealized gains on available-for-sale investments, net of tax of $0, $(1), $0, and $(6), respectively 0 1 0 12
Comprehensive loss $ (799) $ (7,312) $ (26,682) $ (23,689)
v3.20.2
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (Parenthetical) - USD ($)
$ in Thousands
3 Months Ended 6 Months Ended
Jun. 30, 2020
Jun. 30, 2019
Jun. 30, 2020
Jun. 30, 2019
Statement of Comprehensive Income [Abstract]        
Realized losses on cash flow hedges reclassified from accumulated other comprehensive income, tax $ (1,293) $ (193) $ (1,974) $ (363)
Net change in unrealized (losses) gains on cash flow hedges, tax 2,623 5,799 14,692 9,783
Net change in unrealized gains and (losses) on available-for-sale investments, tax $ 0 $ (1) $ 0 $ (6)
v3.20.2
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY - USD ($)
$ in Thousands
Total
Common Stock
Class A Common
Common Stock
Class B Common
Treasury Stock
Additional Paid-in Capital
Retained Earnings
Accumulated Other Comprehensive (Loss) Income
Cumulative Effect, Period of Adoption, Adjustment
Cumulative Effect, Period of Adoption, Adjustment
Retained Earnings
Beginning balance (in shares) at Dec. 31, 2018   86,679,575 80,608,685 (14,620,175)          
Beginning balance at Dec. 31, 2018 $ 682,589 $ 0 $ 1 $ (199,817) $ 618,674 $ 270,471 $ (6,740)    
Increase (Decrease) in Stockholders' Equity [Roll Forward]                  
Stock-based compensation expense 5,163       5,163        
Conversion Class B to Class A common stock (in shares)   460,000 (460,000)            
Issuance of shares related to restricted stock units and awards, net of forfeitures (in shares)   759,409              
Shares withheld for employee taxes upon conversion of restricted stock (in shares)   (82,978)              
Shares withheld for employee taxes upon conversion of restricted stock (1,086)       (1,086)        
Other comprehensive income (loss) (8,054)           (8,054)    
Net income (loss) (8,323)         (8,323)      
Ending balance (in shares) at Mar. 31, 2019   87,816,006 80,148,685 (14,620,175)          
Ending balance at Mar. 31, 2019 670,289 $ 0 $ 1 $ (199,817) 622,751 262,148 (14,794)    
Beginning balance (in shares) at Dec. 31, 2018   86,679,575 80,608,685 (14,620,175)          
Beginning balance at Dec. 31, 2018 682,589 $ 0 $ 1 $ (199,817) 618,674 270,471 (6,740)    
Increase (Decrease) in Stockholders' Equity [Roll Forward]                  
Net income (loss) (3,785)                
Ending balance (in shares) at Jun. 30, 2019   88,549,955 80,287,495 (14,620,175)          
Ending balance at Jun. 30, 2019 666,134 $ 0 $ 1 $ (199,817) 625,908 266,686 (26,644)    
Beginning balance (in shares) at Mar. 31, 2019   87,816,006 80,148,685 (14,620,175)          
Beginning balance at Mar. 31, 2019 670,289 $ 0 $ 1 $ (199,817) 622,751 262,148 (14,794)    
Increase (Decrease) in Stockholders' Equity [Roll Forward]                  
Stock-based compensation expense 2,740       2,740        
Exercise of stock options (in shares)   85,038 139,270            
Exercise of stock options 1,817       1,817        
Conversion Class B to Class A common stock (in shares)   460 (460)            
Issuance of shares related to restricted stock units and awards, net of forfeitures (in shares)   753,800              
Shares withheld for employee taxes upon conversion of restricted stock (in shares)   (105,349)              
Shares withheld for employee taxes upon conversion of restricted stock (1,400)       (1,400)        
Other comprehensive income (loss) (11,850)           (11,850)    
Net income (loss) 4,538         4,538      
Ending balance (in shares) at Jun. 30, 2019   88,549,955 80,287,495 (14,620,175)          
Ending balance at Jun. 30, 2019 $ 666,134 $ 0 $ 1 $ (199,817) 625,908 266,686 (26,644)    
Accounting Standards Update [Extensible List] us-gaap:AccountingStandardsUpdate201613Member                
Beginning balance (in shares) at Dec. 31, 2019   90,327,728 79,369,411 (14,620,175)          
Beginning balance at Dec. 31, 2019 $ 688,159 $ 1 $ 0 $ (199,817) 636,461 278,246 (26,732) $ 65 $ 65
Increase (Decrease) in Stockholders' Equity [Roll Forward]                  
Stock-based compensation expense 7,164       7,164        
Exercise of stock options (in shares)   23,183              
Exercise of stock options 183       183        
Conversion Class B to Class A common stock (in shares)   98,550 (98,550)            
Issuance of shares related to restricted stock units and awards, net of forfeitures (in shares)   574,082              
Shares withheld for employee taxes upon conversion of restricted stock (in shares)   (148,071)              
Shares withheld for employee taxes upon conversion of restricted stock (2,947)       (2,947)        
Other comprehensive income (loss) (24,200)           (24,200)    
Net income (loss) (1,683)         (1,683)      
Ending balance (in shares) at Mar. 31, 2020   90,875,472 79,270,861 (14,620,175)          
Ending balance at Mar. 31, 2020 666,741 $ 1 $ 0 $ (199,817) 640,861 276,628 (50,932)    
Beginning balance (in shares) at Dec. 31, 2019   90,327,728 79,369,411 (14,620,175)          
Beginning balance at Dec. 31, 2019 688,159 $ 1 $ 0 $ (199,817) 636,461 278,246 (26,732) $ 65 $ 65
Increase (Decrease) in Stockholders' Equity [Roll Forward]                  
Net income (loss) 342                
Ending balance (in shares) at Jun. 30, 2020   90,709,951 79,270,861 (14,620,175)          
Ending balance at Jun. 30, 2020 671,536 $ 1 $ 0 $ (199,817) 646,455 278,653 (53,756)    
Beginning balance (in shares) at Mar. 31, 2020   90,875,472 79,270,861 (14,620,175)          
Beginning balance at Mar. 31, 2020 666,741 $ 1 $ 0 $ (199,817) 640,861 276,628 (50,932)    
Increase (Decrease) in Stockholders' Equity [Roll Forward]                  
Stock-based compensation expense 7,757       7,757        
Exercise of stock options (in shares)   0              
Exercise of stock options 0       0        
Conversion Class B to Class A common stock (in shares)   0 0            
Issuance of shares related to restricted stock units and awards, net of forfeitures (in shares)   (40,849)              
Shares withheld for employee taxes upon conversion of restricted stock (in shares)   (124,672)              
Shares withheld for employee taxes upon conversion of restricted stock (2,163)       (2,163)        
Other comprehensive income (loss) (2,824)           (2,824)    
Net income (loss) 2,025         2,025      
Ending balance (in shares) at Jun. 30, 2020   90,709,951 79,270,861 (14,620,175)          
Ending balance at Jun. 30, 2020 $ 671,536 $ 1 $ 0 $ (199,817) $ 646,455 $ 278,653 $ (53,756)    
v3.20.2
CONSOLIDATED STATEMENTS OF CASH FLOWS - USD ($)
$ in Thousands
6 Months Ended
Jun. 30, 2020
Jun. 30, 2019
Cash flows from operating activities:    
Net income (loss) $ 342 $ (3,785)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:    
Stock-based compensation expense 15,121 8,021
Depreciation 30,766 28,234
Amortization of intangibles 27,800 26,233
Amortization of debt issuance costs and debt discount 2,338 2,155
Deferred income taxes (2,139) (1,836)
Change in fair value of contingent consideration 3 517
Other 1,008 1,703
Changes in assets and liabilities:    
Accounts receivable (2,293) (12,351)
Prepaid expenses and other current assets (110) (1,634)
Income taxes receivable (2,517) 5,239
Other assets (1,458) (3,552)
Accounts payable and accrued expenses 3,649 2,432
Accrued compensation (6,533) (4,105)
Other current and non-current liabilities (3,158) (6,665)
Deferred revenue 472 (694)
Payment for acquisition-related contingent consideration (160) 0
Net cash provided by operating activities 63,131 39,912
Cash flows from investing activities:    
Maturities of short-term investments 0 6,464
Purchases of property and equipment (12,787) (8,510)
Investment in capitalized software (22,677) (16,776)
Purchase of intangible assets (10,819) 0
Net cash used in investing activities (46,283) (18,822)
Cash flows from financing activities:    
Proceeds from credit facility borrowings 99,000 0
Repayment of credit facility borrowings (103,900) (4,900)
Payments for debt issuance costs (1,000) 0
Proceeds from exercise of stock options 183 1,817
Finance lease liabilities paid (1,331) (1,262)
Tax payments for equity award issuances 5,110 2,486
Payment for acquisition-related contingent consideration (2,173) 0
Net cash used in financing activities (14,331) (6,831)
Increase in cash and cash equivalents 2,517 14,259
Cash and cash equivalents, beginning of period 93,094 115,591
Cash and cash equivalents, end of period 95,611 129,850
Supplemental cash flow disclosure:    
Income taxes paid (received), net 352 (5,254)
Interest paid 26,994 31,465
Non-cash transactions:    
Accruals for purchases of property and equipment 3,559 893
Accruals for investment in capitalized software 773 1,427
Leasehold improvements paid by lessor $ 305 $ 0
v3.20.2
BASIS OF PRESENTATION
6 Months Ended
Jun. 30, 2020
Organization, Consolidation and Presentation of Financial Statements [Abstract]  
BASIS OF PRESENTATION BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements have been prepared by Inovalon Holdings, Inc. (“Inovalon” or the “Company”) in accordance with accounting principles generally accepted in the United States (“GAAP”) for interim financial reporting and as required by Rule 10-01 of Regulation S-X. Accordingly, the unaudited consolidated financial statements may not include all of the information and notes required by GAAP for audited financial statements. The year-end December 31, 2019 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 consolidated financial statements contain all adjustments, consisting of items of a normal and recurring nature, necessary to present fairly the Company’s financial position as of June 30, 2020, the results of operations, comprehensive income (loss), and stockholders’ equity for the three and six-month periods ended June 30, 2020 and 2019 and cash flows for the six month period ended June 30, 2020 and 2019. The results of operations for the three and six month periods ended June 30, 2020 and 2019 are not necessarily indicative of the results to be expected for the full year. The preparation of consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts of assets and liabilities, 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, 2019 (the “2019 Form 10-K”).
The accompanying unaudited consolidated financial statements include the accounts of Inovalon and its wholly owned subsidiaries. All intercompany accounts and transactions have been eliminated in consolidation.
The Company’s management considers events or transactions that occur after the balance sheet date but before the financial statements are issued to provide additional evidence relative to certain estimates or to identify matters that require additional disclosure. Subsequent events have been evaluated through the date of issuance of these financial statements.
Recently Adopted Accounting Standards
In June 2016, the FASB issued ASU 2016-13, Financial Instruments–Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments and subsequent clarifying guidance (“ASU 2016-13”). ASU 2016-13 replaced the incurred loss impairment method with a methodology that reflects the amortized cost basis net of expected credit losses that are calculated based on certain relevant information. The standard also amended the credit loss guidance for available-for-sale debt securities and requires the measurement and recognition of an expected allowance for credit losses for financial assets held at amortized cost. The Company adopted the requirements of the new standard on January 1, 2020 using the modified-retrospective approach and there was no material impact on the Company’s consolidated financial statements and notes disclosures.
In determining the estimate for expected credit losses, each quarter the Company evaluates historical loss rates for its trade receivables and unbilled receivables balance using an aging method and loss rate method and applies management judgment to determine the expected collectability of receivables. The Company considers various factors including historical invoice data, historical payment data, and days sales outstanding and considers other events that could impact future collectability. Additionally, the Company considers current economic conditions that could impact clients. While there may be fluctuations in macro-economic trends and regulatory changes, the Company believes historical trends are representative of collectability. Clients represent payer, pharmaceutical, and life science companies, along with provider networks. Due to the short-term nature of the Company’s standard payment terms and the low risk profile of clients the risk of loss reflects historical experience.
In the circumstance where a receivable is deemed uncollectable, the Company will reduce the allowance for expected credit loss by the same amount of the portion of the receivable being written off. As there is no standard definition for when a receivable is deemed uncollectable, the Company will use judgment to determine when all efforts of collection have been exhausted. If the Company subsequently receives consideration for a receivable that was previously written off, the Company would increase earnings by crediting credit loss expense.
In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework–Changes to the Requirements for Fair Value Measurement. This update changes the fair value measurement disclosure requirements of ASC 820. The standard consists of removals, modifications, and additions to the existing disclosure requirements. The Company adopted the requirements of the new standard on January 1, 2020 and there was no material impact on the Company’s notes disclosures. Refer to “Note 6—Fair Value Measurements.”
In August 2018, the FASB issued ASU 2018-15, Intangibles—Goodwill and Other— Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract. This update aligns the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract
with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software. The standard requires that an entity in a hosting arrangement that is a service contract to follow the guidance in Subtopic 350-40 to determine which implementation costs to capitalize as an asset related to the service contract and which costs to expense. This guidance is effective for public companies for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019. The Company adopted the requirements of the new standard on January 1, 2020 and there was no material impact on the Company’s consolidated financial statements and notes disclosures.
In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes. This update removes certain exceptions and provides additional requirements that simplify the accounting for income taxes. This guidance is effective for public companies for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2020. Early adoption of the standard is permitted. The Company adopted the requirements of the new standard on January 1, 2020 and there was no material impact on the Company’s consolidated financial statements and notes disclosures.
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 2019 Form 10-K, that would be expected to impact the Company except for the following:
In March 2020, FASB issued ASU 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting (“ASU 2020-04”). ASU 2020-04 provides optional expedients and exceptions to simplify the accounting for contracts, hedging relationships, and other transactions affected by reference rate reform that meet certain criteria. The standard is applicable to contract modifications and hedging relationships entered into prior to or existing as of December 31, 2022 and allows for elections to be made at different points in time. During the first quarter of 2020, the Company elected to adopt the guidance in 848-50-25-2 to assert probability of the hedged interest transaction regardless of any expected modification in terms related to reference rate reform and applied the expedient in ASC 848-50-35-17 through 35-18 in assessing hedge effectiveness. The Company plans to adopt the remaining expedients as applicable when contracts are modified and will continue to evaluate the timing of adoption and impact on its consolidated financial statements.
v3.20.2
REVENUE
6 Months Ended
Jun. 30, 2020
Revenue from Contract with Customer [Abstract]  
REVENUE REVENUE
The Company primarily derives its revenues through the sale or subscription licensing of its platform solutions and services. The following table disaggregates revenue by offering (in thousands):
 
Three Months Ended
June 30,
 
Six Months Ended
June 30,
 
2020
 
2019
 
2020
 
2019
Platform solutions(1)
$
147,148

 
$
140,289

 
$
287,765

 
$
270,241

Services(2)
15,067

 
16,688

 
28,637

 
32,227

Total revenue
$
162,215

 
$
156,977

 
$
316,402

 
$
302,468

______________________________________
(1)
Platform solutions include arrangements for technology-based offerings representing subscription-based cloud-based platform offerings and legacy platform solutions that are not cloud-based and not billed under a subscription-based contract structure.
(2)
Services include advisory, implementation, and support services under time and materials, fixed price, or retainer-based contracts.
Contract Balances
The Company had an unbilled receivables balance of $33.7 million and $36.0 million as of June 30, 2020 and December 31, 2019, respectively. The decrease in the unbilled receivables balance was due to the timing of billings. Unbilled receivables are classified as accounts receivable on the consolidated balance sheet. The Company had deferred commissions of $15.0 million and $11.8 million as of June 30, 2020 and December 31, 2019, respectively. The Company had a deferred contract asset balance of $13.0 million and $5.8 million as of June 30, 2020 and December 31, 2019, respectively. Short-term and long-term deferred commissions and deferred contract assets are classified as prepaid expenses and other current assets and other assets on the consolidated balance sheet, respectively.
The Company had a deferred revenue balance of $15.0 million and $13.7 million, which is presented net of certain contract assets of $8.7 million and $11.4 million, as of June 30, 2020 and December 31, 2019, respectively. Revenue recognized during the three and six months ended June 30, 2020 that was included in the deferred revenue balance at the beginning of the year was $6.9 million and $14.4 million, respectively.
v3.20.2
NET INCOME (LOSS) PER SHARE
6 Months Ended
Jun. 30, 2020
Earnings Per Share [Abstract]  
NET INCOME (LOSS) PER SHARE NET INCOME (LOSS) 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 (loss) by the weighted average number of shares of common stock (Class A common stock and Class B common stock) outstanding during the period. Diluted EPS is computed by dividing net income by the sum of the weighted average number of shares of common stock outstanding and potentially dilutive securities outstanding during the period under the treasury stock method. If the Company incurs a loss from continuing operations, diluted EPS is computed in the same manner as basic EPS. Potentially dilutive securities include stock options, restricted stock units (“RSUs”) and restricted stock awards (“RSAs”). Under the treasury stock method, dilutive securities are assumed to be exercised at the beginning of the periods and as if funds obtained thereby were used to purchase common stock at the average market price during the period. Securities are excluded from the computations of diluted earnings per share if their effect would be anti-dilutive to EPS.
On February 18, 2015, the date of the completion of the Company’s IPO, the Company’s 2015 Omnibus Incentive Plan (the “2015 Plan”) became effective. The 2015 Plan provided for the grant of incentive stock options, within the meaning of Section 422 of the Internal Revenue Code of 1986, as amended (the “Code”), to the Company’s employees and any parent and subsidiary employees, and for the grant of non-qualified stock options, stock appreciation rights, restricted stock, RSAs, RSUs, dividend equivalent rights, cash-based awards (including annual cash incentives and long-term cash incentives), and any combination thereof to the Company’s employees, directors, and consultants and to employees, directors, and consultants of certain affiliated entities. At the Company’s annual meeting of stockholders held on June 5, 2019, the Company’s stockholders, upon the recommendation of the Board of Directors of the Company (the “Board”), approved the Amended and Restated 2015 Omnibus Incentive Plan (the “Amended Plan”), which was previously adopted by the Board on February 14, 2019, subject to the approval by the stockholders. The Amended Plan (i) increases the maximum number of shares of the Company’s Class A common stock available for issuance by 6,000,000 shares to a total of 13,335,430; (ii) removes the provisions regarding Section 162(m) of the Code that are no longer relevant due to recent changes to the Code pursuant to the Tax Cuts and Jobs Act of 2017, which eliminated the “performance-based compensation” exception to the deduction limitation under Section 162(m) of the Code; and (iii) extends the term of the Amended Plan until the tenth anniversary of the date of Board approval of the Amended Plan.
The Company has issued RSAs under the Amended 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 (loss) per share of Class A and Class B common stock. Under the two-class method, net income attributable to common stockholders is determined by allocating undistributed earnings, calculated as net income, less earnings attributable to participating securities. The net income per share attributable to common stockholders is allocated based on the contractual participation rights of the Class A common stock and Class B common stock as if the income for the period has been distributed. As the liquidation and dividend rights are identical for both classes of common stock, the net income attributable to common stockholders is allocated on a proportionate basis. If the Company incurs a loss from continuing operations, losses are not allocated to participating securities.
The following table reconciles the weighted average shares outstanding for basic and diluted EPS for the periods indicated (in thousands, except per share amounts):
 
Three Months Ended
June 30,
 
Six Months Ended
June 30,
 
2020
 
2019
 
2020
 
2019
Basic
 

 
 

 
 
 
 
Numerator:
 

 
 

 
 
 
 
Net income (loss)
$
2,025

 
$
4,538

 
$
342

 
$
(3,785
)
Undistributed earnings allocated to participating securities
(61
)
 
(135
)
 
(11
)
 

Net income (loss) attributable to common stockholders—basic
$
1,964

 
$
4,403

 
$
331

 
$
(3,785
)
Denominator:
 

 
 

 
 
 
 
Weighted average shares used in computing net income (loss) per share attributable to common stockholders—basic
149,517

 
148,136

 
149,350

 
147,956

Net income (loss) per share attributable to common stockholders—basic
$
0.01

 
$
0.03

 
$

 
$
(0.03
)
Diluted
 

 
 

 
 
 
 
Numerator:
 

 
 

 
 
 
 
Net income (loss) attributable to common stockholders—diluted
$
1,964

 
$
4,403

 
$
331

 
$
(3,785
)
Denominator:
 

 
 

 
 
 
 
Number of shares used for basic EPS computation
149,517

 
148,136

 
149,350

 
147,956

Effect of dilutive securities
168

 
342

 
171

 

Weighted average shares used in computing net income (loss) per share attributable to common stockholders—diluted
149,685

 
148,478

 
149,521

 
147,956

Net income (loss) per share attributable to common stockholders—diluted
$
0.01

 
$
0.03

 
$

 
$
(0.03
)

The computation of diluted EPS does not include certain awards, on a weighted average basis, because their inclusion would have an anti-dilutive effect on EPS. The awards excluded because of their anti-dilutive effect are as follows (in thousands):
 
Three Months Ended
June 30,
 
Six Months Ended
June 30,
 
2020
 
2019
 
2020
 
2019
Awards excluded from the computation of diluted net income (loss) per share because their inclusion would have been anti-dilutive

 
5

 

 
5


v3.20.2
LEASES
6 Months Ended
Jun. 30, 2020
Leases [Abstract]  
LEASES LEASES
The Company determines whether a contract is or contains a lease at inception. At the lease commencement date, the Company records a liability for the lease obligation and a corresponding asset representing the right to use the underlying asset over the lease term. Leases with an initial term of 12 months or less are not recorded on the consolidated balance sheet and are recognized in expense using a straight-line basis for all asset classes. Variable lease payments are expensed as incurred, which primarily include maintenance costs, services provided by the lessor, and other charges reimbursed to the lessor. 
The Company leases office space, data center facilities, printers, and equipment with remaining lease terms ranging from one year to twelve years, some of which contain renewal or purchase options. The exercise of these options is at the Company’s sole discretion. The Company has entered into sublease agreements for unoccupied leased office space and records sublease income netted against rent expense. Additionally, the Company is required to maintain a standby letter of credit in the amount of $1.0 million to satisfy the requirements of a certain lease agreement.
Certain of the Company’s leases contain lease and non-lease components. The Company has elected the practical expedient under ASC 842-10-15-37 for all asset classes which allows companies to account for lease and non-lease components as a single lease component.
The Company’s leases do not contain an implicit rate of return, therefore an incremental borrowing rate was determined. The Company assessed which rate would be most reflective of a reasonable rate the Company would be able to borrow based on asset class and lease term.
Finance lease right-of-use assets of $24.1 million are included in property, equipment, and capitalized software, net on the consolidated balance sheet.
The following table presents components of lease expense for the three and six months ended June 30, 2020 and June 30, 2019 (in thousands):
 
Three Months Ended
June 30,
 
Six Months Ended
June 30,
 
2020
 
2019
 
2020
 
2019
Finance lease cost
 
 
 
 
 
 
 
Amortization of right-of-use assets
$
1,261

 
$
491

 
$
1,753

 
$
1,041

Interest on lease liabilities
274

 
127

 
381

 
261

Operating lease cost
2,545

 
3,502

 
5,263

 
5,613

Variable lease cost
373

 
469

 
776

 
963

Sublease income
(213
)
 
(317
)
 
(344
)
 
(634
)
Total lease cost
$
4,240

 
$
4,272

 
$
7,829

 
$
7,244


Supplemental cash flow information related to leases for the six months ended June 30, 2020 and June 30, 2019 are as follows (in thousands):
 
Six Months Ended
June 30,
 
2020
 
2019
Cash paid for amounts included in the measurement of lease liabilities:
 
 
 
Operating cash flows for operating leases
$
5,075

 
$
6,989

Operating cash flows for financing leases
472

 
260

Financing cash flows for financing leases
1,331

 
1,262

Right-of-use assets obtained in exchange for lease liabilities1:
 
 
 
Operating leases
$
(8,017
)
 
$
20,800

Finance leases
10,785

 
20


______________________________________
(1)
During the second quarter of 2020, the Company executed an amendment to an existing lease agreement resulting in the reclassification of certain lease components from an operating lease to a finance lease. As such, the Company recorded an adjustment to reduce the operating lease liability and the corresponding operating lease right-of-use asset and increase the finance lease liability and corresponding finance lease right-of-use asset.
Supplemental balance sheet information related to leases as of June 30, 2020 and December 31, 2019 are as follows:
 
June 30,
2020
 
December 31,
2019
Weighted average remaining lease term:
 
 
 
Operating leases
3 years

 
5 years

Financing leases
8 years

 
8 years

Weighted average discount rate:
 
 
 
Operating leases
4.4
%
 
4.7
%
Financing leases
3.1
%
 
3.1
%

LEASES LEASES
The Company determines whether a contract is or contains a lease at inception. At the lease commencement date, the Company records a liability for the lease obligation and a corresponding asset representing the right to use the underlying asset over the lease term. Leases with an initial term of 12 months or less are not recorded on the consolidated balance sheet and are recognized in expense using a straight-line basis for all asset classes. Variable lease payments are expensed as incurred, which primarily include maintenance costs, services provided by the lessor, and other charges reimbursed to the lessor. 
The Company leases office space, data center facilities, printers, and equipment with remaining lease terms ranging from one year to twelve years, some of which contain renewal or purchase options. The exercise of these options is at the Company’s sole discretion. The Company has entered into sublease agreements for unoccupied leased office space and records sublease income netted against rent expense. Additionally, the Company is required to maintain a standby letter of credit in the amount of $1.0 million to satisfy the requirements of a certain lease agreement.
Certain of the Company’s leases contain lease and non-lease components. The Company has elected the practical expedient under ASC 842-10-15-37 for all asset classes which allows companies to account for lease and non-lease components as a single lease component.
The Company’s leases do not contain an implicit rate of return, therefore an incremental borrowing rate was determined. The Company assessed which rate would be most reflective of a reasonable rate the Company would be able to borrow based on asset class and lease term.
Finance lease right-of-use assets of $24.1 million are included in property, equipment, and capitalized software, net on the consolidated balance sheet.
The following table presents components of lease expense for the three and six months ended June 30, 2020 and June 30, 2019 (in thousands):
 
Three Months Ended
June 30,
 
Six Months Ended
June 30,
 
2020
 
2019
 
2020
 
2019
Finance lease cost
 
 
 
 
 
 
 
Amortization of right-of-use assets
$
1,261

 
$
491

 
$
1,753

 
$
1,041

Interest on lease liabilities
274

 
127

 
381

 
261

Operating lease cost
2,545

 
3,502

 
5,263

 
5,613

Variable lease cost
373

 
469

 
776

 
963

Sublease income
(213
)
 
(317
)
 
(344
)
 
(634
)
Total lease cost
$
4,240

 
$
4,272

 
$
7,829

 
$
7,244


Supplemental cash flow information related to leases for the six months ended June 30, 2020 and June 30, 2019 are as follows (in thousands):
 
Six Months Ended
June 30,
 
2020
 
2019
Cash paid for amounts included in the measurement of lease liabilities:
 
 
 
Operating cash flows for operating leases
$
5,075

 
$
6,989

Operating cash flows for financing leases
472

 
260

Financing cash flows for financing leases
1,331

 
1,262

Right-of-use assets obtained in exchange for lease liabilities1:
 
 
 
Operating leases
$
(8,017
)
 
$
20,800

Finance leases
10,785

 
20


______________________________________
(1)
During the second quarter of 2020, the Company executed an amendment to an existing lease agreement resulting in the reclassification of certain lease components from an operating lease to a finance lease. As such, the Company recorded an adjustment to reduce the operating lease liability and the corresponding operating lease right-of-use asset and increase the finance lease liability and corresponding finance lease right-of-use asset.
Supplemental balance sheet information related to leases as of June 30, 2020 and December 31, 2019 are as follows:
 
June 30,
2020
 
December 31,
2019
Weighted average remaining lease term:
 
 
 
Operating leases
3 years

 
5 years

Financing leases
8 years

 
8 years

Weighted average discount rate:
 
 
 
Operating leases
4.4
%
 
4.7
%
Financing leases
3.1
%
 
3.1
%

v3.20.2
DEBT
6 Months Ended
Jun. 30, 2020
Debt Disclosure [Abstract]  
DEBT DEBT
On April 2, 2018, the Company entered into a credit agreement (the “2018 Credit Agreement”) with a group of lenders and Morgan Stanley Senior Funding, Inc. (“MSSF”), as administrative agent, providing for (i) a term loan B facility with the Company as borrower in a total principal amount of $980.0 million (the “2018 Term Facility”); and (ii) a revolving credit facility with the Company as borrower in a total principal amount of up to $100.0 million (the “2018 Revolving Facility” and, together with the 2018 Term Facility, the “2018 Credit Facilities”). The 2018 Revolving Facility will terminate on April 2, 2023 and the 2018 Term Facility will mature on April 2, 2025. On March 16, 2020, the Company utilized an existing revolving facility to borrow $99.0 million on its 2018 Revolving Facility to ensure the availability of sufficient capital to deploy opportunistically from time to time, in light of unprecedented conditions due to the COVID-19 outbreak. The Company voluntarily repaid the full balance of the 2018 Revolving Facility and remaining interest on June 4, 2020. As of June 30, 2020, the Company had $100.0 million available to it consisting of $99.0 million on the 2018 Revolving Facility and a letter of credit of $1.0 million.
On February 11, 2020, the Company executed an amendment to the 2018 Credit Agreement to reprice the applicable interest rate margins on the 2018 Credit Facilities, resulting in a decrease to the applicable interest rate margin by 50 basis points to 3.00% with an additional 25 basis point reduction upon achievement of a defined senior secured net leverage ratio. Other material provisions under the 2018 Credit Agreement, including covenants, the maturity date of April 2, 2025, with respect to the 2018 Term Facility, and April 2, 2023, with respect to the 2018 Revolving Facility, and amount of debt available to the Company, remained unchanged by the repricing amendment.
At the option of the Company, the loans outstanding under the 2018 Term Facility will bear interest either at: (i) Adjusted LIBOR plus an applicable rate of 3.00% or (ii) the Alternate Base Rate (“ABR”) plus an applicable margin. The Company may elect interest periods of one, two, three or six months for Adjusted LIBOR borrowings. As set forth in the 2018 Credit Agreement, the ABR is the higher of: (i) the rate that MSSF as administrative agent announces from time to time as its prime or base commercial lending rate, as in effect from time to time, (ii) the Federal Funds Effective Rate plus ½ of 1.0% and (iii) one-month Adjusted LIBOR plus 1.0%.
The following table discloses the outstanding debt at each balance date as follows (in thousands):
 
June 30,
2020
 
December 31,
2019
2018 Term Facility(1)
$
890,073

 
$
893,737

Less: current portion
9,800

 
9,800

Non-current Credit Facilities
$
880,273

 
$
883,937

______________________________________
(1)
The 2018 Term Facility is presented net of unamortized deferred financing fees and original issue discount (“OID”) of $22.8 million and $24.0 million as of June 30, 2020 and December 31, 2019, respectively.
The Company and its Restricted Subsidiaries (as defined in the 2018 Credit Agreement) are subject to certain affirmative and negative covenants under the 2018 Credit Agreement, and the 2018 Credit Agreement includes certain customary representations and warranties of the Company. As of June 30, 2020, the Company is in compliance with the covenants under the 2018 Credit Agreement.
v3.20.2
FAIR VALUE MEASUREMENTS
6 Months Ended
Jun. 30, 2020
Fair Value Disclosures [Abstract]  
FAIR VALUE MEASUREMENTS FAIR VALUE MEASUREMENTS
The following table presents the fair value hierarchy for financial assets and liabilities measured at fair value on a recurring basis as of June 30, 2020 (in thousands):
 
Level 1
 
Level 2
 
Level 3
 
Total
Cash equivalents:
 

 
 

 
 

 
 

Money market funds
$
42,084

 
$

 
$

 
$
42,084

Other current liabilities:
 

 
 

 
 

 
 

Interest rate swaps

 
(18,608
)
 

 
(18,608
)
Contingent consideration

 

 
(10,636
)
 
(10,636
)
Other liabilities:
 
 
 
 
 
 
 
Interest rate swaps

 
(60,446
)
 

 
(60,446
)
Contingent consideration

 

 
(3,824
)
 
(3,824
)
Total
$
42,084

 
$
(79,054
)
 
$
(14,460
)
 
$
(51,430
)
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, 2019 (in thousands):
 
Level 1
 
Level 2
 
Level 3
 
Total
Cash equivalents:
 

 
 

 
 

 
 

Money market funds
$
41,933

 
$

 
$

 
$
41,933

Other current liabilities:
 

 
 

 
 

 
 

Interest rate swaps

 
(8,354
)
 

 
(8,354
)
Contingent consideration

 

 
(3,719
)
 
(3,719
)
Other liabilities:
 
 
 
 
 
 
 
Interest rate swaps

 
(30,957
)
 

 
(30,957
)
Contingent consideration

 

 
(13,071
)
 
(13,071
)
Total
$
41,933

 
$
(39,311
)
 
$
(16,790
)
 
$
(14,168
)

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 financial instruments measured at fair value using unobservable inputs (Level 3) (in thousands):
 
Fair Value Measurements Using
Unobservable Inputs
(Level 3)
 
June 30,
2020
 
December 31,
2019
Balance, beginning of period
$
(16,790
)
 
$
(31,824
)
Fair value adjustment(1)
106

 
532

Accretion expense (recognized in general and administrative expenses)
(109
)
 
(647
)
Settlement of liability
2,333

 
15,149

Total
$
(14,460
)
 
$
(16,790
)
______________________________________
(1)
During 2019, the Company recognized an adjustment of $0.8 million in general and administrative expenses related to the change in fair value of contingent consideration, partially offset by an adjustment of $0.3 million recognized in goodwill, which was a purchase accounting adjustment attributable to the ABILITY Acquisition.
2018 Credit Facilities
The Company records debt on the balance sheet at carrying value. The estimated fair value of the Company’s debt is determined based on Level 2 inputs including current market rates for similar types of borrowings. The following table presents the carrying value and fair value of the Company’s debt (including the current portion thereof) as of June 30, 2020 (in thousands):
 
June 30,
2020
Carrying value
$
890,073

Fair value
$
861,146


Interest Rate Swaps
In connection with the 2018 Credit Agreement, the Company entered into four interest rate swaps during the second quarter of 2018, each of which mature in March 2025, to mitigate the risk of a rise in interest rates. These interest rate swaps mitigate the exposure on the variable component of interest on the Company’s 2018 Credit Facility. The interest rate swaps fix the LIBOR component of interest on $700.0 million of the 2018 Term Facility at a weighted average rate of approximately 2.8%. See “Note 5—Debt” for additional information. These interest rate swaps are designated as cash flow hedges and are deemed highly effective under ASC 815, Derivatives and Hedging.
The interest rate swaps are recorded on the balance sheet at fair value as either assets or liabilities and any changes to the fair value are recorded through accumulated other comprehensive income and reclassified into interest expense in the same period in which the hedged transaction is recognized in earnings. Cash flows from interest rate swaps are reported in the same category as the cash flows from the items being hedged.
The following table presents the fair value of interest rate swaps on the balance sheet as of June 30, 2020 (in thousands):
 
Liability Derivative
 
Balance Sheet Location
 
Fair Value
Interest rate swap contract
Other current liabilities
 
$
(18,608
)
Interest rate swap contract
Other liabilities
 
$
(60,446
)

The following table presents the fair value of interest rate swaps on the balance sheet as of December 31, 2019 (in thousands):
 
Liability Derivative
 
Balance Sheet Location
 
Fair Value
Interest rate swap contract
Other current liabilities
 
$
(8,354
)
Interest rate swap contract
Other liabilities
 
$
(30,957
)

The following table presents the location and amount of gains and losses on interest rate swaps included in other comprehensive income (“OCI”) and the statement of operations for the three and six months ended June 30, 2020 and 2019 (in thousands):
Three Months Ended June 30, 2020
 
Gain (Loss) recognized in OCI
 
Statement of Operations Location
 
(Gain) Loss reclassified from OCI
Interest rate swap contract
 
$
(8,194
)
 
Interest expense
 
$
4,040

Six Months Ended June 30, 2020
 
Gain (Loss) recognized in OCI
 
Statement of Operations Location
 
(Gain) Loss reclassified from OCI
Interest rate swap contract
 
$
(45,909
)
 
Interest expense
 
$
6,167

Three Months Ended June 30, 2019
 
Gain (Loss) recognized in OCI
 
Statement of Operations Location
 
(Gain) Loss reclassified from OCI
Interest rate swap contract
 
$
(18,059
)
 
Interest expense
 
$
602

Six Months Ended June 30, 2019
 
Gain (Loss) recognized in OCI
 
Statement of Operations Location
 
(Gain) Loss reclassified from OCI
Interest rate swap contract
 
$
(30,467
)
 
Interest expense
 
$
1,131


The net amount of accumulated other comprehensive loss expected to be reclassified to interest expense in the next 12 months is $18.7 million.
v3.20.2
COMMITMENTS AND CONTINGENCIES
6 Months Ended
Jun. 30, 2020
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 consolidated financial statements of the Company.
There have been no significant or material developments to current legal proceedings, including the estimated effects on the Company’s consolidated financial statements and note disclosures, subsequent to the disclosure previously provided in Note 11 of the Notes to the Consolidated Financial Statements in the 2019 Form 10-K.
v3.20.2
BASIS OF PRESENTATION (Policies)
6 Months Ended
Jun. 30, 2020
Organization, Consolidation and Presentation of Financial Statements [Abstract]  
Basis of Presentation
The accompanying unaudited consolidated financial statements have been prepared by Inovalon Holdings, Inc. (“Inovalon” or the “Company”) in accordance with accounting principles generally accepted in the United States (“GAAP”) for interim financial reporting and as required by Rule 10-01 of Regulation S-X. Accordingly, the unaudited consolidated financial statements may not include all of the information and notes required by GAAP for audited financial statements. The year-end December 31, 2019 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 consolidated financial statements contain all adjustments, consisting of items of a normal and recurring nature, necessary to present fairly the Company’s financial position as of June 30, 2020, the results of operations, comprehensive income (loss), and stockholders’ equity for the three and six-month periods ended June 30, 2020 and 2019 and cash flows for the six month period ended June 30, 2020 and 2019. The results of operations for the three and six month periods ended June 30, 2020 and 2019 are not necessarily indicative of the results to be expected for the full year. The preparation of consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts of assets and liabilities, 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, 2019 (the “2019 Form 10-K”).
The accompanying unaudited consolidated financial statements include the accounts of Inovalon and its wholly owned subsidiaries. All intercompany accounts and transactions have been eliminated in consolidation.
The Company’s management considers events or transactions that occur after the balance sheet date but before the financial statements are issued to provide additional evidence relative to certain estimates or to identify matters that require additional disclosure. Subsequent events have been evaluated through the date of issuance of these financial statements.
Recently Adopted Accounting Standards and Recently Issued Accounting Standards
Recently Adopted Accounting Standards
In June 2016, the FASB issued ASU 2016-13, Financial Instruments–Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments and subsequent clarifying guidance (“ASU 2016-13”). ASU 2016-13 replaced the incurred loss impairment method with a methodology that reflects the amortized cost basis net of expected credit losses that are calculated based on certain relevant information. The standard also amended the credit loss guidance for available-for-sale debt securities and requires the measurement and recognition of an expected allowance for credit losses for financial assets held at amortized cost. The Company adopted the requirements of the new standard on January 1, 2020 using the modified-retrospective approach and there was no material impact on the Company’s consolidated financial statements and notes disclosures.
In determining the estimate for expected credit losses, each quarter the Company evaluates historical loss rates for its trade receivables and unbilled receivables balance using an aging method and loss rate method and applies management judgment to determine the expected collectability of receivables. The Company considers various factors including historical invoice data, historical payment data, and days sales outstanding and considers other events that could impact future collectability. Additionally, the Company considers current economic conditions that could impact clients. While there may be fluctuations in macro-economic trends and regulatory changes, the Company believes historical trends are representative of collectability. Clients represent payer, pharmaceutical, and life science companies, along with provider networks. Due to the short-term nature of the Company’s standard payment terms and the low risk profile of clients the risk of loss reflects historical experience.
In the circumstance where a receivable is deemed uncollectable, the Company will reduce the allowance for expected credit loss by the same amount of the portion of the receivable being written off. As there is no standard definition for when a receivable is deemed uncollectable, the Company will use judgment to determine when all efforts of collection have been exhausted. If the Company subsequently receives consideration for a receivable that was previously written off, the Company would increase earnings by crediting credit loss expense.
In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework–Changes to the Requirements for Fair Value Measurement. This update changes the fair value measurement disclosure requirements of ASC 820. The standard consists of removals, modifications, and additions to the existing disclosure requirements. The Company adopted the requirements of the new standard on January 1, 2020 and there was no material impact on the Company’s notes disclosures. Refer to “Note 6—Fair Value Measurements.”
In August 2018, the FASB issued ASU 2018-15, Intangibles—Goodwill and Other— Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract. This update aligns the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract
with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software. The standard requires that an entity in a hosting arrangement that is a service contract to follow the guidance in Subtopic 350-40 to determine which implementation costs to capitalize as an asset related to the service contract and which costs to expense. This guidance is effective for public companies for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019. The Company adopted the requirements of the new standard on January 1, 2020 and there was no material impact on the Company’s consolidated financial statements and notes disclosures.
In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes. This update removes certain exceptions and provides additional requirements that simplify the accounting for income taxes. This guidance is effective for public companies for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2020. Early adoption of the standard is permitted. The Company adopted the requirements of the new standard on January 1, 2020 and there was no material impact on the Company’s consolidated financial statements and notes disclosures.
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 2019 Form 10-K, that would be expected to impact the Company except for the following:
In March 2020, FASB issued ASU 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting (“ASU 2020-04”). ASU 2020-04 provides optional expedients and exceptions to simplify the accounting for contracts, hedging relationships, and other transactions affected by reference rate reform that meet certain criteria. The standard is applicable to contract modifications and hedging relationships entered into prior to or existing as of December 31, 2022 and allows for elections to be made at different points in time. During the first quarter of 2020, the Company elected to adopt the guidance in 848-50-25-2 to assert probability of the hedged interest transaction regardless of any expected modification in terms related to reference rate reform and applied the expedient in ASC 848-50-35-17 through 35-18 in assessing hedge effectiveness. The Company plans to adopt the remaining expedients as applicable when contracts are modified and will continue to evaluate the timing of adoption and impact on its consolidated financial statements.
v3.20.2
REVENUE (Tables)
6 Months Ended
Jun. 30, 2020
Revenue from Contract with Customer [Abstract]  
Disaggregation of Revenue The following table disaggregates revenue by offering (in thousands):
 
Three Months Ended
June 30,
 
Six Months Ended
June 30,
 
2020
 
2019
 
2020
 
2019
Platform solutions(1)
$
147,148

 
$
140,289

 
$
287,765

 
$
270,241

Services(2)
15,067

 
16,688

 
28,637

 
32,227

Total revenue
$
162,215

 
$
156,977

 
$
316,402

 
$
302,468

______________________________________
(1)
Platform solutions include arrangements for technology-based offerings representing subscription-based cloud-based platform offerings and legacy platform solutions that are not cloud-based and not billed under a subscription-based contract structure.
(2)
Services include advisory, implementation, and support services under time and materials, fixed price, or retainer-based contracts.
v3.20.2
NET INCOME (LOSS) PER SHARE (Tables)
6 Months Ended
Jun. 30, 2020
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
June 30,
 
Six Months Ended
June 30,
 
2020
 
2019
 
2020
 
2019
Basic
 

 
 

 
 
 
 
Numerator:
 

 
 

 
 
 
 
Net income (loss)
$
2,025

 
$
4,538

 
$
342

 
$
(3,785
)
Undistributed earnings allocated to participating securities
(61
)
 
(135
)
 
(11
)
 

Net income (loss) attributable to common stockholders—basic
$
1,964

 
$
4,403

 
$
331

 
$
(3,785
)
Denominator:
 

 
 

 
 
 
 
Weighted average shares used in computing net income (loss) per share attributable to common stockholders—basic
149,517

 
148,136

 
149,350

 
147,956

Net income (loss) per share attributable to common stockholders—basic
$
0.01

 
$
0.03

 
$

 
$
(0.03
)
Diluted
 

 
 

 
 
 
 
Numerator:
 

 
 

 
 
 
 
Net income (loss) attributable to common stockholders—diluted
$
1,964

 
$
4,403

 
$
331

 
$
(3,785
)
Denominator:
 

 
 

 
 
 
 
Number of shares used for basic EPS computation
149,517

 
148,136

 
149,350

 
147,956

Effect of dilutive securities
168

 
342

 
171

 

Weighted average shares used in computing net income (loss) per share attributable to common stockholders—diluted
149,685

 
148,478

 
149,521

 
147,956

Net income (loss) per share attributable to common stockholders—diluted
$
0.01

 
$
0.03

 
$

 
$
(0.03
)

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
June 30,
 
Six Months Ended
June 30,
 
2020
 
2019
 
2020
 
2019
Awards excluded from the computation of diluted net income (loss) per share because their inclusion would have been anti-dilutive

 
5

 

 
5


v3.20.2
LEASES (Tables)
6 Months Ended
Jun. 30, 2020
Leases [Abstract]  
Lease, Cost
The following table presents components of lease expense for the three and six months ended June 30, 2020 and June 30, 2019 (in thousands):
 
Three Months Ended
June 30,
 
Six Months Ended
June 30,
 
2020
 
2019
 
2020
 
2019
Finance lease cost
 
 
 
 
 
 
 
Amortization of right-of-use assets
$
1,261

 
$
491

 
$
1,753

 
$
1,041

Interest on lease liabilities
274

 
127

 
381

 
261

Operating lease cost
2,545

 
3,502

 
5,263

 
5,613

Variable lease cost
373

 
469

 
776

 
963

Sublease income
(213
)
 
(317
)
 
(344
)
 
(634
)
Total lease cost
$
4,240

 
$
4,272

 
$
7,829

 
$
7,244


Supplemental cash flow information related to leases for the six months ended June 30, 2020 and June 30, 2019 are as follows (in thousands):
 
Six Months Ended
June 30,
 
2020
 
2019
Cash paid for amounts included in the measurement of lease liabilities:
 
 
 
Operating cash flows for operating leases
$
5,075

 
$
6,989

Operating cash flows for financing leases
472

 
260

Financing cash flows for financing leases
1,331

 
1,262

Right-of-use assets obtained in exchange for lease liabilities1:
 
 
 
Operating leases
$
(8,017
)
 
$
20,800

Finance leases
10,785

 
20


______________________________________
(1)
During the second quarter of 2020, the Company executed an amendment to an existing lease agreement resulting in the reclassification of certain lease components from an operating lease to a finance lease. As such, the Company recorded an adjustment to reduce the operating lease liability and the corresponding operating lease right-of-use asset and increase the finance lease liability and corresponding finance lease right-of-use asset.
Supplemental balance sheet information related to leases as of June 30, 2020 and December 31, 2019 are as follows:
 
June 30,
2020
 
December 31,
2019
Weighted average remaining lease term:
 
 
 
Operating leases
3 years

 
5 years

Financing leases
8 years

 
8 years

Weighted average discount rate:
 
 
 
Operating leases
4.4
%
 
4.7
%
Financing leases
3.1
%
 
3.1
%

v3.20.2
DEBT (Tables)
6 Months Ended
Jun. 30, 2020
Debt Disclosure [Abstract]  
Schedule of Line of Credit Facilities
The following table discloses the outstanding debt at each balance date as follows (in thousands):
 
June 30,
2020
 
December 31,
2019
2018 Term Facility(1)
$
890,073

 
$
893,737

Less: current portion
9,800

 
9,800

Non-current Credit Facilities
$
880,273

 
$
883,937

______________________________________
(1)
The 2018 Term Facility is presented net of unamortized deferred financing fees and original issue discount (“OID”) of $22.8 million and $24.0 million as of June 30, 2020 and December 31, 2019, respectively.
v3.20.2
FAIR VALUE MEASUREMENTS (Tables)
6 Months Ended
Jun. 30, 2020
Fair Value Disclosures [Abstract]  
Schedule of fair value hierarchy for financial assets and liabilities measured at fair value on a recurring basis
The following table presents the fair value hierarchy for financial assets and liabilities measured at fair value on a recurring basis as of June 30, 2020 (in thousands):
 
Level 1
 
Level 2
 
Level 3
 
Total
Cash equivalents:
 

 
 

 
 

 
 

Money market funds
$
42,084

 
$

 
$

 
$
42,084

Other current liabilities:
 

 
 

 
 

 
 

Interest rate swaps

 
(18,608
)
 

 
(18,608
)
Contingent consideration

 

 
(10,636
)
 
(10,636
)
Other liabilities:
 
 
 
 
 
 
 
Interest rate swaps

 
(60,446
)
 

 
(60,446
)
Contingent consideration

 

 
(3,824
)
 
(3,824
)
Total
$
42,084

 
$
(79,054
)
 
$
(14,460
)
 
$
(51,430
)
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, 2019 (in thousands):
 
Level 1
 
Level 2
 
Level 3
 
Total
Cash equivalents:
 

 
 

 
 

 
 

Money market funds
$
41,933

 
$

 
$

 
$
41,933

Other current liabilities:
 

 
 

 
 

 
 

Interest rate swaps

 
(8,354
)
 

 
(8,354
)
Contingent consideration

 

 
(3,719
)
 
(3,719
)
Other liabilities:
 
 
 
 
 
 
 
Interest rate swaps

 
(30,957
)
 

 
(30,957
)
Contingent consideration

 

 
(13,071
)
 
(13,071
)
Total
$
41,933

 
$
(39,311
)
 
$
(16,790
)
 
$
(14,168
)

Schedule of financial instruments measured at fair value using unobservable inputs (Level 3)
The following table presents financial instruments measured at fair value using unobservable inputs (Level 3) (in thousands):
 
Fair Value Measurements Using
Unobservable Inputs
(Level 3)
 
June 30,
2020
 
December 31,
2019
Balance, beginning of period
$
(16,790
)
 
$
(31,824
)
Fair value adjustment(1)
106

 
532

Accretion expense (recognized in general and administrative expenses)
(109
)
 
(647
)
Settlement of liability
2,333

 
15,149

Total
$
(14,460
)
 
$
(16,790
)
______________________________________
(1)
During 2019, the Company recognized an adjustment of $0.8 million in general and administrative expenses related to the change in fair value of contingent consideration, partially offset by an adjustment of $0.3 million recognized in goodwill, which was a purchase accounting adjustment attributable to the ABILITY Acquisition.
Fair Value, by Balance Sheet Grouping The following table presents the carrying value and fair value of the Company’s debt (including the current portion thereof) as of June 30, 2020 (in thousands):
 
June 30,
2020
Carrying value
$
890,073

Fair value
$
861,146


Description of Location of Interest Rate Derivatives on Balance Sheet
The following table presents the fair value of interest rate swaps on the balance sheet as of June 30, 2020 (in thousands):
 
Liability Derivative
 
Balance Sheet Location
 
Fair Value
Interest rate swap contract
Other current liabilities
 
$
(18,608
)
Interest rate swap contract
Other liabilities
 
$
(60,446
)

The following table presents the fair value of interest rate swaps on the balance sheet as of December 31, 2019 (in thousands):
 
Liability Derivative
 
Balance Sheet Location
 
Fair Value
Interest rate swap contract
Other current liabilities
 
$
(8,354
)
Interest rate swap contract
Other liabilities
 
$
(30,957
)

Reclassification out of Accumulated Other Comprehensive Income
The following table presents the location and amount of gains and losses on interest rate swaps included in other comprehensive income (“OCI”) and the statement of operations for the three and six months ended June 30, 2020 and 2019 (in thousands):
Three Months Ended June 30, 2020
 
Gain (Loss) recognized in OCI
 
Statement of Operations Location
 
(Gain) Loss reclassified from OCI
Interest rate swap contract
 
$
(8,194
)
 
Interest expense
 
$
4,040

Six Months Ended June 30, 2020
 
Gain (Loss) recognized in OCI
 
Statement of Operations Location
 
(Gain) Loss reclassified from OCI
Interest rate swap contract
 
$
(45,909
)
 
Interest expense
 
$
6,167

Three Months Ended June 30, 2019
 
Gain (Loss) recognized in OCI
 
Statement of Operations Location
 
(Gain) Loss reclassified from OCI
Interest rate swap contract
 
$
(18,059
)
 
Interest expense
 
$
602

Six Months Ended June 30, 2019
 
Gain (Loss) recognized in OCI
 
Statement of Operations Location
 
(Gain) Loss reclassified from OCI
Interest rate swap contract
 
$
(30,467
)
 
Interest expense
 
$
1,131


v3.20.2
REVENUE - Disaggregation of Revenue (Details) - USD ($)
$ in Thousands
3 Months Ended 6 Months Ended
Jun. 30, 2020
Jun. 30, 2019
Jun. 30, 2020
Jun. 30, 2019
Revenue, Initial Application Period Cumulative Effect Transition [Line Items]        
Total revenue $ 162,215 $ 156,977 $ 316,402 $ 302,468
Platform Solutions        
Revenue, Initial Application Period Cumulative Effect Transition [Line Items]        
Total revenue 147,148 140,289 287,765 270,241
Services        
Revenue, Initial Application Period Cumulative Effect Transition [Line Items]        
Total revenue $ 15,067 $ 16,688 $ 28,637 $ 32,227
v3.20.2
REVENUE - Additional Information (Details) - USD ($)
$ in Millions
3 Months Ended 6 Months Ended
Jun. 30, 2020
Jun. 30, 2020
Dec. 31, 2019
Revenue from Contract with Customer [Abstract]      
Unbilled receivables $ 33.7 $ 33.7 $ 36.0
Deferred commissions 15.0 15.0 11.8
Deferred contract asset 13.0 13.0 5.8
Deferred revenue 15.0 15.0 13.7
Contract with customer, asset, net 8.7 8.7 $ 11.4
Deferred revenue, revenue recognized $ 6.9 $ 14.4  
v3.20.2
NET INCOME (LOSS) PER SHARE - Additional Information (Details) - shares
Jun. 05, 2019
Jun. 30, 2020
Dec. 31, 2019
Earnings Per Share, Basic, by Common Class, Including Two Class Method [Line Items]      
Common stock, authorized (in shares)   900,000,000 900,000,000
Class A Common      
Earnings Per Share, Basic, by Common Class, Including Two Class Method [Line Items]      
Additional shares authorized (in shares) 6,000,000    
Common stock, authorized (in shares) 13,335,430 750,000,000 750,000,000
v3.20.2
NET INCOME (LOSS) PER SHARE - Tabular Disclosure (Details) - USD ($)
$ / shares in Units, shares in Thousands, $ in Thousands
3 Months Ended 6 Months Ended
Jun. 30, 2020
Mar. 31, 2020
Jun. 30, 2019
Mar. 31, 2019
Jun. 30, 2020
Jun. 30, 2019
Basic            
Net income (loss) $ 2,025 $ (1,683) $ 4,538 $ (8,323) $ 342 $ (3,785)
Undistributed earnings allocated to participating securities (61)   (135)   (11) 0
Net income (loss) attributable to common stockholders—basic $ 1,964   $ 4,403   $ 331 $ (3,785)
Weighted average shares used in computing net income (loss) per share attributable to common stockholders - basic (in shares) 149,517   148,136   149,350 147,956
Net income (loss) per share attributable to common stockholders - basic (in dollars per share) $ 0.01   $ 0.03   $ 0 $ (0.03)
Diluted            
Net income (loss) attributable to common stockholders—diluted $ 1,964   $ 4,403   $ 331 $ (3,785)
Effect of dilutive securities (in shares) 168   342   171 0
Weighted average shares used in computing net income (loss) per share attributable to common stockholders - diluted (in shares) 149,685   148,478   149,521 147,956
Net income (loss) per share attributable to common stockholders - diluted (in dollars per share) $ 0.01   $ 0.03   $ 0 $ (0.03)
v3.20.2
- Anti-dilutive Securities (Details) - shares
shares in Thousands
3 Months Ended 6 Months Ended
Jun. 30, 2020
Jun. 30, 2019
Jun. 30, 2020
Jun. 30, 2019
Equity awards        
NET INCOME PER SHARE        
Awards excluded from the computation of diluted net income (loss) per share because their inclusion would have been anti-dilutive (in shares) 0 5 0 5
v3.20.2
LEASES - Additional Information (Details)
Jun. 30, 2020
USD ($)
Lessee, Lease, Description [Line Items]  
Finance Lease, Right-of-Use Asset, Statement of Financial Position [Extensible List] us-gaap:PropertyPlantAndEquipmentAndFinanceLeaseRightOfUseAssetAfterAccumulatedDepreciationAndAmortization
Finance lease, right-of-use asset $ 24,100,000
Secured Debt | Morgan Stanley Senior Funding, Inc.  
Lessee, Lease, Description [Line Items]  
Face amount 100,000,000.0
Secured Debt | Line of Credit | Morgan Stanley Senior Funding, Inc.  
Lessee, Lease, Description [Line Items]  
Face amount $ 1,000,000.0
Minimum  
Lessee, Lease, Description [Line Items]  
Operating lease, term of contract 1 year
Maximum  
Lessee, Lease, Description [Line Items]  
Operating lease, term of contract 12 years
v3.20.2
LEASES - Components of Lease Expense (Details) - USD ($)
$ in Thousands
3 Months Ended 6 Months Ended
Jun. 30, 2020
Jun. 30, 2019
Jun. 30, 2020
Jun. 30, 2019
Leases [Abstract]        
Amortization of right-of-use assets $ 1,261 $ 491 $ 1,753 $ 1,041
Interest on lease liabilities 274 127 381 261
Operating lease cost 2,545 3,502 5,263 5,613
Variable lease cost 373 469 776 963
Sublease income (213) (317) (344) (634)
Total lease cost $ 4,240 $ 4,272 $ 7,829 $ 7,244
v3.20.2
LEASES - Other Information Related to Leases (Details) - USD ($)
$ in Thousands
6 Months Ended
Jun. 30, 2020
Jun. 30, 2019
Dec. 31, 2019
Cash paid for amounts included in the measurement of lease liabilities:      
Operating cash flows for operating leases $ 5,075 $ 6,989  
Operating cash flows for financing leases 472 260  
Financing cash flows for financing leases 1,331 1,262  
Right-of-use assets obtained in exchange for lease liabilities:      
Operating leases (8,017) 20,800  
Finance leases $ 10,785 $ 20  
Weighted average remaining lease term, operating lease 3 years   5 years
Weighted average remaining lease term, financing lease 8 years   8 years
Weighted average discount rate, operating leases 4.40%   4.70%
Weighted average discount rate, financing leases 3.10%   3.10%
v3.20.2
DEBT - Additional Information (Details) - USD ($)
6 Months Ended
Mar. 16, 2020
Feb. 11, 2020
Jun. 30, 2020
Apr. 02, 2018
Line of Credit | London Interbank Offered Rate (LIBOR)        
Debt Instrument [Line Items]        
Basis spread on variable rate     3.00%  
Line of Credit | Adjusted LIBOR        
Debt Instrument [Line Items]        
Basis spread on variable rate     1.00%  
Line of Credit | Federal Funds Effective Swap Rate        
Debt Instrument [Line Items]        
Basis spread on variable rate     0.50%  
Secured Debt | Revolving Credit Facility        
Debt Instrument [Line Items]        
Interest rate, increase (decrease)   0.50%    
Interest rate, stated percentage   3.00%    
Interest rate reduction upon achievement of certain criteria   0.25%    
Morgan Stanley Senior Funding, Inc. | Secured Debt        
Debt Instrument [Line Items]        
Face amount     $ 100,000,000.0  
Morgan Stanley Senior Funding, Inc. | Secured Debt | Line of Credit        
Debt Instrument [Line Items]        
Face amount     1,000,000.0  
Morgan Stanley Senior Funding, Inc. | Secured Debt | 2018 Term Facility        
Debt Instrument [Line Items]        
Face amount       $ 980,000,000.0
Morgan Stanley Senior Funding, Inc. | Secured Debt | 2018 Revolving Facility        
Debt Instrument [Line Items]        
Face amount     99,000,000.0  
Proceeds from lines of credit $ 99,000,000.0      
Morgan Stanley Senior Funding, Inc. | Secured Debt | Letter of Credit        
Debt Instrument [Line Items]        
Face amount     $ 1,000,000.0  
v3.20.2
DEBT - Schedule of Debt (Details) - USD ($)
$ in Thousands
Jun. 30, 2020
Dec. 31, 2019
Line of Credit Facility [Line Items]    
Less: current portion $ 9,800 $ 9,800
Non-current Credit Facilities 880,273 883,937
Morgan Stanley Senior Funding, Inc. | 2018 Term Facility    
Line of Credit Facility [Line Items]    
2018 Term Facility 890,073 893,737
Unamortized loan commitment and origination fees and unamortized discounts or premiums $ 22,800 $ 24,000
v3.20.2
FAIR VALUE MEASUREMENTS - Fair Value Hierarchy (Details) - Recurring - USD ($)
$ in Thousands
Jun. 30, 2020
Dec. 31, 2019
Liabilities / Other Current Liabilities:    
Total $ (51,430) $ (14,168)
Money market funds    
Cash equivalents:    
Money market funds 42,084 41,933
Level 1    
Liabilities / Other Current Liabilities:    
Total 42,084 41,933
Level 1 | Money market funds    
Cash equivalents:    
Money market funds 42,084 41,933
Level 2    
Liabilities / Other Current Liabilities:    
Total (79,054) (39,311)
Level 2 | Money market funds    
Cash equivalents:    
Money market funds 0 0
Level 3    
Liabilities / Other Current Liabilities:    
Total (14,460) (16,790)
Level 3 | Money market funds    
Cash equivalents:    
Money market funds 0 0
Other current liabilities | Contingent consideration    
Liabilities / Other Current Liabilities:    
Contingent consideration (10,636) (3,719)
Other current liabilities | Interest rate swaps    
Liabilities / Other Current Liabilities:    
Interest rate swaps (18,608) (8,354)
Other current liabilities | Level 1 | Contingent consideration    
Liabilities / Other Current Liabilities:    
Contingent consideration 0 0
Other current liabilities | Level 1 | Interest rate swaps    
Liabilities / Other Current Liabilities:    
Interest rate swaps 0 0
Other current liabilities | Level 2 | Contingent consideration    
Liabilities / Other Current Liabilities:    
Contingent consideration 0 0
Other current liabilities | Level 2 | Interest rate swaps    
Liabilities / Other Current Liabilities:    
Interest rate swaps (18,608) (8,354)
Other current liabilities | Level 3 | Contingent consideration    
Liabilities / Other Current Liabilities:    
Contingent consideration (10,636) (3,719)
Other current liabilities | Level 3 | Interest rate swaps    
Liabilities / Other Current Liabilities:    
Interest rate swaps 0 0
Other liabilities | Contingent consideration    
Liabilities / Other Current Liabilities:    
Contingent consideration (3,824) (13,071)
Other liabilities | Interest rate swaps    
Liabilities / Other Current Liabilities:    
Interest rate swaps (60,446) (30,957)
Other liabilities | Level 1 | Contingent consideration    
Liabilities / Other Current Liabilities:    
Contingent consideration 0 0
Other liabilities | Level 1 | Interest rate swaps    
Liabilities / Other Current Liabilities:    
Interest rate swaps 0 0
Other liabilities | Level 2 | Contingent consideration    
Liabilities / Other Current Liabilities:    
Contingent consideration 0 0
Other liabilities | Level 2 | Interest rate swaps    
Liabilities / Other Current Liabilities:    
Interest rate swaps (60,446) (30,957)
Other liabilities | Level 3 | Contingent consideration    
Liabilities / Other Current Liabilities:    
Contingent consideration (3,824) (13,071)
Other liabilities | Level 3 | Interest rate swaps    
Liabilities / Other Current Liabilities:    
Interest rate swaps $ 0 $ 0
v3.20.2
- Unobservable Inputs (Level 3) (Details) - Level 3 - USD ($)
$ in Thousands
6 Months Ended 12 Months Ended
Jun. 30, 2020
Dec. 31, 2019
Fair Value Measurements Using Unobservable Inputs (Level 3)    
Balance, beginning of period $ (16,790) $ (31,824)
Fair value adjustment 106 532
Accretion expense (recognized in general and administrative expenses) (109) (647)
Settlement of liability 2,333 15,149
Total $ (14,460) (16,790)
Goodwill    
Fair Value Measurements Using Unobservable Inputs (Level 3)    
Fair value adjustment   (300)
General and administrative    
Fair Value Measurements Using Unobservable Inputs (Level 3)    
Fair value adjustment   $ 800
v3.20.2
- Debt (Details)
$ in Thousands
Jun. 30, 2020
USD ($)
Fair Value Disclosures [Abstract]  
Carrying value $ 890,073
Fair value $ 861,146
v3.20.2
FAIR VALUE MEASUREMENTS - Narrative (Details)
$ in Millions
Jun. 30, 2020
USD ($)
Jun. 30, 2018
swap
Derivatives, Fair Value [Line Items]    
Interest rate cash flow hedge gain (loss) to be reclassified during next 12 months, net $ (18.7)  
Interest rate swaps    
Derivatives, Fair Value [Line Items]    
Interest rate derivatives held | swap   4
Amount of hedged item $ 700.0  
Derivative, fixed interest rate 2.80%  
v3.20.2
FAIR VALUE MEASUREMENTS - Fair Value of Interest Rate Swaps (Details) - USD ($)
$ in Thousands
3 Months Ended 6 Months Ended
Jun. 30, 2020
Jun. 30, 2019
Jun. 30, 2020
Jun. 30, 2019
Dec. 31, 2019
Derivative Liability [Abstract]          
Gain (Loss) recognized in OCI     $ (45,909) $ (30,467)  
(Gain) Loss reclassified from OCI     6,167 $ 1,131  
Interest rate swap contract          
Derivative Liability [Abstract]          
Gain (Loss) recognized in OCI $ (8,194) $ (18,059)      
(Gain) Loss reclassified from OCI 4,040 $ 602      
Other current liabilities | Interest rate swap contract          
Derivative Liability [Abstract]          
Fair Value (18,608)   (18,608)   $ (8,354)
Other liabilities | Interest rate swap contract          
Derivative Liability [Abstract]          
Fair Value $ (60,446)   $ (60,446)   $ (30,957)