Inovalon Holdings, Inc.
Q1 2016 Earnings Call Transcript

Published: 5 May 2016

[Operator:]

Good day, ladies and gentlemen, and welcome to the Inovalon's First Quarter 2016 Earnings Call. [Operator Instructions] As a reminder, today's conference is being recorded for replay purposes. I would now like to introduce you per speaker for today, Kim Collins. You have the floor.

[Kim Collins:]

Good afternoon. This is Kim Collins, Senior Vice President of Corporate Communications at Inovalon. I'm here today with Dr. Keith Dunleavy, Inovalon's Chief Executive Officer and Chairman of the board, and Tom Kloster, our Chief Financial Officer. I'd like to welcome you to our first quarter 2016 earnings presentation. The press release announcing our financial results for the first quarter was distributed this afternoon, and a replay of today's call will be available in a few hours and posted on Inovalon's Investor Relations page on our website. For those of you who listen to the rebroadcast of this presentation, we remind you that remarks made herein are as of today May 4, 2016 and will not be updated subsequent to this initial earnings call. I'll remind you that certain statements during this presentation may be characterized as forward-looking under the Private Securities Litigation Reform Act of 1995, including statements related to future results of operations and financial position, our business strategy and plans, market growth, and our objectives for future operations. Those statements involve a number of factors that could cause actual results to differ materially. Additional information concerning these factors is contained in the Company's earning release and filings with the SEC. Our presentation also includes certain non-GAAP financial measures. You'll find definitions of those non-GAAP measures and reconciliation charts at the end of the Company's earnings release and on our Company website. Now it is my pleasure to turn the call over to Dr. Keith Dunleavy.

[Keith Dunleavy:]

Thank you, Kim. Good evening everyone and thank you very much for joining our call. Tom and I are pleased to share with you our results for the first quarter, discuss our view for the year, and provide an update on the continuing evolution of the healthcare landscape, which is driving demand for our products and services. The results of the first quarter are demonstrative of the progress we continue to make on our current year and five-year plans. As Tom will discuss in detail in a few minutes, we achieved revenues for the quarter, which were ahead of our internal plan. And we made strategic investments in our business which were consistent with our internal expectations. Those investments are broadly classified into three areas

[Tom Kloster:]

Thank you, Keith, and good evening everyone. As has been our practice, my remarks will touch upon the highlights of our financial results for the quarter, cover a few key items that stand out in our financial results, discuss our balance sheet position, and then wrap up with an overview of our financial guidance for 2016. As Keith mentioned, the financial results for the first quarter exceeded our revenue expectations, and from a profitability standpoint, were in accordance with our internal plan. First quarter revenue of $102.7 million increased 10% over the prior year's first quarter. These results are above our 2016 plan, which as you may recall, assume that we would generate 19% of our annual revenue or $98 million at the midpoint of our revenue guidance range in the first quarter. As expected seasonality trends continued to drive scheduled intervention volumes from the first half of the year toward the second half of the year, although we did experience opportunities this quarter to enhance client returns by performing additional client-requested intervention volumes, which contributed to our revenue being above our expectations. So overall we are pleased with the Q1 revenue outcome, particularly given the headwinds from ACA-focused plans, primarily co-ops we discussed on the last call. Adjusted EBITDA for the first quarter was $18.5 million or 18% of revenue, as compared to 34% in the prior-year quarter. As Keith mentioned and we have discussed a number of times in the past, we are making incremental investments in our connectivity solutions, our technology, our network capabilities, our new product rollouts, our continued innovation, our combination with Avalere, and our expansion of our sales and marketing organization, all in an effort to accelerate the pace at which we can capitalize on the vast amount of market opportunities. As an example, we more than tripled sales and marketing costs as a percentage of revenue from 2% in the first quarter 2015 to 6.4% this quarter. Additionally, the increased client-requested intervention volumes, which had a higher mix of partially automated interventions, the addition of Avalere and the impact of the ACA related headwinds mentioned previously, blended down the adjusted EBITDA margins as compared to the prior year. However, I do want to emphasize that the higher level of investments is consistent with our internal plan and, accordingly, we are maintaining all of our financial guidance for the full fiscal year. Our net income and EPS on an adjusted basis came in at $7.5 million and $0.05 a share, respectively. Let's now discuss the strength of our balance sheet. We remain in a very strong financial position, with over $738 million of cash, cash equivalents and short-term investments as of March 31, 2016. This is more than a $10 million increase since yearend. Our strong balance sheet, cash flow generation and debt capacity positions us well to consider various strategic investments and acquisition opportunities as part of our growth strategy, while simultaneously implementing the share repurchase plan that Keith discussed. Now let's switch our focus to the remainder of 2016. At our December 7 Investor Day, and again, on our fourth quarter earnings call, we articulated our expected revenue seasonality trends. We discussed our expectations that there will be lumpiness in our results due to the evolution of our sales pipeline from both a greater number of opportunities as well as several large opportunities, including for example our recently announced relationship with Kindred Healthcare. As such, we are most comfortable speaking to the year as a whole rather than individual quarters. With these elements in mind, we are maintaining our previously issued full year 2016 financial guidance, which was as follows. Revenue is expected to be between $510 million and $520 million. Adjusted EBITDA is expected to be $182 million and $188 million. Non-GAAP net income of between $88 million and $92 million. Non-GAAP diluted net income per share of between $0.57 and $0.60. Now let me turn the call back to the operator to conduct our Q&A session.

[Operator:]

[Operator Instructions] Our first question comes from the line of Andre Benjamin from Goldman Sachs. Your line is open.

[Andre Benjamin:]

Thanks and good evening.

[Keith Dunleavy:]

Good evening, Andre.

[Andre Benjamin:]

I know you said you're not going to give quarterly guidance, but I think given the EBITDA was probably lower than some of us were expecting and the costs higher, I'm just wondering if there's anything that you can at least give us directionally how to think about the phasing of some of the costs and investments that are flowing to the P&L. And then a lot of them seem like they're more kind of medium to longer-term initiatives like connectivity and Avalere growth. So, how much of that should really roll off by the end of the year versus remain in the run rate going forward?

[Keith Dunleavy:]

Thanks for the question, Andre. So we have a fair amount of visibility into how the year is progressing for a number of different reasons. Let's walk through them and let's talk about the different components that are contributing to the margin aspect that you spoke of and how we see that evolving during the year. So let's start with actually what are the margin impactors of Q1 that you're referring to. So first of all, coming into the year, we spoke about the fact that we have a seasonality evolution -- seasonality evolution that is very consistent with the evolution that's been transpiring over the last several years, roughly about 2% each year going from the front-end of the year to the backend of the year. This year we saw evolving in a very consistent way with that, and in the setting of continued growth, despite the fact that we have that revenue moving in this seasonal way, we certainly don't want to give up the capacity capability that we have to deliver on that second half and therefore maintain that capacity capability in the first half, obviously chewing into the efficiency of our cost of goods sold costs in the first quarter, especially first and second quarter in this evolution. So that is impacting our gross margin component. Secondly, we have of course the ACA and co-op elements that we spoke of in the end of 2015 as well. Similar phenomenon. This is taking out of the capacity utilization capability in the first and second quarters, but keeping it around delivers on the high efficiency in the second half of the year. Those two components are impacting the margins -- the gross margins in the first quarter, call it, approximately 2.7% on the seasonality issue, and then, because of this, impacting the revenue mix of what is being done interventionally during the first quarter, 4.1% on that component. So you've got a combination of about 6.8% impacting my gross margins due to this shift from the beginning of the year to the latter part of the year and the co-op issue that we spoke, both very much predicted by us, seen by us, and executed, as our internal plan, very consistent. So now let's talk about the other investments, and I'll make sure we come back to how do we see this evolving over the year. Second part is, what are the investments that we're making below that gross margin line? So we made a significant investment in sales and marketing. You saw that in the fourth quarter. We've been telegraphing that since going public. You see that here in the first quarter as well. Why? Why, because coming into the game, we were under-investing in sales and marketing, at roughly 2.1% on an annual basis prior to going public, and we continue to expand the markets that we can direct product at. So it's not just building out with sales and marketing in our legacy space of dominant payor capability, but it's also as we add into the provider and pharma space, we want additional sales capability there, and we're delivering on that, and building what is today the largest pipeline of sales that we've ever had. But that cost us -- cost us about 4.5% in our SG&A in the first quarter. Again, predicted, expected and executing the way we wanted to. And then we have other investments that we're doing, large product rollouts, large expansions into adjacent spaces, connectivity and so forth, costing us around another 4.4 percentage points in our SG&A in the quarter, and another 0.5% in - above research and development, innovation expenses, all very consistent with where we expected to be. So, how does that evolve during the year? Well, first of all, all of those strategic investments we see having a combination of near-term and longer-term benefits. Every time we make a connection in connectivity, for instance, our costs drop materially. Our costs can drop in the neighborhood of 30%, 35%, 40% when we make direct connection capabilities. Yes, there's an investment upfront, some of those are capitalizable, but we see an immediate benefit to the value delivery to our client, stickiness with our client, differentiatability in the marketplace, and even our own profitability. And that is growing in some clients at triple-digit year-over-year rates at this point. So we're seeing very rapid return on that and you'll see that benefit in this year. The second thing is these launches of new technologies, costing us here in the first quarter, it was costing us last year. We talked a lot about capacity increase that we were investing in last year. We're seeing those volumes build, we're seeing those rollouts achieved. We told you that we now have up to 50 -- or more than 50 data diagnostics in our platform, almost 600 EHRs now able to receive an order of it. That is going to deliver, in our view, a very strong in-year benefit to the Company. So I could go on, but the point is, is that in Q1 we purposely maintained capacity and capability because we knew how the seasonality was evolving, we knew the impact of the co-ops, and we will gain back the benefit of that decision in the latter part of the year, as well as the benefit from the investments in margin-improving capabilities, like connectivity, as well as revenue -- high-margin revenue growth opportunities such as data diagnostics. Long answer but very important question.

[Andre Benjamin:]

You can move on.

[Operator:]

Thank you. Our next question comes from the line of Jamie Stockton with Wells Fargo. Your line is open.

[Jamie Stockton:]

Yes. Thanks for taking the question. Maybe if you could, and I know you just gave a lot of information on the margin trends, but let's just talk about sales and marketing and where those incremental dollars are going. What types of activities are occurring now as a result of that spend that were not occurring a year ago? If you could just go into that, that'd be great.

[Keith Dunleavy:]

Sure, Jamie. So first of all, let's talk about the verticals, our adjacent spaces that we're in today that we weren't in to this degree a year ago. The two obvious ones being pharma and life sciences and the provider space specifically in the post-acute care space. So the first one, in pharma and life sciences, this is a significant expansion for us, a significant push for us and it's receiving significant time and attention. The amount of activity we have going on in that space, offering a -- what we see and what we're getting as feedback from the pharma space, is a very differentiated offering, an offering, you know, that much more relevant in the setting of mergers announced yesterday between IMS and Quintiles, capability to deliver a combination of analytics intervention, data-driven capabilities and subject matter expertise into the pharma and life sciences space. And we're seeing a very positive response to that push. But that push costs us dollars and cents, people and energies into the proposals, the presentations, the workups, the -- all the aspects related to the building out of that pipeline. We're very pleased with that result, we're seeing a very rapid result, but it's costing us and you're seeing that as one component. Second component is in the provider space. You saw us push into the space with Kindred. They're a great partner. It's been a very positive relationship with them. We're both enjoying it and excited about the progress that we're making together with them. But that provider space is an adjacent space that we're looking to do a lot of work, with Kindred and with others, as we look to rapidly, I would even almost call it, modernize or apply technologies to the post-acute care space for the benefit of the organizations with whom we are working. So that is a large business development push and seeing good early fruit quite obviously. And then within our legacy space of the payor space and what we would call the integrated care delivery space that is made up of ACOs in addition to health plans and provider-owned organizations and hybrid organizations, we have materially expanded our capacity there, adding additional feet on the street, regional expertise, excellent [inaudible] if you will, and relationships that are expanding our pipeline. So our pipeline today is the largest the Company has ever had, and it is a reflection of not just the size of the sales force but the sophistication of how our sales process is now running compared to a year ago, and the adjacent spaces that we've invested in. So, expansion in laterally and in depth and in sophistication. We're not everywhere where we need to be yet. We're not the size and scale and sophistication level that we'd like to ultimately be. But we're very pleased at the progress we've made. I think the group's doing a really fantastic job.

[Jamie Stockton:]

That's great. And maybe just one other quick one. I think you mentioned that the first quarter saw maybe some upside from some intervention activity that you didn't necessarily originally expect. Will we see that recur throughout the rest of the year?

[Keith Dunleavy:]

Well, as you heard here, what we really want to do is reaffirm our full year guidance. We think that that's the wise thing to do. We are obviously pleased with the revenue strength that we're seeing and we're pleased with the execution on our margin levels that internally we expected. It's just through the first quarter. We're feeling very positive. But we'd like to leave expectations where they are. We think that's the wise and appropriate thing to do.

[Jamie Stockton:]

Okay. Thank you.

[Operator:]

Thank you. Our next question comes from the line of Ryan Daniels from William Blair. Your line is open.

[Ryan Daniels:]

Yeah, thanks for taking my questions. I guess the first one is in regards to the visibility you have for the remainder of the year. It sounds like the pipeline clear is at record levels and I'm curious how much of that you need to hit in order to make your numbers, see the increased utilizations, and then drive the margin outperformance in the back half of the year to kind of meet those expectations. So, how much is visible, how much needs to be closed?

[Keith Dunleavy:]

Hey, Ryan. So let's talk about the different things that make up our growth components for the Company. So as you I'm sure recall, we think of this as a stacked bar chart sort of thing. So that at the bottom of that stacked bar chart is the organic growth in our existing customers. So if we have an organization that's a client of ours today, a lot of our revenue that's generated from that is proportional to the number of patients they have, and there is an inherent tailwind of membership base expansion in the marketplace. Medicare, Medicaid, commercial, all of them are growing quite nicely. You've heard us refer to this number of roughly 8%, as you'll remember a graph we put out over the last couple of months that builds that up. So we had some headwind on total membership count from the ACA and co-op group. But if you x that out, once you take that out, the rest of our existing customer base is obviously experiencing these positive growth elements. And to a degree, like in the co-ops, those patients end up somewhere. And since we have a pretty large coverage space, you know, some of those patients find their way back into a client that is already ours. Certainly not one for one, but we have a nice organic growth rate at the bottom of that stack pyramid. The second aspect in that is upsell and cross-sell. So we do a nice job for our clients, we deliver a lot of value for them. As we deliver value, we increase the size of their wallet, if you will, and we increase the propensity for them to try other products with us and expand the scope of the products we're only doing with them, and we continue to see a strong growth there. Number three is the elements of new clients. We continue to see nice strong client additions. You know, for the first quarter, once you net out the loss of ACA and co-op from us, we saw, I believe it's $13.8 million of new client gross revenue in the first quarter, very nice strong number for us. So we're continuing to see nice client adds. And as I mentioned, our pipeline for growth down the road continues to not only look good but get larger at a very nice rate. Then on top of that, we have new technologies, right? We have new technologies that we've announced and launched. The two most recent ones you've heard about are the QSI Excel product line and the data diagnostics product line. We are seeing very positive progression to those product lines and we are very confident about where those product lines are going to be additive in 2016 and further out. We then have new adjacent spaces that's partially from tuck-in acquisitions as well as direct migrations and evolutions of our offering capability. And you're seeing us execute on that. And we're confident that you're going to see us execute on that more in the weeks and months and quarters to come. So we have a number of growth elements, as well as a very nice, strong balance sheet and cash flow generation capability to add in other tuck-ins, which we've conveyed that we will do. So we have visibility into each one of these areas and we don't have just one path to get to our growth. We have multiple paths to get us where we need to go. We're obviously a big-picture focused organization. We have a lot of optimism and positive view on what we're seeing and where we are already solid as a company and where we are expanding as a company. Put this all together, all the various different contributors, we feel good to be reaffirming our guidance for the year, and obviously not just this year but going forward, what we're seeing.

[Operator:]

Thank you. Our next question comes from the line of Matt Gillmor from Robert W. Baird. Your line is open.

[Matt Gillmor:]

Hey, good evening and thanks for taking the question. I wanted to ask the revenue performance in the first quarter. Is there a way for you to quantify what the impact was from the co-op, ACA, how much of that $20 million impacted the first quarter? And then also, can you give us a sense for what Avalere contributed? You might have mentioned that but I didn't hear the number.

[Keith Dunleavy:]

Hey, Matt, good evening. So, first question is, how much did co-ops and ACA headwind, you know, what was that impact in the first quarter. As we talked about on our last call, we were giving direction of that number being around $20 million for the year. That doesn't play fully linearly through the year. It has a greater effect in our first half of the year and we're seeing that. So we don't have an exact breakdown of those, because we did not go through a full seasonal -- we generate -- whenever we have a client, we generate these intervention plans for them throughout the whole year. Obviously we're not generating that for a client that we no longer have. So we have more the macro number impact rather than the detailed, how that would have fallen each individual quarter. But broadly it affects more the first half of the year than the second half of the year. We did convey that we brought in $13.8 million and our first quarter was driven by new client growth. That gives you some visibility on that. We're not -- we do not view Avalere as a separate segment. We really did an excellent job. The team, I can't take any credit for it, the team did a really excellent job at integrating both on the Avalere side and on the Inovalon side. The way that they are operating together is fantastic. We did that very quickly. The selling and going to market and business development and product development and execution that they're doing together is nothing short of outstanding. So as a side bar, if you're looking for how well does Inovalon acquire, integrate and execute on acquisitions, boy, this one is really going nicely. But we don't break out those numbers in the way that you're looking for it. If they were still standalone, if you look back a year ago, you notice that they have some seasonality as well, they're weaker in their upfront of the year, stronger in their tail-end of the year, for some of the same reasons regulatorily that we are. But we are breaking that out anymore, so I apologetically can't give you a distinct number, but hopefully this gave you some color.

[Matt Gillmor:]

No, that's helpful, I appreciate. And one other kind of numbers question. Can you just confirm whether the contingent consideration on the acquisition cost, is that all within SG&A? And then also, can you give us some sort of sense for what the nature of the other non-comparable items that are being added back to EBITDA?

[Keith Dunleavy:]

Sure, Matt. The first part of your question is yes, that's all in G&A. To the second part of your question, the non-comparable items, that has to do with the discontinuation of the co-op ACA business that we announced previously, incorporating that in and winding those down unexpected as we have to do.

[Matt Gillmor:]

Okay. Thanks very much. Appreciate it.

[Keith Dunleavy:]

Sure.

[Operator:]

Thank you. Our next question comes from the line of Zack Sopak from Morgan Stanley. Your line is open.

[Zack Sopak:]

Hey, thanks for the question. First, on the -- just wanted to clarify, on the share repurchase program, is there a timeline for that and is there any contribution from that within your reiteration of your EPS guidance?

[Keith Dunleavy:]

Zack, thanks for the question. So what we conveyed is our contribution at this point to that will be $100 million and we'll do that in this calendar year, is the authorization. So, not exact month count or day count, but by December 31. We have not calculated that into the share count. The share counts that you see in our release today are current share counts on the weighted -- normal weighted basis that you expect them to be reported. So, obviously not knowing exactly what the price will be purchasing shares and how many will ultimately get bought back, we held off on making any projections as to what that share count would be. So we'll be doing it through this calendar year. We have not made adjustments to the share count to reflect it.

[Zack Sopak:]

That's helpful. Thank you. I was just wondering, so for those of who are more lay people in the space, there's been a lot of activity, and you mentioned it with IMS and Quintiles. It seems like there's a lot of different entities that are trying to sell "data" into life sciences. Could you help us a little bit differentiate Inovalon from some of the other players either broadly? And is there room for biopharma companies to buy this much data or is this going to -- is there competition or are there different things that they're looking for that are provided by these different organizations?

[Keith Dunleavy:]

Zack, great question. There's a really material difference in the data that's out there in the marketplace. So there are several parts to your question, let me walk through them with you. So first of all, think of data as having many different characteristics at least three quite relevant ones. And that is the breadth of the data, the depth of the data, and the recency of timeliness of the data. So, breadth being of course how many lives do you have in there, we have now 130-something lives in our data sets. The depth being, you know, is it just scripts data that you have or is it just claim data that you might have? Or do you go deep? Do you have lab data, pharmacy data, diagnosis data, demographic data, socioeconomic data, imaging data, clinical EHR data? You know, how deep does your data set go? And then the recency of it, meaning, is that data a year old or is it an hour old, and is it refreshing and completing? And so our data sets really are rather unique and distinct in all three of those characteristics. If you look at most other large data sets in the marketplace, certainly don't want to disparage any company, every company has their strengths and weaknesses, but many of the companies that deal in clinical data or healthcare data are doing it on a secondary basis, receiving that data in de-identified format. It is not deep in its nature, meaning it's usually either claims data or pharmacy scripts data. And so for instance, somebody might know that a doctor wrote a script for a particular medication on a patient, but they don't know why. They don't know why, they don't know that a day later they developed kidney failure, or a month later they died. And because of de-identified data, they very frequently don't know how to longitudinally match those patients up over time either. One day it's being sold to them from source X, the next day it's being sold to them by source Y. They don't know that the patient actually is in both data sets. So they call them separate patients. They try and do statistical probabilistic matching, but Inovalon, we do identified, real matching over longitudinal periods of time. So that's a very significant differentiator. That comes from the fact that our data sources are what are called primary sources and we have business associates agreements with our data sources. So in adhering strictly with HIPAA requirements and strictly with the identification requirements, we have the benefit of having identification to allow for longitudinal matching and growing depth over time. Plus all the connectivity we're doing in the marketplace gives us the ability to strengthen or deepen that data set. So yes, there are many different types of data sets that are out there in the marketplace. We believe that ours, which is called Real World Data, has a unique strength and differentiated nature to it, highly differentiated from other sources in the marketplace. Now the second part of your question is the, so what? So, is the market interested in that? So, hey, Keith, you just explained how it's different, but explain to me why that is financially relevant to Inovalon's future. It's very relevant to Inovalon's future because the pharmaceutical industry and the payor space as well is going through a significant evolution from volume to value. Both sides of the equation are attempting to better understand how to measure value, how to contract on value, how to track value, and how to have outcomes-based and performance-based contracting on both standard medication contracts, but also on the higher-cost medication that are increasingly present in personalized medicine and bio type medicines that are increasingly out there. So, to develop them more rapidly but also, more importantly, to build the business models around them, this data is very important, and we're fortunate to be well-positioned to be able to serve both the payor and the pharma industry to this [ph].

[Zack Sopak:]

Thanks.

[Keith Dunleavy:]

Sure.

[Operator:]

Thank you. Our next question comes from the line of Garen Sarifian from Citi. Your line is open.

[Unidentified Participant:]

Hi. This is Alan [ph] filling in for Garen. A quick one on Data Diagnostics. So now that the product has been in the market for a couple of quarters, can you talk about whether or not you're seeing varying uptake by payor-provider relationships? So for example, are physicians in risk-sharing arrangements or physician-led organizations adopting this more quickly than those in more traditional models? Just trying to get a sense of where you're seeing the early success.

[Keith Dunleavy:]

Hello, Alan [ph]. Good evening. Thanks for the question. So first of all, Data Diagnostics, the major push in Data Diagnostics occurred with the sales launch of Quest in the first quarter, where they put about 1,500 people involved in sales and support on this product line. I will tell you that the business development process is going extremely well. We're very pleased with it. And we're getting a strong response literally from every constituency that we have brought this to. So the pure payors but also the pure provider groups, ACO groups, even pharma life sciences, integrated healthcare delivery systems, provider networks, you know, employer groups. We're seeing strong receptivity to Data Diagnostics across them. I think it will be too early to tell you percentage-wise what's the proportionality of interest and revenue uptake amongst the different groups. One of the things that makes it complicated is that a provider group can be underneath a payor parent or have partial ownership or have special lower case ACO relationships in addition to the traditional ACO sorts of relationships that's covered under the Affordable Care Act. But there is no area that we're not getting interest back, but probably too early -- definitely too early to give you exact percentage breakdowns of interest level.

[Unidentified Participant:]

Got it. Thank you very much.

[Keith Dunleavy:]

Sure.

[Operator:]

Thank you. Our next question comes from the line of Sean Wieland from Piper Jaffray. Your line is open.

[Sean Wieland:]

Hi. Thanks for taking the questions. So, follow up on that. What are your assumptions around the Data Diagnostics business for the balance of the year? When is that going to begin generating revenue and what are your expectations on revenue from that business this year?

[Keith Dunleavy:]

Sean, good evening, thanks for the question. So first of all, Data Diagnostics is generating revenue, but we're not at this point providing out detail as to how we see that ramp and expansion going. It is literally a national rollout of a product introducing quite a few constituencies, from medical directors and provider network leaders and CFOs, and so forth, all the way through the whole supply chain and the whole ecosystem of the healthcare system. So it is -- it's been a fascinating process to watch. Virtually every day we're involved in various stages of this, from obviously, first, introduction, to obviously, you know, contracting and integration. So we're generating revenue but we're not yet giving out the metrics on it. Obviously that'll change in the future as we feel increasingly comfortable of how to best communicate this and convey this to you. But a little early for that, but we're very pleased with how it's going.

[Sean Wieland:]

Okay, thanks. And just one more on that provider space. Have you had an opportunity to look at the MIPS rules for providers? And does that play into your strategy at all?

[Keith Dunleavy:]

So, Sean, I would not on this call want to -- I can't jump into that inadequate detail for you. Happy to take that offline with you. We do have teams that are monitoring all those various different regulatory issues and keeping them well on hand. We're very positive on everything we're seeing. But I would be ill-equipped to give you a full answer on that.

[Sean Wieland:]

All right, no problem. Thanks so much.

[Operator:]

Thank you. Our next question comes from the line of Donald Hooker from KeyBanc. Your line is open.

[Donald Hooker:]

Great. Good afternoon. Curious, in light of I guess IMS and Quintiles and Optum working Paraxel. I'm wondering if there are other -- were there other channels that you've looked sort of going after the biopharma space, working with Siros [ph]? In your mind, what are sort of the pluses and minuses of different channels? Or do you sort of feel like you have what you need with Avalere? And then sort of a similar question, in parallel, as we think about your relationship with Quest Diagnostics kind of developing, is there -- are you all in discussions around additional products over time? Is that a channel that could also evolve over time?

[Keith Dunleavy:]

Hey, Don, thanks for the question. So first of all, on the pharma space, you're right, it's a complex space, you know, where do the edges of it stretch to? So we see pharma as not only the manufacturer or the traditional pharmaceutical company but also the specialty pharmacy company, the PBM, the payors increasingly involved in this, and then obviously the CRO, and there's a number of more pure analytical players that support the R&D, the marketing efforts, and so forth of the whole system. We are following, tracking and being involved with many of those segments. So we're doing very nice work directly with the pharma industry. You'll see more about that in the months and quarters to come. But we're also increasingly seeing the role to play in the PBM space and the specialty pharmacy space, and other areas both high cost and high-impact drugs on both sides of the table, meaning for the pharma player as well as for the payor, provider as well. So you can expect from us to everywhere, as a rule of thumb, everywhere the data analytics can impact the value and financial performance of the healthcare ecosystem, Inovalon is going to be at play. And our platforms really serve us well to connect into all those constituents -- the doctor, the patient, the health plan, the call centers -- all the different parts that bring those to life. So we're doing large efforts in many of those areas and you'll see those come to fruition, I strongly believe. The second part of your question is, where's the relationship with Quest going to go? Quest is a great partner. I have nothing but positive things to say about them, all the way, all the way up to Steve, all the way into the trenches, the people that we're working with on literally a daily basis. Their attention to this, their attention to detail, their understanding of how the market works, the relationships with the payors and providers, is really a positive one, and their appreciation of how much data and analytics is increasingly playing a role in the healthcare space is admirable and obviously locked-step in with our culture and philosophy here. So, certainly we see that relationship going well, and who knows how far that can go. So, really positive things towards them and we're enjoying working with them.

[Donald Hooker:]

Okay, thank you.

[Keith Dunleavy:]

Great. Well, with that, let me move to close the call. I really want to take the opportunity to thank all of you for participating in the call. Thank you for your time, attention and interest in Inovalon. A few points before you close out with us this evening. Number one, I want you to think about Inovalon is right at the center of the continuing evolution of the healthcare industry. This massive change, as you all know about, from volume to value. This is occurring not just in the public sector but also the private sector alike. We're having government regulation but we're also having the private employers, the pharma industry, so many other parts of the ecosystem, all necessarily adapt this transition from volume to value, how to achieve it, how to measure it, how to excel in it. We see that driving significant demand for Inovalon's products and services, not just today but for a long time to come. Number two is the combination of our capabilities, the unique cloud-based technology platforms, the large-scale and growing proprietary data sets, the big data analytical capabilities, and the highly relevant subject matter expertise, we see as both enormous differentiators and sustainable competitive advantages for us in the marketplace. And then third, we feel that we're really in the early innings. We have an enormous amount of success as a track record evidence of our ability to perform profitably and over a long period of time. But at the same time we have multiple and significant new product lines, new adjacent spaces that we're moving into, from Data Diagnostics and QSI Excel, to products that we are yet to tell you about and excited to roll out over the quarters to come, into also the pharma space, the provider space, the post-acute care space. All of this being driven by a vision that a data-driven healthcare space, one that is transitioning not just from volume to value but also one from legacy batch processing to real-time transactionally driven healthcare. We believe that decision support and transactions that occur in the workflow at the point of care for the people delivering care and for the people receiving care is where healthcare will be. They'll be where the value is delivered and it'll be where the financial differentiator is achieved. And we believe Inovalon will be one of the key drivers of that transition. We greatly appreciate your time. Thank you again for your interest. And we look forward to keeping you up to date over the quarters to come. Have a good night please.

[Operator:]

Ladies and gentlemen, thank you again for your participation in today's conference call. This now concludes the program and you may all disconnect off the lines at this time. Everyone have a great day.