Q1 2020 Earnings Call

Ladies and gentlemen, today's conference is scheduled to begin shortly please continue to standby. Thank you for your patience.

[music].

Good day, ladies and gentlemen, and welcome to the noble <unk> first quarter 2020, <unk> earnings Conference call. At this time all participants on in listen only mode later, well conduct the question and.

Answer session. If he would like to ask a question. Please press Star then one now.

A reminder, this conference is being recorded.

No I would like to turn the conference over to your whole Kim Collins. Please again.

Good afternoon. This is Kim Collins senior Vice President of communications that Inovalon.

I'm here today with Dr., Keith Dummy me Inovalons, Chief Executive Officer in Chairman of the Board and John It's simple Inovalons Chief Financial Officer I.

I would like to welcome you all to our first quarter Twentytwenty earnings call.

The press release announcing our financial results for the first quarter 2020 was distributed this afternoon and a replay of today's call will be available shortly posted on the Investor Relations page I want to know bonds website.

For those of you listening to the rebroadcast of this call. We remind you that the remarks made herein are as of today April 29, Twentytwenty and will not be updated subsequent to this initial earnings call.

Reminds you that certain statements made during this call may be characterized as forward looking under the private Securities Litigation Reform Act of 1995.

Putting statements related to future results of operations and financial position, our business strategy implant market growth and our objectives for future operation.

These statements involve a number of factors that could cause actual results to differ materially additional information concerning these factors is contained on the company's earnings release and filings with the FCC.

In an effort to provide additional information to investors. This conference call. One webcast is accompanied by a presentation, which is available in the IR section of our website, you're encouraged to download a copy of this presentation to follow along with our prepared remarks.

Our presentation also includes certain non-GAAP financial measure you find definitions of those non-GAAP measures and reconciliation charts at the end of the company's earnings release and on the company's website.

No. It is my pleasure to turn the call over to Dr. Keith done Levy.

Thank you Kim good afternoon, everybody and thank you for joining our call.

Before we speak about the first quarter's results I would like to take a moment to express my deep gratitude and tremendous pride regarding all the inovalon employees, who truly dawn an incredible job supporting our clients each other and the company. During this cobot 19 pandemic.

We entered 2020 in a position of strength and we're navigating the cobot 19 situation well.

The cold in 19 crisis is bringing challenges of course, but he was also demonstrating many beneficial aspects of an old ones business model.

Clarifying differentiation of the company and its capabilities within the marketplace and driving an increase depreciation for many of the strengths to define the newborns capabilities.

Well be solution architectures extensive marketplace conductivity deep data assets and impactful analytics, all empowering meaningful aspects of today's health care needs, both with respect to improving clinical outcomes and economics.

27 team the company put into place a pandemic crisis plant.

During February we activated this plan and transition quickly to remote operations.

You are with the entirety of the company's operations from sales software development apart from operations declined support and administrative functions or cloud based another design.

Supporting strong and effective business continuity of an old ones platforms and operations.

For years now you have to speak about the investments the capabilities of the you know one one platform.

Our focus on becoming the enablement layer empowering data driven health care for our clients.

Every computational processes that are no. One has moved into cloud environments. Every piece of software that the company is designed to allow for our associates were clients to do their jobs and achieve value impact from remote locations.

And every you charge, which the company is connected.

Have all been investments in our ability to seamlessly operate and deliver meaningful value through a myriad of operating environments for our clients.

No. We have these multiyear advancements allowed us to operate remotely during this crisis.

They have also served as investments in our differentiation and value impact in the marketplace.

Since it over one began its transformation into a cloud based platform model in 2016 subscription based platform revenue has grown to be the vast majority of our business.

The first quarter of 2020 subscription based platform revenue grew year over year at more than 13%.

Coming in at 137.1 million worth 89% of total revenue compared to 83% of total revenue in 29 gene.

The innovations that have driven our connectivity.

Data assets analytical capabilities and intervention tool sets of the platform are translating into business model strength.

Financial flexibility and strong demand for the company's offerings.

During the first quarter, a noble and continued its innovative processes.

In response to the pandemic and changes in Tele health guidelines from the government, we accelerated our existing strategic plans to launch data driven and analytically informed tele health capabilities within a number of an old ones platform offerings empowering virtual data driven because its with clinicians for clients across the.

Country.

The implementation of several coal help capabilities within the you know one one platform brings the power of advanced analytics and data driven encounters to the tell help landscape.

Unlike other tele health capabilities offered within the marketplace, which typically begin each encounter with little or no knowledge of the patient or a potential factors contributing to a patient element or needs.

Nobody wants to help offering is informed by the available primary source data and the analytical insights of each respective patient.

This insight increases the call time efficiency effectiveness and value impact of engagements will also improving the patient experience.

Demand for telehealth offerings have been strong with multiple top 10 National health plans and regional health plans executing contracts within days of its announced availability many more since an even more within our pipeline.

I'm pleased to report the total help encounters on the platform began in early April and we're rapidly ramping the platform offering capacity as we speak.

Additionally, demand for remote connectivity capabilities, such as the company's cloud based clinical data extraction as a service have also significantly increased with multiple expansions of existing client relationships and higher volume utilization.

We're seeing continued strong demand from existing and new clients.

Well the subscription based platform nature of the majority of our business continued to show its strength during the first quarter. As you know there are other parts of our business, namely services and legacy offerings, which made up approximately 10% in southern percentage of the company's revenue in 2000 and.

Teen respectively.

And as the impact of Cobot 19 intensified in March and the majority of the U.S. was ordered to shelter in place or services business and some segments of our legacy offerings experienced softness.

The impact to services in legacy offerings were approximately 2.5 billion and 4.5 million, respectively compared to internal budget expectations.

We currently expect this dynamic which affected the latter half of the first quarter to continue through the fullness of the second quarter of 2020 and to begin resolving thereafter.

We believe that the softness is temporary due to the cold at 19 crisis and a significant portion of the softest represents what we would characterize as the Mandalay and not demand loss.

We are already engaged in discussions regarding planning for the Reacceleration of these aspects of our business and are optimistic regarding their contribution to the second half of the year.

Now, let me turn towards sales pipeline and bring you up to date with what we're seeing.

As you might expect we're seeing somewhat of different dynamics play out in different end markets. The provider in life Sciences markets saw early change and dynamics would you want nation their sales cycle starting in mid February.

Payer and pharmacy sales cycles, However have show no substantive change their sales cycles and remain very strong.

Fortunately, we're not seeing any substantive changes to close loss rates in fact, we're seeing a rather healthy set of dynamics. The strength then success of our sales team continues to increase the number of offerings. We have available within the market continues to expand and the differentiation in value impact.

Our capabilities are resonating well within the market.

Bringing this altogether our pipeline is showing significant strength increasing each of the many recent weeks standing at a record high since the company's started offering the noble on one platform in 2016.

Well pipeline dynamics remain an important variable, which we don't want to be overly cavalier about we are very positive about the implications of our current pipeline for the quarters ahead.

In summary, I'm pleased to report that are no one was well prepared to handle one operate within the construct of the cobot 19 crisis for all the reasons I just mentioned.

No one is clearly benefiting from the scalability of its business model its financial flexibility and its strong base of recurring subscription based platform revenue.

Concurrently the company continues to benefit from the several positive secular demands that are being further emphasize during the current crisis and has been able to introduce new highly relevant capabilities, which are being well received within the marketplace.

Well, we are indeed experiencing some softness in specific areas of our business due to coded 19, we see this is short term and more of demand delay and not demand loss.

Furthermore, well other organizations within the marketplace, maybe forced a decrease their investments in innovation and their investments in expansion because of the challenge is brought on by the crisis. We continue to be focused on investing in additional platform offerings, maintaining and even accelerating new product development and launching.

Vestments.

Altogether wall appreciating the number of variables and risks abounding, we're rather optimistic about our ability to navigate the cobot 19 period and even more optimistic about the company's performance and growth prospects. Following the resolution of the cobot 19 crisis.

With that allow me to turn the call over to Jonathan to walk you through our numbers and revised expectations for the next several quarters and full year John.

Thank you Keith and good afternoon, everyone.

I like to begin by thanking my team for doing a stellar job closing out the quarter and allowing us to report on schedule, while full year operating seamlessly in remote environments for the first time.

The focus dedication and teamwork at this moment in the history is a testament to the great team we've put together.

Also ACO Keith sentiment about the performance and focus of all the employees that no one across the country on serving our clients without missing a beat.

Now let me highlight a few key points building on Keith opening remarks.

First the company entered the year and exited the quarter from a position of financial strength with the strong balance sheet healthy cash flows and is well capitalized navigate the current environment, while also being well positioned to maximize opportunities in the marketplace as they arise.

Second the first quarter's financial results reflect another solid year over year growth across revenue adjusted EBITDA a non-GAAP yes.

And third we are updating our 2020 financial outlook to reflect what we believed to be the short term impacts of the cobot 19 crisis.

Now turning to our first quarter results first quarter 2020 revenue was 154.2 million in organic increase of 8.7 million or 6% year over year.

This increase was primarily attributable to an increase of 10.4 million in revenue contributed from new clients signed reflecting continued adoption of subscription based platform offerings.

This growth was partially offset by a 1.7 million dollar decrease in revenue from existing clients due to decreased utilization of services and legacy platform offerings attributable to the Kobin 19 pandemic.

As Keith mentioned and was further out wind in our release the impact of Cobot 19 on our services and legacy offerings in the first quarter was approximately 2.5 million and $4.5 million, respectively compared to our internal model expectations.

Focusing on our revenue streams subscription based platform revenue in the first quarter was 137.1 million inorganic increased 13.1% year over year, equating to 89% of first quarter revenue compared to 83% in the.

First quarter of 29 team.

First quarter 2020, trailing 12 month subscription based platform revenue was 547.4 million an increase of 15.9% compared to 472.1 million for the first quarter 2019, trailing 12 month period.

Services revenue in the first quarter represented 9% first quarter 2020 revenue with legacy revenue contributing the remaining 2%.

Regarding the company's new sales ACB the global pandemic did have an unfavorable impact our Q1 2020 sales activity as Keith mentioned, primarily seen in the provider in life Sciences pipeline.

A noble and new sales ACB during the quarter came in at 45.5 million a decrease of 5% year over year due to the Kobin 19 related factors.

Of note new platform sales ACB, excluding services was $29 million or an increase of 4.3% year over year, while the overall sales pipeline has expanded to a record high since the introduction of the noble on one platform in 2016.

Even after accounting for the long duration of sales cycles within sub segments of the pipeline, we're seeing very healthy demand and resulting pipeline strength.

Turning to gross margin first quarter 2020 gross margin was the solid 73.4%.

Gross margin decreased by 1% year over year, primarily as a result of increased investment in data connectivity an employee investments.

Gross margin increased 20 basis points sequentially from Q4, 2019 to Q1 2020, primarily driven by an improvement in revenue mix to predominantly subscription based platform revenue.

Sales and marketing expense for the first quarter was 15.2 million in increase of 1.6 million year over year.

Sales and marketing as a percentage of revenue was 9.8% in the first quarter of 2020, which was an increase from 9.3% in a year ago period.

As we discuss our fourth quarter 2019 conference call There'd been no change to our view on our sales and marketing investments.

We continue to see strong near term and long term demand from the healthcare marketplace for data driven technology platforms that drive increased revenue and operational cost efficiencies for its users.

The returns on investments in our sales and marketing engine remain attractive and we continue to be focused on driving increasing organic revenue growth.

First quarter 2020, adjusted EBITDA was 47.5 million increase of 3 million or 7% year over year adjusted EBITDA margin for the first quarter was 30.8% representing an increase of 20 basis points compared to the year ago period.

First quarter 2020, non-GAAP net income per share was 11 cents, an increase of 10% compared to Q1 2019.

Turning to cash flow net cash provided by operating activities in the first quarter was 14.1 million, which is after interest payments of 13.1 million and after 20.9 million outflows associated with the company's 2019 annual discretionary incentive.

Bonus payments.

On a trailing 12 month basis net cash provided by operating activities was 105.8 million in.

An increase of 8% compared to 98.3 million during the preceding 12 month period.

First quarter Capex came in at 16.5 million.

Moving to the balance sheet, no one's financial position and liquidity remained solid no balance cash and cash equivalent as of March 31st 2020 was 182.9 million.

Total outstanding debt was $1 billion reported balance sheet debt was 990.4 million net of issuance discounts and deferred financing fees and our net debt position was 831.4 million.

Our net debt leverage ratio as defined within our debt agreement continued to improve to 3.79 to one as of Q1 2020 compared to 4.29 to one as of Q1 29 team and 3.83 to one as of Q4 2019.

The outlined in our earnings release, the company proactively drew down $99 million from its revolving credit facility in the first quarter.

The drawdown had no impact on the company's net debt leverage ratio.

Increases the Companys financial flexibility and provides the availability of additional capital to potentially deployed opportunistically.

The revolving credit facility drawn the company has one financial covenant that requires the company to maintain a net leverage ratio of seven to one or lower.

At the end of Q1 2020, the company had trailing 12 month, adjusted EBITDA of $213.6 million, providing a significant excess of trailing 12 month, adjusted EBITDA totaling $99.4 million over the adjusted EBITDA required to be within.

The net debt leverage ratio covenant.

Said another way the company is generating nearly twice the required adjusted EBITDA to be within its one financial covenant.

Now, let me conclude by sharing updates to the company's 2020 financial outlook.

We are updating our prior guidance ranges based on expected impacts from Kobin 19, as we see them today.

As part of this we have updated or expectations on the quarterly cadence as we expected to progress through 2020.

To be clear, we see Q2 2020 as the trough quarter of our revenue growth due to the impact of covert 19, and we see a re acceleration in the second half of 2020, allowing the upper bounds of our third quarter and fourth quarter growth to return to that which we are rich.

We outlined in October 29 team.

We encourage you to refer to our supplemental deck on slide 22, where we have laid out expectations for each quarter.

Bringing this altogether for the full year, we see full year revenue range of $672 million to $698 million, representing organic growth of 5% to 9% with subscription based platform offerings contributing to 85% of total twice.

20 revenue.

We see adjusted EBITDA of 221 million to 231 million with an adjusted EBITDA margin remaining at 33% of revenue.

Non-GAAP net income per share, we see at 53 cents to 57 cents.

Net cash provided by operating activities to range between 160 million to 175 million.

We see Capex at 54 million to 60 million as we continue to see and invest in near and long term opportunities.

Now, let me go back and provide additional insights into the second quarter of 2020.

Well, we saw an impact of 2.5 million in services and 4.5 million in legacy offerings in Q1 2020.

We expect a full quarter impact from cobot 19 to be approximately two times. This amount in Q2 of 2020, while demand for new offerings and capabilities are ramping.

This results in the following guidance of revenue of 157 million to 163 million, reflecting year over year organic growth of flat to 4%.

Adjusted EBITDA of 50 million to 52 million and non-GAAP diluted net income per share of 11 cents to 12 cents.

Again, we encourage you to refer to todays earnings release, and our first quarter supplemental earnings deck for more details on our 2020 guidance range and our quarterly revenue cadence for the rest of the year based on our views today.

Before going into Q Nay, I will close by Reemphasizing keeps coming.

The company's pandemic plan multiyear moved to a subscription based revenue model and investments in modernizing the company's cloud based architecture as well as investments in cloud based productivity and collaboration software has enabled business operations to seamlessly continue to support our CFO.

Planes and enable a safe and efficient work setting for our team members.

While our current Kobin 19 expectations do have an impact on the 2020 financial outlook, we're optimistic about what we're seeing in our operations the marketplace demand for our capabilities and our sales pipeline.

We continue to be very well positioned to maximize on the secular demand of data driven healthcare and continue to focus our activities and investments prudently. During this time to support our clients.

Progress through enough fiscally strong manner and to emerge as an even stronger and larger leader within the marketplace post the cobot 19 pandemic.

With that let me turn the call back tour, operator to conduct our Q and a session.

Ladies and gentlemen, if you'd like to ask a question at this time. Please press the star and the number one key on your Touchtone telephone.

To withdraw your question press the pound key.

And the interest of time, we ask that you limit yourself to one question and one follow up.

Please standby will be compiled acuity roster.

Our first question comes from Donald Tucker with Keybanc. Your line is now open.

Great good good afternoon.

One of the here viewpoint elaborate a bit on the provider and life Sciences headwinds at the end of Q1 and into Q2, I'm just trying to sort of a picture in my mind, what specific you guys do a lot of things in those areas and I just.

Maybe can you just review and elaborate a bit on what specific activities might have been deferred and.

And in terms of and so we can say sort of get a sense of what the yeah. The extent there might be a bounce back in the coming quarters.

Hey, John Good evening, Thanks for joining the call.

So let me let me look to answer your question, we make sure Im answering it properly risks are you talking about.

Pipeline and sales closure characteristics are you talking about revenue generating characteristic.

Oh, the revenue generating downside in Q1 in Q2 to your guidance.

Okay. So they're slightly to your funding, let's talk about him a separately by the revenue side of things was in services and in our legacy offering areas. So services started to show softness pretty.

Quickly in mid February.

And progress through the ended the quarter impacting about 2.5 million a lot of that as time in materials as you'd expect that requires face to face meetings that requires people to be on site. It requires teams to be collaborating with clients and that was pretty quickly impacted during that period.

And then legacy offerings, the 4.5 million during that period, that's where clients are bars are using our software, but at their discretion, they're able to direct a how a doctors using software how an intervention is using the software and as those regions.

Our country started being put under walk down orders they had less opportunity to use those unit base.

Fee generating aspects of our software platform.

Remember the legacy offerings side of our business being different than subscription based does have vulnerability to clients preference of timing of when they do things.

So that is the revenue aspect, where presuming that those continue at a similar clip.

During the full list of Q2, although we're already seeing some positive turns there, which we can come back to.

The second part of your interpreting your question from the pipeline standpoint, a pipeline in Q1 definitely had a different characteristics depending on who the end audience was.

The end audience of the provider and the life Sciences space, We did see changes in the characteristics of those pipeline treatments.

Whereas we did not see substantive changes in pipeline characteristics for a payer and pharmacy.

So the.

The on the provider side.

You can imagine the customer that they are calling to.

It became very rapidly preoccupied during the coded situation and was as you would expect a little less interested in handling a sales discussion or sales call on the life Sciences Arena life Sciences.

We would say in the marketplace was the fastest to notice the co that issue on a global basis and had the fast.

Change in characteristic in February.

As the pharmaceutical marketplace seem to be rather attentive to the potential impacts you know I'm using the word potential back when the world that there were potential in February very rapidly, becoming a clear that they were impacts, but we saw a change in their availability to go through sales process.

These most quickly.

But also we're seeing that.

In a similar way turn pretty quickly back so I'll stop there of them you know if I answered your question Don.

No. That's wonderful thank you for that and maybe more on the positive side. The you seem particularly excited about the telehealth offering and you provided some interesting discussion there, but wanted to see if I could squeeze out again.

Any sort of more quantification of that how broadly.

Uptake there I'm sure was very rapid.

Can you share with us any kind of.

Sort of sense as to how how broadly that's now penetrated through your client base. Your second Oh is that sort of a spike in Q1, Q2, and then let level out or is that going to be kind of a gradual ramp I don't know if you can willing to elaborate on that I know you don't like talking about specific clients, but just more broadly.

Sure I can do to help you out so so first of all just too.

Touch on the non telehealth portions first I, just think important for us to point out that even in those provider and life Sciences arenas. It is.

Rather evident to us that this is a demand related not a demand wants these were not.

Phone call, saying, we're no longer interested these were phone calls, saying he can you give us a little bit of time, if you will and.

We're seeing.

Already a change in character to to the positive, but this was not a us losing out to somebody else or somebody deciding they didnt need things. So we do see demand catch up.

Oh characteristic ahead of us, which were obviously quite positive on on the payer side and the pharmacy side. There really was no change even in Q1, and we're not seeing any change in Q2 and in fact as we message on unprepared materials today, we're seeing.

More more than more than strength really.

Strong pipeline expansion size of deals and counts of deals and we're pretty excited about that but to get to the tele health.

The offering of tell health and also connectivity differences are connectivity demand in the marketplace is strong as well as you might imagine organizations are kind of rethinking how they get their jobs done and it's not just through telehealth, which I'll talk about more to your question, but it's also through a remote.

Connectivity capabilities things like our clinical data extraction as a service and natural language processing as a service those are seeing strong upticks here on the tell how that is going very nicely. We launched it in early April we saw.

Multiple national Health plan, a sign on within days, we saw many regionals and local health plan sign on within days, we've had many.

More come on since and we have many in pipeline that Hell help offering is quite differentiated in the marketplace. So unlike other offerings in the marketplace, where the clinician and the patient get on encounter together and the clinician doesn't know anything about the patient their need.

There are concerns.

Or any special interest that the health plan might have to try to conquer during the calendar as well in our situation all of those encounters or data driven analytically driven it leads to a more efficient encounter it leads to a better a patient experience it leads to higher value.

Impact both for the patient and for the client we launched in early April it's ramping.

Very quickly we're very pleased with it actually received today.

The first patients died feedback on it the surveys that we run there there are very strong so not only are we seeing a rapid ramping across the country, but we're also seeing strong positive feedback from users of the software both from a user sale and from a patient side, so you're right.

We're not giving out numbers on that expansion, but but multiple top 10 national systems have signed on and many more large regional and you know many household name companies are now on this platform, we do not expected to be a spike in Q2, if you.

Bill, but we expect this to be a longstanding substitutive expansion of our capabilities, that's ramping very nicely here in Q2, and we expect to ramp strongly through the rest of the year.

Thank you very much.

Thanks, Don.

Our next question comes from Ricky Goldwasser with Morgan Stanley. Your line is now open.

Yes, good afternoon.

[laughter] fighter marketplace.

Providers are about 35% off.

Your book of business, how have providers priorities are changing how is the conversations with them are changing and I think previously you discuss implementation timelines for new contracts you run into one to nine months range for providers.

How how do you think that's going to be affected.

The result of Covidien really to question is like how do you think about things being pushed out or do you think things are going to be pushed out to 220 21.

Hey, Rick you think thanks for the question a few different questions. There, let me see if I can hit them. All first of all we we're not seeing a note across the board shutdown and provided by any stretch. We're just seeing some softness in the long gains from the sales cycle.

And provider, but they're still very much in the game very much interested very much engaged where we're selling still every day to providers and they are interested in what they were interested in yesterday to run their business more efficiently, but they're also interested in new additional capabilities, we're seeing a greater.

Appreciation of revenue generating a tool things right chronic care management capabilities and obviously, we're seeing a strong interest in Intel will help right. So not only did the regulatory world make a number of changes to allow tele health to be more broadly used but it also increase.

For the providers benefit to use telehealth tools a lot of providers out there are looking to take advantage of that they're doing a lot of.

Inbound demand generation on that.

One of the reasons, obviously were hurrying to provide and ramp those capabilities, but definitely not seeing Ricky a push out to 2021 or any kind of phenomenon like that.

The provider World is as eager if I can you broadly described are eager to get back to they're making a living and they're running their practices and they're running their hospital systems as you and I might be so definitely we're not talking a full year push out we're all.

Already seeing nice positive things there now on a revenue basis for us because so much of our provider businesses, 99% platform, 99% a subscription base. So you're not seeing a revenue impact on the provider side, it's really just the sales elongation in.

Provider side.

And there are eager to get started did I answer your questions Ricky.

You did any of.

That could have just one follow up when you think about 2021 right and it kind of you think about the changes because you alluded to it to changes in regulation are pretty meaningful.

How do you think you more positive in 2021, now versus where Youre a quarter, though.

I would say that that's right and in our guidance Ricky for Q3 in Q4, you'll notice that the the upper range of that growth of 12% on the upper end of those two guidance numbers.

Right back where we had them originally.

And we have a number of new product capabilities in our pocket that we're able to be selling into the marketplace as well as we see ourselves pushing forward. During this period, where a number of the competitors in the marketplace are a little bit more on the defensive having to rein in spending having.

To do lay offs, having to not innovators much having we're hearing of client services support challenges. We're hearing of technology outages were hearing of challenges in the marketplace that we are definitely not experiencing so our clients are also seeing that and we're getting caused.

Switch from solution, a two and a noble on solution. So we're we're seeing a marketplace that is paying attention to how well we're marching through this process and we've got some great new capabilities in the marketplace that were instigated by.

The cobot 19 crisis, so yes, we feel.

Quite quite positive about the period going forward.

Thank you.

Our next question comes from Ryan Daniels with William Blair. Your line is open.

Hi, Good evening. This is Jerry Sanfer Ryan Thanks for taking the questions. Maybe just actually just a follow up on those last comment there Keith I think I noticed in a press release you had mentioned you know obviously some of the positive dynamics with.

Sales pipeline.

I think they mentioned that when rates remained strong across the board with an upward bias since I'm curious you know aside from some of those comments you just made it maybe.

Some issues, you're staying with some competitors, that's maybe helping you take some share I'm curious what specifically is resonating in the market in terms of the value proposition specifically in light of under the current uncertainty that we're seeing right now.

Hey, Gerry thanks, Thanks for being on the call. It's all about value achievement right. So as Jason could could comment on an all of a perhaps you'll want to add to this.

Our clients a hospital systems Health plan systems Pharmacy systems pharmaceutical systems are all recognizing the need to use technology more because they feel hancock.

In the current environment like you and I, probably do and so the ability of our platform to add value to their business is being dramatically appreciated.

And the larger technology plays in the marketplace and I want to go into too much detail as to those audiences.

They are appreciating cloud based solutions to them, bringing new capabilities to the marketplace and they're looking to noble one to do that with them and for them. So for all of those reasons.

And the absence of many those capabilities in our competitors, we are seeing upticks in win rates upticks in size of deals upticks in numbers of deals Jason you want to add to that.

Yes, Thanks, Keith I think you answered it pretty well the only thing that I would add it is you know in this world, where you can't be face to face with with clients. It's the focus automatically goes towards value realization and I think one of our strengths is.

Not just the value proposition as you put it Gerard.

But the actual realization of that value and the demonstrably full realization of that value and people in the marketplace or knowing that's where we're focused on.

We don't we don't get deals because you know we took somebody out to dinner and have.

Great social relationship, we we'd like those things, but we wouldnt business, because we deliver value for our clients.

Great. That's really helpful color. Thank you and maybe I'll just sneak in a quick follow up on the second quarter guidance it looks like.

Adjusted EBITDA implies a margin that's about 100 basis points are so from Q1.

Just based on the midpoint should we think about that as you kind of more sort of mix with you know that sort of strengthens subscription revenues or maybe some cost control initiatives in place there.

Jerry It's John what you're seeing there is really the scalability in a leverage model the business as we add additional revenue that just continues to fall very nicely to the bottom line.

Right, Josh I guess I was thinking.

Relatively more muted growth in the second quarter still seeing nice margin expansion there, but it sounds like that's really mark just leverage in general versus any sort of specific cost control measures or anything like that.

Thats right you're the benefit really are seeing is just the benefit of the predominantly subscription based revenue in that profitability profile really benefiting the adjusted EBITDA line.

Injured and we're just maybe add on that certainly while we're being thoughtful about our costs were really building for growth I mean, we're seeing a lot of demand Greece. So we're not in a cost cutting mode. We're obviously always in a cost prudent mode.

But we are investing to take best advantage of this opportunity and expand our capabilities.

Got it thanks a lot.

Our next question comes from Jessica Fung with Piper Sandler Your line is open.

Hi, Thanks for taking my question.

Okay, then interested to know any services revenue guide down.

For the second quarter at just to what extent can some of the services. The Irrs you spoke to and be moved on line both with respect to the second quarter and then also any of that has a potential.

Or any of ended up the central resurgence of encore bed in the fall or or winner of 2021.

Hey, just.

Thanks for the question. So these services are not typically online provided services. There is some of them. Obviously, because you didn't see a a drop of the fullness of the service you saw.

You know 2.5 million of impact and we see that a bit higher in Q2.

We were already having the discussions of people of clients of ours reopening those services right. There. They have work they need to get done their projects they need to get done them initiatives they need to get done they're eager to get them done.

We have built in some aspect of not expecting things to magically go back to normal on July one if you will so we believe we've already prudently factored in a degree of tolerance for reasonable expectation on second third fourth waves if they.

Were to occur.

But we're not looking to move our services into an entirely different environment, but and then closing point on that again these are not.

Last services opportunities, but really things, a pause or or or or pushed out until people can get their work done.

Thank you and then one sort of switching gears I think you mentioned and chronic disease.

Whereas remote patient monitoring chronic disease management.

Capabilities alongside Tele health. So just interested if you could talk a little bit about your chronic disease management offering and then any gaps you might see in the market or where do you think it might be interesting.

Yes, that's an interesting area. The government has put a lot of dollars out there available for the provider marketplace to take care of whats called CCM. It was a program introduced by the federal government a couple of years back.

It reimburses the provider marketplace more significantly in the setting a patient having a higher number of chronic conditions. The challenge as you I'm sure. Appreciate is that most doctors actually don't know how many chronic conditions of patient might have especially if they're in the fee for service world.

The benefit that Inovalons platform I'll provide is that we actually do have that data.

We have the largest access to fee for service data in the country.

Bind with all of our other data we've developed tools that allow for the provider marketplace, not only see which patients are in need of that care, but see which patients can most significantly.

The provider in reimbursement optimization.

So there that gap is present in the rest of the marketplace because that data is typically not available in other solutions in the marketplace. We're seeing nice demand for that providers are very hungry to play catch up to the challenges. They have experienced in Q1 in Q2, and presumably a little bit afterward, so we definitely.

Advantage there and we're we're pleased that we can help.

Great. Thank you.

Yes.

Our next question comes from Sandy Draper with Suntrust. Your line is now open.

Thanks, very much and good afternoon, a lot of questions had been and asked but maybe.

Going back to the that that the SaaS revenue obviously good leasing it's my model strong results in first quarter beat the numbers, but if I look at the guidance.

At the 85% of the of the lower guidance, it's down from that the midpoint of the old one I'm thinking that it's not lost revenue from your existing clients is slower ramp up of new sales, but I'm just trying to think is that primarily in the provider market because as you mentioned.

Keith.

That's all pretty recurring but just maybe overseeing is that the impact of lower sales is causing a slower ramp up than you would've expected are there any other dynamics there to take what was originally it pretty nivea strong first quarter, but you didn't see the numbers coming down.

At the midpoint thanks.

Thanks for the thanks, a question Sandy and thanks for.

Seeing that in Q1 look our platform is really strong and.

We continue to see that strength persisting and a large number of clients wanting to come onto that platform. So we think it's prudent to build in a little bit of a caution around implementation of all the new clients, we have coming online.

And.

You want to just have a little bit of thoughtfulness in that but there's no other dynamics of the things you're already thinking sandy.

Okay, great that really my only question that otherwise all the other ones have been asked and answered. Thanks.

City.

Our next question comes from Stephanie Davis, Demko with SVB Leerink. Your line is now open.

Hi, guys. Thank you for taking my question. So obviously the sales environment, it's pretty neat.

Cutting through that noise can you talk to where you are seeing pockets of demand within your broader analytics.

And then looking forward I see.

Jack will be well the surgeon and the data exchange business.

That's helpful becomes more important.

It's definitely personal great to have you on the call. Thanks. Thanks for the question happy with that.

Yeah.

Happy to have you back.

So on the on the sales for clarity, we're we're really only seeing sales elongation in provider and life Sciences, and we're already starting to see some some movement of that improving and we saw no change to the negative on on the.

The pharmacy and the payer side in fact, those sales pipeline look pretty pretty tremendous.

So this is not a sales world, where we would use the word weakness. We we are we're seeing a.

Pieces that I mentioned is ticking, a little bit longer, but not leading to a no.

There were seeing that really strong growing areas payer and pharmacy as.

Looking really really positive for the year.

And then you asked about the data exchange and catch up there.

We're seeing data being.

More broadly demanded wanted sought after in the marketplace. The capabilities, we can deliver through the analytics on it.

And we're using it to every banners for our clients benefit as we can things like the data Lake offering is being very well received combining co bid 19 data together with our risk data to help our clients as well as other members of the jurisdictions and government.

Abilities to better plan for where risk is and where they need to be planning.

We're also wrapping all that data into the analytics that are supporting or tele health capabilities operational logistical planning for where those demands are so we're seeing a greater appreciation in the marketplace for the value of data.

And we're increasingly getting the inbound phone calls from people that are appreciating that we have that holistic view of the marketplace did I answer your questions Stephanie.

Now that all that helps a lot.

And Mark sorry.

I guess on just one follow up on the guidance comments about demand.

So you had higher visibility and your range as you move towards the subscription model, how should we think about where you digitally.

And what it digital wallet hi.

Well I think any prudent operator of a company today would would say smart too.

I think that there are things that you may not understand right I think we want to be humble we want to be thoughtful.

We want to be a good stewards of the business and and deserve a credibility in the marketplace. So.

We don't want to be arrogant about thinking we know every variable that might be ahead of us.

That said, we are very fortunate to have a very strong business model that is predominantly platform based.

And platforms that drive value for our clients and we're hearing from our clients as they too are sensitive about their financial performance very often we're hearing they actually want more they want to catch up they want to get back in the game they want to get their annual goals achieved that's obviously music to our years to both.

Help a client and help our performance.

So we we want to be prudent we want to be careful we want to be thoughtful about our guidance, but we're feeling pretty good about what we have out there.

Perfect. Thank you guys.

Great.

Well.

With that I wanted to thank everybody before we end the call I Wonder just close with a few salient points first I want to thank the incredible employees of the company an executive leadership of Inovalon purchase, leaving the strong business continuity operations capabilities, both the platforms client support sales legal finance.

Technology engineering really an incredible job across the board a second the beneficial characteristics of our cloud platform approach and our subscription based.

Capabilities and business model, we believe are really shining through other supporting differentiated capabilities rapid large scale innovations and implementations strong value delivery for our clients in a highly effective flexible and as I hope you all agree a profitable financial performance of the company.

Third while appreciating the variables and risks that abound as I was just mentioning to Stephanie.

We are strongly optimistic about what we're seeing with respect to our ability to navigate covert 19 period and even more optimistically about what we're seeing in the strong demand the differentiation of the company and the strong capabilities that were being recognized as having a for the period ahead as cobot 19 receipts.

I look forward to speak in all of you on the next call of course. Thank you for your time this evening and really thank you for your interest in a noble on Tonight everybody.

Ladies and gentlemen, this concludes today's conference call. Thank you for participating you may now disconnect.

[music].