Q2 2020 Inovalon Holdings Inc Earnings Call

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Good day, ladies and gentlemen, and welcome to be done over <unk> second quarter 2020 earnings call.

At this time, all participants Arnie listen only mode. Later, we'll conduct a question and answer session. If you would like to ask a question. Please press Star then one now.

As a reminder, this conference is being recorded and now I'll turn the conference over to your host Kim Collins. Please begin.

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

I'm here today with Dr. keep done Levy Inovalons, Chief Executive Officer, and Chairman of the Board and Jonathan Bolt Inovalon Chief Financial Officer.

I'd like to welcome you to our second quarter Twentytwenty earnings call.

The press release announcing our financial results for the second quarter was distributed this afternoon and a replay of today's call will be available shortly posted on the Investor Relations page on another ones website.

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

I'll remind you that certain statements made during this call 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 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 in the company's earnings release and filings with the FCC.

In an effort to provide additional information to investors. This conference call and webcast is accompanied by a presentation, which is available on 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 measures you will find definitions of these 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. keep done Levy.

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

Let me begin by saying I continue to be extremely impressed with the inovalon team their dedication energy and performance every corner of the company as the entire organization continues to execute successfully despite the obvious cobot 19 pandemic challenges.

The company's cloud based platform leadership within the healthcare vertical demonstrated itself well during the second quarter with accelerating adoption of the company's capabilities no. One delivered a new sales record of $76 million, a new annual contract value during the quarter, 31.8% increase.

Versus the second quarter of 2019, another sequential quarter up 13% year over year subscription based platform revenue growth and continued expanding profitability with leading SAS industry gross margins operating margins and earnings per share performances.

In addition, we continue to have strong operating cash flow voluntarily repaid in full the $99 million that was previously drawn from the company's revolver.

Stand with a positive view towards our second half of 2020, and even more so towards 2021 as a growing number of the company's expanding platform offerings and larger platform implementation come online.

In addition to what our performance metrics say about what we did in terms of sales margins and cash flows during the second quarter.

Similarly important is with whom we did it.

The client portfolio the company continue to expand impressively during the quarter and notably amongst industry, leading marquee organizations.

Specifically, the second quarter demonstrated the broadening adoption of a noble ones cloud based SaaS solutions with industry, leading wins across multiple segments of the marketplace, including one of the world's largest consumer retailers.

The Walmart one of the world's largest medical distributors, namely Cardinal health and one of the world's largest payers.

Each of which entered into long term contracts for five to seven years in duration with the payer contract alone, resulting in a total contract value a greater than $150 million.

Also important as a reflection of the company's strong transition to being a leading provider of cloud based SAS platforms empowering the healthcare vertical each of these marquee contracts or for 100% subscription based SaaS cloud based engagements, providing highly differentiated high value.

Capabilities to the respective client organization, each of which have the reach prowess and resources to develop technology internally were sourced from any technology organization in the world, but instead chose the you know Baldwin park for for the long term strategic purposes.

Also during the quarter, we were pleased to see continued progress on many additional important fronts, we achieved rapidly expanding adoption of the company's virtual health visit capabilities during the quarter, a process, which continues to ramp now in the third quarter.

Applications being expanded from the health plan payer client base to now include offerings that are being sold within the director provider client base.

We launched additional new capabilities, including infection watch for provider organizations, and our consumer health Gateway designed for multiple current and future customer audiences in response to the CMS mandated interoperability patient access EPA requirements of the 21st century Cures Act.

We made strong progress on other platforms scale capability and efficiency initiatives and continue to make progress on a number of additional offerings planned for release during the second half of 2020.

And finally in the setting up the tremendous work and success. So many colleagues I'm proud to say the load want is increasingly being seen within the marketplace as a leading organization not only to work with but to be part of translating into a tremendous morale increasing organizational effectiveness.

And a deepening other bench with strong recruitment of additional great talent, all supporting our plans and expectations for very positive road ahead.

Set of platform capabilities that we have amassed our connectivity our primary source real world data assets are libraries, a purpose built data informed analytics and our cloud based architecture of highly configurable modules is increasingly being seen as highly differentiated within the marketplace.

Yes.

Importantly, we've achieved these capabilities with a balanced view towards persisted innovative leadership and associated investment coupled with prudence towards delivering on the more near term operational efficiency profitability cash flow and balance sheet strength.

As we've increased the sophistication and scale of our sales capabilities. These factors have come together to increasingly translate into market leadership sales and sustainable longer term growth acceleration.

Taken together demonstrated by the resilience of our business model and strength of our sales, particularly during the unique moment in history and the current state of the economy puts in over one in a rarified field with other leading SaaS companies that are helping C level executives and boards to engage in larger scale did.

A little transformations in health care to ensure that their companies are well positioned to compete in a post pandemic world and a 21st century economy, there will be more interconnected and data driven in the cloud than ever before.

With that allow me to turn the call over to Jonathan to review the financial results for the quarter and outlook for the third quarter and balance of the year.

Jonathan.

Thank you Keith and good afternoon, I like to begin by highlighting a few key points building and Keith opening remarks.

First second quarter financial results were solid with revenue delivery towards the high end of our guidance range continued double digit platform revenue growth profitability above our guidance ranges and continued strong cash flow growth.

In Q2, new sales he see the of 75.7 million was the company a record achieved despite travel in face to face meeting restrictions and Cobot 19 response distractions at client organization.

Third we are updating our full year 2020 financial outlook to increase the low end of our revenue guidance range and our profitability based on strong execution in the second quarter and expected second half performance.

Now turning to our second quarter results.

Second quarter revenue was 162.2 million inorganic increase of 5.2 million or 3% year over year.

This increase was primarily attributable to an increase of 15.8 million in subscription based platform offering revenue.

An increase of 13% year over year.

Year over year subscription based platform growth was partially offset by 8.9 million decrease in revenue from reduced utilization of legacy platform offerings and a decrease in service revenue of one point Sixmillion attributable to the cobot 19 pandemic.

This was consistent with our second quarter expectations, we outlined during our first quarter earnings call.

Subscription based platform revenue was 88% of total second quarter revenue compared to 80% in the second quarter of 29 team.

Services revenue represented 9% of second quarter 2020 revenue with legacy the remaining 3%.

Focusing on our subscription based platform revenue performance.

Second quarter, not only showed strong growth itself in the setting of the cobot market challenges, but it showed a strong. This study continuation of growth that has been ongoing for sometime.

The second quarters trailing 12 months subscription based platform revenue was a total of 563.1 million an increase of 17.5 per cent compared with 479.4 million for the preceding 12 month period.

This growth continues to reflect the company strong transition to cloud based SaaS platform offerings and strong market adoption of our cloud base a noble on one platform offerings.

Further supporting the value recognized by the market and the growing strength in adoption Neufeld ACB during the quarter came in a record 75.7 million an increase of 38.1% year over year.

Second quarter, New platform sales ACB, excluding services was 57.5 million or an increase of 48.4% year over year.

During the second quarter. The company's continued focus on cloud platform architecture efficiencies, including connectivity and process automation together with the realization of continued product diversification and strong market value recognition resulted in increasing profitability.

For the company.

Looking at gross margin second quarter gross margin was a record 77%.

Gross margin increased by 350 basis points year over year, primarily as a result of favorable revenue mix to predominantly subscription based platform revenue.

Increased revenue strong gross margin and significant operating expense efficiency drove strong profitability.

Second quarter, adjusted EBITDA was 56.6 million, an increase of 4.4 million or 8% year over year, and 4.4 million above the top end of our second quarter guidance range.

The adjusted EBITDA margin for the second quarter was 34.9%, representing an increase of 160 basis points compared to the year ago period.

And non-GAAP net income per share was 15 cents, an increase of 15 per cent compared to Q2 2019, and three cents above the high end of our second quarter 2020 guidance range.

Turning to cash flow net cash provided by operating activities in the second quarter increased 95% year over year coming in at $49 million, which is after interest payments of 13.9 million on.

On a trailing 12 month basis net cash provided by operating activities was 129.7 million an increase of 18% compared to 110.2 million during the preceding 12 month period and in this setting of new product offering expansion and new contract implemented.

Patients second quarter, Capex was $19 million.

Moving to the balance sheet, no one's financial position and liquidity is strong with strong cash flows increasing profitability and positive outlook. The company voluntarily repaid the entire 99 million of its outstanding revolver during the second quarter.

Following this voluntary paydown no one's cash and cash equivalents as of June Thirtyth 2020 was 95.6 million.

Total outstanding debt was 912.9 million reported balance sheet debt was 890.1 million net of issuance discounts and deferred financing fees and the net debt position with 817.3 million.

The company's net debt leverage ratio as defined within our debt agreement continued to improve to 3.69 to one as of Q2 2020 as compared to 3.79 to one as of the ended the first quarter 2020 and down from 4.3.

Two to one at the end of the second quarter 2019.

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

For the full year, we're raising the low end of our revenue range. We are increasing non-GAAP net income and EPS ranges and adjusted EBITDA ranges based on our strong second quarter performance.

We are increasing our capex guidance range to reflect some expected increases in implementation investment based on the strong deal closures in the second quarter as well as our belief that we will continue to see such deals in the second half of 2020.

And we are updating our GAAP net income and EPS ranges to reflect our updated capex views, while reaffirming our net cash provided by operating activity ranges previously mentioned.

For the third quarter of 2020.

We expect 175 million to 185 million in revenue, we expect adjusted EBITDA to be 61 million to 65 million and we expect non-GAAP diluted net income per share of 16 cents to 17 cents.

Please refer to todays earnings release, and our second quarter supplemental earnings deck for detail on or 2020 guidance ranges and expected revenue cadence.

Before going into Q nay I'd like to reiterate that the second quarter performance was a strong reflection of the company's continued shift to cloud based SaaS subscription based platform offerings.

Our ability to bring these real world data driven cloud based capabilities to the healthcare vertical is increasing in its velocity and efficiency.

The differentiated value an adoption that this platform is demonstrating to the most advanced marquee leaders within the marketplace is a testament to a no one's industry leading position.

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

Thank you.

As a reminder to ask a question you will need to press star one on your telephone.

Withdraw your question press the pound key again that star one on your touched on telephone to ask a question.

Please standby, while we compile the culinary roster.

Our first question comes from a lot of Sandy Draper of Suntrust. Your question. Please.

Thanks, so much and congratulations guys on a on a really good quarter and what's obviously really challenging environment.

So maybe just two questions ill jump back into queue first one on the.

The HCV and revenue obviously, the real highlight was very strong sales and if I go back and look historically.

The last time, you had sort of it.

A couple of quarters are really strong HCV back in the second third quarter of 18.

I take the fourth quarter 19, the second quarter of 20 similar.

Look about 234 quarters before you really started seeing the sequential improvement and assert that the SaaS revenue.

Is that a reasonable I know you guys don't I'm not trying to get 2021 guidance did you don't don't give us the waterfall for HCV, but is there is there anything about this ACB from the fourth in second quarter versus that it's different or is that a reasonable sort of general way to think about how this really strong sales is gonna eventually.

Trickle into the entered the piano.

Hey, Sandy's Keith.

Thanks to the question and you got to spot on the only only modification I'd say is we wouldn't use the word trickle.

Right.

Got it hopefully is the real hopefully it's the world full waterfall.

My second question.

Second question, obviously gross margins were very strong this quarter I'm, assuming a lot of that is the.

It is the mix and because the.

Yes.

Services and legacy.

Solutions being down that drove that really positive margin. So is it reasonable to think that your gross margins sequentially second half gross margins are are lower than the second quarter, just because you will it looks like you're expecting some.

Coming back in service isn't legacy thanks.

Sure sitting in a hand, they want to John and also just the left our audience, though that Jason capital here with US again today for any of these questions well John Sandy regarding gross margin. They were absolutely strong in Q2 at 77% and that's the right way to think about the second half of that.

We do expect to see gross margin.

Go down slightly as a result of the increasing mix of our legacy in services, but we remain absolutely focused on investing in innovation, new product launch and really driving topline results.

Great. Thanks, so much ill jump back into queue.

Okay.

Thank you. Our next question comes from Glens Angelo Guggenheim.

Question. Please.

Yes, thanks for taking my question.

You talked in the prepared remarks about having continued momentum in the second half.

With respect to you or contracting could you maybe what type of visibility do you have at this point I mean.

Do you feel pretty confident based on your conversations war or maybe there's something you can share with respect july's business or anything along those lines.

Sure. Thanks, Glenn Thanks for the question.

He worked at the credit here goes to a lot of people and.

Under Jason's oversight the pipeline was tremendously strong in Q2 as we referenced on our Q1 call and it continues to be impressively strong today.

So this is a very significant pipeline that has hundreds of different opportunities in the varying different stages and the team has very much increase their capability and sophistication of tracking and progressing those as I think we've demonstrated nicely here in Q2, so we feel good about.

Where we are with the pipeline and as things are progressing through and as we comment in the supplemental slides. We spent some time during Q2 thinking about when working through the go to market evolutions that you do when you're not face to face and I think as a result show the team, we're still able to do quite well.

In that environment and that's continuing today. So that's a still skill sets that they can now add to their list.

And we feel real positive about what we're seeing in the second half year JC when they leave me.

No I think you cover to Keith.

Value realization is what the key is.

And as long as we remain focused on that we feel great about what were their clients.

Maybe just says one quick follow bolstering your prepared remarks, you talked about 21st century Cures Act next year, maybe could you just remind us what do you think that technology burden is going to be your clients, how you're positioned for that and if that's a conversation you start to have with your managed care customers today and is that maybe giving you some comp.

And it's in that in the outlook here.

Yeah. Glenn you know look this is this is a very positive.

Opportunity, where so just to review the numbers.

That might not be as familiar with the 21st century Cures Act.

21st century.

It's a it's a massive documented something like 800 pages in total and the interoperability section of that requires different participants within the healthcare landscape to make data available at the request of a patient or a representative of a patient to be available.

Actively in real time, and this is done through a epi gateways, the specifics of which are a rather detailed.

So you have the first wave of this is mandated by July Onest of 2021, so to have that all in place organizations are having to now you work through the whole procurement and implementation process, which I'll actually ask Jason the touch upon here in a moment.

So for health plans alone that's a marketplace of call. It Directionally upsize 500 different health plans that by CMS is estimates alone are spending on average will require on average around $2 million to just implement.

Things didn't get things set up.

We're fortunate to work with a significant number of those healthcare organizations were fortunate the already have their trust in our ability to manage data manage those platforms. We're fortunate in already to have master service agreements that hip agreements and data interoperability agreements and obviously strong relationships with a significant number though.

So we're excited about that we're in full swing of that right and Australian to putting more color on that.

Yes, Thanks, Keith and Glenn just look this is squarely in the in the realm of both healthcare and IP and so if you think about these plans what they have to do.

There are both disparate.

Data sources, there are multiple dis disparate access points and and health care and IP has worked very very well together in order to do it. We're fortunate in effect that we have an equal number of IP folks as well as healthcare expertise, where I believe were uniquely position.

And actually help our clients through this process and so we're pretty excited about it. It's what we do for living everyday and again I think were uniquely position based on our IP and healthcare expertise to be the translators and when I say translators me.

The healthcare business speaks one language I T speaks another language in order to do this right.

You really have to speak both languages and make sure that the communications are there so that your covering all your base.

Okay.

Okay. Thanks for the comments.

Thank you. Our next question comes from Ricky Goldwasser of Morgan Stanley. Your line is open.

Hey, guys. This is Raymond on for ski has gone and thanks for your question.

I wanted to ask one for on the HCV.

So it was a record breaking 76 million in the quarter, how much of that was from the large marquee and say you sign in the quarter.

Hey, Raymond good to hear from you. So as you as we point out ACB is only the first year of of revenue and obviously TCV is much much larger here as we gave some insight into that with within our commentary here is worse.

Turning to get an increasing number of five and seven your contracts and.

Another little.

Nugget of information is we also now been seeing people extend from their five years to their seven year to seven your agreements on quite large agreements as well you don't see that show up in a in a sale or in ACB anywhere because when we count the the new revenue so as those good larger obviously are TCV.

Maybe just keep building up and building up but getting back to your to your question.

Because of the way these deals are structured if we're implementing.

For a client before they go fully operational the first year of revenue can be quite different than what is expected in the outer years as that client comes online in grows a lot. So you can have a large marquee customer that you could expect to go.

Three X fourx, fivex or 10, X. and growth from what you might see inner first year of revenue as they explain to us what the ramp intentions are or what the exactly intend to do with the platform. So the marquee clients they were great additions to that.

But they were not the dominant portion of that ACB.

Got it thank you Andy a follow up question.

Given that the.

Reimbursement environment has changed somewhat dramatically during the pandemic.

During if that's affected your conversations with some of your clients, especially on the.

Payer front and how does that sales process changed some during the time decide.

Yeah, I'll Raven, certainly cobot I think has changed just about every corner of of everything frankly.

If I, let me let me interpret your question first as what is the nature of the sales engagement process.

During the quarter and how has it changed because the cobot Sobi first thinking that and then you tell me whether I answered your question.

So walking through the different target verticals that we are in today.

What we conveyed at the end of Q1 was the.

The provider was hit the most.

Life Sciences was hit the earliest but recovering.

Already showing signs of recovering and that pharmacy and payer were substantively unchanged.

Those played through in second quarter as expected. So provider was definitely hit worst as expected, but they have started to come back pretty rapidly certainly not back to normal, but they've been coming back pretty rapidly.

End of life Sciences came back or is coming back very nicely as well pharmacy continues to be incredibly strong and and payer is strong. The other dynamic you're seeing is that the payer space because they're not burning through their emo Lars.

Their access to care by patients through ordinary channels has been decreased during cobot that the payer world is looking for increased ways to bring value to their patients.

And a lot of our toolsets and platforms give them an ability to do that.

Got it thank you.

Great.

Thank you. Our next question comes from download Hoecker of Keybanc. Your line is open.

Great. Good afternoon, good afternoon, everyone.

I've lost a bunch of bunch of new products.

The past I guess year.

When the data Lake the extraction tools Hello, Hello.

Obviously been highlighting specialty pharmacy I'd love to hear I know you guys don't like to breakout revenues byproduct area and I'm not going ask you to do that but would you be willing to maybe kind of rank order.

Kind of where you might suggest we focus on kind of areas of growth for you.

Across some of the newer products that have come up.

He's done a good to hear from you.

Look we are having growth in a lot of areas.

This is not concentrated in one place so one of our.

Elements in the.

Released earlier today as we said we saw nice growth in all of our business units.

If we if we have to focus it down the to the two strongest areas are certainly pharmacy is incredibly strong.

And then also so is the quality measurement and improvement clinical quality outcomes impacts obviously value based contracting it impacts shared risk agreements impacts outcomes based contracting it outcomes star.

And it outcome.

Impacts.

A lot of the performance based contracts that state and employers and federal government has in place. So that is a key that's informed by our real world data sets. Both the analytics are informed by the machine learning that that data enabled and Thats, a huge differentiator of the company and because of the.

Cloud platform nature of it we can run that at multiple different speeds. So our clients have different preferences for how rapidly they want to run the analytics and we have the ability to dial up in dialed down.

To their speed preference, which obviously affects their performance it effects, obviously the price point that we can offer those services that.

Those are selling extremely extremely well.

Okay.

Maybe.

A bunch of questions here I'll, just maybe ask one other follow up I know kind of in the past you guys have talked about sort of public cloud sort of using public cloud to get maybe some incremental scandal.

Can she power.

Where would you think where are you in that in sort of optimizing your use of public cloud.

On a non say in seventh inning eighth inning inning.

As I've been a material driver of margin.

Yes, John So first of all give a shout out for Jeff Sharon He's our Chief Technology Officer. He is incredibly impressive in his ability in that whole team just continues to rise.

Together with them, we are leveraging the large investments we made for multiple years and building out our private cloud datacenter environment and as you appropriately reflected expanding more and more into commercial cloud environments and being able to choose what is best for which I.

Dances, so that you can optimize for particular offering or particular clients needs or speed requirements that is adding a lot to our flexibility a lot to our margin improvements that your that John I'll walk through and also.

To the speed with which we can get clients turned on.

Is.

Huge huge benefit for us to be able to go to multiple different cloud environments and.

And implement extremely quickly and I'll point out the remotely right. So all of our systems being cloud based at this point.

We're able to implement.

From our proverbial living rooms, and we are now.

99 point something percent remote as far as how we're operating the entire company.

And that is only possible because everything is cloud and not just on cloud but.

Cloud native which allows for the enormous cost efficiency on scaling as well.

Great. Thank you. Thank you so much the commentary.

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

Yes, Hey.

Turning this is Jerry Hoxton for Ryan Thanks for all the questions in congrats on a nice quarter tough environments I wanted to maybe just touch on the ACB again, maybe just a slightly different flavor. So I know last update we talked a bit about sort of you elongated sales cycle that youre seeing particularly with providers as they were kind.

Kind of focused on other priorities in the short run so I'll do a record HCV booked in the quarter how much of that should we think of that maybe conversion of those elongated opportunities that may be otherwise would've sell in a different periods and how much of it was really just kind of success.

In sort of the core selling activities.

Any comments there would be great.

Hey, Gerry Thanks for the question thanks for being on the call.

Well, we're seeing a really healthy pipeline and frankly pretty healthy conversion of it in the provider space you long duration. It for our offerings Thats, a really fast sales cycle process anyway, I don't have the exact numbers with me Jason might recall them.

But for provider.

On average that sale cycle is under 30 days anyway. So elongation of it maybe that means 45 days, so that wasn't a huge effect or what we saw in the tail end of Q1 and certainly the beginning of Q2 was more distraction.

And.

Tough time getting the attention to that providers they were dealing with either their hospital being in a tough spot or their office being literally just closed because of state restrictions.

That has reopened that that pipeline has reasserted itself quite nicely and Bud meadows, who oversees that provider space has really seeing some phenomenal performance is doing a terrific job and we're seeing reawakening quite a bit there. So I wouldn't see this as much.

Yes.

Stuff that got.

The delayed in Q1 ended up in Q2, we're just seeing health and the pipeline and success of the sales process JC when everything.

No.

The key is what are the absolute numbers that were generating what does the pipeline look like and then how fast can you implement so that you get that nice even spread of recognition over a period of time and we're pretty excited about with the teams accomplished in the first half of the year and we're pretty excited about what we see it.

The second half.

Okay. Thanks, guys. That's really helpful color I'll hop back in the Q.

Thanks Richard.

Thank you. Our next question comes from Stephanie Davis of SVB Leerink. Your line is open.

Hey, guys and enjoy on for Stephanie Congrats on the quarter and thank you for taking my question.

Could you give more color.

Hi can you give more color on the new Walmart contract maybe in terms of other when came about and what kind of revenue impact we can expect from it.

Thanks for the question enjoy first of all we're really excited about our new relationship with Walmart. They are terrific. They have been fantastic through out the.

The sales cycle on that and the process of getting to where we are with them and we're excited about doing.

A lot of Waterbury.

Things with them.

Unfortunately, we don't go into the economics Joy I apologize anymore. Then is in our release with them last week, except to say that.

It's obviously public knowledge that Walmart has a lot of ambitions in this space and has a lot of announced plans to invest heavily in this area and build extensively in this area and we're very pleased to be seen by them as as a really important.

Platform and partner to build that on so.

We're well sure we'll be talking a lot about Walmart going forward.

Gotcha, that's great to hear.

As for my follow up between the Walmart when your contract at Cardinal for Turkey, and the business.

A lot of new wins in the farm.

Can you talk to you what is causing this acceleration and adoption.

Kind of jewelry the that the whole space of specialty pharmacy first of all itself is growing terrifically quickly so different industry analyst in that space have that growing in that 20% per year, and obviously our relationships than gross similarly as our.

Subscription based structures is tied to that expansion.

But there has not been significant innovation in the pharmacy space as far as the ERP capabilities that are the platform that we offer for them. So there has been a drought if you will a decade plus drought of innovation in that space.

And our cloud based approach to this is.

Really the only cloud based solution out there in the marketplace and the fact that we have so much real world data in that and so much conductivity in that.

Form it allows them to remove otherwise labor intensive steps in their business process dramatically shortening the time to fill and the cost to fill as well as increasing the customer satisfaction and connectivity with their rest of their care system. So that is.

As being rapidly seen by the marketplace as.

Just day and night different from the rest of the offerings that are out in the marketplace. So that is why we are on a tear in that space and.

We feel safe, Tony or you'll see more of that to come.

Great. Thank you very much.

Thank you. Our next question comes from Sean Wieland.

Bert Sandler Airlines as open.

Hi, it's actually desktops and on for Sean. Thank you for taking my question.

I think we were just interested to know if you guys could clarify that Cardinal and Walmart deals that you noted having signed in the quarter or those new new customers or kind of renewals or expansions.

With respect to this okay.

Sure just so Walmart is a completely new everything.

They were not a customer before.

And.

Cardinal we have done other things with Cardinal but this is a brand new platform when new contract with them.

Got it and that's helpful. And then if I could just that's kind of switching a little bit.

On the legacy ability side can you guys to speak to the health of that provider base just given.

Obviously in the office visits are down and we're hearing that revenues kind of pressure and for physicians. So just curious to know about.

The health of that that legacy ability install base.

Yes, just.

It's just not the nature of our business model, they're doing tremendously well. This is all subscription based revenue not transactional revenue. So the clients that are on there are on there and they pay monthly.

Frankly, even if their office is closed or open they pay on the software. So we have seen.

Continued strength in there it's just a matter of the additional sales right. So additional new sales, obviously is impacted by whether or not you can get a position on the phone or are there office and business people on the phone more accurately.

But as far as the the base.

Really really healthy and.

Actually.

Sales are going really well there as well.

Okay got it doesn't know attrition really in that.

Our nothing notable.

That matter fact, there above last year's plan, even in the absent the as if cobot hadn't occurred.

Okay, great. Thank you.

Yeah.

Thank you. Our next question comes from Daniel Gross line of Citi. Your line is open.

Hey, guys. Thanks for taking the questioning congrats on the quarter.

Just wanted to touch a little bit on the consumer market.

Do you grow into that market.

Do you expect to employ more of a build strategy or by strategy and then within that market. It's obviously a huge.

Huge opportunity are there specific areas that interest you most.

Hey, Daniel Thanks for being on the call appreciated.

Look we're really excited about consumer you're right. It's a massive area and we are well on our way in several initiatives in that space, you'll be hearing a fair amount more about that in the second half of this year.

Because of the differentiator that we have which is the breadth of the data the real world data sets that we have remember we have data now I guess as of today, It's a 319 million 319 million.

Americans that is an enormous ability to serve.

That many consumers and.

That is a build therefore right there is not anybody out there that has it for us to buy.

Thats a build we've been working on that for some time and we are the numbers. We have we've been we've been employing a number of different marketing and go to market strategy companies that have been doing a fair amount of work on this.

And.

Even they are excited about the metrics that they're seeing the the the.

I'm going to mess up some of the marketing turns but the uptake that they see.

On we've been actually in market in different markets, you know as they usually pick Ohio in Atlanta and other cities around the country to do these test.

Programs on the uptake has been pretty phenomenal. So we're excited about that.

We'll hear more about it later in the second half, but I'll leave it there for now.

Got it thanks, maybe just as a follow up going more to the air side of the business.

Obviously this year, it's going to be a bit difficult to get an accurate read on risk and risk adjustment in M&A for plan your 2021.

I'm curious what the impact on your business if any.

Claims volume and tell how thin in determining risk adjustment.

And what you're hearing from your clients in that regard.

Well to the degree that they they're doing that remember risk is a small portion of our a relatively small portion of our business at this point.

Our capabilities are really that much more important to them today right because as you are correct. The encounter our rate is down therefore, the value of each encounter is that much more important to them their ability to determine which patients need to be seen what they need to be seen for which positions they should be seeing.

Thats a lot of what our software tells them and that is quite important to them and as Theyre emo Lars have been so much lower than they want them to be frankly, they are that much more eager to apply tools that help them play catch up in the here in the second half.

Got it thank you.

Absolutely.

Thank you. Our next question comes from David Larsen Verity Your line is open.

Hi, congrats on a good quarter.

With with Walmart, It's my understanding that you won the specialty piece of the pharma business can you maybe is that accurate and then can you talk about the differences in use cases between specialty and traditional retail and I mean, why like what would prevent you to like insight into the retail.

Traditional retail piece of all of Walmart. Thanks.

Hey, David Thanks for your question and.

I'm going to answer your question independent of the Walmart name right. So I'm just going to answer it.

As a general industry.

Questions. This applies to all all pharmacy clients all pharmacy.

Environment, So specialty pharmacy, the definition of it is high contact high complexity high cost.

Conditions and medications.

And on average these cases these are like Chemotherapeutics.

Antiviral medications.

Rheumatoid arthritis auto immune specialized high cost conditions.

And the number of coordinated elements of care and data and coordination are in the neighborhood of on average around 20, right. So verifying the health plan has coverage for verifying you know the genetic markers of the tumor verifying that the.

Kidney function is normal verifying that the doctor solve them right. So on and so forth weve automated all of that rights to the cloud allows us through our connectivity and access to the data.

The application of clinical paradigm that all of our real world data sets in form this all kind of happened in seconds instead of in some cases days right. So its shaves off.

Somewhere in the neighborhood of around 13% to 17% of Opex expense in that marketplace, which is a huge value driver for our clients and their patients do better because of all the coordination removal fat finger data entry errors that the marketplace normally have so what's the difference between that and retail your point is it really.

Great one theres very little right. The reason why historically the marketplace separated them is because the higher cost of doing everything I. Just described made it only feasible for the high cost drug situations, but as our platform dramatically brings down that cost. It allows the line between.

Specialty pharmacy, and traditional retail pharmacy and for that matter home infusion and mail order pharmacies that line moves to the left a pretty dramatically to the point, where a pharmacy you might expect would say well gosh don't I want my patient taking care on one system why do I have different systems. So.

As you see us move so rapidly into the specialty pharmacy.

It is a very on points to expect.

US to then move that that much further across the board for the rest of the ecosystem.

Okay, Great and then just one quick follow up.

Your your system can be installed remotely I would imagine right. So the whole pandemic I mean have you has restricted access been a headwind at all or not really.

It has now been built into how we go to market right. So definitely during the opening weeks, we had to put a lot of heads to this thinking through even back then implementation was predominately remote but did.

Some aspects of coordination.

With sites.

The what we've done now over subsequent several months is we have worked through those solutioning and we're now able to do implementation fully fully remote.

So that is not a hamper and it's built into our implementation timelines at this point.

And.

Yes, that's.

Where things are now set up.

Okay, great. Thank you.

Thank you. Our next question comes from Sandy Draper Suntrust. Your line is open.

Thanks, very much just maybe one follow up since Jason's on the line and a lot of questions have been asked sort of around but just thinking about specialty somebody's larger wins chase I want to think about it.

Competitive dynamics I know you guys don't give specifically competed against but when I think about again the competition being internal.

We're going to it ourselves from Hey, we're going to partner with some big Tech companies too.

Point solutions is there any consist am out little bit different markets, yet payer specialty pharmacy.

Is there any consistent trend around whats happening competitively and anything and keep it said on this a little bit but about why you guys stick you're doing so well right now, but just would love any more color about that so the way the competitive landscape is shaping up since we've got you on the call.

Yes, Thanks, Andy.

So look we certainly focus on our strengths right and real world data and the data assets, but we have our absolute differentiator.

But I will tell you that.

We are laser focused and you've heard me say this many times Andy on value realization for our clients whether that's in the.

Provider space, the payer space the life Sciences specialty pharmacy.

It's really about water the value drivers of our clients and if we do that well and we listened and we learn.

And we apply offload the advantages that we have to the marketplace.

We we win and and that's that's what our teams are focused on I can't say more simply than that Andy.

Great. That's that's really helpful. On that was my follow up appreciate the time guys.

Thank you.

Well first of all bank you have a ti for handling this call before we close just wanted to leave you all with a few salient points first of all the second quarter really demonstrated the expanding leadership position empowering the marketplace for its transition to data driven health care not just in the breadth.

Of our sales, but in the marquee nature of the industry leader wins that we had and we continue to expand into secondly, the expanding capabilities the industry, leading real world data assets. The high efficiency of the platform is not only driving value for the clients as Jason was speaking to and the strong sales in the X.

Alright, and growth, but really impressive operating leverage cash flows and increasing profitability as well as John has spoken too and then third is we are really just in the early innings of this whole process and are quite excited about what we're seeing going forward. So thank you very.

We much for giving US time. This evening, we look forward to updating you on our next quarter and we appreciate your interest in an over one thank you.

Ladies and gentlemen, this concludes todays conference call. Thank you for participating in May now disconnect.

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