Q4 2020 Inovalon Holdings Inc Earnings Call
Ladies and gentlemen, please remain on your lines be of note. The long conference will begin momentarily. Once again. Please remain on your lines the of noble non conference call will begin momentarily. Thank you.
[music].
Good day, ladies and gentlemen, and welcome to the of Nobel on fourth quarter 'twenty 'twenty earnings call at.
At this time all participants are in a listen only mode. Later, we will conduct the question and answer session. If you'd like to ask a question. Please press Star then one now.
As a reminder of 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 out of novel line I'm here today with Dr. Keith Dunleavy, and know of lunch, Chief Executive Officer, and Chairman of the Board and Jonathan Boldt, <unk>, Chief Financial Officer I'd.
I'd like to welcome you to our fourth quarter and full year 'twenty 'twenty earnings call. The press release announcing our financial results was distributed this afternoon and a replay of today's call will be available shortly posted on the Investor Relations page on our Netherlands website.
For those of you listening to the rebroadcast of this call. We remind you that the remarks made herein are as of today February 3rd 2021 and will not be updated subsequent to the 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 and plans market growth and our objectives for future operations.
Those statements involve the 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 SEC.
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.
The presentation also includes certain non-GAAP financial measures, you'll 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.
Now it is my pleasure to turn the call over to Dr. Keith Dunleavy.
Thank you Kim good evening, everyone and thank you for joining our call.
Want to start by thanking all of the dedicated hard working employees of <unk> across the country for their unwavering focus and commitment to driving client value and impact throughout 2020, and particularly during the pandemic the.
The entire organization transitioned seamlessly to a remote work environment in both the capabilities and differentiation of the cloud platform as well as the durability and efficiency of the <unk> business model is shining through.
Turning to our Q4 and full year 2020 results.
We entered 2020 with momentum, but then the unexpected arrival of Covid impacted parts of our legacy business and to a lesser degree our services business.
But demand for our cloud based platform capabilities was already climbing significantly and COVID-19 only further accentuated awareness and the need for cloud enabled tools and the benefit of data driven capabilities.
Demand climb throughout the year with significant new sales our sales were accelerating so too have been our implementations now after multiple quarters of strong new sales rising client retention rates and strong renewal rates, the leading edge of the multiple layers of compounding subscription base.
<unk> is coming into view.
Our Q4 'twenty 'twenty revenue came in at a record $189.7 million, reflecting 18% sequential revenue growth from Q3 'twenty 'twenty the.
This was at the very high end of our range provided on October 28th Twenty-twenty.
Q4 subscription based platform revenue was $163 $5 million up 14% year over year and 15% sequentially.
Waiting to 86% of Q fours total revenue as.
As our platform revenue claims and our market pricing increasingly reflects the value impact being achieved for our clients growth acceleration is also translating into greater operational leverage and profitability. Our Q4, 'twenty 'twenty adjusted EBITDA was a record $68 $1 million reflecting.
The adjusted EBITDA margins of 35.9% up 270 basis points year over year.
And while we are now seeing an acceleration of growth, resulting from the combination of preceding quarters contributions. We are also seeing an acceleration in market demand and sales execution, resulting in strong sales with new sales the ACB of $93.5 million for the quarter.
Nearly $18 million higher than the previous record, which was only set to quarters earlier, reflecting a 27% year over year increase.
I'm pleased to tell you that even with such a large number of sales successfully closed in the fourth quarter. Today's pipeline is very strong across all business units, reflecting very positive demand and progressing momentum in 'twenty and 'twenty one.
What you're seeing within the fourth quarter's results is the leading edge of growth, resulting from the many quarters of successively strong sales now completing the implementations and incrementally additive layers of new business translating into significant revenue expansion and accelerating profitability.
Well, having required time to build the layering of hundreds of meaningful multiyear subscription based contracts is now driving our long term expansion.
The novel and stands today as the leading vertical provider of cloud based platforms empowering data driven health care.
You've heard me say before that we see of noble on as an enablement layer and empowering layer. Following the Intel inside philosophy of being part of everybody's data driven health care solution.
Very similar to how Veeva, Microsoft Amazon Snowflake service now in sales force or the behind the scenes enablement technology providers empowering the respective customers to succeed so too is a noble and the vision to be the enablement layer of data driven health care.
As of the end of 'twenty 'twenty the of noble in one platform connects two contains and Leverages massive amounts of primary sourced identified real world health care data of more than 332 million patients more than 1 million clinical providers more than 574.
<unk> thousand clinical facilities and more than 61 billion medical events growing at a compounded annual growth rate of more than 46%.
Let me take a moment to dive somewhat deeper into our data asset and highlight the datasets and forming clinical research intervention and value impact opportunities.
Critical across much of the U S health care ecosystem.
On slide 11 of the supplemental deck, we provided along with our release you can see several clinical cohorts highlighted.
As of the end of 'twenty 'twenty are more squared registry dataset included more than 18 million oncology patients more than 55 million diabetes patients and more than 7 million patients with Alzheimer's.
These are but a few examples of the areas where no one's data can inform highly valuable impact for our partners within the marketplace and the patients they serve.
There is no other company that we're aware of the has these massive data assets in primary source longitudinal matched in the linked patient specific data.
The state is not only of reflection of our strong connectivity and engagement within the U S health care ecosystem.
But the data is part of our differentiator empowering data driven health care and its focus on improving the clinical quality and economics for health care a capability the translates into billions of dollars of value for our clients of.
Of note. This also highlights of newborns independents and the important aspect as the company works to increasingly become the enablement layer of data driven health care.
Our client base is large and expanding significantly and now totals in the many thousands of clients, including all 25 of the top 25 U S. Health plans 22 of the top 25 global pharmaceutical companies and 19 of the top 25 U S provider systems.
Set upon the foundation of thousands of subscription based contracts and accentuated by the layering of many large previously announced sales strong client retention rates renewal rates expanding contract durations and rising membership counts within the existing contracts, we see strong growth in <unk>.
'twenty 'twenty, one and beyond with guidance for revenue to grow 11% to 15% coming in at 741 million to $768 million in 'twenty and 'twenty one.
And we see very strong profitability the efficiency of our cloud based business model is driving leading SaaS profitability margin expansion as we add increasing sales and resulting subscription based SaaS contracts. The operating leverage is significant incremental revenue is increasingly translating into.
Personal profitability the.
As profitability gives us the flexibility to further accelerate our growth in 'twenty and 'twenty. One we see further expansion of adjusted EBITDA to a record 265 million to $275 million, representing a 36% adjusted EBITDA margin of year over year, adjusted EBITDA increase of 15%.
Sent to 19%.
An important note based upon our cost profile coming into the year, we actually would see our adjusted EBITDA margin expanding two of approximately 40% in 'twenty 'twenty one gig.
Given that as we have conveyed we will be investing an incremental 400 basis points into factors. The further accelerate our top line revenue growth, specifically, we will be investing an incremental 300 basis points into sales and delivery and an incremental 100 basis points into further acceleration of our.
You should go to market initiatives, leaving approximately 90 basis points of expanded profitability to fall to the adjusted EBITDA line.
As we've been pointing out the multiple factors that are layering into of compounding increase in growth I'd like to take a few moments to walk through why you're seeing not just accelerating growth here in 'twenty 'twenty, one, but also for many years to come.
We believe that this is an important point and included slide nine within the supplemental deck to assist the financial community with these contributing factors.
Starting at the bottom of the slide as our base or foundation, we have thousands of multiyear highly sticky relationships within the market with multiyear subscription based contracts.
As these contracts are subscription based and design utilizing a monthly P times Q contracting model patient membership dynamics are strongly in our favor as you know those in need of care are increasing and count patients are living longer and with more chronic conditions the number of patients within the health.
Per population types that we serve are rising strongly of between of projected 5% and 11% in 'twenty and 'twenty one.
As these memberships rise the Q in our P times Q revenue model increases as well.
On top of this our pricing power in the market is healthy due to the strong value our platform is delivering to our clients as such the P. In the P times Q equation is also rising we see this in new contracts and in the auto escalators, which are being added to our contracts resulting in.
The higher pricing each year.
On top of the strengths within our established book of business. We are seeing strong new sales as you've seen they're rising quickly hitting new records, adding an additional long term sticky business to layer on top of what is already expanding.
And the sales of yesterday are undergoing implementation.
And the resulting business is coming on line translating the sales success of prior quarters into incremental revenue.
Moving our way up the compounding curve, we're seeing expanded contract terms, while three year durations used to be our standard we are increasingly seeing five year six year, seven year, and even eight year agreements.
Not only does this dynamic of our longer term contracts and the visibility of compounding growth, but it also allows us to spend more of our time and energy taking care of the client delivering value to them and of fantastic customer experience, which also supports the dynamic of a happy and successful client, which we then grow with.
For further together.
And in fact, we are seeing that client retention is rising net renewal rates are strong.
At the same time are always persistent investments and leading the market and technology capabilities continues to translate into expanding datasets ecosystem connectivity and the number of products. We have available for our clients. So in turn that our customers can then lead in the respective areas of the health care ecosystem.
You've seen us accelerate the piece of bringing new offerings to market.
Sumer health Gateway data stream API virtual telehealth encounter support modules vaccine adherence solutions infection watch to name a few released during 'twenty 'twenty alone.
What is also happening is that the depth of our datasets and the sophistication of our resulting analytical capabilities is translating into more meaningful differentiation and greater value for our clients and that is resulting in more cross sells and up sells.
In the fourth quarter of 'twenty 'twenty alone five of the top 10 U S health plans all of which were already clients of ours, each awarded us new business going into 'twenty 'twenty, one and in many cases. These awards were rather large that comes from delivering for your clients, bringing value and beating out alternative.
And the marketplace, something which no one is doing very well and you can see the success in our numbers in 'twenty 'twenty, our existing clients contributed 63% of the company's sales driven expansion of new logos represented the other 39.7 per cent of the company's sales driven expansion.
The newborn is succeeding in both expansion of its client base and the task of delivering even more value for existing client base and our success with our persistent focus on innovation and client value impact is not only showing up in our quarter to quarter sales, but is also increasingly providing us.
The coveted longer term leadership position in the market.
You can see by the names we were working with not just the ones announced but the ones not announced which include all 25 of the top 25 health plans 22 of the 25 global pharmaceutical COVID-19 of the top 25 per systems and two of the global top 10 consumer retail companies of.
All of which are clients of.
<unk> is increasingly at the table when it comes towards scale strategic decisions of how to empower the data driven health care strategy of the world's leading companies and the communities they serve.
We see all of this is a very strong set up for other great growth Expanders as we launch capabilities into the Adjacencies of the health care segments that we currently serve and into geographies outside of the U S and.
In summary, the no one is benefiting from multiple compounding growth tailwind, which are delivering significant double digit revenue growth and profitability now in 'twenty 'twenty, one and for many years ahead and with that please allow me to hand, the call over to Jonathan Boldt, our CFO to walk through the financials and guide.
<unk> in more detail.
Jonathan.
Thank you Keith and good evening everyone.
Building and Keith opening remarks, I'd like to begin by highlighting a few key points for.
First the fourth quarter's financial results reflect accelerated revenue growth, which came at the very high end of our guidance range. We provided in October 28, 2020, and non-GAAP diluted net income per share that came in above the range. We provided at the same time.
Second we are reaffirming our previously announced 2021 full year guidance, which calls for 11% to 15% year over year organic revenue growth.
15% to 19% year over year, adjusted EBITDA growth and increasing your 'twenty 'twenty, one net cash flow provided by operating activities to 180 million to $195 million.
Third we are also providing first quarter 'twenty 'twenty, one guidance, which reflects tend of 14% year over year organic revenue growth and 16% to 31% year over year adjusted EBITDA growth.
Lastly, we are laser focused on scaling and execution as demand is strong and our momentum is increasing make.
Making prudent investments designed to even further accelerate the strong revenue growth and continued profitability. We are seeing in 'twenty 'twenty, one and beyond.
Now turning to our fourth quarter results in more detail.
Fourth quarter 'twenty 'twenty revenue was a record $189 7 million, an organic increase of 18% sequentially and 9% year over year subscription based platform revenue was $163 5 million, reflecting 15% growth sequentially.
And 14% growth year over year, equating to 86% of fourth quarter total revenue.
Services represented 12% for the fourth quarter in 2020 with legacy, reflecting the remaining 2% as expected.
New sales ACD during the quarter was very strong coming in and of record $93 5 million, an increase of 27% year over year.
Fourth quarter, 'twenty 'twenty, new platform sales ACD, excluding the services was $68 2 million or an increase of 30% year over year.
Turning to gross margin fourth quarter 2020, gross margin was the solid 73.4% an increase of 20 basis points year over year.
Full year gross margins came in at 74.9% an increase of 100 basis points year over year.
Fourth quarter, adjusted EBITDA increased 18% year over year, two of record $68 1 million, representing an adjusted EBITDA margin of 36%.
Full year adjusted EBITDA was $230 9 million, an increase of 10% year over year with the adjusted EBITDA margin coming in at 35%.
Our industry, leading SaaS margins continued to be driven by our increasing pricing power in the market.
A positive shift in our revenue mix towards subscription based offerings and leveraging our investments in connectivity automation and the increasingly efficient cloud based software and compute architectures.
Fourth quarter 'twenty 'twenty non-GAAP net income per share was 21.
Which is an increase of six cents per share or 40% from the year ago period for.
Full year 'twenty 'twenty non-GAAP net income per share was 62 cents, an increase of 19% compared to the 52 cents during the full year of 2019.
Turning to cash flow net cash provided by operating activities in the fourth quarter of 'twenty 'twenty was $37.3 million, which is net of or after the payment of $12 8 million in interest payments and $146 4 million for the full year of 2020, which is also new.
Net of or after the payment of $52 5 million in interest expense payments.
Full year 'twenty 'twenty cash flow from operations was impacted by the timing of certain working capital investment decisions and accounts receivable collection, which are expected to occur in the early part of 'twenty 'twenty one occur.
Accordingly, the company increased its 'twenty 'twenty, one cash flow from operations guidance by 20 million to reflect the impact of these expected timing items.
Fourth quarter Capex of $15 3 million and for the full year was $66 7 million as the company continued to invest in platform expansion and multiple large client implementation.
Pulling this together of noble and generated $79.6 million in positive free cash flow in 2020, an increase of 32.1 million or 68% as compared to $47.5 million of free cash flow for 2019.
<unk> strong cash flow generation capability continues to highlight the scale and the profitability of our business model.
Moving to the balance sheet of no bonds financial position remains strong and no one's cash and cash equivalent as of December 31, 2020 was the $123 9 million.
The reported balance sheet debt was 887 4 million net of issuance discounts and deferred financing fees and our net debt position was $784.1 million.
The company's net debt leverage ratio as defined within our debt agreement improvement continued to 3.37 to one as of Q4, 'twenty 'twenty as compared to 3.55 to one as of the end of the third quarter of 2020 and down from 3.83 to one.
Non from a year ago.
As a result of our improved the leverage ratio being below 3.4 of five to one our interest payment rate will automatically reduce by 25 basis points, which will become effective in Q1 of 'twenty 'twenty, one, resulting in approximately of $2 million annual cash interest expense savings.
Now, let me conclude by sharing updates to our 'twenty 'twenty one financial outlook.
For the full year 'twenty 'twenty, one we are reaffirming our prior guidance ranges for revenue adjusted EBITDA GAAP and non-GAAP net income and net income per share and capital expenditures and we are increasing the guidance of net cash provided by operating activities.
As such each of these metrics will see strong growth in 'twenty and 'twenty one.
Total revenue will grow by 11% to 15%.
Net income will grow by 90% to 108%.
Non-GAAP net income will grow 19% to 22% of.
Adjusted EBITDA will grow 15% to 19%.
Net cash provided by operating activities will grow 23% to 33%.
Diluted net income will grow by 87% to 107%.
And non-GAAP diluted net income will grow by 18% to 21%.
For the first quarter of 'twenty 'twenty, one we are providing guidance of revenue to be between 170 million to of $176 million, reflecting year over year organic growth of 10% to 14%.
Note that on a sequential revenue basis, our guidance is consistent with the usual seasonality over the last several years in our business from Q4 to Q1.
Adjusted EBITDA is expected to come in at 55 million to $62 million, reflecting a year over year increase of 16% to 31%.
And non-GAAP diluted net income per share of 14 to 17.
Reflecting a year over year increase of 27% to 55%.
We encourage you to refer to today's earnings release, and our fourth quarter supplemental earnings deck for more details on our 'twenty 'twenty one guidance ranges.
Before going to Q&A I will close by echoing Keith's comments, the fourth quarter of 'twenty 'twenty demonstrate the market's strong demand for the Novo on one platform record new sales and the leading edge of revenue acceleration, resulting from previously announced sales turning into layered long term <unk>.
Revenue growth and continued profitability expansion.
We are excited for 'twenty 'twenty, one and the growth we have already conveyed with strong client renewals and retention rates expanding contract durations now with 567 and eight year contracts and strong marketplace dynamics. We are not only pleased with the accelerating growth we are.
Being in 'twenty 'twenty, one, but also in the strength of growth for many years beyond.
With that let me turn the call back over to the operator to conduct our Q&A session.
Thank you as a reminder to ask a question you will need to press star one on your telephone.
For all of your question press the pound key.
We ask that you please limit yourself to one question and one follow up.
Our first question comes from the line of Glenn Sampson Delo with Guggenheim Securities.
Yeah. Thanks for taking my questions in the and congratulations on the results.
Keith I wanted to dive into the HCV that you reported this quarter I mean, that's obviously a big number I was hoping maybe you can unpack that a bit and maybe give us a better sense for which segments of your business or are seeing the biggest uptick in demand and then maybe as a follow up to that when I look at the full year you're a.
<unk> was up 24%.
Equally of good number maybe could you remind us or give us any color for how that a C V should flow into the reported revenues as we think about modeling out the cash.
Cadence for the full year. Thanks.
Hey, Glenn good evening, Thanks for joining the call and thanks for the question.
So you know certainly quarter to quarter versus of full year is a slightly different answer and part of that you can gain insight from the typical amount of time. It takes the close the different types of contracts right. So in.
In the fourth quarter, specifically, we had very nice performance in all of the business units are certainly a very impressive performance of for.
The both the payer group just crushed it during the quarter and had a strong amount of expansion of sales as we mentioned five of the top 10 payers all of whom were already customers of ours gave us additional business for 'twenty 'twenty, one and then additionally, we saw very strong performance.
From the life sciences of marketplace, as well, which was the north of 25% year over year, just outstanding performance from that group.
And then.
The important point Glenn is coming into the 'twenty 'twenty. One we're seeing significant continued strength across all of the business units as well. So now how do you translate that how do you help translate that into how things play out during the year as you know of some of that starts to implement very quickly and some.
Of that takes a much longer to implement your typically your life Sciences work and your provider of work start to implement much more quickly than the payer and pharmacy a line.
The business so.
So we're going to see that same dynamic play out here from things that were signed in the fourth quarter. Some of it taking a while some of the taking a long while to implement but we're well into the cycle now of accelerating sales on top of sales and you saw that in the fourth quarter realized revenue expansion.
So that leading edge has already come it's hitting we now have many large contracts of implementing its not a smoothed line as you've seen because of the nature of some of them, but the.
The not only was the strength in Q4 impressive.
Even inside we are quite excited about it but the quality of those sales was impressive as well, meaning the names that we're signing.
The the quality of the contracts, meaning the durations of those contracts how many years they are going out and.
And how they are building on a fair amount of synergy with products. They already have in place a number we gave out on today's prepared prepared remarks was how much of our sales growth is coming from existing clients versus new clients.
We saw that at about 60 40.
It's a little over 60, I think 63 per cent or 67%.
Versus 39, 7%. So we're seeing very good health and also in existing customers, saying, we want more and new clients coming on board I Hope that addresses your question Glenn hit yes.
Yes, thank you very much.
Thank you and our next question comes from the line of Ricky Goldwasser with Morgan Stanley.
Hey, guys. This is actually the Raymond on for Ricky.
Congrats on the quarter and I wanted to start off with one on the 2021 growth. So as we look at the various verticals the.
Payer the provider pharmacy and life Sciences.
We see that the majority of the growth in 2020 came from the pharmacy and life Sciences, just wondering as we look forward to 2021.
Will that continue to be the case or will the Crosby more balance and would you be able to the rank order those for us.
Hey, Raymond Thanks for being on the call as you might remember going back to the beginning of 2020, even before Covid came on we rank order them in we said pharmacy would be.
Number one life Sciences would be number two payer number three in provider number for and that's you know that's how it played out I will tell you now.
It is a it's an aggressive horse race going on here and hope line and I will tell you that.
It's a little harder to call because we're seeing so much growth from the leaders of Payor pharmacy and life Sciences providers also doing very well accelerating here. It was accelerating in the fourth quarter and we're seeing an accelerate here now so there are no lagged.
Words, but it's going to be of neck and neck race and we will.
We enjoy that neck and neck race, but all three payer of life Sciences, and pharmacy are seeing really strong years ahead of them.
Great. Thanks, and if I may follow up.
On that a question on your sales force.
So I.
I understand that you're reinvesting some of the operating leverage and you're expanding your sales reps could you just share how you think about where you're adding new reps are you hiring for specific verticals are covering specific geographies. Thanks.
Yes sure.
The Raymond so.
You know coming into the year. If you look back on 2020, we're directionally of 11%, 12% or so on sales and marketing we're going to put another roughly 300 basis points in sales and delivery.
In 2021, so that's increasing that group by Directionally, 2025% or so.
We've launched a number of new products, we have been penetrating further and further down into our customers we're starting to.
A line individual people with some of these larger clients and embedding them inside.
We're getting stronger and stronger client focus and our clients' success strategy and total client experiences Jacques refers to it.
And that is really hand in hand or arm in arm with the business development efforts, so you're seeing it in greater density of coverage.
The marketplace as well as expanding into new product offerings and supporting those in the market.
Thank you thank.
Thank you.
And our next question comes from the line of Sean Wieland with Piper Sandler.
Hi, Thank you for taking the question is actually Jeff one for Sean.
Congrats on the quarter.
Our first question.
Some of the incremental payer when reported in the quarter can you just describe and maybe what some of the product for that drove those line or what what the decision making process the bike to convert and the new customers.
Hey, Jessica Thanks for thanks for being on the call. So as we mentioned in our prepared remarks, we had.
Five of the top 10, and obviously quite a few outside the top 10 payers sign new and expanding business with us for 2021.
We're really seeing it in multiple different areas, we've been selling the consumer health gateway in response to the inter operate interoperable rules that have come out.
We've been seeing nice traction in our.
And our data stream API work as well you saw.
Walgreens announced with that but there's also a fair amount of attention on that on the on the payer side.
And we're seeing a lot of interest on the decision support and analytically driven encounters.
This is something that I know you and Sean know a bit about EPS was super strong during the quarter and we're seeing multiple national expansions of that and Blue Cross Blue shield organizations as well as your national brands.
And then if I could just follow up with.
As we go through some of the Q this year.
We noticed just revenue from existing customers was down one.
178 for.
125.7, I think Q1 Q2 Q3.
Can you just help us understand what drove maybe some of that churn.
Yeah.
Some of that churn and then how should we think of that retention.
For it.
Yes, Jessica another another great question.
Really tough to interpret that out of context. We appreciate the challenge that you have in trying to interpret that that is predominantly due to two things predominantly legacy business rates of when the legacy business.
Winds down with somebody you see it is churning out even when a client is turning on a new platform offering. So if somebody's shuts down legacy you see it as a loss and as they sign onto a new cloud based platform. It might have to implement for some time, yet and then also there's a fair amount of M&A.
That goes on in the marketplace that ends one contract, whereas another client of ours gets larger but it doesn't even show up in our sales. So there's a fair amount of M&A going on in the market place, we keep those contracts, but they get absorbed into the acquiring a company or are they getting absorbed the they decide where the the <unk>.
<unk> lives, but because of their P times Q, our membership based the membership typically expands in those situations, but it doesn't show up as the sale because it did not require of new signature to put that contract into place. So.
When youre trying to read those on the face of them as is the.
Find in our filings, we understand what youre doing but it is taking them a bit out of context, we're seeing strong growth across the base.
Got it thanks, so much thanks Jessica.
Thank you.
Our next question comes from the line of Stephanie Davis with SBB Leerink.
Thank you for taking my question and congrats again on the quarter.
Thanks, Stephanie.
So Keith I was actually hoping you give back of my first question today is the on the line. He actually was uneasy. He is listening on the line, but he is not joining us from the line. He is out sick right now I apologize I'm sure. He would send his regards so we do apologize.
No worries at all.
He did an awesome job in the.
He did an awesome job in Q4, if you if I don't say so myself.
I agree the cream.
Well my first question of its really around the uptake of new win announcements.
Your line.
Just wondering here and maybe your perspective of the understanding what is changed in the past and Yankee Creek is acceleration guilty of.
Inc.
Well, thanks, Stephanie I think the way, what Jason was saying I think Jacques and others would join them. It's all about value creation for the customer we've put a lot of focus on putting the customer first I mean that the tagline that a lot of people say, but the total client experience is really a focus of ours, it's in our modularity.
Of our software design, it's in our desire to work with the clients to their benefit and really focusing on how they achieve value from the software and the data and everything else.
When our clients of booked around especially during COVID-19.
They have found that the value delivered by the of noble on one platform is very significant and very measurable that is leading to us pulling ahead of other alternatives in the marketplace. So we keep on innovating.
We keep on driving new products and expanding capabilities of the marketplace.
And we're doing it based upon customer feedback of what they need and want and then delivering very strongly on it a lot of a lot of other tech players in the marketplace had trouble with their platform over the last 11 months and ours remained extremely resilient and reliable of.
All of that coming together is driving a lot of new client wins.
So continuing on that net new client wins for bad I No question, you're probably not.
But I was hoping again update on your.
Walmart relationship you've had of recent win their day article out the Walmart working line of health care and data AI project.
Are there any line to be John between some of the data points.
Stephanie.
Question.
We very much enjoy Walmart as is the client we're the static to have them. They are fantastic people, we have a lot of things going on with them.
We really can't comment on it outside of what is in the public domain.
But we are very honored and pleased to be working with them and we'll just have to leave it at that.
Completely understood.
Thank you Keith Thank you Stephanie Thanks for your questions.
Thank you and our net.
Question comes from the line of Ryan Daniels with William Blair.
Yeah, Hey, guys. This is Jared haase in for Ryan Thanks for taking the questions here Keith I think you.
You mentioned.
Internally, we would expect EBITDA margins in the 40% or so range in 2020, when you're kind of taking that opportunity to fund some reinvestment in the company in zone, just thinking about operating leverage sort of on a go forward basis. Once we kind of get past the COVID-19 environment of everything should we think about sort of that level of margin expansion.
<unk> of being fair to expect.
Or if non shall we think about it maybe continuing to expand its sort of the the 100 basis points or so that's implied by the guidance here.
Hey, Gerard Thanks, Thanks for the question and thanks for being on the call.
We're seeing a ton of profitability flexibility I think it is the term we started using a fair amount.
The last 18 months.
The operating leverage of the business model and the platform just continues to shine through we want to make sure. We focus on the right things, which is the obviously the long term success of the company of the long term success of our customers. So we're going to be investing those dollars and continuing to lead in innovation and bring new.
New products and larger solutions to the marketplace. We wanted to make sure. We gave good visibility into just how much flexibility we have in this profitability. It's on slide eight of the supplemental deck, where you see how our gross margins have been evolving over multiple years in our EBITDA for the same but then really.
Showing you the operating leverage that we're experiencing so as you try to think of that in your models going forward, we're saying a 36% year for 'twenty 'twenty. One I think that's the right place to be thinking of it as we want to pump more and more into the top line acceleration. So we're excited to show you more top line acceleration.
And hold EBITDA here.
Isn't around 36%.
And as the company gets into a more appreciated of view of its SaaS contribution.
The abuse of margins, we will start thinking about how to address that bottom line again, but for right now we want of pumping into further acceleration of our top line.
Okay, Great Yeah, that's helpful color and then.
Maybe just sticking with the similar theme as a quick follow up just around the reinvestment. So obviously you guys talked a lot of about just continued strong ACB in debt continuing to layer into the platform. Keith I know you mentioned a couple of different sort of buckets of areas, where you expect.
Use that EBITDA margin to reinvest in the company.
So this may kind of fall into those buckets, but I'm sort of thinking about implementation and the workflows and sort of the product support teams that you have in place is that an area, where you kind of have the team that you need to be able to implement all the safety of your that you sold the recently or is that kind of a part of that reinvestment strategy that you've outlined.
Well certainly scaling the those teams is important to us either of the 300 of the.
300 portion of the 400 incremental reinvestment.
We referred to that of sales and delivery. So there is some implementation component in there.
As has been pretty impressive we were reflecting on this in the recent days how much implementation occurred in a completely not even getting together with our customers in the last several quarters. So we have massive implementations that have been brought on line or soon to come on line of debt.
But we've done completely.
Remotely, which is one of the huge benefits of cloud technologies. So our costs. There are really efficient and are getting more and more efficient as we focus on automation of those implementations and as of the software continues to mature further and further Jeff Jeff share.
<unk>, our head of technology, the Sky is really impressive and how we drive to greater and greater efficiency of the implementation cycles of the software. So yes, we are putting more money into it but we don't have to do it is proportionately as you might think as we implement more and more.
Okay got it thanks, a lot for all of that color.
You bet.
Thank you.
Our next question comes from the line of Donald Hooker with Keybanc.
Great good afternoon.
Good afternoon.
You guys mentioned I, just wanted to hear a little bit more about some of the the momentum of the growth Youre seeing in the life Sciences space, maybe can you share with us some of the use cases, there and you guys seem to be doing a lot of stuff there.
Can you just walk through some of the use cases, where you're getting the most traction.
Hey, Dan Thanks for being on the call. Thanks for the question.
Life Sciences group is just doing really fantastically and as we've been saying for some time.
There is this boring that's occurring between the different verticals and adjacencies in the marketplace. One area of significant attention has been vaccines and vaccine adherence.
He'd tell anybody around the world right now the vaccines are important.
We are supported in the fourth quarter of both of the U S of vaccine programs.
And we obviously launched for vaccine adherence platform during the fourth quarter of that has received strong uptake that is with additional pharmaceutical companies beyond.
The two leading vaccine manufacturers here in the U S for pre Covid at least that is.
So we're seeing it in many areas and.
The life Sciences is.
Roared back into.
Gosh for more than a weakness I don't know the right term to put on it but I think they've seen a great.
The vertical awakening in the the Covid year, and they're certainly moving on that and we're delighted to help us support them and how they roll things out.
Okay that's interesting.
And then I guess my follow up would be in terms of you reported I guess, the total ACB growth here it looks like 27% in the fourth quarter I think if I have my numbers here right juggling various numbers here.
Have you guys thought about sharing kind of of total contract value growth.
As you keep alluding to contract durations extending.
Just kind of curious how much if you can kind of directionally point that way or set of metrics you might be willing to share in the future of how you're thinking about.
Helping us think through that because it seems like that's something that's changing for you guys.
Yeah, Doug it's.
It's a great question and we obviously always want to hear what you and others in the marketplace I think might be helpful.
Because we have so many new offerings coming to market. So many different types of clients and many different durations.
We we ask ourselves how much additional help that would provide of versus versus not help. We're delighted that the average duration of our contracts continue to get longer which then lends the benefits that I talked about in the prepared remarks.
Really two fold a.
The longer those term contracts are of the greater visibility we have in longer term growth. But then we've also found that that helps us focus on the clients' needs and we do more cross selling and Upselling for them and then also in the long term nature of these contracts were seeing clients.
Really why are they making their contracts longer and longer with us.
<unk>.
What I would I'd encourage you to interpret that as is they're getting more and more comfortable that where the technology, they're going to want for the long term right.
In a marketplace, where competition is running rampant customers get worried that they should only signed for a short period of time, because something better could come along next year or the year after or they could drive down of lower price. If they went through a shorter renewal cycle. We're seeing the opposite happened, we're seeing our clients want longer contra.
<unk>.
Because they don't want to have to go through a repricing of it because it might be in the direction, they don't want and because they're making the decisions to base the more strategic longer term decisions and when you implement of cloud platform and build other things on it will become an important partner of theirs and their success, which we take very seriously.
So these contracts not only being long term, but they're also getting as we referred to in the prepared remarks.
Auto escalators built into them of that are predictable for the customer and also obviously positive for our a P times Q pricing models going forward. So although we can't give you a total contract value help weir.
Are seeing strong directions.
As I just conveyed I hope you would agree are quite positive for the company.
Great. Thank you. Thank you so much.
<unk>.
Thank you.
And our next question comes from the line of David Larsen with BP AIG.
Hi, congratulations on a good quarter can you, maybe just talk a little bit about the impact of Covid.
No Milan for.
Fully past Covid in your view and and how is that impacting like your different segments. So for example on the provider side, how our hospital volumes is that impacting.
Your provider business is that dependent on the number of services being delivered at the Doc office and in the hospital.
And then also on the plant side.
I think there was some slowdown in campaigns in <unk> 'twenty are you fully are they fully past COVID-19 and just any general thoughts there would be very helpful. Thank you.
Sure David Thanks for the question. So I don't think anybody in the United States can say the past COVID-19, but I think very importantly for US I think we very much build it into our model and our expectations and we saw the fourth quarter play out as we expected with about 2% of legacy of revenue.
During the quarter. So the walk quickly through your various different points.
In the in the provider space.
We've certainly seen a return of indications of activity to the provider space, but but vastly those revenues for us our subscription base and stayed intact through COVID-19 because of their licenses that are monthly.
Monthly.
Subscription, regardless of whether or not the position was seeing patients or whatnot, but we tend to sell through those platforms unrelated to the revenue impact to us yesterday. They have really started re accelerating and that's been going on for some time. It's also helpful to our sales velocity there because of the doctors do you need to be there to to make a perk.
This decision so we're seeing as I mentioned of.
The nice pickup in sales there as well when we go to.
The payer space as you mentioned you are indeed, correct that in the payer space some of.
Initiatives some campaigns directed by Payors, but only on the legacy side of things were impacted in the mid part of the year last year. We then build it into our expectations built into our modeling and we're able to correct for that as we were gaining our main acceleration of growth off of subscription based.
Hot form and not the legacy business. So as you can see going forward here in 2021, we have left the legacy piece as really a low contributor to the year. We do expect COVID-19 to continue pretty intensely here in the first part of 2021 and starting to lighten up in the <unk>.
Half of the year, but we have kept our expectations of the things that can be impacted by that two of very low expectation too to offset that so we think we're taking a pretty conservative view on that nothing to be learned by the second kick of the mule.
On that topic does that answer your question.
Yeah. That's that's very helpful. Thanks, very much and then just one more if I can squeeze a day and I think you mentioned in the prepared remarks, you won business with two of the top 10 retail systems.
Which ones were those for that Walmart and also wall, Walgreens, and what sort of Intel our longer term growth potential do you see on the retail side of things.
Is it really specialty pharma related tax.
Sure. David So you are correct dosing of the two that we've announced.
The two of the top 10 global retailers.
Really great relationships.
Fortunately, we can't comment more on.
On those decides to say, we they're fantastic relationships, we're very active with with both of them and the.
They both have very significant.
Aspirations on on how they want to play in the health care space will have to leave anything else to whatever they may whatever may happen in the future I apologize, we can't dive into more of that day.
No problem congrats on a good quarter.
Thank you very much.
Thank you our.
The next question comes from the line of Daniel growth slight with Citi.
Hi, guys that I will add my congrats on the continued momentum here.
And thanks for taking my question.
Wanted to talk a little bit about the competitive dynamic that you see playing out over the next few years, there's obviously been a lot of consolidation in the HCI space recently in one of your semi competitors being acquired by a large health plan. So I just want you to.
And it gives us a little bit of an idea of how youre thinking about the competitive dynamic over the next few years and if we could potentially see.
Some more in sourcing from from the payer side.
Thanks, Thanks, Daniel for being on the call I appreciate it.
Look this is an important area and I think it's really great to bring it up I.
I want to emphasize that.
We have received significant business over the last 12 months from the marketplace in the longer and longer term contracts. So.
As Jason capital would say, they're really answering your question with their wallets.
They are signing longer and longer contracts with us as I mentioned in the previous answer two of two question.
If the marketplace was seeing significant competitive advantage to remain flexible and go to alternatives from us they'd be signing shorter and shorter contracts not not longer and longer ones.
Look we have to wake up early in the morning and go to bed late at night to earn our wings.
But we're delivering significant differentiated value in the marketplace.
And a lot of it has to do with our independence rates. So you mentioned an acquisition in your question. We respect those companies very much.
Obviously, you know all 25 of the top 25 health plans are meaningful clients of ours. So we respect and appreciate all of them, but we've been doing very well in competitive bids in the marketplace against the change over the last two.
<unk> plus months.
And the independence of our solution is an added advantage for us in the marketplace. So we see this as a win for us.
We are seeing it as voted as a win for us from our customers in recent weeks.
And we will we will continue to invest in innovation, but there's there's not another cloud based solution in the marketplace that has the connectivity and data assets and capabilities that <unk> does and that's what our clients are telling us that's what the major retailers are telling us.
And we're very pleased with that and we'll continue to March under those those directions from our customers.
Yeah makes sense, okay, and they get the follow up there.
Unrelated to them.
I just wanted to try to understand the economic model behind the vaccine tools, a little bit better.
As we see a rollout of vaccinations. This year should we expect an acceleration of of lifestyle.
<unk> revenues for your guidance and then once we get past. This all of this should we see a deceleration in 2022 and beyond specifically related to the vaccine.
The capabilities.
Yes, so great question so.
First of all the.
The platform is not being.
The interest isn't just COVID-19, it's other other.
Other vaccines.
We have some numbers on that in the release I can't remember them off the top of my head, but when we released the vaccine adherence platform in November December we cited some industry numbers in there it is.
It's a huge huge opportunity for the manufacturers of the vaccines.
And the payers, who incur the expense of of patient isn't vaccinated and comes down with the condition and then obviously that the patients themselves. If theyre not vaccinated. So this is a win win win offering and as the result is a pretty complex offering the.
Wave the structure is set up both on the technology basis and on a customer contracting and third party contracting that we go through two involve vaccine manufacturers and health plans and.
Facilities.
To coordinate all of that as well.
Well, it's an impressive feat that our team has done just the tremendous job with and it's attracting a quite of bit of of of of interest and obviously revenue. So yes. We do expect this to pick up here in 'twenty 'twenty one.
And do we expect it to go down after that we don't.
It's too early to call the curve of that uptake as we just launched it but.
But broadly it's increasingly looking like vaccine appreciation or visibility as an important topic and certainly benefiting from COVID-19.
And.
Okay.
And the other side of the coin way.
I don't see anybody has seen that go away in the coming years, So again, not making any revenue projections on the singular product, but a lot of very positive momentum in sales and we expect that to continue.
Understood. Thanks again, guys. Thank you.
Thank you and our next question comes from the line of Sandy Draper with true Securities.
Thanks very much.
Now also to just pile on on the congrats very nice quarter and strong end to what was obviously a challenging year for for everybody a.
A lot of questions have been asked but maybe just.
Little bit of a fine point on sort of the trajectory and always appreciate the fact that you guys get sort of the ranges for the quarters. The way. It seems to me if I think about this I wanted to sort of verify you would expect subscription platform revenue to decline sequentially and that's the seasonal and the build from there.
The legacy revenue if I heard you correctly, Keith you are pretty much the assuming when I think of that sort of the range you did in second and third and fourth quarter staying at those types of levels without a lot of growth and then service is to probably have a similar trajectory because typically you have the stronger fourth quarter and you had a good one steps down in the insurer we.
Billed at a similar level or are those sort of ways of thinking about the three different revenue line item Tonight in the right direction.
Hey, Sandy thanks for the question. So look you are very familiar with how the.
We run things here and.
The probably the best way to think about Q1 is the year over year issues right. So there is seasonality as you just described they are for.
Different reasons in the different pieces of of the business.
But all together you are thinking about it the right way, but on a numerical basis. We would encourage you to think of it as of year over year.
Now that we're more than three years into the platform really being the larger piece of our story.
There is some good reliability and looking at what the sequential dynamic is.
And why the year over year way to think about it is the right way to think about it obviously as we come out with Q1, we will give more granular detail into the pieces of it but as youre trying to think forward for the quarter look at it as of year over year.
Growth model.
Got it Okay. That's helpful and then.
A follow up just on a bigger picture.
On I think you said its slide nine where you talk about the strong long term underlying membership great dynamics.
Is that factoring in any specific changes coming out of D. C with the by the administration or do you think.
Some of that I mean, it's obviously very preliminary but some of the stuff that they're dealing to try to get more people back into enrolled in Obama care and some other maybe Medicaid expansion are those things factored into that 5% to 10% type growth or are those things of that could be bigger drivers maybe next year.
And beyond thanks.
Yes Sandy.
Right Great question, so when we put out our guidance remember last year, we were.
Sure.
We were not trying to call of the presidential election, and if you might remember we said we saw the election is either neutral to our.
Positive view in the Trump era.
Election, and the positive to our already positive view in the Biden election, we in fact got a Biden administration. So there is certainly the an incremental positive to the company in the by the administration the.
The the five to 10 or 5% to 11% of those those factors have already of really transpired rates of the Medicaid enrollment is up.
Manage Medicaid enrollment is up across the country, obviously differ state by state, but it's directionally, it's very strong on the historical basis, but it's directionally, 5% to 8%.
Around the country Medicare has again brought in a another strong performance that I believe the different different ways of counting come up with a slightly different number.
But it's around 10% to 11% on Medicare advantage and then <unk>.
<unk> put in a strong performance year over year on all parts of already reported and then as you just accurately reflected by the has already done an executive order to reopen the open enrollment for ACA, obviously, that's not in our numbers because it hasn't happened yet we don't know what the performance of that.
Incremental open enrollment will be so yes broadly of buying the administration is incrementally positive to our business model.
And really some of it is very straightforward is just linear math because of the P times Q aspect of it and then some of it is also going to be driving additional new interest with customers with for new product offerings.
Great. Thanks, so much Keith.
Thank you thank you sandy.
So thank you operator with that the final question before we close the call I just want to leave all of our listeners with the few salient points number one we're seeing strong accelerating market demand for our cloud based capabilities, we're seeing a strong driving of repeat quarters of significant new record sales number.
At the same time, we're seeing very strong operating leverage that's resulting in acceleration of our industry, leading SaaS profitability margins and number three these factors, which are combining with increased client value recognition rising client renewals, increasing retention rates and implementations for many many long term <unk>.
Contracts that are now coming online have us quite excited for the growth in 2021, but also really importantly for many years ahead. So with that thank you all for taking some time out. This evening. Thank you for your interest in <unk> and good night to all of you take care.
Ladies and gentlemen, this concludes today's conference call. Thank you for participating and you may now disconnect.
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Yes.