Inovalon: Quiet Big Data Giant

One of the nine value propositions of B2B platforms is Industry Big Data.  Industry Big Data means extracting, cleansing, and adding value to vertical specific data to provide new insights into price, quality, and performance to an industry’s participants.  There are several examples in healthcare, real estate, CPG, with the latest healthcare example being Inovalon.

With all the articles, blogs, and hype associated with Big Data, the cloud, and healthcare, it is hard to believe I did not learn about Inovalon until the day before it is scheduled to go public (INVO). (To be fair, the company was named MedAssurant until June, 2012.  Does that name ring a bell? ;-))

Inovalon’s Value Proposition

Inovalon is an industry big data company delivering real insights and already making good money.   (I know profitability on a GAAP basis is so 2014, but forgive them.)  Inovalon collects data from a wide variety of sources (e.g., patient records, pharmacy records, lab tests, supplemental sources of data), cleanses and enriches the data, and then uses the results to provide insights to doctors (and others).  The goal is to improve patient outcomes and lower costs.  Inovalon ahs other use cases as well:  such as using the data to help pharmaceutical companies recruit patient and investigators for clinical trials.

Here’s a graphic from the Inovalon S-1 that perfectly summarizes the level at which I understand this company:

 

 

 

 

 

 

Inovalon’s Big Data

While I don’t understand every nuance of the Inovalon business, I do understand the impressive numbers:

•  100 clients representing approximately 200 patient populations
• Analytics drawn from data on more than 744,000 physicians, 244,000 clinical facilities, 118 million unique patients (covering approximately 98.2% of all U.S. counties), and 9.1 billion medical events, a number that has been increasing at a rate of approximately 3.0% compounding monthly, or 43.3% annually, since 2000
• 17% growth in revenue versus a year ago, to $270 million for the first nine months of 2014
• Net income of $51 million or about 20% of sales for the first nine months of 2014
• Adjusted EBITDA of over $100 million or 38% of sales for the first nine months of 2014
• 20% plus growth in most of the underlying metrics, and even better in statements of work (SOW) signed (this seems to be the “hidden jewel” of information in the document)
• 17 of the top 25 health plans as customers
• What appears to be a tiny market share of a huge market.

If I correctly understand read these two charts below, Inovalon currently touches 9.1 million patients, with a total available market growing to 150 million patients in the next few years:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

All of this is a long way of explaining that this company you never heard of will debut with a market cap of more than $3.5 billion.  That’s before any IPO day stock price pop . Unicorns, Shmunicorns.

Any Downsides?

If there are any downsides to this business, they are as follows:

• It took this company 17 years to reach this point.  It looks like a tortoise compared to Veeva!  20%  annual growth may not good enough for unicorn hunters, regardless of the operating profit.
• The competition includes almost anyone who plays in software, big data, or consulting.  After all there is $3 Trillion spent on healthcare annually and this spend is famously growing at well above GDP rates.  IBM, Accenture, Microsoft, Oracle, etc. all have designs on this market.  INVO has a big target on its back.
• Most important, Inovalon did not grow at all in the year ended 2013.  Given all I said above, that result is hard to figure–except that sales are really lumpy. Inovalon claims the flat year was caused by the loss of a major customer, but does not provide us with renewal rates by cohort.  (We are told only that average client tenure is about 5 years.)
• I am not qualified to assess the quality of their technology in this fast-changing world.  Inovalon has been at it so long, it’s possible they may be on a platform that could be superceded if they are not careful (pure speculation).  (I do not know my Hadoops, from my Cassandras, from my Hortons, from my Clouderas.  I just know they are all Suess characters.)

Summary

Congrats to the Inovalon team for persevering and succeeding on this scale.  It looks like a great business, doing great things.  It is also one the best examples yet of Industry Big Data.