Innovator Intl Developed Power Buffer ETF

Jonathan Boldt - Interim CFO Keith Dunleavy - Chairman & CEO Kim Collins - SVP of Corporate Marketing & Communications

Matthew Gillmor - Robert Baird Ricky Goldwasser - Morgan Stanley Nina Deka - Piper Jaffray Frank Sparacino - First Analysis

Good afternoon. This is Kim Collins, Senior Vice President of Communications at Inovalon.

I'm here today with Dr. Keith Dunleavy, Inovalon's Chief Executive Officer and Chairman of the Board; and Jonathan Boldt, our Vice President of Finance and Interim Chief Financial Officer.

I'd like to welcome you to our second quarter 2018 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 in a few hours and posted on the Investor Relations page on Inovalon's website.

For those of you listening to the rebroadcast of this call, we remind you that the remarks made herein are as of today, August 1, 2018, 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 and plans, market growth and our objectives for future operations.

Those statements involve a number of factors that could cause actual results to differ materially. Additional information concerning these factors is contained in the company's 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 are 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'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 afternoon, everyone, and thank you for joining our call.

I'll begin with a high-level summary of our second quarter, follow with some highlights in specific areas, and then hand the call over to Jonathan to discuss in more detail our financial performance and outlook for the year. In the second quarter of 2018, we delivered strong results driven by 3 primary factors: number one, increasing market adoption of the Inovalon ONE Platform; number two, benefits from the combination with ABILITY Network; and number three, strong performance in operational efficiency and cost improvement.

Let me touch on a few key highlights. Revenue for the quarter came in at $152.8 million, reflecting an increase of 38% year-over-year and 65% in comparison to Q1.

This reflects a sequential organic growth rate of 21% from the first quarter. Gross margin expanded significantly to 74.5%, an increase of 810 basis points compared to the second quarter of 2017 and up over 1,000 basis points from Q1.

Adjusted EBITDA climbed to $52.8 million, up 90% from the year-ago quarter and up over 570% from Q1 of this year. Cash flow was solid even in a period of significant onetime expenses associated with the ABILITY acquisition and cost efficiency restructuring initiatives.

The number of physicians connected to our platform through our EHR connectivity capabilities expanded to more than 185,000, a greater than 70% increase from the year-ago period. Our datasets expanded to more than 252 million unique patients and 39 billion medical events, increases of 10% and 31% when compared to June 30, 2017.

The scale of compute running on our platform, a measure that we use in the Patient Analytical Months metric, expanded by 48% when compared to June 30, 2017. And we expanded our platform offerings, increased market adoption, saw expansion in each of our business units and demonstrated significant improvements in efficiency and profitability.

We're pleased with these results and our execution in the second quarter. It was a team effort that touched virtually every corner of the company, and importantly, we see the benefits of these initiatives persisting.

Let me discuss a few of our Q2 initiatives in more detail. First, we continue to innovate, expanding the capabilities, differentiation and efficiency of our offerings, powered through the Inovalon ONE Platform.

And we are seeing this innovation driving both meaningful value for our clients and differentiation with deepening motes for us. Furthermore, this is empowering high-efficiency scalability that is translating into not only cost conscientiousness that we can pass along to our clients but also strong operating leverage and profitability for us.

As you know, we've been a long-term-minded, persistent investor in innovation. As you've heard us convey previously, we believe that these commitments lead to long-term success for our clients and for us.

We are pleased to report that we are seeing this mindset bearing increasing amounts of fruit. During the quarter, we introduced ScriptMed Cloud, the industry's most advanced enterprise-wide specialty pharmacy platform, which leverages existing components of the Inovalon ONE Platform while adding 8 new unique components.

ScriptMed Cloud brings to the marketplace a cloud-native pure SaaS solution, empowering a new generation of data-driven specialty pharmacy capabilities, delivering increased efficiency, lower operating cost and improved patient outcomes and experience. This comes at a time when there is significant industry focus on how the leveraging of cloud-based capabilities can be disruptive to aspects of the pharmacy market.

Specialty pharmacy is a large, growing and increasingly important market in health care and one where the opportunity for Inovalon's innovation to empower meaningful differentiation, value and impact is significant. AllianceRx Walgreens Prime, the result of a 2017 combination of Walgreens and Prime Therapeutics specialty pharmacy initiatives, one of the largest providers of specialty pharmacy services in the United States, recognized this opportunity as well as the innovative and differentiated capabilities provided by the Inovalon ONE Platform.

As we announced on June 26 in the second quarter, AllianceRx Walgreens Prime and Inovalon entered into a 5-year engagement to implement ScriptMed Cloud to support all of AllianceRx Walgreens Prime's specialty pharmacy operations. We have been thrilled to work with this tremendous partner and industry leader and are excited to significantly expand our relationship with them.

We see the decision by AllianceRx Walgreens Prime to transition all of their enterprise operations to the ScriptMed Cloud configuration of the Inovalon ONE Platform as another demonstration of an industry leader selecting Inovalon's cloud platform as their solution of choice, not for a simple commodity-esque or niche need but to support the achievement of broad, critical, strategic goals pertaining to market leadership and differentiation. We also see the launch of ScriptMed Cloud and its acceptance within the market as a validation point regarding our M&A strategy.

In late 2016, we acquired Creehan & Company under the premise that specialty pharmacy was a significant area of growth in health care and an area that could benefit significantly from what we were developing within the Inovalon ONE Platform. Creehan was the leading provider of specialty pharmacy enterprise software to the marketplace, supporting approximately 30% of the market specialty pharmacy operators.

We saw a significant opportunity to engineer a next-generation solution, one that brought together the power of large datasets, connectivity, advanced analytics and directly connected data-driven point-of-care tools. The platform is highly differentiating.

It powers significant acceleration and time to treatment, reduction in error rates, material improvements in cost-to-fill and cost-to-serve, and improvements in clinical quality and outcomes tracking, and provider experience and patient experience. We are proud of this innovation.

I can't speak highly enough of Sean Creehan, his team, our technology teams and newly involved ABILITY Network teammates involved in this initiative. Another new cloud-based offering that we introduced during the second quarter was Clinical Data Extraction As a Service, which identifies and extracts patient clinical data within the health care ecosystem and aggregates it autonomously into a digital format that's both CMS and NCQA-compliant in real time.

Clinical Data Extraction As a Service speeds access to clinical data, improves data aggregation accuracy and consistency and reduces costs. We are seeing significant interest in adoption of this new capability in a very short period of time, including business wins in the second quarter, contract engagements with the largest health plans in the country and a growing pipeline of additional opportunities.

This is another engine driving new revenue at Inovalon, increasing the company's market differentiation and providing incremental cross-sell opportunities. Just last week, we announced another significant innovation, an enhancement to the Inovalon ONE Platform capability referred to as Elastic Container Technology or ECT.

Elastic Container Technology, which is now wide within client implementations, enables a significant expansion in computational speed, elasticity, resiliency and scalability within the platform while also materially reducing related technology operating costs by up to 80%. We're seeing increasing demand for very large-scale compute environments that support the analysis of increasingly large datasets with the concurrent desire for faster turnaround times and real-time data analyses.

This is evidenced by the continued significant growth in our patient analytical months, or PAM count, which increased 48% year-over-year. Organizations are increasingly conveying a desire to be able to compute faster than a potential competitor performs their analyses.

In this arms race for analytical speed and compute capacity, the development and implementation of our Elastic Container Technology provides significant advantages to our clients while providing further differentiation and increasingly scalable efficiencies for Inovalon. The second strategic initiative I want to highlight is our integration of ABILITY, which progressed well during the second quarter and continues to proceed as expected.

I want to emphasize here the quality of ABILITY's people and the purely positive experiences being realized working side-by-side with them. Through the hard work and extensive collaboration of our combined teams, we're not only achieving cost synergies in line with expectations, we were also realizing material benefits from the expanded management depth and strength and many best practices that ABILITY brings.

ABILITY's extremely capable high-volume, high-velocity sales organization is one example we have cited, but there are many others. The way ABILITY undertakes product and market assessments and the go-to-market planning is outstanding and is informing our synergy product development process and will be applied to many of our other solutions offered today and once planned for offering in the future.

A further example of ABILITY synergistic addition to our combined success is the strength of their technology personnel who are also adding key benefits to the now broader company. The third element that was well demonstrated during the second quarter is the efficiencies that we are achieving.

This is stemming from an impressive number of initiatives being executed by many of my colleagues. We successfully removed redundant resources and facilities while also continuing our translation of innovations into greater health care ecosystem connectivity, process automation and a review and streamlining of our software development pipeline.

These efficiencies are supporting our desire to be cost conscientious for our clients while also enabling increased profitability for the company. In addition to initiatives that reduce our costs, we were also successfully executing on initiatives that are continuing to result in a product mix shift towards increasingly higher-value, cloud-based solutions.

These are driving our scalability and efficiency and, again, benefiting our clients and our own performance. Before I hand the call over to Jonathan, I want to reiterate that we are pleased with what we have accomplished this quarter and with the interest in adoption that we are seeing in the market for Inovalon ONE Platform.

That said, there's still much work to be done, more progress that needs to be made and more growth that needs to be and will be achieved. We have a tremendous team of people, hard at work at Inovalon each and every day.

The team is getting deeper and stronger and are operating with keen awareness and focus on our challenges and opportunities. They're focused on delivering value for our clients and our shareholders.

I'm very appreciative of their hard work and execution in Q2 and look forward to our continued heads down, focus on the progress forward in the second half of 2018 and beyond. With that, let me ask Jonathan to review our second quarter financial results and discuss our 2018 financial outlook in more detail.

Jon?

Thank you, Keith, and good afternoon, everyone. I want to highlight several key points building on Keith's comments.

First, we delivered strong financial results in the second quarter with profitability improving ahead of our expectations. Second, we executed well across a number of complex initiatives in the quarter, initiatives enabling Inovalon to drive increasing top line growth and profitability.

And third, we are reaffirming our full year 2018 revenue and cash flow guidance, increasing our adjusted EBITDA and non-GAAP earnings guidance and updating the other elements of our guidance. In addition, as a reminder, we closed the ABILITY acquisition on April 2, so this quarter's results reflect the full impact of ABILITY during the quarter.

Now let's turn to our results. Second quarter 2018 revenue was $152.8 million, an increase of 38% year-over-year and 65% sequentially.

$43.2 million of this was provided by ABILITY and CCS collectively, pointing to year-over-year organic growth being essentially flat. However, sequential organic growth demonstrated a strong 21% increase over Q1 2018.

This sequential organic revenue growth was driven by higher subscription-based, cloud-based platform revenue, which grew 12% year-over-year and 18% sequentially. And if you exclude the ACA withdrawal impact from client decisions made in 2017, subscription-based organic revenue growth was 27% year-over-year and 21% sequentially.

Of note, the strong sequential organic growth was also fueled by an expansion in legacy revenue. We have provided additional details on these factors within today's supplemental deck on Slide 15.

Turning to gross margin. Second quarter 2018 gross margin was a strong 74.5%, a significant increase from 66.4% in second quarter 2017 and 63.9% in first quarter 2018.

While ABILITY's second quarter contribution positively benefited consolidated gross margin, gross margin excluding ABILITY was still an impressive 70.2%, representing a sequential expansion of 630 basis points over Q1 2018. This expansion was driven by our increasing mix of higher-margin, subscription-based platform offerings and realization of our technology-enabled efficiencies.

Our strong gross margin illustrates the significant leverage potential the company possesses in its financial model as revenue expands. For the full year, we continue to expect gross margin to expand to approximately 70%.

General and administrative expenses for the second quarter was $60.2 million, an increase of $24.3 million year-over-year and $10.8 million sequentially. This number, however, deserves some discussion.

In addition to ABILITY not being included in prior quarters, it is important to point out that Q2 2018 G&A includes $11.2 million of non-comparable expenses, including $8.5 million of contingent consideration accretion expense and $2.2 million of legal fees related to the ongoing IPO litigation. The expansion in contingent consideration expense reflects a number of business engagement successes achieved during the quarter.

Adjusting for these factors, normalized second quarter G&A was much lower, reflecting material overhead efficiency gains at $49 million. You will note that this is at the lower end of the guidance range of $49 million to $53 million of quarterly G&A expense that we previously provided for Q2 to Q4 2018.

Additional details can be located on Slide 16 of our earnings supplement deck. As Keith touched on, during the second quarter 2018, we executed multiple restructuring programs focused on streamlining software development projects, eliminating redundant business activities, consolidating our national real estate footprint and realizing the benefits from previous investments.

While these actions resulted in a restructuring expense of $9.5 million during the quarter, they have driven and are expected to continue to drive strong adjusted EBITDA margin performance. Driven by the factors that I have discussed, adjusted EBITDA in the second quarter of 2018 came in at $52.8 million, an increase of $25.1 million year-over-year and $44.9 million sequentially.

Adjusted EBITDA margin for the second quarter of 2018 was 34.6% compared to 25.1% for the second quarter of 2017 and 8.5% for the first quarter of 2018. Second quarter 2018 non-GAAP net income per share increased nicely to $0.13 per share, an increase of $0.05 or 63% year-over-year and $0.17 sequentially.

Turning to the balance sheet, which now reflects the closing of the ABILITY acquisition. Inovalon ended the second quarter of 2018 in a strong financial position.

As of June 30, 2018, we had $84 million in cash, cash equivalents and short-term investments, $980 million in total outstanding debt, reported balance sheet debt of $950 million, net of issuance discounts and deferred financing fees, and had not drawn any amount from the company's $100 million revolving credit facility. Additionally during the quarter, the company entered into interest rate swaps to fix the LIBOR component of $700 million of our outstanding debt at a weighted average rate of approximately 2.8%.

Of note, the company's net debt ratio as defined within our credit agreement decreased to just under 4 to 1 as of June 30, 2018. Turning to cash flow.

Net cash provided by operating activities was $20.1 million for the first 6 month of the year. This is despite $5.1 million of acquisition and integration-related payments included for GAAP purposes, $9.4 million in cash interest payments and the impact of higher working capital as a result of our strong sequential revenue growth.

CapEx increased slightly year-over-year, reflecting the inclusion of ABILITY and decreased on a sequential basis despite the inclusion of ABILITY for the second quarter, reflecting the substantial decrease in CapEx previously needed for the initial build of the Inovalon ONE Platform. Of note, while still seeing a decline in overall CapEx as a percentage of revenue, we have increased our full year 2018 CapEx guidance range by $5 million to reflect the strong business engagements signed in the quarter and expect over the remainder of 2018.

Additional details on our CapEx is located on Slide 22 of our earnings supplement deck. Now let me turn to our outlook for 2018.

We are reaffirming our prior guidance for revenue, net cash provided by operating activities and non-GAAP net cash provided by operating activities. We are increasing our guidance for adjusted EBITDA, non-GAAP net income, non-GAAP net income per share end CapEx spend.

And finally, we are adjusting our GAAP net loss and net loss per share guidance to reflect the onetime restructuring actions undertaken during the quarter, the increased fair value contingent compensation driven by strong second quarter performance and the increased noncash intangible amortization expense associated with the ABILITY acquisition. Please refer to today's earnings release and our second quarter supplemental earnings deck for details on our 2018 guidance.

With that, let me turn the call back over to the operator to conduct the Q&A session.

I wanted to ask about the revenue performance. It seemed like the organic trajectory was much better this quarter than the first quarter.

So kind of 2 parts to this. First is can Jonathan tell us what the impact was from the ACA exit so we can kind of get to a clean organic number?

And then second, would you mind maybe just spiking out a couple of product categories that led to the better organic growth rate? Was that more on the legacy risk adjustment and quality reporting platform or some of the newer product categories, like the ScriptMed?

Regarding the ACA impact within the quarter, the headwind was $11.1 million, which represents a $1.8 million sequential impact between Q1 to Q2, which we referenced on Slide 15.

I'll touch on the other pieces. We had nice growth in quite a few areas of the company's product offerings not only in areas that are core to Inovalon but also elements that are coming in, obviously, from the Creehan background and Avalere as well.

So across the board in all of our product areas, we saw growth during the quarter. Certainly, the strongest and most significant launch element were the two that we mentioned.

The ScriptMed Cloud component, which is a combination of the Creehan elements as well as the Inovalon ONE Platform, drove a strong capability as did the frankly the rest of their core enterprise software offerings and then also the cloud capabilities that we mentioned in the CDE, or Clinical Data Extraction As a Service. We don't break out the revenue components of the individual products, but as you can see, on Slide 15, we had nice strong revenue growth across all areas, subscription based, legacy based and services.

Okay, that helps. And then maybe one more on the revenue performance.

You had mentioned the acquired revenue from ABILITY, and the other acquisition was $43 million in the quarter. And I was just curious how that lined up versus your expectations.

I guess, it was a little bit higher than what we were thinking, and I'm curious if either of those businesses outperformed for the quarter.

Well, the - those numbers are also in the Q that got filed simultaneous with our release today, Matt. But I would say, really, we're seeing operation performance as we expected.

We were really pleased. People did an excellent job.

We're seeing things on plan, so we appreciate that there's not a ton of visibility on these things. ABILITY is relatively recent.

And there are - I forget how many quarters are now available, I guess. In our 8-K filing from several weeks ago we broke out that data as well as breaking out Q2's data.

That leaves Q1 as not having a quarterly breakout, but you can, I'm sure, line up between those. And I think you'll see a pretty consistent, strong performance from that group.

This is actually Nathan in for Jamie. Given that you historically had stronger Q2 seasonality, can you give us any color on how the implied second half revenue will split between Q3 and Q4?

Nathan, this is Keith. As you know for this year, we're not providing quarterly guidance.

We did walk through the reaffirm of the revenue for the year. You are correct that historically Q2 is our strongest quarter for some seasonality aspect.

That seasonality is decreasing - has been decreasing now for a couple of years as we shift increasingly to a subscription-based foundation of our product offerings and, of course, as we diversify out the clients we have and the businesses that we have. So we're seeing less and less of that, but there is still some component, as you correctly point out.

So we're not going to give quarterly guidance, but I will concede to you that you're right in thinking that Q2 still has some element of seasonality. But please also know that we still have to work through the transition of our full business to subscription based.

We still have large opportunities that we're pursuing and are at various different stages, so we're not looking at things on a 90-day-by-90-day basis to the preciseness but really looking on the full year and very pleased with how that's looking.

Great. And I guess for the second one, I know you have been excited about the Walgreens deal.

Given that they were an existing Creehan customer, can you talk about how the new contract is different from a relative size standpoint?

Sure. That's right.

They were a preexisting customer, not only with the Walgreens side but so, too, prior to the combination to for AllianceRx, so too was a Prime Therapeutics. How is this different from a financial standpoint?

It is a materially more significant engagement for the company going forward, and it has a significant number of growth and expansion opportunities. As they grow and succeed, we grow and succeed with them, which is exciting.

They're a fantastic group to work with. The structure of the agreement is different on an economic basis than the enterprise software that was in place previously - or software and price contract that was in place previously.

As with all of our other business, we're shifting to a subscription-based platform as we shift to cloud-based platforms and so is the case here. So this contract has not only that monthly subscription-based nature to it, but it also has the opportunity to scale as that organization scales and win business as also we're rather excited to work alongside them in working on that business.

When we think about the organic growth improving in the quarter, can you help us maybe by giving some color around the contribution from your new customers that you added in the quarter versus existing customers that are doing more with you and are expanding services?

Sure, Ricky. And related - I'll add even - I'll append on your question to give some additional color.

And we're happy to give some color on client turnover or churn as well. Actually, I'll start with that just so you know it.

We targeted roughly about 5%, and we projected about 5% for the full year. That's been in our abridged slides in our supplementals.

We saw that number play out in Q1. In Q2, that dollar equivalent remained the same.

But now on a percentage of revenue, our churn has been decreasing, right? So as we are expanding our top line, that turnover - or that client turnover is now more like 3.5%, just under 4% in the second quarter.

So getting to your question, new logos versus existing logos, obviously at this point, we have hundreds and hundreds of clients, hundreds of health plans, hundreds of pharmaceutical companies and, obviously, quite a few in the area of specialty pharmacy and pharmacy, and then categories of medical device and diagnostics and such. So on a new logo basis, we're having an element of an asymptotic tale of there are fewer and fewer companies we haven't done any business with.

What's more our focus is additional lines of business with them, additional types of business with them, either different departments in those same companies or just expanding what they're using the Inovalon ONE Platform for. And we're seeing a lot of that nicely.

We did sign a number of totally new logos during the quarter and also quite a few nice expansions as well. So a combination.

We don't bring those out. We don't break those out, but we're seeing a nice combination, a healthy number in both.

Okay. And when we think about the relationship with AllianceRx, should - what's the contribution for second half?

Is it included in the guidance? Should we think about it as an upside?

Or should we think about more of a revenue opportunity for next year?

Well, certainly, our guidance today is our - what we believe is the appropriate way to be thinking of our financial performance for the year at this point. So at this point, they are included in guidance.

Certainly, any line of business that we have if it overperforms and overdrives, that would hold an opportunity for upside. But one should always say the opposite of that as well, right, if something were to surprise differently than expected.

But at this point, we feel really good about where we are, really great number of signatures and engagements, AllianceRx being one of them. And yes, they're in the numbers.

And obviously, we feel good about them and are ahead of plan in several ways, most notably in the profitability of the company.

Okay. And just one last one for housekeeping.

You guys called out the contingent consideration in the prepared remarks. Can you just give us more details on what's included in these contingent considerations just because it's a bigger number than we've seen in the past?

Sure, let me touch on it from a business standpoint and then hand it over to Jonathan to hit from an exact accounting standpoint. Obviously, the acquisitions that we've done over time have elements of contingent consideration in their structure that are based upon how they perform for us post-closing of those deals.

You might remember back in - what was it, George, the second half of 2017, we actually marked down one of our contingent considerations and we got some questions regarding that. But performance has been strong.

We have caught that up and are performing really nicely and signed a nice amount of important business in the second quarter. So the fair value assessment of those contingent payments are now reinflated back up to reflect that.

So really, those are the reflections of just how much business was signed in the second quarter, but I I'll turn it to Jonathan for the finer details.

Keith, I think you covered everything.

Okay, great. And I'm assuming you're not going to tell us relating to each acquisition.

I appreciate the question, but no, we're not breaking that out. But we see nice performance in many areas.

So the Elastic Container Technology, you indicated that it can reduce cost by up to 80%. Can you provide some qualitative examples on how it works?

Sure. So - and frankly, we could take this offline, and I could talk to you for hours about it.

It's rather exciting. But what this is, is it's a rather advanced form of cloud computing that's a native cloud architecture that allows us to aggregate previously separate pools of cloud compute environment or infrastructure and allows for - think of it as a mediator to choose how much container capacity to allow any one process to access.

So therefore, as demand rises on a particular client's compute, it actually can, on the fly, dynamically increase the amount of capacity allocated for that process and, therefore, allows us to take dramatically higher-efficiency use of our total infrastructure build that we've spent a lot of money on over the last several years and support increasing client demand for faster and faster computes. We're seeing a very nice interest in the market for not only faster compute processing of their various different product offerings with us, but buying up to one level and then wanting to go to an even faster speed.

So this is allowing us to put our investments to work even more efficiently as we migrate more and more to the cloud environment.

And so how do you monetize that? Do they subscribe to that as another product, or is it an upgrade?

It is both. So it is applied on our heavy compute solutions.

So any one of our solutions that have a heavy degree of analytical processing, it speeds that processing and allows a client to have a greater performance in their subscription with us. So they can actually buy up to higher and higher speeds, and that's how it benefits them and, obviously, has financial benefits for us as well.

So not only do we have greater operating efficiency margins, we also have greater price points as the client sees a greater value.

Okay, okay. That's helpful.

And then just a housekeeping question, there were some onetime items that you noted in the guidance, restructuring, contingent considerations, transaction integration and the intangible asset amortization. And I noticed that they're a little higher than what you had guided to last quarter.

What's the explanation behind the increases on those line items?

Jonathan?

Sure. One driver is the increased intangible amortization associated with the ABILITY transaction.

So as the teams continue to develop purchase accounting, the acquired intangible assets were actually higher than we initially thought to reflect the larger value of the client relationships and the developed technology. So we've reflected that increased amortization in our forward guidance.

Additionally, there was the restructuring cost that we recorded in the second quarter of $9.5 million so we had to flow that through from a GAAP perspective.

Just one for me. Maybe, Keith.

In terms of the new client contribution, I know the guidance implies a fairly significant contribution this year, I think roughly $70 million-plus. In looking at the Q in terms of the new client contribution in Q2, it did pick up from Q1.

But still, through the first half, it's as fairly small number, $10 million. And I don't know if I'm talking about apples and oranges here, but it would seem that the new client contribution would have to pick up materially in the second half.

So just any comments around that, I guess, assessment and then what the pipeline and your confidence in the back half of the year in closing some business.

So first of all, a lot of the numbers you're seeing are obviously netted numbers that are coming in at different points in time during the year. When you turn on a new client in a subscription-based platform, there is a ramp-up period or turning-on period that varies across different product offerings.

So we have good visibility into that. Several of these were signed late in 2017, several in Q1, obviously, here in Q2.

So we have good visibility into that. Some of these are large populations, so that signal - a single signature can drive a rather nice amount of revenue as that all turns on across different geographies and segments of that population.

And we're seeing that. So we feel comfortable with where the numbers are.

We had a really nice second quarter, and we're able to not only onboard that much business but also do it while expanding our cost efficiency as well. So we were pretty excited to be able to do both.

Often, you'll hear somebody bringing on a whole new bunch of business and asking for forgiveness on the cost side, and you're not hearing that from us. So we're happy with how it went.

With that, I want to thank everybody for spending time this evening with us. As always, we appreciate it.

We appreciate your interest in Inovalon. The second quarter, as you've just heard, was driven by, really, 4 primary factors.

Number one, increasing market adoption of the Inovalon ONE Platform. We're seeing it across many different offerings, many different segments of the marketplace, and a nice strength in that momentum.

Number two, benefits from the combination with ABILITY Network, not just benefits in the contribution to our revenue and margins but really great benefits from their people and benefits from a lot of their best practices, which we're applying throughout Inovalon. Number three, strong profitability, resulting from really two sides of the equation, the positive side of higher-value offerings as well as the cost side, efficiencies and cost improvements.

And number four, the second quarter was a story of exceptional teamwork from across the entire company. Really, all parts that we've combined together with the company and all people within the company was a great experience quarter.

So we're pleased with what we've accomplished. We're excited about the interest we're seeing.

We're excited about our execution. We're proud of our people, and our clients are appreciative of the value that we're contributing to them.

We have our head down. We're focused on a strong performance in the second half of the year and beyond, and we look forward to updating you on that as we go forward.

Thanks again. Thanks for your time tonight.

Good night.