Inovalon Results Presentation Deck
Why is Gross Margin Percentage Changing?
inovalon
Year-over-year gross margin profit drivers are being influenced by the following forces: revenue mix driven by variations in
client demand, pricing strategy in new and transitional platform capabilities, and platform efficiency gains. The resulting
impact of these forces is a gross margin percentage change from 67% in 2015 to an expected 64% to 66% in 2016. Of
note, while the negative drivers reflect a full-year influence within 2016, the positive drivers of platform efficiency are
accelerating, as is the rate of higher efficiency platform capability launches, setting the scene for larger full-year benefits in
2017 and beyond.
67%
Full Year 2015 vs. 2016
Gross Margin Percentage Drivers
FY2015
Gross Margin
%
(2-3 pts)
Platform
Mix
(2-3 pts)
Platform
Price
3 pts
INOV 02 2016 Eamings Presentation Supplement (8.3.16) v1.0.0
64% -66%
Platform
FY2016
Efficiency Gross Margin
%
19
N
Gross Margin Drivers
During the first half of the year, we experienced variation in client demand
for intervention platform services, primarily in the partially automated area,
as clients experienced strong returns on such investments. This platform
mix shift toward higher levels of partially automated interventions as
compared to platform analytics or more fully automated interventions
results in a lower blended gross margin percentage. We are projecting that
this phenomenon will continue during the second half of the year.
As previously mentioned, we experienced accelerated pressure on our
legacy retrospective risk adjustment accuracy platform solution, and we
launched initiatives to advance this platform into a next-generation cloud
based platform. This near term platform and pricing pressure resulted in
lower margin expectations for 2016.
We continue to enhance our platform efficiency through the implementation
of technology, automation and connectivity solutions. We had success in
this area in the first half of the year. This success is accelerating and we
expect acceleration to continue throughout the year having a positive effect
on our gross margin percentages.
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