Inovalon Holdings
Annual Report 2017

Plain-text annual report

UNITED STATESSECURITIES AND EXCHANGE COMMISSIONWASHINGTON, D.C. 20549 FORM 10-K(Mark One) ýANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934For the fiscal year ended December 31, 2017or oTRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF1934For the transition period from toCommission file number: 001-36841 INOVALON HOLDINGS, INC.(Exact Name of Registrant as Specified in Its Charter) Delaware(State or Other Jurisdiction ofIncorporation or Organization)47-1830316(IRS EmployerIdentification No.)4321 Collington RoadBowie, Maryland(Address of Principal Executive Offices)20716(Zip Code)(301) 809-4000Registrant’s Telephone Number, Including Area CodeSecurities registered pursuant to Section 12(b) of the Act:Title of Each Class Name Of Each Exchange On Which RegisteredClass A Common Stock, $0.000005 par value per share NASDAQ Global Select MarketSecurities registered pursuant to Section 12(g) of the Act: NoneIndicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ý No oIndicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act. Yes o No ýIndicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ý No oIndicate by check mark whether the registrant has submitted electronically and posted on its corporate web site, if any, every Interactive Data File required to be submitted andposted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit andpost such files). Yes ý No oIndicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§ 229.405) is not contained herein, and will not be contained, to the best ofregistrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. oIndicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of“large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):Large accelerated filer x Accelerated filer o Non-accelerated filer o (Do not check if asmaller reporting company) Smaller reporting company oEmerging growth company oIf an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financialaccounting standards provided pursuant to Section 13(a) of the Exchange Act. oIndicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes o No ýAs of June 30, 2017, the last business day of the registrant’s most recently completed second fiscal quarter, aggregate market value of the voting stock (common stock) held bynon-affiliates of the registrant was approximately $683.2 million.As of February 9, 2018, the registrant had 63,445,573 shares of Class A common stock outstanding and 80,957,495 shares of Class B common stock outstanding.Documents Incorporated by ReferenceThe information required by Part III (Items 10, 11, 12, 13 and 14) will be incorporated by reference from the Registrant’s definitive proxy statement relating to its 2018 annualmeeting of stockholders (the “2018 Proxy Statement”). The 2018 Proxy Statement will be filed with the U.S. Securities and Exchange Commission within 120 days after the end of thefiscal year to which this report relates. Table of ContentsINOVALON HOLDINGS, INC.FORM 10-KFOR THE FISCAL YEAR ENDED DECEMBER 31, 2017TABLE OF CONTENTSPART I Item 1.Business1Item 1A.Risk Factors13Item 1B.Unresolved Staff Comments29Item 2.Properties30Item 3.Legal Proceedings30Item 4.Mine Safety Disclosures31PART II Item 5.Market For Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities32Item 6.Selected Financial Data35Item 7.Management’s Discussion and Analysis of Financial Condition and Results of Operations35Item 7A.Quantitative and Qualitative Disclosures About Market Risk52Item 8.Financial Statements and Supplementary Data52Item 9.Changes in and Disagreements With Accountants on Accounting and Financial Disclosure52Item 9A.Controls and Procedures52Item 9B.Other Information53PART III Item 10.Directors, Executive Officers and Corporate Governance54Item 11.Executive Compensation54Item 12.Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters54Item 13.Certain Relationships and Related Transactions, and Director Independence54Item 14.Principal Accountant Fees and Services54PART IV Item 15.Exhibits and Financial Statement Schedules55Signatures58Index to Consolidated Financial StatementsF-1iTable of ContentsSPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTSThis Annual Report on Form 10-K contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended(the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). All statements contained in this AnnualReport other than statements of historical fact, including but not limited to statements regarding our future results of operations and financial position, ourbusiness strategy and plans, market growth, and our objectives for future operations, are forward-looking statements. The words “believe,” “may,” “see,”“will,” “estimate,” “continue,” “anticipate,” “intend,” “expect,” and similar expressions are intended to identify forward-looking statements. We have basedthese forward-looking statements largely on our current expectations and projections about future events and trends that we believe may affect our financialcondition, results of operations, business strategy, short-term and long-term business operations and objectives and financial needs. Moreover, we operate ina very competitive and rapidly changing environment. New risks emerge from time to time. It is not possible for our management to predict all risks, nor canwe assess the impact of all factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materiallyfrom those contained in any forward-looking statements we may make. In light of these risks, uncertainties and assumptions, the future events and trendsdiscussed in this Annual Report may not occur and actual results could differ materially and adversely from those anticipated or implied in the forward-looking statements.Factors that may cause actual results to differ from expected results include, among others:•our future financial performance, including our ability to continue and manage our growth;•our ability to retain our client base and sell additional services to them;•the effect of the concentration of our revenue among our top clients;•our ability to innovate and adapt our platforms and toolsets;•the effects of regulations applicable to us, including regulations relating to data protection and data privacy;•the effects of consolidation in the healthcare industry;•the ability to successfully integrate our acquisitions and the ability of the acquired business to perform as expected;•the ability to enter into new agreements with existing or new platforms, products, and solutions in the timeframes expected, or at all;•the successful implementation and adoption of new platforms, products and solutions;•the effects of changes in tax legislation for jurisdictions within which we operate, including recent changes in U.S. tax laws;•the ability to protect the privacy of our clients’ data and prevent security breaches;•the effect of current or future litigation;•the effect of competition on our business; and•the efficacy of our platforms and toolsets.Forward-looking statements are only current predictions and are subject to known and unknown risks, uncertainties, and other factors that may causeour actual results, levels of activity, performance, or achievements to be materially different from those anticipated by such statements. These factors include,among other factors, those set forth in Part I, Item 1A, “Risk Factors.”You should not rely upon forward-looking statements as predictions of future events. The events and circumstances reflected in the forward-lookingstatements may not be achieved or occur. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannotguarantee future results, levels of activity, performance, or achievements. We are under no duty to, and we disclaim any obligation to, update any of theseforward-looking statements after the date of this Annual Report or to conform these statements to actual results or revised expectations.iiTable of ContentsPART IExplanatory Note Regarding Market Information: This Annual Report on Form 10-K includes market data and forecasts with respect to thehealthcare industry. Although we are responsible for all of the disclosure contained in this Annual Report, in some cases we rely on and refer to marketdata and certain industry forecasts that were obtained from third party surveys, market research, consultant surveys, publicly available information andindustry publications and surveys that we believe to be reliable.Item 1. Business.Our CompanyWe are a leading technology company providing cloud-based platforms empowering a data-driven transformation from volume-based to value-basedmodels throughout the healthcare industry. Through the Inovalon ONE™ Platform, Inovalon brings to the marketplace a national-scale capability tointerconnect with the healthcare ecosystem on a very large scale, aggregate and analyze data in petabyte volumes to arrive at sophisticated insights in real-time, drive impact wherever it is analytically identified best to intervene, and intuitively visualize data and information to inform business strategy andexecution. Leveraging its platform capabilities, large proprietary data sets, and industry-leading subject matter expertise, Inovalon enables the assessmentand improvement of clinical and quality outcomes and financial performance across the healthcare ecosystem. From health plans and provider organizations,to pharmaceutical, medical device, and diagnostics companies, Inovalon’s unique achievement of value is delivered through the effective progression of“Turning Data into Insight, and Insight into Action®.” Providing technology that supports a client base approaching 500 healthcare organizations,Inovalon’s platforms are informed by data pertaining to more than 932,000 physicians, 455,000 clinical facilities, 240 million individuals, and 37 billionmedical events.We generate the substantial majority of our revenue through the sale or subscription licensing of our cloud-based data analytics, intervention andreporting platforms and related support services.On September 17, 2014, Inovalon, Inc. implemented a holding company reorganization, pursuant to which Inovalon Holdings, Inc. became the newparent company of Inovalon, Inc. and Inovalon, Inc. became the direct, wholly owned subsidiary of the Company. The Company was incorporated in the stateof Delaware on September 11, 2014. Inovalon, Inc. was incorporated in the state of Delaware on November 18, 2005. In this Annual Report, unless weindicate otherwise or the context requires, references to the “Company,” “Inovalon,” “we,” “our,” “ours,” and “us” refer to Inovalon Holdings, Inc. and itsconsolidated subsidiaries.Industry Overview and Demand DriversThe Company believes that healthcare is increasingly becoming data-driven in nature, transactional in design, real-time in speed, and ultimatelyconsumer-centric in focus. Driven by the first waves of disease-burden based reimbursement models and quality incentive programs, data has gained anincreasing role in the U.S. healthcare system. Data is increasingly a competitive differentiator, as its aggregation, analysis, validation, and associatedconnectivity can be leveraged to identify individual patients’ unique needs, refine care plans, speed drug discovery and commercialization, reduce waste,expand the value proposition of medications and medical devices, and streamline healthcare workflows and supply chains. As transparency into the manyfacets of healthcare increases, the Company believes the pace of the industry’s transformation will accelerate, ultimately placing the consumer at the center asthey play an increasingly active role in their care.We believe that demand for our offerings is driven by the confluence of a number of fundamental healthcare industry trends, including:Shift to Value-Based Healthcare. The healthcare industry is undergoing a significant transformation, driven by a shift from volume-based models tovalue-based and outcome-based models. The traditional fee-for-service reimbursement model in healthcare has played a major role in elevating both the leveland growth rate of healthcare spending. In response, both the public and private sectors are shifting away from the historical fee-for-service (volume-based)models toward value-based, capitated payment models that are designed to incentivize value and quality at an individual patient level. The number ofAmericans covered by capitated payment programs (care programs wherein an organization is financially responsible for the healthcare of a population ofpatients for which the total compensation is fixed other than adjustments for factors including specifically how sick individual patients are, how muchresource is needed to be applied or spent on each patient, what is the quality of the clinical care, and other demographic factors) continues to increase,according to industry sources and our internal estimates. This increase is expected to further drive the critical importance to accurately measure, analyze,report, and improve patient disease and comorbidity conditions, utilization rates, and clinical quality outcomes. Further, this shift from volume-based tovalue-based and outcome-based models is increasingly impacting other segments of the healthcare industry, including pharmaceutical companies, healthcareproviders, medical device manufacturers, and diagnostics companies. For example, pharmaceutical companies are increasingly pursuing outcomes-basedcontracting (“OBC”) arrangements with health plans in1Table of Contentsorder to leverage data and analytics to demonstrate value and improve care outcomes. This is particularly true as a large number of new, complex, andexpensive specialty treatments are expected to enter the market over the coming years.Digitization of Healthcare Information. Across the healthcare landscape, a significant amount of data is being created every day, driven by patientcare, payment systems, regulatory compliance, and record keeping. These data include information within patient health records, clinical trials, pharmacybenefit programs, imaging systems, sensors and monitoring platforms, laboratory results, patient reported information, hospital and physician performanceprograms, and billing and payment processing. However, despite significant investments by public and private sources within the industry, the digitizedhealthcare data remain largely stored in “walled gardens”—data that is static and not easily shared or interpreted. As the amount of data in healthcarecontinues to grow, we believe that it will be critical for participants across the healthcare industry to be able to analyze this disparate data and apply insightsin a targeted manner in order to better achieve the goals of higher quality and more efficient care.Healthcare Becoming Increasingly Consumer-centric. Increasingly, the patient (the consumer of healthcare) wants to take a more active and informedrole in how their own individual healthcare is delivered - how to select their health plan and based on what information, how to select and interact with aphysician, how to determine whether or not to have a particular surgical procedure or whether or not to take a particular medication, etc. Similar to otherindustries including financial services, retail, and entertainment, the healthcare marketplace is becoming increasingly consumer-centric. This transformationmeans that interactions in healthcare are becoming increasingly data-driven, transactional, and real-time in nature, all of which require increasinglysophisticated data ingestion and analytical capabilities, extensive industry connectivity, and high-speed, scalable, and secure compute infrastructures.Increasing Complexity. The healthcare industry is on a course of dramatically progressive complexity. As technology employed in the healthcarespace has become increasingly sophisticated, new diagnostics and treatments have been introduced, the pool of clinical research has expanded, and theparadigms dictating payment and regulatory oversight have multiplied. This expanding complexity drives a growing and continuous need for theaggregation, analysis, and targeted application of the underlying and resulting data.Unsustainable Rise in Healthcare Costs. According to the 2017 National Health Expenditure Projections prepared by the Centers for Medicare andMedicaid Services (“CMS”), healthcare spending in the U.S. is projected to have increased 4.6% on a year-over-year basis to $3.5 trillion in 2017,representing 17.9% of U.S. Gross Domestic Product (“GDP”). CMS projects healthcare spending in the U.S. to increase to approximately 20% of GDP by2026. To address this expected significant rise in healthcare costs, the U.S. healthcare market is seeking more efficient and effective methods of deliveringcare. This same trend is playing out across modernized nations around the globe.Our Market OpportunityWe believe that our market opportunity is significant and growing. The ability to aggregate, integrate, and analyze data on a massive scale and applygarnered insights in a manner that achieves meaningful impact is crucial for healthcare payers (e.g., health plans and integrated health delivery systems),healthcare providers (e.g., hospitals, accountable care organizations (“ACOs”), post-acute care providers, and physicians), pharmaceutical companies(e.g., medication discovery and manufacturers, specialty pharmacies, retail pharmacies, pharmacy benefit management companies), medical devicemanufacturers, diagnostics companies, and consumers.2Table of ContentsAccording to third-party industry estimates, the addressable market for software and related services capabilities serving these healthcare constituents isapproximately $142 billion in 2018, up from approximately $84 billion in 2014. According to industry sources, the market for software and related servicesis approximately $17.3 billion within the U.S. payer market. We believe that as analytics continue to demonstrate greater value within the U.S. payerlandscape, the market will expand commensurately. We believe that the market opportunity for our current offerings within the payer market, the historicalfocus of our Company, is approximately $16.3 billion. As we continue to build and launch new capabilities, we believe analytics will provide a significantlylarger value opportunity within this same payer space. For providers, industry sources estimate that software and related services represent a $40.1 billion U.S.market size. We believe that the market opportunity for our current offerings within the provider market is approximately $6.8 billion. In the pharmaceuticaland life-sciences market, industry sources estimate a $51.4 billion market size for total software and related services spend. We believe that the marketopportunity for our current offerings within the pharmaceutical and life-sciences market is approximately $7.0 billion, largely driven by our acquisitions ofAvalere Health, Inc. (“Avalere”), a leading provider of data-driven advisory services and business intelligence solutions in the pharmaceutical and lifesciences industry, in 2015, and Creehan Holding Co., Inc. (“Creehan”), a leader in specialty pharmacy software platforms, in 2016. In the consumer market,industry sources estimate a $33.2 billion global market size for mobile health applications and solutions. We believe that, over time, analytics will also drivea significant opportunity expansion in the consumer market, as consumers seek to take a more active and informed role in how their healthcare is delivered._______________________________________Source: Gartner, IDC, Research and Markets and Inovalon (with methodology validated by HMA).In addition, the pressures that face the U.S. healthcare market are not unique, as other communities around the world are facing aging populations andgrowing pressures in the sustainable affordability of healthcare. We believe that our capabilities are highly applicable to other developed and developingcountries around the globe, which we believe represents a sizable related future opportunity for our Company.The Inovalon ONE™ PlatformInovalon provides a technology platform that enables healthcare organizations to implement highly sophisticated value-based initiatives in very largescale. At the core of value-based initiatives is the need to aggregate and analyze data, garner meaningful insight from the results, and use these insights todrive material change to outcomes and economics. To achieve this, four competencies are needed: 1) large-scale data connectivity, integration, andvalidation capabilities, 2) advanced predictive analytics and high-speed compute, 3) toolsets to translate resulting insights into real-world impact, and 4)purpose-built data visualization and reporting. To inform and enable these competencies, Inovalon brings to bear large-scale datasets, expansiveconnectivity, robust technology infrastructure, and industry-leading subject matter expertise.3Table of ContentsThe Inovalon ONE™ Platform is an integrated native cloud-based platform of more than 80 individual proprietary toolsets. Each toolset is referred to asa “Component,” with each supporting critical healthcare ecosystem functional needs. Components are configured into integrated sets identified as“Modules,” each of which share cohesive interoperability and common data management. The Inovalon ONE™ Platform brings to the marketplace a highlyextensible, national-scale capability to interconnect with the healthcare ecosystem on a very large scale, aggregate and analyze data in petabyte volumes,arrive at sophisticated insights in real-time, and drive impact wherever it is analytically identified best to intervene.Platform CapabilitiesData Integration. Throughout the healthcare industry, data is captured from many different sources, and while standards for exchanging informationbetween healthcare applications are emerging, much of the data associated with population health remains in disparate silos, in various formats, on paper, andis both interchanged and processed without automation. Where investments have been made in the digitization of health data, many of the resultingsolutions remain “walled gardens” of information—data that is static and not easily shared or interpreted.Our data integration platform capability was designed and developed to address these challenges. This capability enables integration of any datasource, on any hardware platform, in any data format at extremely high speeds. Our data integration platform receives information from external sourcesthrough a number of channels, including secure FTP, web services, and direct connections to external systems. Our data integration platform loads data intoour “data lake” in its native format, which ensures that we maintain all data as it is received and allows users to query the data directly in its structured orunstructured format. Processing data in its raw format, however, presents many technological challenges. We have developed interactive data mappingtechnologies to support the mapping of the raw data files to staging structures used by our platform to convert data from its native format into a structuredformat that can be used by all processes on our platform. Once mapped, the data is run through multiple processes to standardize the data and perform dataverification and integrity checks so that values are uniform across our entire platform.We believe that our enterprise-scale data integration and management capability enables us to receive, integrate, and process extremely large-scale dataflows at industry-leading speeds, and is a critical capability in achieving material improvement in clinical quality outcomes and financial performance inhealthcare, creating a material market differentiator and value creator for us and our clients. We integrate data seamlessly and securely into our systemsthrough our proprietary Extract, Transform, Load tools and processes. This system manages the process of defining and configuring thousands of industrydata feeds from our clients and partners (such as electronic health records (“EHR”), laboratory, pharmacy, patient reported, claims, paper based medicalrecords, biometric, and hospital data feeds respectively), manages the data processing workflow, and monitors the ongoing provision and quality of datathrough the application of more than 2,000 data integrity checks.4Table of ContentsOur big data technology has been created through the use of internally developed software coupled with industry-leading technology frameworks thatare vendor-agnostic. We leverage modern big data frameworks such as Hadoop and the Hadoop Distributed File System, which enable us to store structuredand unstructured data while making it readily accessible by our analytics engine. Our big data processing capabilities enable dramatic improvements in dataintegration and analytical cycle speed to value recognition to empower improvements for intelligent product development through the “real world”functional application. Our big data technology lays the foundation of the data fabric allowing integration into our analytical capabilities.Advanced Analytics. We have developed, honed, and scaled a broad portfolio of sophisticated analytics. Applying our subject matter expertise incomputer processing, data architecture, statistics, medical sciences, healthcare policy, and leveraging the billions of medical events within our significantpropriety datasets, we believe that we have developed one of the most advanced analytical platforms in the industry, as well as a culture and set of analyticaltoolsets that serve to rapidly innovate and expand our platform capabilities. In addition, by leveraging technologies such as Optical Character Recognition,Natural Language Processing and Machine Learning, we are able to further enhance our analytical capabilities, improve efficiency, and accelerate processingcapacity and client value delivery.Intervention Systems. In order to translate analytical insights into tangible impact, interventions at the point of care are critical. We are able totranslate our analytical insights into meaningful impact through data-driven, multi-channel intervention platforms, which include toolsets and services thatenable our clients to take the insights derived from our analytics and implement solutions that achieve meaningful impact at the patient and provider level.Our intervention capabilities include direct connectivity with many leading EHR systems, hard copy and electronic mail, and interactions via telephone, inpatients’ homes, through mobile devices, at dedicated patient centers, through web-enabled decision support tools, in retail pharmacies, and in traditionalclinical locations.Business Processing. Our business processing capability consists of a powerful business intelligence system and comprehensive data warehousing toprovide historical and current data insight, reporting, and benchmarking to support multiple client business needs such as government-mandated data filings,financial planning, and compliance requirements. We have also implemented an integrated platform of data visualization, allowing clients and theirdownstream users and operators to access data and analytical results from the population-level down to sophisticated individual drill-down details in real-time.Data SetsDatasets and the management of data are part of our core strengths, which give us insight into how a patient, provider, or population is doing. Ourdatasets grant us both relative and absolute insight, and inform the construction of new analytics capabilities, predictive models, and impact predictions.Further, data management speeds our time to client impact, decreases the burden on clients choosing to do business with us, and empowers our achievementof mission and results.In addition to being maintained and tagged within client-specific data lakes, data we receive in the course of providing our services are statistically de-identified and stored in our MORE2 Registry®. The MORE2 Registry® goes beyond just claims data to include information about demographics, enrollment,diagnoses, procedures, pharmacy, laboratory results, and deep medical record clinical data and presents a significant representative mix of commercial, HIXMarketplace, Medicare Advantage, and managed Medicaid care plan patients. As of December 31, 2017, our MORE2 Registry® dataset contained datapertaining to more than 932,000 physicians, 455,000 clinical facilities, 240 million individuals, and 37 billion medical events. The following is a sample ofcomponents within our MORE2 Registry®: • Patient Demographic Data • Benefits Data• Medical Record Documentation • Encounter and Procedural Data• Operating Room, Procedure, • Pharmacy Data Discharge Summary, • Imaging Report Data Emergency Room Records • Laboratory & Pathology Data• Electronic Health Record Data • Durable Medical Equipment Data• Health Risk Assessment Data • Self-Reported Data• Practitioner Profile Data • Social History Data• Claim Diagnostic Data • Activities of Daily Living (ADL)• Eligibility and Enrollment Data • Cost Data5Table of ContentsConnectivityWe have developed technology that enables real-time, bi-directional data aggregation and point-of-care intervention through many leading EHRsystems, which drives positive impact and efficiency for clients, clinicians, patients, and the Company.Inovalon’s Interoperability Platform facilitates the two-way exchange of clinical data with both cloud and non-cloud based EHR and Integrating theHealthcare Enterprise systems, connecting thousands of physicians in an effective, efficient, secure and scalable fashion while minimizing disruption. OurInteroperability Platform automatically requests and retrieves necessary clinical data, which is then analyzed by our advanced predictive analytics to identifygaps in patient care, and then embeds those insights directly into the clinical workflow to inform targeted interventions at the point-of-care.______________________________________(1)The 2014 and 2017 figures are as of December 31 for each respective year.6Table of ContentsTechnology InfrastructureWe believe that our track record of service is the result of our commitment to excellence and our devotion to maintaining one of the industry’s mostsophisticated technology infrastructures. We have made significant investments over the past decade to build an industry-leading enterprise-scaleinfrastructure capable of managing the heavy computing and storage requirements of our cloud-based data-driven business. Today, we employ a combinationof owned, virtualized data centers along with hosted facilities to enable seamless, secure, and scalable solutions nationwide.Our physical converged compute and storage infrastructure is deployed with a hybrid approach to cloud computing. Leveraging heavily virtualizedinfrastructure together with orchestration and automation tools, we have achieved significant capabilities within our private cloud environment. Thefollowing diagram provides a high level overview of our key infrastructure elements._______________________________________Our data and compute capacity is maintained within an interconnected set of infrastructure sets made up of owned and co-located data centers. The threeprincipal datacenters owned by Inovalon are located in the Washington D.C. metro area, Atlanta metro region and the Pittsburgh metro region. Our co-located datacenter facilities are located in Northern Virginia and in Phoenix, Arizona. Each datacenter supports the ability to interconnect agnostically tothird-party cloud capacity providers. This macro architecture provides us a significant ability to maintain both enterprise-level capacity and redundancy,while also achieving significant flexibility and cost effectiveness for burst capacity needs.We have a proven track record of implementing virtualization as our current datacenters are over 85% virtualized using VMware technologies.Operations of the virtualization technologies are streamlined by the orchestration, automation, and reporting capabilities provided by our private cloud andintegration with public cloud service providers. These technologies are used to provide computing, storage, and networking components to the hostingenvironment and provide operational efficiencies and cost optimization for the corporation.We have implemented a sophisticated hybrid cloud and service based application stack design, enabling “burst” capacity architecture to allowprovider-agnostic utilization of public cloud capacity if such capacity is required. Our virtualization technology has been integrated with automation andorchestration technology to create a cloud environment that provides both Infrastructure and Platform as a Service capabilities. These service basedcapabilities allow us to dynamically expand our compute capacity in real time and provide the business with a cost effective and nimble platform. Byleveraging both private and public cloud offerings, we can provide efficient, elastic, and cost effective compute resources based on the operational needs ofour clients. We believe we are leaders in the use of big data technology and high performance compute technology stack at the point of care in our industry.7Table of ContentsOur platform is built utilizing an innovative enterprise infrastructure platform enabling robust performance scaling, strong security, high availability,and advanced business continuity options. The building blocks of this infrastructure consist of the following:•Multiple data centers connected by redundant high-speed WAN connections;•High competency and utilization of virtualization technologies;•Rapid provisioning of computing capabilities to support the dynamic elasticity needed to support the variable computing needs of the application;•Measured service to optimize resource utilization and provide transparency of the utilized services; and•Available hosting facilities providing physical structure compliance with Federal Information Security Management Act (“FISMA”) standards.Disaster Recovery. Our contingency program is designed to provide response and subsequent recovery from unplanned business disruptions.Supported by our data centers, our contingency program provides a coordinated emergency response foundation across the organization. The programincludes business continuity, emergency occupant, pandemic planning, security incident response, and disaster recovery plans that encompass all areas ofour technology and business operations. These interrelated processes align to provide significant protection and risk mitigation. In addition to company-wide plans, specific details on event response and subsequent business recovery actions and activities are included within each respective business unit plan._______________________________________Business continuity and disaster recovery are an important part of our technology platform. Through significant investment in hardware, software, andapplication design, Inovalon provides solutions that support mission critical, business critical, and business important products and services through ournationwide enterprise data center presence.Network Operations Center. We maintain a central network operations center (“NOC”) where systems are monitored to ensure proper operation andcapacity utilization. The NOC monitors and collects information about a multitude of technology operating metrics regarding system load and status. Inconjunction with the rapid provisioning capability, automation, and standardization, the NOC provides us with the automated capabilities to oversee andmanage our technology resources in order to meet business demands.Privacy Management and Data Security. Protected health information is a sensitive component of personal information. It is highly important thatinformation about an individual’s healthcare is properly and thoroughly protected from any inappropriate access, use and disclosure. Given the industryvertical in which we operate, we realize the importance of the safety and sensitivity of personal health information. We have been a trusted partner to ourclients and are committed to the security and privacy of our client data, enterprise data, and our systems through the application of highly trained personnel,robust processes, and technology. Our privacy and security management includes:•governance, frameworks, and models to promote good decision making and accountability. Our comprehensive privacy and security program isbased on industry practices including those of the National Institute of Standards and8Table of ContentsTechnology, the Control Objectives for Information and Related Technology, Defense Information Systems Agency, and FISMA;•an internal security council, which advises on and prioritizes the development of information security initiatives, projects, and policies;•a layered approach to privacy and security management to avoid single points of failure;•a defense in depth protection model that addresses the network, platform, application, and file and data layers;•ongoing evaluation of privacy and security practices to promote continuous improvement;•use of safeguards and controls including: administrative, technical, and physical safeguards;•collaboration with our clients on best security and privacy practices; and•working closely with leading researchers, thought leaders, and policy makers.Platform ModularityOur platform has been created through the use of internally-developed software coupled with industry-leading technology frameworks that are vendor-agnostic. Because we have designed and developed our own software, we have built significant flexibility and modularity into our platform components.This enables us to not only enhance our existing products as our clients’ needs evolve, but also to increase our addressable market opportunity by rapidlydeveloping new product offerings and expanding into adjacent markets in the healthcare industry. Our acquisitions of Avalere and Creehan further enhancethis process through the additional capabilities, technologies, client relationships, and industry expertise that they bring. Our large, deep proprietary data setsin the MORE2 Registry® also enable and support this flexibility and modularity, as the depth and breadth of the data allows its analysis and application inthe context of many situations across the healthcare industry-not just for payers, but also providers, pharmaceutical companies, device manufacturers,diagnostics companies, etc. For example, within the set of Inovalon ONE™ Platform Components that would typically enable our Quality Measurement andReporting offering for a national health plan, a certain subset of these Components could be combined with an additional new set of Components to enableour OBC offering with a global pharmaceutical company.Our ClientsFor over 18 years, we have provided quality services to our clients. During that time, we have built a leading position and have become a true thoughtleader and innovator in our industry. We have achieved significant scale, and we believe that we play a key role in the U.S. healthcare market.Our clients renew existing client agreements throughout the year. The renewal rates of existing clients for the years ended December 31, 2017, 2016and 2015 were approximately 88%, 93% and 93%, respectively. The renewal rate is representative of clients with engagements exceeding $0.1 million inrevenue.For the year ended December 31, 2017, Anthem (formerly known as WellPoint) accounted for approximately 12% of our total revenue, and no otherclients represented greater than 10% of our revenue. See Note 2, “Summary of Significant Accounting Policies,” under the heading “Concentrations of CreditRisk,” of the notes to our audited consolidated financial statements included elsewhere within this Annual Report on Form 10-K for more information.Sales and MarketingWe believe that our sales and marketing initiatives are key to capitalizing on our significant market and growth opportunities. While we havesuccessfully leveraged our sales and marketing as we have grown, we believe that additional strategic investments in sales and marketing capacity andcapabilities will enable us to increasingly seize on the healthcare industry’s need for data analytics and data-driven intervention services, and empower thehealthcare industry’s transformation from volume-based models to value-based models.We sell our offerings primarily through three avenues:•Business development led by product and management personnel: We benefit significantly from the subject matter expertise, market credibility,thought leadership, and relationships of our executives, senior management, and product leaders within the industry. They have played, and areexpected to continue to play, a significant role in the establishment and ongoing development of our client relationships.•Business development led by dedicated sales personnel: We have a dedicated, direct sales team, which is comprised of focused field salesprofessionals who are organized principally by geography and product type. Our dedicated sales personnel are supported by a sales operations staff,including product technology experts, lead generation personnel, and sales data personnel.9Table of Contents•Business development led by strategic channel relationships: We increasingly are developing and expanding our use of strategic partnerships andchannel relationships for the establishment and development of new and existing clients.Our marketing and communications strategies are centered on initiatives that drive awareness of our Company and capabilities. These initiativesinclude: educating the market about our Company broadly; hosting industry-focused events and speaking engagements; disseminating articles discussingdata trends and metrics, and strategic interfacing with key business and trade media personnel. We employ a broad array of specific events to facilitate theseinitiatives, including but not limited to:•Sponsorship and partnership of key industry conferences;•Client-focused events and programs;•Hosting our annual Client Congress highlighted by healthcare leaders, industry icons and senior government officials sharing best practices,strategies, and trends;•Web and social properties, digital and video content marketing, creative online advertising, and blogs; and•Hosted webinars, direct mail, analyst relations, and media relations.In addition, in order to enhance our value proposition, our sales and marketing staff develops best practices tools, case studies, and educationalmaterials to drive deeper client engagement, understanding, and utilization.OperationsOur operations are divided into two groups. Our IT Operations Group manages the process steps from data receipt through to the generation ofanalytical outputs. Our Services Operations Group manages the process steps applied to achieve impact through our data-driven intervention platforms.IT Operations GroupWe achieve excellence in the operation of our technology based on a foundation of service management aligned with data integration, dataprovisioning, system support, and security operations. These operational processes are measured clearly through a framework of key performance indicators,which seek to provide an optimal level of transparency and control.We have implemented a rigorous command and control structure for maintaining availability of production systems and ensuring the security oftechnology infrastructure. Our NOC is responsible for monitoring network and systems, security incident response, and management and communication aswell as the oversight of planned system maintenance. The personnel of the NOC are also responsible for invoking our business continuity plan whenappropriate.The security operations within our NOC maintain the confidentiality, integrity, and availability of our production systems and technologyinfrastructure by maintaining security situational awareness, as well as coordinating security incident response and proactively protecting sensitive data. Thesecurity operations team utilizes a variety of tools and techniques to identify, contain, remediate, and gather intelligence on both known and emergingtechnology threats. Reports are tracked through automated event management triggers and communicated to leadership through our business servicemanagement layer.We have a comprehensive framework for managing change control, problem management, incident and event management, service management, andproduction operations. We use a defined quality change control management system for managing technology changes.Product support integration across all of our solutions enables commonality of processes—allowing our clients to benefit from increased technologyoperational efficiencies. Regardless of the efficiencies achieved, we are continuously enhancing our technology product operations through the dedication ofthe process automation and performance assurance team focused on designing and deploying zero-touch capabilities.Services Operations GroupMany of our clients utilize the analytical outputs of our platform to feed into their own internal systems to achieve value within the provider andpatient base. Other clients license our data-driven intervention platforms to facilitate the realization of value from our analytics. For still other clients, ourservice support personnel operate our data-driven intervention platforms to deliver end-to-end value realization. For these clients, through theimplementation of our sophisticated platforms, we leverage our analytical output to provide data-driven intervention support services at the varying points ofcare necessary to achieve the goals of our clients. This unique end-to-end approach implements the solutions necessary to turn insight generated through ouradvanced analytics into meaningful impact and realized value for our clients on a national scale.One of the centerpieces of our services operations is our strong management systems, which serve as vehicles to drive transparency, ownership andexecution. Our management systems enable general managers and operational leaders the ability10Table of Contentsto “see around the corner” and be ambidextrous in how they balance achieving efficiency gains while also focusing on exceptional client value delivery.CompetitionWe compete with a broad and diverse set of businesses. We believe the competitive landscape is highly fragmented with no single competitor offeringsimilarly expansive capabilities and solution offerings in healthcare data analytics and data-driven interventions. Our primary competitive challenge is todemonstrate to our existing and potential clients the value of utilizing our platforms rather than developing or assembling their own alternative capabilities.We believe that the combination of our competitive strengths and successful culture of innovation, including our large proprietary datasets, advanced dataintegration technologies, sophisticated predictive analytics, extensive industry connectivity, data-driven intervention platforms, and the deep subject matterexpertise of our associates, make it time- and cost-prohibitive for our clients to replace or replicate all that we offer. In addition, we believe the combinationof these attributes differentiates us from our competition.The competitive landscape can be characterized by the following categories of companies that provide capabilities or solutions that compete with oneor more offerings of our platform:•Large-scale healthcare-specific solutions providers, such as Optum, Change Healthcare (formerly Change Healthcare Holdings, Inc. and McKessonTechnology Solutions), Verscend Technologies (formerly Verisk Health), and IQVIA (formerly QuintilesIMS);•Providers of enterprise-scale, industry agnostic IT solutions, such as Oracle, Dell, SAP, SAS, and IBM;•Large-scale IT consultants and third-party service providers, such as Accenture and Deloitte Consulting; and•Point solution providers, such as Change Healthcare, DST Systems, edifecs, and Silverlink.Intellectual PropertyWe generally rely on copyright, trademark, and trade secret laws as well as confidentiality agreements, licenses, and other agreements with employees,consultants, vendors, and customers. We also seek to control access to and distribution of our proprietary software, confidential information and know-how,technology, and other intellectual property. Historically, because our initial technological innovations were primarily algorithmic in nature, theseinnovations were well suited to trade secret protection. Accordingly, and due to the complex, time intensive, and costly patent process, with somewhatlimited utility for business processes, the use of patents has not historically been compelling for us. However, beginning in the second quarter of 2015, wefiled a limited number of provisional and non-provisional patent applications. We expect to continue to seek patents in the future.We own and use trademarks in connection with our applications and services, including both unregistered common law marks and issued trademarkregistrations in the United States. Our material trademarks, service marks and other marks include: CAAS™, CARA®, Caresync Advantage®,CCS Advantage®, CEDI™, ChaseWise™, Data-Driven Improvements in Health Care™, Distributed Analytics®, EMR Acceleration™, eCAAS Advantage®,ePASS®, Healthcare Empowered®, Healthier Members, Healthier Business®, HEDIS Advantage, HCC Surveillance®, HIX Foundation®, iDCT™, INDICES®,Inovalon®, Inovalon-US, Inovalon-EU, Inovalon Healthcare Empowered (and Spiral Design to left)-EU, Inovalon (and Spiral Design on top), Inovalon (andSpiral Design to left), Inovalon Healthcare Empowered (and Spiral Design on top), Inovalon Healthcare Empowered (and Spiral Design to left)-US, InovalonHealthcare Empowered (wordmark), Insights: a business intelligence solution™, iPORT™, iTCC™, MORE2 Registry®, PCIS™, Prospective Advantage®,QSCL™, QSFD®, QSI®, SRSA™, Star Advantage®, Turning Data into Insight and Insight into Action®, We See Solutions™, Data Diagnostics®, DDx™ andthe Inovalon ONE™ Platform. We also have trademark applications pending to register marks in the United States and European Union.While our intellectual property rights are important to our success, we believe that our business as a whole is not materially dependent on any particularpatent, trademark, license or other intellectual property right.Our EmployeesAs of December 31, 2017, we had a total of 2,480 associates across the following areas: Technology, Innovation and Product, Data-driven ClientServices, and Selling, General and Administrative. There were 1,758 full-time associates and 722 part-time associates. None of our associates are representedby a labor union; all of our associates currently work in the U.S. and its territories (Puerto Rico), and we consider our current relations with our associates tobe good.Requirements Regarding the Privacy and Security of Personal InformationHIPAA and Other Privacy and Security Requirements. There are numerous U.S. federal and state laws and regulations related to the privacy andsecurity of personal information. In particular, regulations promulgated pursuant to the Health Insurance Portability and Accountability Act of 1996(“HIPPA”), as amended, and its implementing regulations, establish11Table of Contentsprivacy and security standards that limit the use and disclosure of Protected Health Information (“PHI”) and require the implementation of administrative,physical, and technical safeguards to ensure the confidentiality, integrity, and availability of individually identifiable health information in electronic form.Our health plan customers, as well as healthcare clearinghouses and certain providers with which we may have or may establish business relationships, arecovered entities that are regulated under HIPAA. The Health Information Technology for Economic and Clinical Health Act (“HITECH”) which becameeffective on February 17, 2010, and an implementing regulation known as the Omnibus Final Rule, which became effective on September 23, 2013,significantly expanded HIPAA’s privacy and security requirements. Among other things, HITECH and the Omnibus Final Rule make HIPAA’s privacy andsecurity standards directly applicable to “business associates,” which are independent contractors or agents of covered entities that create, receive, maintain,or transmit PHI in connection with providing a service for or on behalf of a covered entity. Under HIPAA and our contractual agreements with our customers,we are considered a “business associate” to our customers and thus are directly subject to HIPAA’s privacy and security standards. In order to provide ourcovered entity clients with services that involve the use or disclosure of PHI, HIPAA requires our clients to enter into business associate agreements with us.Such agreements must, among other things, require us to:•limit how we will use and disclose PHI;•implement reasonable administrative, physical, and technical safeguards to protect such information from misuse;•enter into similar agreements with our agents and subcontractors that have access to the information;•report security incidents, breaches, and other inappropriate uses or disclosures of the information; and•assist the customer in question with certain of its duties under the privacy standards.In addition to HIPAA, HITECH, and their implementing regulations, we may be subject to other state and federal privacy laws, including laws thatprohibit unfair privacy and security practices and deceptive statements about privacy and security and laws that place specific requirements on certain typesof activities, such as data security and texting. We may also be subject to state medical record privacy laws, which may be more strict than HIPAA, includingthe laws of the state of California.Data Protection and Breaches. In recent years, there have been a number of well-publicized data breaches involving the improper use and disclosureof individuals’ personal information. Many states have responded to these incidents by enacting laws requiring holders of personal information to maintainsafeguards and to take certain actions in response to a data breach, such as providing prompt notification of the breach to affected individuals and stateofficials. In addition, under HIPAA and pursuant to our business associate agreement obligations, we must report breaches of unsecured PHI to our contractualpartners following discovery of the breach. Notification must also be made in certain circumstances to affected individuals, HHS and the media.We have implemented and maintain physical, technical, and administrative safeguards intended to protect individually identifiable health informationand have processes in place to assist us in complying with all applicable laws, regulations, and contractual requirements regarding the protection of thesedata and properly responding to any security breaches or incidents. Furthermore, in many cases, applicable state laws, including breach notificationrequirements, are not preempted by the HIPAA privacy and security standards and are subject to interpretation by various courts and other governmentalauthorities, thereby complicating our compliance efforts. Where a state law is not preempted by HIPAA, we may also be subject to that state law’srequirements, in addition to our obligations under HIPAA, HITECH, and their implementing regulations. Additionally, state and federal laws regardingdeceptive practices may apply to public assurances we give to individuals about the security of services we provide on behalf of our contractual customers.Other Requirements. In addition to HIPAA, numerous other U.S. state and federal laws govern the collection, dissemination, use, access to, andconfidentiality of individually identifiable health information and healthcare provider information. Some states also are considering new laws andregulations that further protect the confidentiality, privacy, and security of medical records or other types of medical information. Further, Congress and anumber of states have considered or are considering prohibitions or limitations on the disclosure of medical or other information to individuals or entitieslocated outside of the United States.SeasonalityThe nature of our customers’ end-market results in seasonality reflected in both revenue and cost of revenue differences during the year. Regulatoryimpact of data submission deadlines in, for example, March, June, September, and January drive timing of analytics and data processing activity variancesfrom quarter to quarter. Further, regulatory clinical encounter deadlines of June 30th and December 31st drive intervention concentration variances fromquarter to quarter. The timing of these factors results in analytical and intervention activity mix variances which impact financial performance from quarter toquarter. Finally, quarter to quarter financial performance may increasingly vary from historical seasonal trends as we further expand into adjacent markets andincrease the portion of our revenue generated from new offerings.12Table of ContentsCorporate InformationOur executive offices are located at 4321 Collington Road, Bowie, Maryland 20716. Our telephone number at our executive offices is (301) 809-4000and our corporate website is www.inovalon.com. The information on, or accessible through, our website is not incorporated into and does not constitute apart of this Annual Report on Form 10-K or any other report or document we file with or furnish to the Securities and Exchange Commission (“SEC”). OurClass A common stock is listed on the NASDAQ Global Select Market under the symbol “INOV.”Available InformationWe file our Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, and all amendments to those reports with theSEC. You may obtain copies of these documents by visiting the SEC’s Public Reference Room at 100 F Street, N.E., Washington, D.C. 20549, by calling theSEC at 1-800-SEC-0330 or by accessing the SEC’s website at www.sec.gov. In addition, as soon as reasonably practicable after such materials are furnished tothe SEC, we make copies of these documents available to the public free of charge through our website or by contacting our Secretary at the address set forthabove under “—Corporate Information.”Our Board of Directors Corporate Governance Charter, Code of Business Conduct and Ethics, and the charters of our audit committee, compensationcommittee, nominating and corporate governance committee and security and compliance committee are all available in the Governance Documents sectionof the Corporate Information section of our website.Financial InformationFor required financial information related to our operations, please refer to our consolidated financial statements, including the notes thereto, includedwith this Annual Report on Form 10-K.Item 1A. Risk Factors.Set forth below are the risks that we believe are material to our stockholders. You should carefully consider the following risks in evaluating ourCompany and our business. The occurrence of any of the following risks could materially adversely impact our financial condition, results of operations, cashflow, the market price of shares of our common stock and our ability to, among other things, satisfy our debt service obligations and to make distributions toour stockholders, which in turn could cause our stockholders to lose all or a part of their investment. Some statements in this report including statements inthe following risk factors constitute forward-looking statements. Please refer to the section entitled “Special Note Regarding Forward-Looking Statements” atthe beginning of this Annual Report on Form 10-K.Risks Related to Our BusinessWe may not grow at the rates we historically have achieved or at all, even if our key metrics may indicate growth, which could have a material adverseeffect on the market price of our Class A common stock.We have experienced significant growth since 2013, with total revenues growing from approximately $295.8 million for the year ended December 31,2013 to approximately $449.4 million for the year ended December 31, 2017. Future revenues may not grow at these same rates or may decline, such as theapproximate 2% revenue decline from the year ended December 31, 2015 to the year ended December 31, 2016. Our future growth will depend, in part, onour ability to grow our revenue from existing clients, to complete sales to potential new clients, to expand our client base in adjacent industry segments suchas the life sciences industry and with provider organizations, to develop new services and capabilities including direct-to-consumer services, and to expandinternationally. We can provide no assurances that we will be successful in executing on these growth strategies or that, even if our key metrics, such astrailing 12 month Patient Analytics Months (“PAM”), would indicate future growth, we will continue to grow our revenue, margins or net income. Our abilityto execute on our existing sales pipeline, create additional sales opportunities, and expand our client base depends on, among other things, the attractivenessof our services relative to those offered by our competitors, our ability to demonstrate the value of our existing and future services, and our ability to attractand retain a sufficient number of qualified sales and marketing leadership and support personnel. In addition, clients in certain industries in which we have amore limited presence, such as the life sciences industry, may be slower to adopt our services than we currently anticipate, which could adversely affect ourresults of operations and growth prospects.If our existing clients do not renew their agreements with us, renew at lower fee levels, decline to purchase additional services from us, choose to purchasefewer services from us, or terminate their agreements with us, and we are unable to replace any lost revenue, our business and operating results couldsuffer.We historically have derived, and expect in the future to derive, a significant portion of our revenue from renewals of existing client agreements andsales of additional services to existing clients. As a result, achieving a high renewal rate of our client agreements and selling additional services to existingclients is critical to our future operating results. It is difficult to13Table of Contentspredict our client renewal rate, and we may experience significantly more difficulty than we anticipate in renewing existing client agreements. Factors thatmay affect the renewal rate for our services and our ability to sell additional services include:•the price, performance and functionality of our services;•the availability, price, performance and functionality of competing services;•our clients’ perceived ability to develop and perform the services that we offer using their internal resources;•our ability to develop complementary services;•our continued ability to access the data necessary to enable us to effectively develop and deliver new services to clients;•the stability and security of our platform;•changes in healthcare laws, regulations or trends; and•the business environment of our clients, in particular, reductions in our clients’ membership populations and budgetary constraints affecting ourclients.Contracts with our clients generally have stated terms of two to five years. However, our clients have no obligation to renew their contracts for ourservices after the term expires. In addition, a high renewal rate in any particular year does not necessarily correlate to recurring or increasing revenue from ourexisting clients, as our clients may negotiate terms less advantageous to us upon renewal, may renew for fewer services, may choose to discontinue one ormore services under an existing contract, may exercise flexibilities within their contracts to adjust service volumes, or which could reduce our revenue fromthese clients. Accordingly, annual renewal rate metrics have inherent limitations and renewal rates should not be used as a key metric to evaluate theCompany’s results of operations. Our future operating results also depend, in part, on our ability to sell new services to our existing clients. If our clients failto renew their agreements, renew their agreements upon less favorable terms, at lower fee levels or for fewer services, fail to purchase new services from us, orterminate their agreements with us, and we are unsuccessful in generating significant revenue from new clients to replace any lost revenue, our revenues maydecline and our future revenue growth may be constrained.If a client fails to fulfill its obligations under its agreements with us, or permanently terminates certain services or its agreement in its entirety prior to itsexpected completion date, whether or not in our view permitted by the terms of the agreement, and revenue and cash flows expected from a client are notrealized in the time period expected or at all, our business, operating results and financial condition could be adversely affected.Our top clients account for a significant portion of our revenues and, as a result, the loss of one or more of these clients could materially and adverselyaffect our business and operating results.Our largest client, Anthem (formerly known as WellPoint), represented approximately 12% of our revenues for the year ended December 31, 2017. Noother clients represented greater than 10% of our revenue. Our top ten clients accounted for approximately 53% of our revenues for the year endedDecember 31, 2017. The engagement between these clients and us generally is covered through multiple separate statements of work (“SOWs”), each oftenwith different and/or staggered terms which are all multi-year in their duration, ranging typically from two to five years. We can provide no assurance thatthese clients will renew their existing contracts or all SOWs with us upon expiration or that any such failure to renew will not have a material adverse effecton our revenue. If we lose one or more of our top clients, or if one or more of these clients significantly decreases its use of our services, our business andoperating results could be materially and adversely affected.If we do not develop new services that are adopted by clients, or fail to provide high quality support services to our clients, our growth prospects, revenuesand operating results could be materially and adversely affected.Our longer-term operating results and revenue growth will depend in part on our ability to successfully develop and sell new services that existing andpotential clients want and are willing to purchase. We must continue to invest significant resources in research and development in order to enhance ourexisting services and introduce new high-quality services that clients and prospective clients will want. If we are unable to predict or adapt to changes in userpreferences or industry or regulatory changes, or if we are unable to modify our services on a timely basis in response to those changes, clients may not renewtheir agreements with us, and our services may become less attractive than services offered by our competitors. Our operating results could also suffer if ourinnovations are not responsive to the needs of our clients, are not appropriately timed with market opportunity, or are not effectively brought to market. Oursuccess also depends on successfully providing high-quality support services to resolve any issues related to our services. High-quality education and clientsupport is important for the successful marketing and sale of our services and for the renewal of existing clients. If we do not help our clients quickly resolveissues and provide effective ongoing support, our ability to sell additional services to existing clients would suffer and our reputation with existing orpotential clients would be harmed.14Table of ContentsWe cannot assure you that we will be able to manage our growth effectively, which could have a material adverse effect on our business, results ofoperations and growth prospects.If we are successful in expanding our client base and growing our business, our existing services may not be as scalable as we anticipate, and we mayneed to expend significant resources to enhance our IT infrastructure, financial and accounting systems, and controls, and also hire a significant number ofqualified client support personnel, professional services personnel, software engineers, technical personnel, and management personnel in order to provideservices to those new clients. As a result, our expenses may increase more than expected, which could adversely affect our results of operations and netincome. In addition, identifying and recruiting qualified personnel and training them in the use of our services requires significant time, expense, andattention, and our business may be adversely affected if our efforts to expand and train qualified personnel do not generate a corresponding increase inrevenues. If our existing services are not as scalable as we anticipate or if we are unable to manage our growth and the cost thereof effectively, the quality ofour services and our reputation may suffer, which could adversely affect our business, results of operations and growth prospects.If our security measures fail or are breached and unauthorized access to a client’s data is obtained, our services may be perceived as insecure, we mayincur significant liabilities, our reputation may be harmed, and we could lose sales and clients.Our services involve the storage and transmission of clients’ proprietary information, sensitive or confidential data, including valuable intellectualproperty and personal information of employees, clients and others, as well as protected health information, or PHI, of our clients’ patients. Because of theextreme sensitivity of the information we store and transmit, the security features of our computer, network, and communications systems infrastructure arecritical to the success of our business. A breach or failure of our security measures could result from a variety of circumstances and events, including third-party action, employee negligence or error, malfeasance, computer viruses, cyber-attacks by computer hackers, failures during the process of upgrading orreplacing software and databases, power outages, hardware failures, telecommunication failures, user errors, or catastrophic events. Information security riskshave generally increased in recent years because of the proliferation of new technologies and the increased sophistication and activities of perpetrators ofcyber-attacks, including, for example, the recent Spectre and Meltdown threats which, rather than acting as viruses, were design flaws in many CPUs thatallowed programs to steal data stored in the memory of other running programs and required patch software to correct. As cyber threats continue to evolve, wemay be required to expend additional resources to further enhance our information security measures and/or to investigate and remediate any informationsecurity vulnerabilities. If our security measures fail or are breached, it could result in unauthorized persons accessing sensitive client or patient data(including PHI), a loss of or damage to our data, an inability to access data sources, or process data or provide our services to our clients. Such failures orbreaches of our security measures, or our inability to effectively resolve such failures or breaches in a timely manner, could severely damage our reputation,adversely affect client or investor confidence in us, and reduce the demand for our services from existing and potential clients. In addition, we could facelitigation, damages for contract breach, monetary penalties, or regulatory actions for violation of applicable laws or regulations, and incur significant costsfor remedial measures to prevent future occurrences and mitigate past violations. Although we maintain insurance covering certain security and privacydamages and claim expenses, we may not carry insurance or maintain coverage sufficient to compensate for all liability and in any event, insurance coveragewould not address the reputational damage that could result from a security incident.We may experience cyber-security and other breach incidents that remain undetected for an extended period. Because techniques used to obtainunauthorized access or to sabotage systems change frequently and generally are not recognized until launched, we may be unable to anticipate thesetechniques or to implement adequate preventive measures. In addition, in the event that our clients authorize or enable third parties to access theirinformation and data that are stored on our systems, we cannot ensure the complete integrity or security of such data in our systems as we would not controlaccess. If an actual or perceived breach of our security occurs, or if we are unable to effectively resolve such breaches in a timely manner, the marketperception of the effectiveness of our security measures could be harmed and we could lose sales and clients, which could have a material adverse effect onour business, operations, and financial results.Data protection, privacy and similar laws restrict access, use, and disclosure of information, and failure to comply with or adapt to changes in these lawscould materially and adversely harm our business.We are subject to data privacy and security regulation by both the federal government and the states in which we conduct our business. HIPAAestablished uniform federal standards for certain “covered entities,” which include healthcare providers and health plans, governing the conduct of specifiedelectronic healthcare transactions and protecting the security and privacy of PHI. HITECH and the Omnibus Final Rule, which became effective onSeptember 23, 2013, make HIPAA’s privacy and security standards directly applicable to “business associates,” which are independent contractors or agentsof covered entities that create, receive, maintain, or transmit PHI in connection with providing a service for or on behalf of a covered entity. HITECH alsoincreased the civil and criminal penalties that may be imposed against covered entities, business associates, and15Table of Contentsother persons, and gave state attorneys general new authority to file civil actions for damages or injunctions in federal courts to enforce HIPAA’srequirements and seek attorney’s fees and costs associated with pursuing federal civil actions.A portion of the data that we obtain and handle for or on behalf of our clients is considered PHI and subject to HIPAA because our clients are coveredentities under HIPAA and we act as their business associate. Under HIPAA and our contractual agreements with our HIPAA-covered entity health plan clients,we are considered a “business associate” to those clients, and are required to maintain the privacy and security of PHI in accordance with HIPAA and theterms of our agreements with clients, including by implementing HIPAA-required administrative, technical, and physical safeguards. We have incurred, andwill continue to incur, significant costs to establish and maintain these safeguards and, if additional safeguards are required to comply with HIPAA or ourclients’ requirements, our costs could increase further, which would negatively affect our operating results. Furthermore, if we fail to maintain adequatesafeguards, or we use or disclose PHI in a manner not permitted by HIPAA or our agreements with our clients, or if the privacy or security of PHI that weobtain and handle is otherwise compromised, we could be subject to significant liabilities and consequences, including, without limitation:•breach of our contractual obligations to clients, which may cause our clients to terminate their relationship with us and may result in potentiallysignificant financial obligations to our clients;•investigation by the federal regulatory authorities empowered to enforce HIPAA, which include the U.S. Department of Health and Human Services,or HHS, the Federal Trade Commission, and investigation by the state attorneys general empowered to enforce comparable state laws, and thepossible imposition of civil and criminal penalties;•private litigation by individuals adversely affected by any violation of HIPAA, HITECH, or comparable state laws to which we are subject; and•negative publicity, which may decrease the willingness of current and potential future clients to work with us and negatively affect our sales andoperating results.Laws and expectations relating to privacy continue to evolve, and we continue to adapt to changing needs. Nevertheless, changes in these laws maylimit our data access, use, and disclosure, and may require increased expenditures by us or may dictate that we not offer certain types of services. Any of theforegoing may have a material adverse effect on our ability to provide services to our clients and, in turn, our results of operations.Data protection, privacy and similar laws protect more than patient information and, although they vary by jurisdiction, these laws can extend toemployee information, business contact information, provider information, and other information relating to identifiable individuals. Failure to comply withthese laws may result in, among other things, civil and criminal liability, negative publicity, damage to our reputation, and liability under contractualprovisions. In addition, compliance with such laws may require increased costs to us or may dictate that we not offer certain types of services in the future.The information that we provide to our clients could be inaccurate or incomplete, which could harm our business reputation, financial condition, andresults of operations.We aggregate, process, and analyze healthcare-related data and information for use by our clients. Because data in the healthcare industry is fragmentedin origin, inconsistent in format, and often incomplete, the overall quality of data received or accessed in the healthcare industry is often poor, the degree oramount of data which is knowingly or unknowingly absent or omitted can be material, and we frequently discover data issues and errors during our dataintegrity checks. If the analytical data that we provide to our clients are based on incorrect or incomplete data or if we make mistakes in the capture, input, oranalysis of these data, our reputation may suffer and our ability to attract and retain clients may be materially harmed.In addition, we assist our clients with the management and submission of data to governmental entities, including CMS. These processes andsubmissions are governed by complex data processing and validation policies and regulations. If we fail to abide by such policies or submit incorrect orincomplete data, we may be exposed to liability to a client, court, or government agency that concludes that our storage, handling, submission, delivery, ordisplay of health information or other data was wrongful or erroneous. For example, on February 16, 2017, an order was entered unsealing a relator’s civilFalse Claims Act qui tam complaint in the matter of U.S. ex rel. Benjamin Poehling, individually (Civil Action No: 11-cv-0258-A). The action was filed onOctober 27, 2011 in the Western District of New York. The case names 15 defendants, one of which is MedAssurant, Inc., the Company's former name, andcites the allegedly fraudulent submission of claims for and alleged false statements relating to risk adjustment payments under the federal Medicare programas the basis for the suit. The Company was not aware prior to February 16, 2017, that it was named as one of 15 defendants in this case until the complaintwas unsealed. On May 16, 2017, the plaintiff and the U.S. government filed amended complaints. The Company was not named as a defendant in theamended complaints filed on May 16, 2017. The Company has not been served. If the Company is served, the Company intends to defend itself vigorously.In light of, among other things, the early stage of the litigation, the Company is unable to predict the outcome of this lawsuit and is unable to make ameaningful estimate of the amount or range of loss, if any, that could result from an unfavorable outcome. Further, although we maintain insurance coverage,this coverage may prove to16Table of Contentsbe inadequate or could cease to be available to us on acceptable terms, if at all. Even unsuccessful claims could result in substantial costs and diversion ofmanagement time, attention, and resources. A claim brought against us that is uninsured or under-insured could harm our business, financial condition, andresults of operations.General economic, political and market forces and dislocations beyond our control could reduce demand for our solutions and harm our business.The demand for our platform capabilities, toolsets and services may be impacted by factors that are beyond our control, including macroeconomic,political and market conditions, the availability of short-term and long-term funding and capital, and the level of interest rates. We believe that the state ofeconomic and political conditions in the U.S. is particularly uncertain due to ongoing political discord between and among the legislative and executivebranches of the U.S. government, potential shifts in legislative and regulatory conditions concerning, among other matters, international trade and taxation,as well as healthcare, and that an uneven recovery or a renewed global downturn may contribute to reduced demand for our platforms, toolsets and services,which could have an adverse effect on our results of operations and financial condition.Our business is principally focused on the healthcare industry, and factors that adversely affect the financial condition of the healthcare industry couldconsequently affect our business.We derive substantially all of our revenue from clients within the healthcare industry. As a result, our financial condition and results of operationscould be adversely affected by conditions affecting the healthcare industry generally and health systems and payers in particular. For example, in 2016 and2017, consumer operated and oriented plans, or health insurance Co-Ops, experienced financial distress, including insolvency, bankruptcy or liquidation,and many were forced to exit the exchange marketplace. Our ability to grow will depend upon the economic environment of the healthcare industry, as wellas our ability to increase the number of services that we sell to our clients. Furthermore, we may not become aware in a timely manner of changes inregulatory requirements affecting our business, which could result in us taking, or failing to take, actions, resulting in noncompliance with state or federalregulations.There are many factors that could affect the purchasing practices, operations and, ultimately, the operating funds of healthcare organizations, such asreimbursement policies for healthcare expenses, consolidation in the healthcare industry, and regulation, litigation, and general economic conditions. Inparticular, we could be required to make unplanned modifications to our services or could suffer delays or cancellations of orders or reductions in demand forour services as a result of changes in regulations affecting the healthcare industry, such as any increased regulation by governmental agencies, changes toHIPAA and other federal or state privacy laws, laws relating to the tax-exempt status of many of our clients or restrictions on permissible discounts, and otherfinancial arrangements. We cannot predict with certainty what additional healthcare regulations, if any, will be implemented at the federal and state level, orwhat the ultimate effect of federal healthcare reform or any future legislation or regulation will have on us and our clients. We cannot predict with certaintywhat effect the current U.S. presidential administration together with the U.S. Congress may have, if any, on coverage and reimbursement for healthcare itemsand services. Further, regardless of the prevailing political environment in the United States, Medicare, Medicaid and managed care organizations areincreasing pressure to both control healthcare utilization and to limit reimbursement. Changes in reimbursement programs or regulations, includingretroactive and prospective rate and coverage criteria changes, competitive bidding for certain products and services, and other changes intended to reduceexpenditures could adversely affect the portions of our clients' businesses that are dependent on third-party reimbursement or direct governmental payment.Moreover, to the extent that our clients experience reimbursement pressure resulting in lower revenue for them, their demand for our products and servicesmight decrease. It is unclear what long-term effects the general economic conditions will have on the healthcare industry, and in turn, on our business,financial condition, and results of operations.Consolidation in the industries in which our clients operate may result in certain clients discontinuing their use of our services following an acquisition ormerger, which could materially and adversely affect our business and financial results.Mergers or consolidations among our clients have in the past and could in the future reduce the number of our existing and potential clients. Whencompanies consolidate, overlapping services previously purchased separately are typically purchased only once by the combined entity, leading to loss ofrevenue for the service provider. If our clients merge with or are acquired by other entities that are not our clients, they may discontinue their use of ourservices. There can be no assurance as to the degree to which we may be able to address the revenue impact of such consolidation. Any of these developmentscould materially and adversely affect our business and financial results.Our services could become subject to new, revised, or enhanced regulatory requirements in the future, which could result in increased costs, could delay orprevent our introduction of new services, or could impair the function or value of our existing services, which could materially and adversely affect ourresults of operations and growth prospects.The healthcare industry is highly regulated on the federal, state, and local levels, and is subject to changing legislative, regulatory, political, and otherinfluences. Changes to existing laws and regulations, or the enactment of new federal and state17Table of Contentslaws and regulations affecting the healthcare industry, could create unexpected liabilities for us, could cause us or our clients to incur additional costs, couldalter our clients’ business models, and could restrict our or our clients’ operations.Many healthcare laws are complex, subject to frequent change, and dependent on interpretation and enforcement decisions from government agenciesand other adjudicatory bodies with broad discretion. The application of these laws to us, our clients, or the specific services and relationships we have withour clients is not always clear. In addition, federal and state legislatures have periodically considered programs to reform or amend the U.S. healthcare systemat both the federal and state level, such as the enactment of the Patient Protection and Affordable Care Act, as amended by the Health Care and EducationReconciliation Act of 2010 (the “ACA”). The ACA included provisions to control health care costs, improve health care quality, and expand access toaffordable health insurance. Together with ongoing statutory and budgetary policy developments at a federal level, this health care reform legislation couldinclude changes in Medicare and Medicaid payment policies and other health care delivery administrative reforms that could potentially negatively impactthe business of our clients. Because not all the administrative rules implementing health care reform under the legislation have been finalized, because ofongoing federal fiscal budgetary pressures yet to be resolved for federal health programs, and because of the lack of implementing regulations or interpretiveguidance, gradual and partially delayed implementation, possible amendment, repeal or further implementation delays, the full impact of the health carereform legislation and of further statutory actions to reform healthcare payment on our business and the business of our clients is unknown. Further, we expectthat the current U.S. presidential administration together with the U.S. Congress will continue to seek to modify, repeal or otherwise invalidate all or certainprovisions of the ACA. Any such changes will likely take time to be implemented and there can be no assurances that health care reform legislation will notadversely impact either our operational results or the manner in which we operate our business. Health care industry participants may respond by reducingtheir investments or postponing investment decisions, including investments in our platforms, solutions and services. Our failure to anticipate accurately theapplication of these laws and similar or future laws and regulations, or our failure to comply with them, could create liability for us, result in adversepublicity, and negatively affect our business.Our services may become subject to new or enhanced regulatory requirements, and we may be required to change or adapt our services in order tocomply with these regulations. If we fail to successfully implement new, enhanced or revised regulatory requirements, it could adversely affect our ability tooffer services deemed critical by our clients, which could materially and adversely affect our results of operations. New or enhanced regulatory requirementsmay render our services obsolete or prevent us from performing certain services. New or enhanced regulatory requirements could impose additional costs onus, and thereby make existing services unprofitable, and could make the introduction of new services more costly or time-consuming than we anticipate,which could materially and adversely affect our results of operations and growth prospects.Because personal, public, and non-public information is stored in some of our databases, we are subject to government regulation and vulnerable toadverse publicity concerning the use of our data.We provide many types of data and services that already are subject to regulation under HIPAA and, to a lesser extent, various other federal, state, andlocal laws and regulations. These laws and regulations are designed to protect the privacy of the public and to prevent the misuse of personal information inthe marketplace. However, many consumer advocates, privacy advocates, and government regulators believe that existing laws and regulations do notadequately protect privacy. They have become increasingly concerned with the use of personal information, including health information. As a result, theyare lobbying for further restrictions on the dissemination or commercial use of personal information to the public and private sectors. Similar initiatives areunder way in other countries in which we may do business in the future. The following legal and regulatory developments also could have a material adverseeffect on our business, financial position, results of operations, or cash flows:•amendment, enactment, or interpretation of laws and regulations that restrict the access and use of personal information and reduce the supply ofdata available to clients;•changes in cultural and consumer attitudes to favor further restrictions on information collection and sharing, which may lead to regulations thatprevent full utilization of our solutions;•failure of our solutions to comply with current laws and regulations; and•failure of our solutions to adapt to changes in the regulatory environment in an efficient, cost-effective manner.Our estimates of market opportunity and forecasts of market growth may prove to be inaccurate, and even if the market in which we compete achieves theforecasted growth, our business could fail to grow at similar rates, if at all.Market opportunity estimates and growth forecasts are subject to significant uncertainty and are based on assumptions and estimates that may notprove to be accurate. Our estimates and forecasts relating to the size and expected growth of our aggregate market opportunity or any of the sub-componentsof our total addressable market may prove to be inaccurate. Even if18Table of Contentsour total addressable market or any sub-component thereof meets our size estimates and forecasted growth, our business could fail to grow at similar rates, ifat all.Our proprietary applications may not operate properly, which could damage our reputation, give rise to a variety of claims against us, or divert ourresources from other purposes, any of which could harm our business and operating results.Proprietary software and application development is time-consuming, expensive, and complex, and may involve unforeseen difficulties. We mayencounter technical obstacles, and it is possible that we discover additional problems that prevent our proprietary applications from operating properly. If ourapplications and services do not function reliably or fail to achieve client expectations in terms of performance, clients could assert liability claims against usand attempt to cancel their contracts with us. Moreover, material performance problems, defects, or errors in our existing or new applications and services mayarise in the future and may result from, among other things, the lack of interoperability of our applications with systems and data that we did not develop andthe function of which is outside of our control or undetected in our testing. Defects or errors in our applications might discourage existing or potential clientsfrom purchasing services from us. Correction of defects or errors could prove to be time consuming, costly, impossible, or impracticable. The existence oferrors or defects in our applications and the correction of such errors could divert our resources from other matters relating to our business, damage ourreputation, increase our costs, and have a material adverse effect on our business, financial condition, and results of operations.As a result of our variable sales and implementation cycles, we might not be able to recognize revenue to offset expenditures, which could result influctuations in our quarterly results of operations or otherwise adversely affect our future operating results.The sales cycle for our services is typically four to six months from initial contact to contract execution, but can vary depending on the particularclient, product under consideration, and time of year, among other factors. Some clients, for instance, undertake a more prolonged evaluation process, whichhas in the past resulted in extended sales cycles. Our sales efforts involve educating potential clients about the use, technical capabilities, and benefits of ourservices, and gaining an understanding of their needs and budgets. During the sales cycle, we expend significant time and resources, and we do not recognizeany revenue to offset such expenditures, which could result in fluctuations in our quarterly results of operations and adversely affect our future operatingresults. In addition, we may be unable to enter into definitive contracts at the end of a sales cycle on terms that are favorable to us or at all, in some cases forreasons outside our control, which may materially adversely affect our ability to accurately forecast future growth which may cause our stock price to decline.After a client contract is signed, we provide an implementation process for the client during which we load, test, and integrate data into our system andtrain client personnel. Our implementation cycle generally ranges from 20 to 90 days from contract execution to completion of implementation, but can varydepending on the amount and quality of the client’s data and how quickly the client facilitates access to data. In addition, for certain clients, our third-partyvendors must go through delegation processes in order to become authorized to provide certain services to those clients, which could delay our ability toprovide such services to those clients. During the implementation cycle, we expend time, effort, and financial resources implementing our services, butaccounting principles do not allow us to recognize the resulting revenue until implementation is complete and the services are available for use by ourclients. If implementation periods are extended, revenue recognition will be delayed, which could adversely affect our results of operations in certain periods.In addition, because most of our revenue in each quarter is derived from agreements entered into with our clients during previous quarters, the negativeimpacts resulting from a decline in new or renewed agreements in any one quarter may not be fully reflected in our revenue for that quarter. Such declines,however, would negatively affect our revenue in future periods and the effect of significant downturns in sales of and market demand for our services, andpotential changes in our renewal rates or renewal terms may not be fully reflected in our results of operations until future periods. Our sales andimplementation cycles also make it difficult for us to rapidly increase our total revenue through additional sales in any period. As a result, the effect ofchanges in the industry impacting our business, or changes we experience in our new sales, may not be reflected in our short-term results of operations.We operate in a competitive industry, and if we are not able to compete effectively, our business and financial results could be materially and adverselyimpacted.We operate in a competitive industry, and we expect that competition will increase as a result of consolidation in both the information technology andhealthcare industries. Our future growth and success will depend on our ability to successfully compete with other companies that provide similar services,including existing clients and other healthcare organizations that seek to build and operate competing services themselves and newer companies that providesimilar services, often at substantially lower prices. We compete on the basis of various factors, including breadth and depth of services, reputation,reliability, quality, innovation, security, price, and industry expertise, and experience. If we are unable to maintain our technology, management, healthcare,or regulatory expertise or attract and retain a sufficient number of qualified sales and marketing leadership and support personnel, we will be at a competitivedisadvantage. Some of our competitors, in particular19Table of Contentshealth plans and larger technology or technology-enabled consultative service providers, have greater name recognition, longer operating histories, andsignificantly greater resources than we do. Furthermore, our current or potential competitors may have greater financial resources and larger sales andmarketing capabilities than we have, and may have a more diversified set of revenue sources, which may allow them to be less sensitive to changes in clientpreferences and more aggressive in pricing their services, any of which could put us at a competitive disadvantage. As a result, our competitors may be able torespond more quickly and effectively than we can to new or changing opportunities, technologies, standards, or client requirements and may have the abilityto initiate or withstand substantial price competition. In addition, potential clients frequently have requested competitive bids from us and our competitors interms of price and services offered and, if we do not accurately assess potential clients’ needs and budgets when submitting our proposals, they may appearless attractive than those of our competitors, and we may not be successful in attracting new business. In addition, our clients may perceive our toolsets to beat a higher price point than our competitors, which could result in reduced revenue if we are not able to adequately demonstrate the value of our toolsets toour clients and prospective clients. Increases in competition in our industry could reduce our market share and result in price declines for certain services,which could negatively impact our business, profitability, and growth prospects.If we fail to maintain awareness of our brand in a cost-effective manner, our business might suffer.Maintaining awareness of our brand in a cost-effective manner is critical to continuing the widespread acceptance of our existing services and is animportant element in attracting new clients and in attracting and retaining qualified employees. The importance of brand recognition may increase ascompetition in our market increases. Successful promotion of our brand will depend largely on the effectiveness of our marketing efforts and on our ability toprovide reliable and useful services at competitive prices. Our efforts to build and maintain our brand nationally have involved and will continue to involvesignificant expense. Brand promotion activities may not yield increased revenue, and even if they do, any increased revenue may not offset the expenses weincur in maintaining our brand. In addition, third parties’ use of trademarks or branding similar to ours could materially harm our business or result inlitigation and other costs. If we fail to successfully maintain our brand, or incur substantial expenses in an unsuccessful attempt to maintain our brand, wemay fail to attract enough new clients or retain our existing clients to the extent necessary to realize a sufficient return on our brand-building efforts, and ourbusiness and our ability to attract and retain qualified employees could suffer.Our success depends on our ability to protect our intellectual property rights.Our success depends in part on our ability to protect our proprietary software, confidential information and know-how, technology, and otherintellectual property and intellectual property rights. We rely generally on copyright, trademark and trade secret laws, confidentiality and inventionassignment agreements with employees and third parties, and license and other agreements with consultants, vendors, and clients. There can be no assurancethat employees, consultants, vendors, and clients have executed such agreements or have not breached or will not breach their agreements with us, that wewill have adequate remedies for any breach, or that our trade secrets will not otherwise become known or independently developed by competitors.Additionally, we monitor our use of open source software to avoid uses that would require us to disclose our proprietary source code or violate applicableopen source licenses, but if we engaged in such uses inadvertently, we could be required to take remedial action or release certain of our proprietary sourcecode. These scenarios could materially and adversely affect our business, financial condition, and results of operations. In addition, despite the protectionswe do place on our intellectual property, a third party could, without authorization, copy or otherwise obtain and use our products or technology, or developsimilar technology. In addition, agreement terms that address non-competition are difficult to enforce in many jurisdictions and might not be enforceable incertain cases.Beginning in the second quarter of 2015, we filed a limited number of provisional and non-provisional patent applications, which may or may notresult in an issued patent or patents. In addition, we do not know whether the examination process will require us to narrow our claims. To the extent thatpatents are issued from our patent applications, which are not certain, they may be contested, circumvented or invalidated in the future. Moreover, the rightsgranted under any issued patents may not provide us with proprietary protection or competitive advantages, may be successfully challenged by third parties,and, as with any technology, competitors may be able to develop similar or superior technologies to our own now or in the future.We currently rely primarily on unpatented proprietary technology. It is possible that others will independently develop the same or similar technologyor otherwise obtain access to our unpatented technology. To protect our trade secrets and other proprietary information, we require employees, consultants,advisors, and collaborators to enter into confidentiality agreements. We cannot assure you that these agreements will provide meaningful protection for ourtrade secrets, know-how, or other proprietary information in the event of any unauthorized use, misappropriation, or disclosure of such trade secrets, know-how, or other proprietary information. Further, the theft or unauthorized use or publication of our trade secrets and other confidential business informationcould reduce the differentiation of our services and harm our business, the value of our investment in development or business acquisitions could be reduced,and third parties might make claims against us related to losses of their confidential or proprietary information.20Table of ContentsWe rely on our trademarks, service marks, trade names, and brand names to distinguish our services from the services of our competitors, and haveregistered or applied to register many of these trademarks. We cannot assure you that our trademark applications will be approved. Third parties may alsooppose our trademark applications, or otherwise challenge our use of the trademarks. In the event that our trademarks are successfully challenged, we couldbe forced to rebrand our services, which could result in loss of brand recognition and could require us to devote resources advertising and marketing newbrands. Further, we cannot assure you that competitors will not infringe our trademarks or that we will have adequate resources to enforce our trademarks.Our ability to obtain, protect, and enforce our intellectual property rights is subject to uncertainty as to the scope of protection, registerability,patentability, validity, and enforceability of our intellectual property rights in each applicable jurisdiction, as well as the risk of general litigation orthird-party oppositions.Existing U.S. federal and state intellectual property laws offer only limited protection. Moreover, if we expand our business into markets outside of theUnited States, our intellectual property rights may not receive the same degree of protection as they would in the United States because of the differences inforeign trademark and other laws concerning proprietary rights. Governments may adopt regulations, and government agencies or courts may renderdecisions, requiring compulsory licensing of intellectual property rights. When we seek to enforce our intellectual property rights we may be subject toclaims that the intellectual property rights are invalid or unenforceable. Litigation may be necessary in the future to enforce our intellectual property rightsand to protect our trade secrets. Litigation brought to protect and enforce our intellectual property rights could be costly, time consuming, and distracting tomanagement and could result in the impairment or loss of portions of our intellectual property rights. Furthermore, our efforts to enforce our intellectualproperty rights may be met with defenses, counterclaims, and countersuits attacking the validity and enforceability of our intellectual property rights. Ourinability to protect our proprietary technology against unauthorized copying or use, as well as any costly litigation or diversion of our management’sattention and resources, could delay further sales or the implementation of our solutions, impair the functionality of our solutions, delay introductions of newsolutions, result in our substituting inferior or more costly technologies into our solutions, or have a material adverse effect on our business, financialcondition, and results of operations.Laws regulating the corporate practice of medicine could restrict the manner in which we provide our clients certain of our intervention toolsets, and thefailure to comply with such laws could subject us to penalties or require that we change the manner in which we provide such toolsets.Among our intervention toolsets are supplemental patient encounters (“SPEs”). While some clients utilize our platform toolsets to conduct their ownSPEs directly or through third-parties, some of our clients engage us to utilize our intervention platform toolsets to facilitate SPEs. In such cases, we use third-parties to undertake such SPEs utilizing our intervention platform toolsets or may utilize our own associate to undertake such SPEs. Certain of our SPEs maybe considered patient care. Some states have laws that prohibit business entities from practicing medicine, employing providers to practice medicine,exercising control over medical decisions by providers (also known collectively as the corporate practice of medicine). These laws, regulations, andinterpretations have, in certain states, been subject to enforcement, as well as judicial and regulatory interpretation, and are subject to change.In these states, we operate by maintaining long term contracts with affiliated physician groups, which are each owned and operated by physicians andwhich employ or contract with additional providers to perform the SPEs, If there were a determination that a corporate practice of medicine violation existedor exists, we could be subject to criminal or civil penalties or an injunction for practicing medicine without a license or aiding and abetting the unlicensedpractice of medicine. The occurrence of any of such events could have a material adverse effect on our ability to continue to provide our clients with the fullarray of our intervention toolsets.We could experience losses or liability not covered by insurance.Our business exposes us to risks that are inherent in the provision of analytics and toolsets that assist clinical decision-making and relate to patientmedical histories and treatment plans. If clients or individuals assert liability claims against us, any ensuing litigation, regardless of outcome, could result ina substantial cost to us, divert management’s attention from operations, and decrease market acceptance of our toolsets. We attempt to limit our liability toclients by contract; however, the limitations of liability set forth in the contracts may not be enforceable or may not otherwise protect us from liability fordamages. Additionally, we may be subject to claims that are not explicitly covered by contract. We also maintain general liability coverage; however, thiscoverage may not continue to be available on acceptable terms, may not be available in sufficient amounts to cover one or more large claims against us, andmay include larger self-insured retentions or exclusions for certain products. In addition, the insurer might disclaim coverage as to any future claim. Asuccessful claim not fully covered by our insurance could have a material adverse impact on our liquidity, financial condition, and results of operations.21Table of ContentsWe could incur substantial costs as a result of any claim of infringement of another party’s intellectual property rights.In recent years, there has been significant litigation in the United States involving patents and other intellectual property rights. Companies in thesoftware and healthcare technology and services industries are increasingly bringing and becoming subject to suits alleging infringement of proprietaryrights, particularly patent rights, and our competitors and other third parties may hold patents or have pending patent applications which could be related toour business. These risks have been amplified by the increase in third parties, which we refer to as non-practicing entities, whose primary business is to assertinfringement claims or make royalty demands. Moreover, many of our current and potential competitors may dedicate substantially greater resources toprotection and enforcement of intellectual property rights, especially patents. It is difficult to proceed with certainty in a rapidly evolving technologicalenvironment in which there may be patent applications pending related to our technologies, many of which are confidential when filed.We may receive in the future notices that claim we or our clients using our services have misappropriated or misused other parties’ intellectual propertyrights, particularly as the number of competitors in our market grows and the functionality of services among competitors overlaps. If we are sued by a thirdparty that claims that our technology infringes its rights, the litigation, whether or not successful, could be extremely costly to defend, divert ourmanagement’s time, attention, and resources, damage our reputation and brand, and substantially harm our business. We do not currently have a patentportfolio of our own, which may limit the defenses available to us in any such litigation.In addition, in most instances, we have agreed to indemnify our clients against certain third-party claims, which may include claims that one of ourservices infringes the intellectual property rights of such third parties. These claims may require us to initiate or defend protracted and costly litigation onbehalf of our clients, regardless of the merits of these claims. If any of these claims succeed, we may be forced to pay damages on behalf of our clients or maybe required to obtain licenses for the products they use. If we cannot obtain all necessary licenses on commercially reasonable terms, our customers may beforced to stop using our services. In addition, our business could be adversely affected by any significant disputes between us and our clients as to theapplicability or scope of our indemnification obligations to them. The results of any intellectual property litigation to which we might become a party, or forwhich we are required to provide indemnification, may also require us to do one or more of the following:•cease offering or using technologies that incorporate the challenged intellectual property;•make substantial payments for legal fees, settlement payments, or other costs or damages;•obtain a license, which may not be available on reasonable terms, to sell or use the relevant technology; or•redesign technology to avoid infringement, if feasible.If we were to discover that our applications and services violate third-party proprietary rights, there can be no assurance that we would be able to obtainlicenses to continue offering those applications and services on commercially reasonable terms, or at all, to redesign our technology to avoid infringement, orto avoid or settle litigation regarding alleged infringement without substantial expense and damage awards. Any claims against us relating to theinfringement of third-party proprietary rights, even if not meritorious, could result in the expenditure of significant financial and managerial resources and ininjunctions preventing us from distributing certain products. If we are required to make substantial payments or undertake any of the other actions notedabove as a result of any intellectual property infringement claims against us or any obligation to indemnify our clients for such claims, such payments orcosts could have a material adverse effect on our business, financial condition, and results of operations.We depend on our senior management team and other key employees, and the loss of one or more of our executive officers or key employees couldmaterially and adversely affect our business.Our success depends in large part upon the continued services of our key executive officers, including Dr. Dunleavy. We also rely on our leadershipteam in the areas of research and development, marketing, services, and general and administrative functions. We can provide no assurances that any of ourexecutive officers or key employees will continue their employment with us. The replacement of one or more of our executive officers or other key employeeswould likely involve significant time and costs and may significantly delay or prevent the achievement of our business objectives.We may fail to attract, train, and retain enough qualified employees to support our operations and growth strategy, which could materially and adverselyaffect our business and growth strategy.The success of our business and growth strategy depends on our ability to attract, train, and retain qualified employees, particularly technologypersonnel, subject matter experts, sales and marketing leadership and support personnel, and personnel with healthcare regulatory, clinical, and appropriatemanagement expertise. The market for qualified employees in our industry and in the markets in which we operate is very competitive, and companies thatwe compete with for experienced personnel may have greater resources than we. In addition, our ability to attract and retain qualified employees depends inpart on our22Table of Contentsability to maintain awareness of our brand. If we are not successful in our recruiting efforts, or if we are unable to train and retain a sufficient number ofqualified employees, our ability to develop and deliver successful technologies and services and grow our business may be materially and adversely affected.We may acquire other companies or technologies, which could divert our management’s attention, result in dilution to our stockholders and otherwisedisrupt our operations and adversely affect our operating results.We have previously and may in the future seek to acquire or invest in businesses, services, or technologies that we believe could complement orexpand our services, enhance our technical capabilities, or otherwise offer growth opportunities. For example, on September 1, 2015, we acquired Avalere, onOctober 1, 2016, we acquired Creehan and on July 6, 2017, the Company completed the acquisition of ComplexCare Solutions, Inc. and ComplexCareSolutions IPA, LLC (together, “CCS”). The pursuit of potential acquisitions may divert the attention of management and cause us to incur various expensesin identifying, investigating, and pursuing suitable acquisitions, whether or not they are consummated. Acquisitions also could result in dilutive issuances ofequity securities or the incurrence of debt, which could adversely affect our operating results and financial condition. In addition, we have limited experiencein acquiring other businesses. We may not achieve the anticipated benefits from the acquired business, including from Avalere, Creehan, or CCS, due to anumber of factors, including:•inability or difficulty integrating and benefiting from acquired technologies, services, or clients in a profitable manner, including as a result ofreductions in operating income, increases in expenses, the failure to achieve anticipated synergies, or otherwise;•unanticipated costs or liabilities associated with the acquisition;•difficulty integrating the accounting systems, operations, and personnel of the acquired business;•adverse effects to our existing business relationships with business partners and clients as a result of the acquisition;•assuming potential liabilities of an acquired company;•possibility of overpaying for acquisitions, particularly those with significant intangibles and those assets that derive value using novel tools or areinvolved in niche markets;•difficulty in acquiring suitable businesses, including challenges in predicting the value an acquisition will ultimately contribute to our business;•the potential loss of key employees;•use of substantial portions of our available cash to consummate the acquisition; and•the need to understand local healthcare regulatory regimes.If an acquired business fails to meet our expectations, our operating results, business, and financial condition may suffer materially.The integration of newly acquired businesses, including Avalere, Creehan and CCS, will also require a significant amount of time and attention frommanagement. The diversion of management attention away from ongoing operations and key research and development, marketing or sales efforts couldadversely affect ongoing operations and business relationships. Moreover, even if we were able to fully integrate a new acquisition’s business operations andother assets successfully, there can be no assurance that such integration will result in the realization of the full benefits of synergies, cost savings, innovationand operational efficiencies that may be possible or were anticipated from the acquisition or that these benefits will be achieved within a reasonable period oftime. Delays in integrating our acquisitions, which could be caused by factors outside of our control, could adversely affect the intended benefits of theacquisitions to our business, financial results, financial condition and the trading price of our Class A common stock.In addition, a significant portion of the purchase price of companies we acquire may be allocated to acquired goodwill and other intangible assets,which must be assessed for impairment at least annually. In the future, if our acquisitions do not yield expected returns, we may be required to take charges toour operating results based on this impairment assessment process, which could adversely affect our results of operations.Our use of accounting estimates involves judgment and could adversely impact our financial results, and ineffective internal controls could adverselyimpact our business and operating results.The methods, estimates, and judgments that we use in applying accounting policies have a significant impact on our results of operations. For moreinformation on our critical accounting policies and estimates, see “Management’s Discussion and Analysis of Financial Condition and Results ofOperations” and Note 2, “Summary of Significant Accounting Policies,” of the notes to our consolidated financial statements included elsewhere in thisAnnual Report on Form 10-K. In addition, our results presented elsewhere in this Annual Report include reasonable estimates of the impact of the Tax Cutsand Jobs Act of23Table of Contents2017 (the “Tax Act”), which was signed into law on December 22, 2017 and is effective January 1, 2018, which are subject to change as we further evaluatethe impact of the Tax Act on us. These methods, estimates, and judgments are subject to significant risks, uncertainties, and assumptions, and changes couldaffect our results of operations. In addition, our internal control over financial reporting may not prevent or detect misstatements because of the inherentlimitations, including the possibility of human error, the circumvention or overriding of controls, or fraud. Even effective internal controls can provide onlyreasonable assurance with respect to the preparation and fair presentation of our consolidated financial statements.We are obligated to report on the effectiveness of our internal control over financial reporting. These internal controls may not be determined to beeffective, which may harm investor confidence in our Company and, as a result, the trading price of our Class A common stock.The Sarbanes-Oxley Act of 2002 (the “Sarbanes-Oxley Act”) requires, among other things, that we maintain effective internal controls for financialreporting and disclosure controls and procedures. We are required, pursuant to Section 404 of the Sarbanes-Oxley Act to furnish a report by management on,among other things, the effectiveness of our internal control over financial reporting in each Annual Report on Form 10-K. This assessment will need toinclude disclosure of material weaknesses, if any, identified by our management in our internal control over financial reporting. In addition, our independentregistered public accounting firm is required to formally attest to the effectiveness of our internal control over financial reporting in each of our AnnualReports on Form 10-K. There can be no assurance that we or our independent registered public accounting firm will not identify a material weakness in ourinternal control over financial reporting in the future. Any failure of our internal control over financial reporting to be effective or our failure to implementrequired new or improved controls, if any, or difficulties encountered in their implementation, including delaying or failing to successfully integrate ouracquisitions into our internal control over financial reporting or the identification and reporting of a material weakness, may harm our operating results, causeus to fail to meet our reporting obligations, harm investor confidence, and negatively impact the trading price of our Class A common stock.Our Board of Directors may change our strategies, policies, and procedures without stockholder approval and we may become more highly leveraged,which may increase our risk of default under our debt obligations.Our investment, financing, leverage, and dividend policies, and our policies with respect to all other activities, including growth, capitalization, andoperations, are determined exclusively by our board of directors, and may be amended or revised at any time by our board of directors without notice to or avote of our stockholders. This could result in us conducting operational matters, making investments, or pursuing different business or growth strategies thanthose contemplated in this Annual Report on Form 10-K. Further, our charter and bylaws do not limit the amount or percentage of indebtedness, funded orotherwise, that we may incur. Higher leverage also increases the risk of default on our obligations. In addition, a change in our investment policies, includingthe manner in which we allocate our resources across our portfolio or the types of assets in which we seek to invest, may increase our exposure to interest raterisk and liquidity risk. Changes to our policies with regards to the foregoing could materially adversely affect our financial condition, results of operations,and cash flow.Future sales to clients outside the United States or use of third party vendors outside the United States might expose us to risks inherent in internationaloperations which, if realized, could adversely affect our business.An element of our growth strategy is to expand internationally. In addition, we intend to continue to utilize certain third-party vendors that are locatedoutside of the United States. For example, we currently contract with a third-party vendor in India that provides IT support for certain of our operations.Operating in international markets requires significant resources and management attention and subjects us to regulatory, economic, and political risks thatare different from those in the United States. Because of our limited experience with international operations, any international expansion efforts might notbe successful in creating demand for our services outside of the United States or in effectively selling our services in the international markets we enter. Inaddition, we will face risks in doing business internationally that could adversely affect our business, including:•the need to localize and adapt our services for specific countries, including translation into foreign languages and associated expenses;•difficulties in staffing and managing foreign operations;•different pricing environments, longer sales cycles, and longer accounts receivable payment cycles and collections issues;•new and different sources of competition;•weaker protection for intellectual property and other legal rights than in the United States and practical difficulties in enforcing intellectual propertyand other rights outside of the United States;•laws and business practices favoring local competitors;24Table of Contents•compliance challenges related to the complexity of multiple, conflicting, and changing governmental laws and regulations, including employment,anti-bribery, foreign investment, tax, privacy, and data protection laws and regulations;•increased financial accounting and reporting burdens and complexities;•adverse tax consequences; and•if we denominate our international contracts in local currencies, fluctuations in the value of the U.S. dollar and foreign currencies might impact ouroperating results when translated into U.S. dollars.Our business could be harmed by disruptions in network service or operational failures at our data centers (including our co-location facility) related tothe storage, transmission and presentation of client data.Our success depends on the efficient and uninterrupted operation of our data centers and service provider locations. Interruptions in service or damageto locations may be caused by natural disasters, power loss, Internet or network failures, physical damage, operator error, security breaches, computer viruses,denial-of-service attacks, or similar events. The varied types and severity of the interruptions that could occur may render our safeguards inadequate. Theseservice interruption events could result in the corruption or loss of data and impair the processing of data and our delivery of services to clients, which couldhave an adverse effect on our business, operations, and financial results. Furthermore, if any of our data centers are unable to keep up with our growing needsfor capacity, it could have an adverse effect on our business.Problems faced by our third-party data center location, with the telecommunications network providers with whom we or it contract, or with the systemsby which our telecommunications providers allocate capacity among their clients, including us, could adversely affect the experience of our clients and thesecurity of the data.Further, our ability to deliver our cloud-based services depends on the infrastructure of the Internet and a reliable network with the necessary speed,data capacity, bandwidth capacity, and security. Our services are designed to operate without interruption in accordance with our service level commitments.We have, however, experienced, and may experience in the future, interruptions and delays in services and availability from time to time. An extended periodof network unavailability could negatively impact our ability to deliver acceptable or accurate services, and negatively impact our relationship with clients,which could have an adverse effect on our reputation, financial condition, and results of operations.We rely on third-party cloud capacity providers to efficiently scale our cloud-based solutions.Although substantially all of the computer hardware necessary to deliver our solutions, data and compute capacity is located and maintained in ourowned data centers, we rely on third-party cloud capacity providers, including Amazon Web Services, Microsoft Azure, and Google cloud services, toefficiently scale our cloud-based solutions. The systems and operations of our third-party cloud based capacity providers could suffer damage or interruptionas a result of human error, fire, flood, power loss, telecommunications failure, break-ins, terrorist attacks, acts of war, and similar events. The occurrence of anysuch natural disaster, an act of terrorism or other unanticipated problems at our third-party cloud based capacity providers’ hosting facilities could result inlengthy interruptions in our service. Although our third-party cloud based capacity providers maintain backup facilities and disaster recovery services in theevent of a system failure, these systems may be insufficient or fail. Any system failure, including network, software, or hardware failure, that causes aninterruption in our use of third-party cloud capacity providers or that causes a decrease in responsiveness of our cloud-based solutions could damage ourreputation and cause our customers and potential customers to believe that our service is unreliable, causing us to lose customers, which could have amaterial adverse effect on our business, financial condition and results of operations.We rely on agreements with third parties to provide certain services, goods, technology, and intellectual property rights necessary to enable us toimplement some of our applications.Our ability to implement and provide our applications and services to our clients depends, in part, on services, goods, technology, and intellectualproperty rights owned or controlled by third parties, including one vendor from whom we purchase significant components of our storage architecture. Thesethird parties may become unable to or refuse to continue to provide these services, goods, technology, or intellectual property rights on commerciallyreasonable terms consistent with our business practices, or otherwise discontinue a service important for us to continue to operate our applications. If we failto replace these services, goods, technologies, or intellectual property rights in a timely manner or on commercially reasonable terms, our operating resultsand financial condition could be harmed. In addition, we exercise limited control over our third-party vendors, which increases our vulnerability to problemswith technology and services those vendors provide. If the services, technology, or intellectual property of third parties were to fail to perform as expected, itcould subject us to potential liability, adversely affect our renewal rates, and have a material adverse effect on our financial condition and results ofoperations.25Table of ContentsOur reliance on third-party vendors to perform certain of our intervention toolsets could have an adverse effect on our business, results of operations andgrowth prospects.We rely in part on third-party vendors to perform certain of our intervention toolsets, including supplemental patient encounters such as in-homeencounters. These third parties may not perform their obligations to us in a timely and cost-effective manner, in compliance with applicable regulations, or ina manner that is in our and our clients’ best interests, which could have an adverse effect on our reputation and our ability to retain and attract clients. Inaddition, our growth depends in part on the ability of our third-party vendors to leverage our intervention toolsets to a larger group of clients. If our third-party vendors do not perform their services at a level acceptable to us or our clients or if they are unable to leverage our intervention toolsets to a larger groupof clients, it could have an adverse effect on our business, results of operations, and growth prospects.We are currently the subject of purported securities class action lawsuits and additional litigation may be brought against us in the future.We are currently the subject of two consolidated purported class action lawsuits which assert violations of Section 11, Section 12, and Section 15 of theSecurities Act based on allegedly false or misleading statements and omissions in our Registration Statement issued in connection with our initial publicoffering on February 18, 2015. These lawsuits seek certification as a class and unspecified compensatory damages plus interest and attorneys’ fees. Webelieve that the claims against us and our officers and directors are without merit, and we and the named officers and directors intend to defend ourselves andthemselves vigorously. In light of, among other things, the early stage of the litigation, we are unable to predict the outcome of these lawsuits or make ameaningful estimate of the amount or range of potential loss, if any, that could result from an unfavorable outcome. In addition, in the past, following periodsof volatility in the market, securities class action litigation has often been instituted against companies. Such current and additional litigation, if any,including in the form of stockholder derivative actions against our Board of Directors, could result in substantial costs and diversion of management’sattention and resources, which could materially and adversely affect our business, financial condition, results of operations and growth prospects and causeour stock price to decline.The effects of the Tax Act on our business and financial results are uncertain.The Tax Act made significant changes to the taxation of U.S. business entities. These changes include a permanent reduction to the federal corporateincome tax rate and are expected to result in a decrease in our provision for income taxes and deferred tax liability. Our provision for income taxes, deferredtax liability and net income presented in this Annual Report on Form 10-K include a reasonable estimate of the effect of the Tax Act on our results for theyear ended December 31, 2017, and our previously disclosed earnings guidance for 2018 also includes reasonable estimates of the effects of the Tax Act onour business and financial results. However, we continue to evaluate the effects of the Tax Act on these and other parts of our business and financial resultsand there can be no assurance that these estimates will be accurate or that there will not be negative changes to such estimates in the future.Risks Related to Our Class A Common StockOur quarterly operating results may fluctuate significantly, which could adversely impact the value of our Class A common stock.Our quarterly results of operations, including our revenue, cost of revenue, net income, and cash flows, may vary significantly in the future, andsequential quarter-to-quarter comparisons of our operating results may not be meaningful. In addition to the other risk factors included in this section, someof the important factors that may cause sequential quarter-to-quarter fluctuations in our operating results include:•seasonal variations driven primarily by regulatory timelines have historically caused a significantly higher proportion of our services to beperformed, and therefore revenues and costs to be recognized, during the second and, to a lesser extent, the fourth quarters of the year compared tothe first and, most significantly, the third quarter, (quarter to quarter financial performance may increasingly vary from historical seasonal trends aswe further expand into adjacent markets and increase the portion of our revenue generated from new offerings);•possible delays in the expected recognition of revenue due to lengthy and sometimes unpredictable sales and implementation timelines;•the amount and timing of operating expenses related to the maintenance and expansion of our business, operations, and infrastructure;•the timing and success of introductions of new applications and services by us or our competitors or any other change in the competitive dynamicsof our industry, including consolidation among competitors, clients, or strategic partners;•the addition or loss of large clients, including through acquisitions or consolidations of such clients;26Table of Contents•network outages or security breaches;•our ability to attract new clients;•general economic, industry, and market conditions;•client renewal rates and the timing and terms of client renewals;•changes in our pricing policies or those of our competitors;•the mix of applications and services sold during a period; and•the timing of expenses related to the development or acquisition of technologies or businesses.Any fluctuations in our quarterly operating results may not accurately reflect the underlying longer-term performance of our business and could cause adecline in the trading price of our Class A common stock.Because the dual class structure of our common stock has the effect of concentrating voting control with holders of our Class B common stock, holders ofour Class B common stock, including Dr. Dunleavy and Mr. Hoffmann, have significant influence over us, including control over decisions that require theapproval of stockholders, which could limit your ability to influence the outcome of matters submitted to stockholders for a vote.We are currently controlled by holders of our Class B common stock. As of February 9, 2018, holders of our Class B common stock beneficially own anaggregate of approximately 93% of the voting power of our common stock. In particular, Dr. Dunleavy beneficially owns an aggregate of approximately 63%of the voting power of our common stock, and Mr. Hoffmann beneficially owns an aggregate of approximately 22% of the voting power of our commonstock. The shares beneficially owned by Dr. Dunleavy and Mr. Hoffmann and certain other stockholders are shares of Class B common stock, which have 10votes per share, whereas each share of Class A common stock has one vote per share. As long as holders of our Class B common stock control at least amajority of the voting power of our outstanding common stock, they will have the ability to exercise substantial control over all corporate actions requiringstockholder approval, irrespective of how our other stockholders may vote, including the election and removal of directors and the size of our board ofdirectors, any amendment of our certificate of incorporation or bylaws, or the approval of any merger or other significant corporate transaction, including asale of all or substantially all of our assets. Even if their ownership falls below 50%, holders of our Class B common stock will continue to be able to exertsignificant influence or effectively control our decisions because of the dual class structure of our common stock. This concentrated control by our Class Bcommon stockholders will limit or preclude your ability to influence those corporate matters for the foreseeable future and, as a result, we may take actionsthat holders of our Class A common stock do not view as beneficial. This dual class structure may adversely affect the market price of our Class A commonstock. In addition, this structure may prevent or discourage unsolicited acquisition proposals or offers for our capital stock that you may feel are in your bestinterest as one of our stockholders.We incur significantly increased costs and devote substantial management time as a result of operating as a public company.As a publicly traded company, we incur significant legal, accounting, stockholder communication, and other expenses and spend a significant amountof management time and internal resources to comply with changing tax laws, regulations and standards relating to corporate governance and publicdisclosure. For example, we are subject to the reporting requirements of the Exchange Act, and are required to comply with the applicable requirements of theSarbanes-Oxley Act and the Dodd-Frank Wall Street Reform and Consumer Protection Act, as well as rules and regulations subsequently implemented by theSEC, and the NASDAQ Stock Market LLC (“NASDAQ”), including the establishment and maintenance of effective disclosure and financial controls, changesin corporate governance practices, and required filing of annual, quarterly, and current reports with respect to our business and operating results. In particular,we incur significant expenses and devote substantial management effort toward ensuring compliance with the requirements of Section 404 of the Sarbanes-Oxley Act.Changing laws, regulations and standards relating to corporate governance and public disclosure, including the Sarbanes-Oxley Act, the Dodd-FrankWall Street Reform and Consumer Protection Act of 2010 and new regulations issued by the SEC are creating additional disclosure obligations for publiccompanies. We may need to invest substantial resources to comply with evolving standards, which may result in increased expenses and a diversion ofmanagement time. Furthermore, if we are unable to satisfy our obligations as a public company, we could be subject to delisting of our Class A commonstock, fines, sanctions, and other regulatory action and potentially civil litigation, which could have a material adverse effect on our financial condition andresults of operations.The stock price of our Class A common stock may be volatile or may decline regardless of our operating performance, and you may not be able to resellyour shares at or above the price at which you acquire shares of our Class A common stock.The market price of our Class A common stock may fluctuate significantly. These fluctuations could cause you to lose all or part of your investment inour common stock since you might be unable to sell your shares at or above the price you paid.27Table of ContentsFactors, many of which are beyond our control, that could cause fluctuations in the market price of our Class A common stock include the following:•overall performance of the equity markets;•our operating performance and the performance of other similar companies;•changes in the market valuations of similar companies;•changes in our capital structure, such as future issuances of securities or the incurrence of debt;•changes in the estimates of our operating results that we provide to the public or our failure to meet these projections;•failure of securities analysts to maintain coverage of us, changes in financial estimates by securities analysts who follow our company, or our failureto meet these estimates or the expectations of investors or changes in recommendations by securities analysts that elect to follow our Class Acommon stock;•sales of shares of our Class B common stock by our stockholders;•announcements of technological innovations, new services or enhancements to services, acquisitions, strategic alliances, or significant agreementsby us or by our competitors;•disruptions in our services due to computer hardware, software, or network problems or a security breach;•announcements of client additions and client cancellations or delays in client purchases;•recruitment or departure of key personnel;•the economy as a whole or market conditions in our industry and the industries of our clients;•litigation involving us, our industry, or both, or investigations by regulators into our operations or those of our competitors;•developments or disputes concerning our intellectual property or other proprietary rights;•new laws or regulations, or new interpretations of existing laws or regulations, applicable to our business;•the size of our market float; and•any other factors discussed in this Annual Report on Form 10-K.In addition, the stock markets have experienced extreme price and volume fluctuations that have affected and continue to affect the market prices ofequity securities of many technology companies. Stock prices of many technology companies have fluctuated in a manner unrelated or disproportionate tothe operating performance of those companies. In the past, stockholders have filed securities class action litigation following periods of market volatility. Ifwe were to become involved in securities litigation, it could subject us to substantial costs, divert resources and the attention of management from ourbusiness, and materially adversely affect our business.We do not currently intend to pay dividends on our common stock and, consequently, your ability to achieve a return on your investment will depend onappreciation in the price of our Class A common stock.Although we have paid cash dividends on our common stock in the past, we currently intend to invest any future earnings to finance the operation andgrowth of our business and do not expect to pay any dividends for the foreseeable future. As a result, the success of an investment in shares of our Class Acommon stock will depend upon future appreciation in its value, if any, and there is no guarantee that shares of our Class A common stock will appreciate invalue.Delaware law and provisions in our restated certificate of incorporation and bylaws could make a merger, tender offer, or proxy contest difficult, therebydepressing the trading price of our Class A common stock.Our status as a Delaware corporation and the anti-takeover provisions of the Delaware General Corporation Law may discourage, delay, or prevent achange in control by prohibiting us from engaging in a business combination with an interested stockholder (generally a stockholder, who together withaffiliates and associates, owns 15% or more of our voting rights) for a period of three years after the person becomes an interested stockholder, even if achange of control would be beneficial to our stockholders. In addition, our restated certificate of incorporation and bylaws contain provisions that may makethe acquisition of our company more difficult, including the following:•we have a dual class common stock structure, which could provide the holders of our Class B common stock, including our executive officers,directors, and their affiliates, with the ability to control the outcome of matters requiring stockholder approval, even if they own significantly lessthan a majority of the shares of our outstanding Class A and Class B common stock;28Table of Contents•when the outstanding shares of our Class B common stock represent less than 10% of the total outstanding shares of our common stock, certainamendments to our restated bylaws will require the approval of two-thirds of the voting power of our then-outstanding shares of common stock;•when the outstanding shares of our Class B common stock represent less than 10% of the total outstanding shares of our common stock, vacancieson our board of directors will be able to be filled only by our board of directors and not by stockholders;•when the outstanding shares of our Class B common stock represent less than 10% of the total outstanding shares of our common stock, our board ofdirectors will be classified into three classes of directors with staggered three-year terms and directors will only be able to be removed from office forcause;•when the outstanding shares of our Class B common stock represent less than 10% of the total outstanding shares of our common stock, ourstockholders will only be able to take action at a meeting of stockholders and not by written consent;•only our chairman, our chief executive officer, a majority of our board of directors, or stockholders holding shares representing at least 50% of thecombined voting power of our Class A common Stock and Class B common stock will be authorized to call a special meeting of stockholders untilthe outstanding shares of our Class B common stock represent less than 10% of the total outstanding shares of our common stock, at which time onlyour chairman, our chief executive officer, or a majority of our board of directors will be authorized to call a special meeting of stockholders;•advance notice procedures will apply for stockholders to nominate candidates for election as directors or to bring matters before an annual meetingof stockholders;•our restated certificate of incorporation authorized up to 100,000,000 shares of undesignated preferred stock, the terms of which may be established,and shares of which may be issued, without stockholder approval; and•certain litigation against us can only be brought in Delaware.Our restated certificate of incorporation provides that, subject to certain exceptions, the Court of Chancery of the State of Delaware shall be the sole andexclusive forum for certain stockholder litigation matters, which could limit our stockholders’ ability to obtain a favorable judicial forum for disputes withus or our directors, officers or employees.Our restated certificate of incorporation provides that, subject to limited exceptions, the Court of Chancery of the State of Delaware will be the sole andexclusive forum for (i) any derivative action or proceeding brought on our behalf, (ii) any action asserting a claim of breach of a fiduciary duty owed by anyof our directors, officers or other employees to us or our stockholders, (iii) any action asserting a claim against us arising pursuant to any provision of theDelaware General Corporation Law, our restated certificate of incorporation or our restated bylaws, or (iv) any action asserting a claim against us that isgoverned by the internal affairs doctrine. Any person or entity purchasing or otherwise acquiring any interest in shares of our capital stock shall be deemed tohave notice of and to have consented to the provisions of our restated certificate of incorporation described above. This choice of forum provision may limita stockholder’s ability to bring a claim in a judicial forum that it finds favorable for disputes with us or any of our directors, officers or other employees,which may discourage lawsuits with respect to such claims. Alternatively, if a court were to find the choice of forum provision contained in our amended andrestated certificate of incorporation to be inapplicable or unenforceable in an action, we may incur additional costs associated with resolving such action inother jurisdictions, which could harm our business, operating results and financial condition.If securities or industry analysts do not publish research or reports about our business, if they adversely change their recommendations regarding ourshares, or if our results of operations do not meet their expectations, the share price and trading volume of our Class A common stock could decline.The trading market for our Class A common stock will be influenced by the research and reports that industry or securities analysts publish about us orour business. We do not have any control over these analysts. If one or more of these analysts cease coverage of our company or fail to publish reports on usregularly, we could lose visibility in the financial markets, which in turn could cause the share price or trading volume of our Class A common stock todecline. Moreover, if one or more of the analysts who cover us, express views regarding us that may be perceived as negative or less favorable than previousviews, downgrade our stock, or if our results of operations do not meet their expectations, the share price of our Class A common stock could decline.Item 1B. Unresolved Staff Comments.None.29Table of ContentsItem 2. Properties.Our corporate headquarters is located in Bowie, Maryland, where we occupy approximately 110,000 square feet under a lease agreement that expires inJune 2029. In addition, we lease an aggregate of approximately 240,000 square feet at the following locations: Columbia, Maryland; Bowie, Maryland;Herndon, Virginia; Washington, DC; Phoenix, Arizona; Cecil, Pennsylvania; Canonsburg, Pennsylvania; and Nashville, Tennessee. We own one property inSnellville, Georgia, which is approximately 12,000 square feet. In addition, we maintain a number of leases for smaller office facilities in various locations inthe regions of our clients coinciding with specific client needs.Item 3. Legal Proceedings.Legal Proceedings—From time to time the Company is involved in various litigation matters arising out of the normal course of business. TheCompany consults with legal counsel on those issues related to litigation and seeks input from other experts and advisors with respect to such matters.Estimating the probable losses or a range of probable losses resulting from litigation, government actions and other legal proceedings is inherently difficultand requires an extensive degree of judgment, particularly where the matters involve indeterminate claims for monetary damages, may involve discretionaryamounts, present novel legal theories, are in the early stages of the proceedings, or are subject to appeal. Whether any losses, damages or remedies ultimatelyresulting from such matters could reasonably have a material effect on the Company’s business, financial condition, results of operations, or cash flows willdepend on a number of variables, including, for example, the timing and amount of such losses or damages (if any) and the structure and type of any suchremedies. The Company’s management does not presently expect any litigation matters to have a material adverse impact on the condensed consolidatedfinancial statements of the Company.On June 24, 2016, a purported securities class action complaint (Xiang v. Inovalon Holdings, Inc., et.al., No. 1:16-cv-04923) was filed in the UnitedStates District Court for the Southern District of New York against the Company, certain officers, directors and underwriters in the Company’s initial publicoffering (the “Complaint”). The Complaint was brought on behalf of a purported class consisting of all persons or entities who purchased shares of theCompany’s Class A common stock pursuant or traceable to the Registration Statement relating to the Company’s initial public offering on February 18,2015. The Complaint asserted violations of Sections 11 and 15 of the Securities Act based on allegedly false or misleading statements and omissions withrespect to, among other things, the Company’s revenues from sales in the city and state of New York and the Company’s effective tax rate. The Complaintsought certification as a class action and unspecified compensatory damages plus interest and attorneys’ fees. On June 28, 2016, a nearly identical complaintwas filed in the same court captioned Patel v. Inovalon Holdings, Inc., et. al., No. 1:16-cv-05065. On July 5, 2016, the court consolidated the Xiang and Patelactions. On September 20, 2016, the court appointed a lead plaintiff and lead counsel. On December 21, 2016, lead plaintiff filed a consolidated class actioncomplaint (the “Amended Complaint”) purporting to assert violations of Sections 11, 12(a)(2), and 15 of the Securities Act of 1933, as amended, based onallegedly false or misleading statements and omissions with respect to substantially the same topics as alleged in the Complaint. On February 21, 2017, andas required by the court’s individual practices, the Company invoked the pre-motion process required prior to filing a motion to dismiss. On May 23, 2017,the court issued a decision and order construing the pre-motion letter submitted by the defendants as a motion to dismiss, granting dismissal of the Section 12claims against the individual defendants, but denying dismissal of the remaining claims. On June 6, 2017, defendants filed a joint motion for reconsiderationand supporting memorandum of law seeking reconsideration of the court’s decision and arguing that plaintiff’s claims are time-barred. Also on June 6, 2017,defendants submitted a letter to the court requesting, in the alternative to the motion for reconsideration, a pre-motion conference concerning defendants’anticipated motion for certification of an interlocutory appeal to resolve a controlling question of law. On July 11, 2017, the Company and its officers anddirectors filed their answer to the Amended Complaint denying that plaintiffs are entitled to any relief. On July 28, 2017, the court issued a decision andorder denying both the motion for reconsideration and defendant’s request for an interlocutory appeal. On January 22, 2018, lead plaintiff filed its motion forclass certification, and on February 12, 2018, defendants filed an opposition to such motion for class certification, which motion remains pending. Theparties are presently engaged in discovery. The court has set October 22, 2018 as the deadline for the completion of all discovery. In light of, among otherthings, the early stage of the litigation, the Company is unable to predict the outcome of these consolidated actions and is unable to make a meaningfulestimate of the amount or range of loss, if any, that could result from this proceeding.On June 29, 2017, Virginia Rodriquez filed a putative shareholder derivative suit in the Supreme Court of the State of New York, County ofWestchester, against certain of the Company’s present and former directors and officers (the “Derivative Complaint”). The Company was named as a nominaldefendant. The Derivative Complaint makes allegations similar to the allegations in the securities class action Amended Complaint described above andasserts claims for breach of fiduciary duty, unjust enrichment, abuse of control and gross mismanagement, and seeks unspecified damages, an order directingthe Company “to reform and improve” certain corporate governance and internal procedures, restitution from the defendants and disgorgement of all profits,benefits and other compensation received and costs and disbursements incurred in connection with30Table of Contentsthe action, including attorneys’ fees. On September 12, 2017, the Company and the individual defendants filed a joint motion to dismiss the DerivativeComplaint. As directed by the court, the parties submitted memoranda of law concerning only the forum selection provision contained in the Company’sSecond Amended and Restated Certificate of Incorporation. On December 27, 2017, the court issued a decision and order granting the defendants’ jointmotion to dismiss plaintiff’s Derivative Complaint on the basis of the forum selection provision.Item 4. Mine Safety Disclosures.Not Applicable.31Table of ContentsPART IIItem 5. Market For Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.Market InformationOur Class A common stock is listed on the NASDAQ Global Select Market under the symbol “INOV.” Initial trading of our Class A common stockcommenced on February 12, 2015. Accordingly, no market for our common stock existed prior to that date. On February 12, 2015, we offered our IPO at aprice to the public of $27.00 per share. The following table lists quarterly information on the price range of our Class A common stock based on the high andlow reported sale prices for our Class A common stock as reported by NASDAQ for the periods indicated below: Price Range High LowYear Ended December 31, 2017: First quarter$12.65 $10.25Second quarter$14.65 $11.35Third quarter$17.80 $11.60Fourth quarter$17.70 $14.55 Year Ended December 31, 2016: First quarter$19.99 $15.12Second quarter$19.40 $15.50Third quarter$20.05 $13.85Fourth quarter$16.20 $8.60 Year Ended December 31, 2015: First quarter$33.75 $21.68Second quarter$30.55 $22.06Third quarter$28.38 $17.78Fourth quarter$23.87 $16.5132Table of ContentsStock Performance GraphThe following performance graph and related information shall not be deemed “soliciting material” or to be “filed” with the Securities and ExchangeCommission, nor shall such information be incorporated by reference into any future filing under the Securities Act of 1933 or Securities Exchange Act of1934, each as amended, except to the extent that we specifically incorporate it by reference into such filing.The line graph and table below compare the cumulative total stockholder return on our Class A common stock with the NASDAQ Composite-TotalReturns Index and the NASDAQ Computer Index. This graph and table assume the investment of $100 in Company common stock on February 12, 2015 andassumes the reinvestment of dividends, if any, on the relevant payment dates.The following performance graph is historical and not necessarily indicative of future price performance.The following table was used to prepare the preceding chart, assumes $100 was invested at the close of market on February 12, 2015, which was ourinitial trading day, and illustrates the value of the investment based on quoted prices as of the indicated dates: Feb 12,2015 Mar 31,2015 Jun 30,2015 Sep 30,2015 Dec 31,2015 Mar 31,2016 Jun 30,2016 Sep 30,2016 Dec 31,2016 Mar 31,2017 Jun 30,2017 Sep 30,2017 Dec 31,2017InovalonHoldings, Inc. $100 $112 $103 $77 $63 $69 $67 $54 $38 $47 $49 $63 $56NASDAQComposite Index$100 $101 $103 $95 $103 $100 $100 $109 $111 $122 $126 $134 $142NASDAQComputer Index$100 $99 $99 $94 $104 $105 $101 $115 $117 $132 $137 $149 $162HoldersAs of February 9, 2018, there were 78 stockholders of record of our Class A common stock. However, because many shares of our common stock areheld by brokers and other institutions on behalf of stockholders, we believe there are substantially more beneficial holders of our common stock than recordholders. As of February 9, 2018, there were 23 stockholders of record of our Class B common stock.Dividend PolicyOur board of directors does not currently intend to declare and pay dividends on our common stock. However, our board of directors will periodicallyreevaluate our dividend policy and may determine to pay dividends in the future. Any future determination to declare cash dividends will be at the solediscretion of our board of directors. No dividends were declared during the years ended December 31, 2017 and 2016.Unregistered Sales of Equity SecuritiesNone.33Table of ContentsUse of Proceeds from Registered SecuritiesOn February 18, 2015, we completed our initial public offering (“IPO”) of 22,222,222 shares of Class A common stock and, upon the underwriters’exercise of their option to purchase additional shares, issued an additional 3,142,581 shares of Class A common stock for a total of 25,364,803 shares issued.All of the shares issued in the IPO were primary shares offered by us as none of our stockholders sold any shares in the IPO. The offering price of the sharessold in the IPO was $27.00 per share, resulting in net proceeds to us, after underwriters’ discounts and commissions and other expenses payable by us, of$639.1 million. All of the shares were sold pursuant to our registration statement on Form S-1, as amended (File No. 333-201321), that was declared effectiveby the SEC on February 11, 2015. Goldman, Sachs & Co., Morgan Stanley & Co. LLC, and Citigroup Global Markets Inc. acted as joint book-runningmanagers for the IPO and as representatives of the underwriters. The principal purposes of our IPO were to create a public market for our Class A commonstock and thereby enable future access to the public equity markets by us and our stockholders, and obtain additional capital. On September 1, 2015, we usedapproximately $126.2 million of the net proceeds from the IPO to complete the acquisition of Avalere Health, Inc. On October 1, 2016, we committed$120.0 million as partial consideration for our acquisition of Creehan. (See Note 3, “Business Combinations” of the notes to our audited consolidatedfinancial statements included elsewhere within this Annual Report on Form 10-K for more information). Through December 31, 2017, in aggregate, we haveused approximately $200.0 million of the net proceeds from the IPO to repurchase outstanding shares of Class A common stock under our share repurchaseprogram. We intend to use the remaining net proceeds to us from our IPO for working capital and other general corporate purposes. Additionally, we may usea portion of the remaining net proceeds for additional acquisitions of complementary businesses, technologies, or other assets, or to repay outstandingindebtedness.Purchases of Equity Securities by the Issuer or Affiliated PurchasersThe following table presents a summary of share repurchases made by the Company during the quarter ended December 31, 2017:PeriodTotal Number ofSharesPurchased Average PricePaid per Share Total Number of SharesPurchased as Part ofPublicly Announced Plansor Programs Maximum Number of Shares(orapproximate dollar value)that MayYet be Purchased under thePlans orPrograms(1)October 1, 2017 - October 31, 2017— $— — $28,783,049November 1, 2017 - November 30, 2017740,133 15.39 740,133 17,391,338December 1, 2017 - December 31, 20171,135,553 15.15 1,135,553 —Total1,875,686 $15.25 1,875,686 $—_______________________________________(1)On May 4, 2016, we announced that our Board of Directors authorized a program to repurchase up to $100 million of Inovalon’s Class A common stockthrough December 31, 2016. On November 2, 2016, we announced that our Board of Directors authorized an expansion of the share repurchase programto repurchase up to an additional $100 million of shares of Inovalon’s Class A common stock (bringing the total to $200 million) through December 31,2017. As of December 31, 2017, the Company repurchased approximately 14.6 million shares at an average purchase price of $13.67 per share for a totalpurchase price of approximately $200.0 million under this program. The share repurchase program expired on December 31, 2017.Securities Authorized for Issuance Under Equity Compensation PlansSee Item 12, “Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters” for information regarding securitiesauthorized for issuance.34Table of ContentsItem 6. Selected Financial Data.The following table sets forth selected consolidated financial data for the years presented and at the dates indicated below. Our historical results are notnecessarily indicative of our results in any future periods. The summary of our consolidated financial data set forth below should be read together with ourconsolidated financial statements and related notes, as well as the sections entitled “Management’s Discussion and Analysis of Financial Condition andResults of Operations,” included elsewhere in this Annual Report on Form 10-K. Year Ended December 31, 2017 2016 2015 2014 2013 (in thousands, except share and per share information)Consolidated Statement of Operations Data: Revenue$449,358 $427,588 $437,271 $361,540 $295,798Income from operations33,789 37,634 116,456 110,061 52,445Net income34,818 27,104 66,063 65,352 32,718Net income attributable to common stockholders33,828 26,943 66,014 65,352 32,718Basic net income per share$0.24 $0.18 $0.45 $0.50 $0.24Diluted net income per share$0.24 $0.18 $0.45 $0.49 $0.24 December 31, 2017 2016 2015 2014 2013 (in thousands)Consolidated Balance Sheet Data: Cash and cash equivalents$208,944 $127,683 $114,034 $162,567 $110,594Short-term investments267,288 445,315 614,130 — —Accounts receivable, net of allowances90,054 85,591 81,305 43,938 33,398Working capital466,628 601,720 776,477 168,217 130,562Property, equipment and capitalized software, net125,768 76,420 65,031 50,962 43,050Goodwill184,932 184,557 137,733 62,269 62,269Total assets995,078 1,053,344 1,112,877 342,569 269,746Long-term debt and capital lease obligations203,359 236,465 266,546 281,418 279Total liabilities352,306 369,767 373,721 350,791 38,012Total stockholders’ equity (deficit)642,772 683,577 739,156 (8,222) 231,734Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations. You should read the following discussion and analysis of our financial condition and results of operations in conjunction with our “Selected FinancialData” and our consolidated financial statements and notes thereto appearing elsewhere in this Annual Report on Form 10-K. In addition to historicalconsolidated financial information, the following discussion and analysis may contain forward-looking statements that involve risks, uncertainties andassumptions. Our actual results could differ materially from those anticipated by forward-looking statements as a result of many factors. We discuss factorsthat we believe could cause or contribute to these differences below and elsewhere in this Annual Report on Form 10-K, including those set forth under“Risk Factors” and “Special Note Regarding Forward-Looking Statements.”OverviewWe are a leading technology company providing cloud-based platforms empowering a data-driven transformation from volume-based to value-basedmodels throughout the healthcare industry. Through the Inovalon ONE™ Platform, Inovalon brings to the marketplace a national-scale capability tointerconnect with the healthcare ecosystem on a very large scale, aggregate and analyze data in petabyte volumes to arrive at sophisticated insights in real-time, drive impact wherever it is analytically identified best to intervene, and intuitively visualize data and information to inform business strategy andexecution. Leveraging its platform capabilities, large proprietary data sets, and industry-leading subject matter expertise, Inovalon enables the assessmentand improvement of clinical and quality outcomes and financial performance across the healthcare ecosystem. From health plans and provider organizations,to pharmaceutical, medical device, and diagnostics companies, Inovalon’s unique achievement of value is delivered through the effective progression of“Turning Data into Insight, and Insight into Action®.” Providing technology that supports a client base approaching 500 healthcare organizations,35Table of ContentsInovalon’s platforms are informed by data pertaining to more than 932,000 physicians, 455,000 clinical facilities, 240 million individuals, and 37 billionmedical events.We generate the substantial majority of our revenue through the sale or subscription licensing of our cloud-based data analytics, intervention andreporting platforms and related support services.On February 18, 2015, we completed our IPO of 22,222,222 shares of Class A common stock and, upon the underwriters’ exercise of their option topurchase additional shares, issued an additional 3,142,581 shares of Class A common stock for a total of 25,364,803 shares issued. All of the shares issued inthe IPO were primary shares offered by us as none of our stockholders sold any shares in the IPO. The offering price of the shares sold in the IPO was $27.00per share, resulting in net proceeds to us, after underwriters’ discounts and commissions and other expenses payable by us, of $639.1 million. Our Class Acommon stock is currently traded on the NASDAQ Global Select Market under the symbol “INOV.”On September 1, 2015, we acquired all of the issued and outstanding capital stock of Avalere for an aggregate purchase price of $140.0 million,consisting of cash and 235,737 shares of the Company’s Class A common stock, which were subject to resale restrictions. Avalere is a provider of data-drivenadvisory services and business intelligence solutions primarily to the pharmaceutical and life sciences industry. Pursuant to the Share Purchase Agreementbetween the Company and Avalere, certain portions of the stated purchase price of $140.0 million were contingent upon the achievement of financial andoperational objectives, and other portions were subject to continued employment provisions. The addition of Avalere, with its more than 200 pharmaceuticaland life sciences clients, as well as an extensive array of client relationships with payers, providers and research institutions, is expected to expand ourcapabilities and client base into the expansive and adjacent markets of the pharmaceutical and life sciences industry. The results of operations related toAvalere are included in our consolidated statements of operations beginning from the date of acquisition. See Note 3, “Business Combinations,” of the notesto our audited consolidated financial statements included elsewhere within this Annual Report on Form 10-K for more information.On October 1, 2016, we completed our acquisition of Creehan, a leading provider of specialty pharmacy software solutions to the pharmaceuticalindustry, by acquiring all of Creehan’s issued and outstanding capital stock for an aggregate purchase price of $130.0 million, consisting of cash and651,355 shares of the Company’s Class A common stock, which are subject to resale restrictions. Certain components of the aggregate purchase price aresubject to the achievement of financial performance objectives. We acquired Creehan for the assembled workforce, technology platform, client base, and toaccelerate entry into the specialty pharmacy software market. The results of operations related to Creehan are included in our consolidated statements ofoperations beginning from the date of acquisition. See Note 3, “Business Combinations,” of the notes to our audited consolidated financial statementsincluded elsewhere within this Annual Report on Form 10-K for more information.On July 6, 2017, we completed the acquisition of CCS, a company which provides technology-enabled interventions and member engagementcoordination services for a number of payers and employers throughout the United States. We acquired all of the capital stock of CCS for approximately $4.5million in cash and the settlement of an existing payable to CCS of $2.3 million. See Note 3, “Business Combinations,” of the notes to our auditedconsolidated financial statements included elsewhere within this Annual Report on Form 10-K for more information.Key MetricsWe review a number of metrics, including the key metrics shown in the table below. We believe that these metrics are indicative of our overall level ofanalytical activity and the underlying growth in our business. Year Ended December 31, 2017 2016 2015 (in thousands, except percentages)MORE2 Registry® dataset metrics(1) Unique patient count(2)240,180 150,961 130,953Medical event count(3)37,813,583 13,345,220 11,051,441Trailing 12 month PAM(1)(4)42,156,422 26,401,946 21,449,667_______________________________________(1)MORE2 Registry® dataset metrics and Trailing 12 month PAM, each of which is presented in the table, are key operating metrics that management usesto assess our level of operational activity. While we believe that each of these metrics is indicative of our overall level of analytical activity and theunderlying growth in our business, increases or decreases in these metrics do not necessarily correlate to proportional increases or decreases in revenue,or net income. For instance, although increased levels of analytical activity historically have corresponded to increases in revenue over the long term,differences in fees charged for different analytical packages exist and differences in how analytics trigger the applicability36Table of Contentsof our data-driven intervention platforms may result in increases in analytical activity that do not result in proportional increases in revenue, or netincome (and vice versa). Accordingly, while we believe the presentation of these operating metrics is helpful to investors in understanding our business,these metrics have limitations and should not be considered as substitutes for analysis of our financial results reported under generally acceptedaccounting principles (“GAAP”). In addition, we believe that other companies, including companies in our industry, do not present similar operatingmetrics and that there is no commonly accepted method of calculating these metrics, which may reduce their usefulness as comparative measures.(2)Unique patient count is defined as each unique, longitudinally matched, de-identified natural person represented in our MORE2 Registry® as of the endof the period presented.(3)Medical event count is defined as the total number of discrete medical events as of the end of the period presented (for example, a discrete medical eventtypically results from the presentation of a patient to a physician for the diagnosis of diabetes and congestive heart failure in a single visit, thepresentation of a patient to an emergency department for chest pain, etc.).(4)PAM is defined as the sum of the analytical processes performed on each respective patient within patient populations covered by clients under contract.As used in the metric, an “analytical process” is a distinct set of data calculations undertaken by us which is initiated and completed by our analyticalplatform to examine a specific question such as whether a patient is believed to have a condition such as diabetes, or worsening of the disease, during aspecific time period.Trends and Factors Affecting Our Future PerformanceA number of factors influence our growth and performance. We see many of these factors as being more quantitatively driven, such as the rate of growthof the underlying data counts within our datasets, the ongoing investment in innovation, and our level of analytical activity. Additionally, there are severalfactors that influence our growth and performance that are less quantitatively driven, including seasonality, macro-economic forces, and trends withinhealthcare (such as payment models, incentivization, and regulatory oversight), that can be driven by changes in federal and state laws and regulations, aswell as private sector market forces.Growth of Datasets. Healthcare costs in the United States have been increasing significantly for many years. This rise in healthcare costs has driven abroad transition from consumption-based payment models to quality and value-based payment models across the healthcare landscape. As a result, thespecific disease and comorbidity status, clinical and quality outcomes, resource utilization, and care details of the individual patient have becomeincreasingly relevant to the various constituents across the healthcare delivery system. Concurrently, the count and complexity of diseases, diagnostics, andtreatments—as well as payment models and regulatory oversight requirements—have soared. In this setting, granular data has become critical to determiningand improving quality and financial performance in healthcare. Our MORE2 Registry® is our largest principal dataset and serves as a proxy for our generalgrowth of datasets within Inovalon. The growth of our datasets that inform our analytical capabilities and comparative analytics is a key aspect of ourprovision of value to our clients and is indicative of our overall growth and capabilities.37Table of ContentsInnovation and Platform Development. Our business model is based upon our ability to deliver value to our clients through the combination ofadvanced, cloud-based data analytics and data-driven intervention platforms focused on the achievement of meaningful and measurable improvements inclinical quality outcomes and financial performance in healthcare. Our ability to deliver this value is dependent in part on our ability to continue toinnovate, design new capabilities, enter into new agreements with clients for new platforms, and bring these capabilities to market in an enterprise scale. Ourcontinued ability to innovate our platform and bring differentiated capabilities to market is an important aspect of our business success. Our investment ininnovation includes costs for research and development, capitalized software development, and capital expenditures related to hardware and softwareplatforms on which our data analytics and data-driven interventions capabilities are deployed as summarized below (in thousands, except percentages). Year Ended December 31, 2017 2016 2015Investment in Innovation Research and development(1)$27,383 $29,148 $22,329Capitalized software development(2)34,789 21,994 20,199Research and development infrastructure investments(3)23,642 11,288 5,255Total investment in innovation$85,814 $62,430 $47,783As a percentage of revenue Research and development(1)6% 7% 5%Capitalized software development(2)8% 5% 5%Research and development infrastructure investments(3)5% 3% 1%Total investment in innovation19% 15% 11%_______________________________________(1)Research and development primarily includes employee costs related to the development and enhancement of our service offerings.(2)Capitalized software development includes capitalized costs incurred to develop and enhance functionality for our data analytics and data-drivenintervention platforms.(3)Research and development infrastructure investments include strategic capital expenditures related to hardware and software platforms underdevelopment or enhancement.Data Analytics and Data-Driven Intervention Mix. Our business and operational models are highly scalable and leverage variable costs to supportrevenue generating activities. Our data analytic service costs are less variable in nature and require lower incremental capital expenditures. As a result,following initial development and deployment investments, our big data analytics platform and data technology capabilities allow us to process significantvolumes of transactions with lower incremental costs. Conversely, our data-driven intervention costs are generally variable in nature and require incrementalcosts to generate additional revenue. As a result, the mix of our data analytics and data interventions activities affects our financial performance.Client and Analytical Process Count Growth. Our business is generally driven by the number of underlying patients for which our analytics and data-driven intervention platforms are being utilized. As such, we track the number of analytical processes that we run on patients each month in fulfillment of ourclient contracts, as totaled for the trailing 12 months. We believe that PAM is indicative of our overall level of analytical activity, and we expect our period-to-period comparisons of our PAM to be indicative of underlying growth of our business, although changes in levels of analytical activity do not alwaysdirectly translate to changes in financial performance of our business. Differences in fees charged for different analytical packages exist and differences inhow analytics trigger the applicability of our data-driven intervention platforms may result in increases in analytical activity that do not result inproportional increases in revenue, or net income (and vice versa). Therefore, in situations in which a new engagement is initiated for analytical processes thathave a higher than average fee rate, revenue could expand disproportionately faster than the increase in PAM. Likewise, if engagements for analyticalprocesses that have a higher than average fee rate are concluded then such conclusions can negatively affect revenue disproportionately more than PAM.Seasonality. The nature of our customers’ end-market results in partial seasonality reflected in both revenue and cost of revenue differences during theyear. Regulatory impact of data submission deadlines in, for example, March, June, September, and January drive some degree of predictable timing ofanalytics and data processing activity variances from quarter to quarter. Further, regulatory clinical encounter deadlines of June 30th andDecember 31st drive predictable intervention concentrations variances from quarter to quarter. The timing of these factors results in analytical andintervention activity mix variances which have limited predictable impact in the aggregate on our financial performance from quarter to quarter. Finally,quarter to quarter38Table of Contentsfinancial performance may increasingly vary from historical seasonal trends as we continue to expand into adjacent markets and increase the portion of ourrevenue generated from new offerings.Regulatory, Economic and Industry Trends. Our clients are affected, sometimes directly, and sometimes counter-intuitively, by macro-economictrends such as economic growth (or economic recession), inflation, and unemployment. Further, industry trends in federal and state laws and regulations, aswell as emerging trends in private sector payment models, affect our clients’ businesses and their need for technologies and services to support thesechallenges. These factors have various effects on our business, and on occasion have resulted in the slowing or cessation of the decision-making process byclients adopting our technologies and services. On the other hand, changes in macro-economic trends and the industry landscape have accelerated the needfor our technologies and services from time-to-time, particularly as regulators introduce complex requirements with which our clients must comply.Shift to Fully Automated Data-Driven Intervention Platform Services. We view the decreased proportion of revenue derived from partiallyautomated data-driven intervention platform services as a positive reflection of our cloud-based interconnectivity and automation capabilities. Theproportion of our revenue derived from pure data analytics and fully automated data-driven intervention platform services revenue is expected to continue toexpand over time as a percentage of total revenue as a result of our continued expansion of our cloud-based interconnectivity technologies and the continuedexpansion of interconnectivity within the healthcare landscape. In order to drive value for our clients and serve them irrespective of their level ofconnectivity, we continue to provide cloud-based partially automated data-driven intervention platform services, converting the performance of suchservices to cloud-based fully automated data-driven intervention platform services wherever possible. As the healthcare infrastructure becomes moreinterconnected and our integration and interconnectivity technologies continue to expand, we believe that we will be able to achieve more rapidimplementation, and greater value impact, at more efficient costs.Components of Results of OperationsRevenueWe earn revenue primarily through the sale or subscription licensing of our cloud-based data analytics, data-driven intervention platform services, ouradvisory services and business intelligence solutions.Our cloud-based data analytics services are performed either at the beginning of a data-driven intervention process, which typically aligns withregulatory submission deadlines, or on a monthly basis, depending on the particular client’s needs. Cloud-based data analytics revenue is driven primarily bythe number of unique patients in a client’s dataset, a minimum data analytics processing fee, the number of identified gaps in care, quality, data integrity, andfinancial performance identified in a client’s dataset, and a contractually negotiated transactional price for each identified gap or unique patient.Subscription licensing revenue is driven primarily by the number of clients, the number of unique patients in a client’s population dataset, the number ofanalytical services contracted for by a client, and the contractually negotiated price of such services.Cloud-based data-driven intervention platform service revenue represents revenue that is generated from fully automated processes (i.e., those processesthat require no material variable-based labor components) and partially automated processes (i.e., those processes that require a degree of variable-based laborcomponents). As many of our analytical capabilities are designed to identify gaps in care, quality, utilization, compliance, and/or other gaps that may impactour clients’ achievement of greater healthcare quality and financial performance, our cloud-based data driven intervention platform services revenue is drivenprimarily by the results of our cloud-based data analytics processes and our clients’ desire to utilize our cloud-based data-driven intervention platforms toresolve such identified gaps. Informed by our analytics, our cloud-based data-driven intervention platforms are designed to enable the resolution of specificgaps through the aggregation of specific data or achievement of specific impact. Revenue from our intervention platform utilization is generally driven bythe quantity and type of completed interventions enabled by our platform, and a contractually negotiated transactional price for each such intervention.Advisory service and business intelligence solutions revenue represents revenue that is generated from strategic advisory, analysis and educationalservices. Revenue from our advisory services arrangements is generally provided under time and materials, fixed-price, or retainer-based contracts, based oncontractually negotiated prices for each such arrangement.Cost of RevenueCost of revenue consists primarily of expenses for employees who provide direct contractual services to our clients, including salaries, benefits,discretionary incentive compensation, employment taxes, severance, and equity compensation costs. Cost of revenue also includes expenses associated withthe integration, and verification of data and other service costs incurred to fulfill our revenue contracts. Cost of revenue does not include allocated amountsfor occupancy expense and depreciation and amortization. Many of the elements of our cost of revenue are relatively variable and semi-variable, and can bereduced in the near-term to help offset any decline in our revenue.39Table of ContentsOur business and operational models are designed to be highly scalable and leverage variable costs to support revenue generating activities. While wemay grow our headcount over time to capitalize on our market opportunities, we believe our increased investment in automation, electronic health recordintegration capabilities, and economies of scale in our operating model, will position us to grow our cloud-based data analytics and cloud-based data-drivenintervention platform services revenue at a greater rate than our cost of revenue, over time, excluding the impact of stock-based compensation expense.Sales and MarketingSales and marketing expense consists primarily of employee-related expenses, including salaries, benefits, commissions, discretionary incentivecompensation, employment taxes, severance, and equity compensation costs for our employees engaged in sales, sales support, business development, andmarketing. Sales and marketing expense also includes operating expenses for marketing programs, research, trade shows and brand messages, and publicrelations costs. Our sales and marketing expense excludes any allocation of occupancy expense and depreciation and amortization.We expect our sales and marketing expenses to continue to increase in absolute dollar terms as we strategically invest to expand our business. Over thelong term, we believe that sales and marketing expenses as a percentage of total revenues will decrease.Research and DevelopmentResearch and development expense (one component of our investment in innovation) consists primarily of employee-related expenses, includingsalaries, benefits, discretionary incentive compensation, employment taxes, severance, and equity compensation costs for our software developers, engineers,analysts, project managers, and other employees engaged in the development and enhancement of our service offerings. Research and development expensealso includes certain third party consulting fees. Our research and development expense excludes any allocation of occupancy expense and depreciation andamortization.We expect to continue our focus on developing new product offerings and enhancing our existing product offerings. As a result, we expect our researchand development expense to increase in absolute dollars, although it may vary from period to period as a percentage of revenue.General and AdministrativeOur general and administrative expense consists primarily of employee-related expenses including salaries, benefits, discretionary incentivecompensation, employment taxes, severance, and equity compensation costs, for employees who are responsible for management information systems,administration, human resources, finance, legal, and executive management. General and administrative expense also includes occupancy expenses(including rent, utilities, communications, and facilities maintenance), professional fees, consulting fees, insurance, travel, and other expenses. Our generaland administrative expense excludes depreciation and amortization.We expect our general and administrative expense to decrease on an organic basis in absolute dollars and as a percentage of revenue driven by costsavings from technology-enabled and employee-related efficiencies.Depreciation and Amortization ExpenseOur depreciation and amortization expense consists primarily of depreciation of fixed assets, amortization of capitalized software development costs,and amortization of acquisition-related intangible assets.We expect our depreciation and amortization expense to increase as we expand our business organically and through acquisitions.Realized Gains (Losses) on Short-term InvestmentsRealized gains and losses on short-term investments consist of gains and losses realized upon the sale of certain of the Company’s available-for-salesecurities, prior to their maturity. The gains and losses were incurred as the value of the available-for-sale securities declined from the date of purchase to thedate of sale.We expect to incur realized gains or losses to the extent the available-for-sale securities are sold prior to their maturity. From time to time we may sellour available-for-sale securities prior to their maturity to generate cash needed to fund strategic initiatives including acquisitions.(Loss) Gain on Disposal of EquipmentGain on disposal of equipment consists of proceeds received for the disposition of equipment that were greater than the equipment’s depreciated bookvalue.40Table of ContentsWe expect to recognize gains or on disposal of equipment to the extent that proceeds received upon disposal are greater than the carrying value of theunderlying equipment, otherwise loss on disposal of equipment could be incurred.Interest IncomeInterest income represents interest earned net of amortization of premium for purchased interest from our available-for-sale short-term investments.We expect our interest income to fluctuate in proportion to the amount of funds we invest, according to our corporate investment policy, in available-for-sale short-term investments and considering prevailing available interest rate yields on such investment grade debt securities.Interest ExpenseInterest expense represents interest incurred on our Credit Facilities (as defined below, under the heading “Liquidity and Capital Resources—Debt”).We expect our interest expense to fluctuate in proportion to the outstanding principal balance of the Credit Facilities and the prevailing LondonInterbank Offer Rate (“LIBOR”) interest rate.Provision for Income TaxesProvision for income taxes consists of federal and state income taxes in the United States and foreign income taxes from the territory of Puerto Rico,including deferred income taxes reflecting the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financialreporting purposes and the amounts used for income tax purposes, and excess tax benefits or deficiencies derived from exercises of stock options and vestingof restricted stock.We expect that our effective tax rate will decrease due to the Tax Act and in the future may fluctuate due to the recognition of excess tax benefits andtax deficiencies associated with stock-based compensation transactions which are considered to be discrete items. Excluding discrete items impacting theeffective tax rate, we expect our long-term tax rate to reflect the applicable statutory rates. Refer to Note 14, “Income Taxes,” of the notes to our auditedconsolidated financial statements, included elsewhere in this Annual Report on Form 10-K.41Table of ContentsResults of OperationsThe following tables set forth our consolidated statement of operations data for each of the periods presented (in thousands, except percentages): Year Ended December 31, 2017 to 2016Change 2016 to 2015Change 2017 2016 2015 $ % $ %Revenue$449,358 $427,588 $437,271 $21,770 5 % $(9,683) (2)%Expenses: Cost of revenue(1)151,046 159,169 146,140 (8,123) (5)% 13,029 9 %Sales and marketing(1)34,103 27,078 14,684 7,025 26 % 12,394 84 %Research and development(1)27,383 29,148 22,329 (1,765) (6)% 6,819 31 %General and administrative(1)149,948 137,275 115,029 12,673 9 % 22,246 19 %Depreciation and amortization53,089 37,284 22,633 15,805 42 % 14,651 65 %Total operating expenses415,569 389,954 320,815 25,615 7 % 69,139 22 %Income from operations33,789 37,634 116,456 (3,845) (10)% (78,822) (68)%Other income and (expenses) Realized gains (losses) on short-term investments— 4 (328) (4) *% 332 *%(Loss) Gain on disposal of equipment(406) 534 — (940) *% 534 *%Interest income5,429 5,792 3,003 (363) (6)% 2,789 93 %Interest expense(6,225) (5,065) (4,420) (1,160) 23 % (645) 15 %Income before taxes32,587 38,899 114,711 (6,312) (16)% (75,812) (66)%(Benefit from) Provision for income taxes(2,231) 11,795 48,648 (14,026) (119)% (36,853) (76)%Net income$34,818 $27,104 $66,063 $7,714 28 % $(38,601) (58)%_______________________________________(1) Includes stock-based compensation expense as follows:Cost of revenue$1,652 $483 $164 $1,169 242% $319 195 %Sales and marketing2,011 613 173 1,398 228% 440 254 %Research and development1,293 1,184 1,212 109 9% (28) (2)%General and administrative12,362 7,774 5,866 4,588 59% 1,908 33 %Total stock-based compensation expense$17,318 $10,054 $7,415 $7,264 72% $2,639 36 %* Asterisk denotes not meaningful42Table of ContentsThe following table sets forth our consolidated statement of operations data for each of the periods presented as a percentage of revenue: Year Ended December 31, 2017 2016 2015Revenue100 % 100 % 100 %Expenses: Cost of revenue34 % 37 % 33 %Sales and marketing8 % 6 % 3 %Research and development6 % 7 % 5 %General and administrative33 % 32 % 26 %Depreciation and amortization12 % 9 % 5 %Total operating expenses93 % 91 % 73 %Income from operations7 % 9 % 27 %Other income and (expenses): Realized gains (losses) on short-term investments— % *% *%(Loss) Gain on disposal of equipment*% *% — %Interest income1 % 1 % *%Interest expense(1)% (1)% (1)%Income before taxes7 % 9 % 26 %(Benefit from) Provision for income taxes(1)% 3 % 11 %Net income8 % 6 % 15 %Years Ended December 31, 2017, 2016, and 2015Revenue2017 Compared with 2016. In 2017, Inovalon continued to execute on its transition from legacy enterprise solutions to subscription-based cloud-based platform offerings, with this portion of revenue contribution accounting for $295.3 million (or 66% of revenue), reflecting growth of 30% over 2016.Revenue for the year ended December 31, 2017 was approximately $449.4 million, an increase of 5% compared with revenue of approximately $427.6million for the year ended December 31, 2016. This increase was primarily attributable to approximately $35.3 million in revenue within the acquiredbusinesses of Creehan and CCS, through the anniversary date of the acquisition, and approximately $14.5 million in revenue contributed from new clientssigned, which was partially offset by a decrease of approximately $28.0 million in revenue from existing clients resulting from a combination of factorsincluding the transition of client contracts to newer product offerings and more subscription-based agreements versus the year-ago period, and the conclusionof client contracts included in the year-ago period.2016 Compared with 2015. Revenue for the year ended December 31, 2016 was approximately $427.6 million, a decrease of 2% compared withrevenue of approximately $437.3 million for the year ended December 31, 2015. This decrease was primarily attributable to a net decrease of approximately$75.0 million in revenue from existing clients, partially offset by approximately $44.5 million in revenue within the acquired businesses of Avalere andCreehan, through the anniversary date of the acquisition, and an increase in revenue from new clients signed of approximately $20.8 million. The change inrevenue from new and existing clients resulted from a combination of factors including a product transition, sales and marketing capacity, and the businessperformance of certain ACA-focused clients (including Co-Ops).Cost of Revenue2017 Compared with 2016. During the year ended December 31, 2017, cost of revenue decreased by approximately $8.1 million, or 5%, comparedwith the year ended December 31, 2016. The decrease in cost of revenue was primarily attributable to a decrease of employee-related expenses of$30.6 million driven by technology-enabled platform efficiency initiatives, which was partially offset by the combined incremental cost of revenue of$17.5 million attributable to the acquired businesses of Creehan and CCS, an increase in fulfillment of $2.3 million, an increase in professional third-partycosts of $1.6 million, and an increase in stock-based compensation expense of $1.2 million. Cost of revenue as a percentage of revenue was 34% and 37% forthe years ended December 31, 2017 and 2016, respectively.2016 Compared with 2015. During the year ended December 31, 2016, cost of revenue increased by approximately $13.0 million, or 9%, comparedwith the year ended December 31, 2015. Approximately $8.9 million of the increase was driven by the composition of a greater volume of data-drivenintervention platform services as a percentage of revenue and43Table of Contentsapproximately $4.1 million was attributable to the acquisition of Creehan. Cost of revenue as a percentage of revenue was 37%, and 33%, for the years endedDecember 31, 2016 and 2015, respectively.Sales and Marketing2017 Compared with 2016. During the year ended December 31, 2017, sales and marketing expenses increased by approximately $7.0 million, or26%, compared with the year ended December 31, 2016. The increase was primarily due to an increase in employee-related expenses of approximately $4.9million, which were driven by our investment to expand our sales organization and partner team to focus on adding new clients and capturing an increasedamount of market opportunity, and an increase in stock-based compensation expense of approximately $1.4 million. Sales and marketing as a percentage ofrevenue was 8% and 6% for the years ended December 31, 2017 and 2016, respectively.2016 Compared with 2015. During the year ended December 31, 2016, sales and marketing expenses increased by approximately $12.4 million, or84%, compared with the year ended December 31, 2015. Approximately $10.5 million of the increase was directly attributable to salaries and benefits foremployees that was driven by our investment in new sales personnel to focus on adding new clients and capturing an increased amount of marketopportunity.Research and Development2017 Compared with 2016. During the year ended December 31, 2017, research and development expense decreased by approximately $1.8 million,or 6%, compared with the year ended December 31, 2016. The decrease was primarily attributable to an increased focus of development on the InovalonONE™ Platform, resulting in an increase to capitalized software projects of approximately $6.8 million, which was partially offset by the incrementalexpense of approximately $4.4 million attributable to the acquired businesses of Creehan and CCS, through the anniversary date of the acquisition.2016 Compared with 2015. During the year ended December 31, 2016, research and development expense increased by approximately $6.8 million,or 31%, compared with the year ended December 31, 2015. Approximately $6.3 million of the increase was attributable to growth in employee-relatedexpenses necessary to support our on-going investment in innovation and platform development.General and Administrative2017 Compared with 2016. During the year ended December 31, 2017, general and administrative expenses increased by approximately $12.7million, or 9%, compared with the year ended December 31, 2016. The increase was primarily attributable to incremental expenses of approximately$18.5 million attributable to the acquired businesses of Creehan and CCS, through the anniversary date of the acquisition, an increase in professional third-party costs of approximately $5.8 million, which includes a $3.1 million increase in legal expenses related to non-recurring litigation, and an increase ofapproximately $4.6 million related to stock-based compensation expense. The increase in general and administrative expense was partially offset by adecrease of employee-related expenses of $10.2 million, and a decrease of approximately $5.2 million related to the fair value adjustment of contingentconsideration. General and administrative expenses as a percentage of revenue was 33% and 32% for the years ended December 31, 2017 and 2016,respectively.2016 Compared with 2015. During the year ended December 31, 2016, general and administrative expenses increased by approximately$22.2 million, or 19%, compared with the year ended December 31, 2015. The increase was primarily attributable to our expansion, driven by theacquisitions of Avalere and Creehan, resulting in additional employee-related expenses of approximately $8.5 million, an increase in compensation expenserelated to compensatory contingent consideration that included earn-outs with continuing service requirements related to our acquisitions of approximately$7.4 million, increased growth-related infrastructure expenses of approximately $4.3 million, and an increase related to contingent consideration accretion ofapproximately $0.7 million.Depreciation and Amortization2017 Compared with 2016. During the year ended December 31, 2017, depreciation and amortization expense increased by approximately $15.8million, or 42%, compared with the year ended December 31, 2016. The increase was primarily attributable to approximately $6.0 million of amortization ofacquired intangible assets, $4.2 million of incremental amortization of capitalized software, and approximately $0.7 million of depreciation of other assetsrelated to the acquired businesses of Creehan, through the anniversary date of the acquisition, and CCS.2016 Compared with 2015. During the year ended December 31, 2016, depreciation and amortization expense increased by approximately$14.7 million, or 65%, compared with the year ended December 31, 2015. The increase is primarily attributable to approximately $7.3 million of incrementalamortization of capitalized software, approximately $6.2 million of amortization of intangible assets related to the acquisitions of Avalere and Creehan, andapproximately $0.8 million of depreciation of other assets acquired with Avalere and Creehan, as compared with the year ended December 31, 2015.44Table of ContentsRealized Gains (Losses) on Short-Term Investments Realized investment gains and losses are attributable to sales of certain of the Company’s available-for-sale short-term investments, prior to maturity.Funds generated from such sales of available-for-sale short term investments were used to fund strategic initiatives such as the share repurchase program in2017 and 2016 and the Company’s acquisition of Avalere in 2015. Sales of the Company’s available-for-sale, short term investments may be required fromtime-to-time to fund similar strategic initiatives and such sales may result in realized gains or losses, depending on the value of the securities at the time ofliquidation.(Losses) Gains on Disposal of EquipmentDuring the year ended December 31, 2017, we incurred a loss of approximately $0.4 million related to the disposal of equipment. During the yearended December 31, 2016, we replaced certain data-center equipment. The replacement of the equipment was covered under our insurance and the cost of ourreplacement equipment was reimbursed by our insurance carrier. As a result, the disposal and replacement of the equipment resulted in a gain of $0.5 million.Interest Income2017 Compared with 2016. During the year ended December 31, 2017, interest income decreased by approximately $0.4 million, compared with theyear ended December 31, 2016. A portion of our available-for-sale short-term investments have been used to fund strategic initiatives and the sharerepurchase program. The decrease in our interest income was primarily attributable to the decline in the overall value of our available-for-sale short terminvestment portfolios that resulted in a decrease in earnings derived from our available-for-sale short-term investments.2016 Compared with 2015. During the year ended December 31, 2016, interest income increased by approximately $2.8 million, compared with theyear ended December 31, 2015. Our interest income is primarily attributable to an increase in earnings derived from our available-for-sale short-terminvestments.Interest ExpenseDuring the year ended December 31, 2017, interest expense increased by approximately $1.2 million, compared with the year ended December 31,2016. During the year ended December 31, 2016, interest expense increased by approximately $0.6 million, compared with the year ended December 31,2015. These increases were attributable to interest expense on our Term Loan Facility (as defined below, under the heading “Debt”).(Benefit from) Provision for Income Taxes2017 Compared with 2016. During the year ended December 31, 2017, provision for income taxes decreased by approximately $14.0 million, or119%, compared to the year ended December 31, 2016. Our effective tax rate for the year ended December 31, 2017 was approximately (7)%, resulting in abenefit from income tax, as compared to approximately 30% for the year ended December 31, 2016. The decrease in our provision for income taxes isprimarily due to a tax benefit of approximately $15.5 million recognized as a result of the Tax Act which was signed into law on December 22, 2017 and iseffective January 1, 2018. This tax benefit represents what we believe is a reasonable estimate of the impact of the income tax effects of the Tax Act in ourconsolidated statement of operations as of December 31, 2017 pending additional guidance.2016 Compared with 2015. During the year ended December 31, 2016, provision for income taxes decreased by approximately $36.9 million,compared with the year ended December 31, 2015. Approximately $32.2 million of the decrease was due to the corresponding decline in income beforetaxes; approximately $2.6 million of the decrease was attributable to acquisition related deferred tax adjustments; approximately $1.1 million of the decreasewas attributable to the realization of a tax deduction that arose under the payout of a contingent consideration, and approximately $0.9 million wasattributable to excess tax benefits, derived from exercises of stock options and vesting of restricted stock, recognized in conjunction with our early adoptionof the provisions of ASU 2016-09.45Table of ContentsQuarterly Financial InformationThe following tables show a summary of the Company’s quarterly financial information for each of the four quarters of 2017 and 2016 (in thousands,except per share amounts): 2017 Fourth Quarter Third Quarter Second Quarter First QuarterRevenue$114,619 $115,855 $110,578 $108,306Gross profit$77,487 $77,424 $73,380 $70,021Net income$17,449 $8,241 $5,486 $3,642Net income attributable to common stockholders$16,864 $7,968 $5,338 $3,569Basic net income per share(1)$0.12 $0.06 $0.04 $0.02Diluted net income per share(1)$0.12 $0.06 $0.04 $0.02 2016 Fourth Quarter Third Quarter Second Quarter First QuarterRevenue$96,093 $105,013 $123,825 $102,657Gross profit$57,494 $69,580 $80,611 $60,734Net income$681 $7,807 $16,251 $2,365Net income attributable to common stockholders$674 $7,771 $16,179 $2,356Basic net income per share(1)$— $0.05 $0.11 $0.02Diluted net income per share(1)$— $0.05 $0.11 $0.02_______________________________________(1)Basic and diluted earnings per share are computed independently for each of the quarters presented. Therefore, the sum of quarterly basic and diluted pershare information may not equal annual basic and diluted earnings per share.Liquidity and Capital ResourcesThe following table presents a summary of our cash flow activity for the periods set forth below (in thousands): Year Ended December 31, 2017 2016 2015Consolidated Statements of Cash Flows Data: Net income$34,818 $27,104 $66,063Net cash provided by operating activities$97,706 $92,830 $67,554Net cash provided by (used in) investing activities$106,559 $39,799 $(768,320)Net cash (used in) provided by financing activities$(123,004) $(118,980) $652,233Sources of LiquidityOur principal sources of liquidity have been cash generated by operating activities, proceeds from our initial public offering and proceeds from ourCredit Facilities. Our cash generated from such means has been sufficient to fund our growth, including our capital expenditures. As of December 31, 2017,our cash, cash equivalents and short-term investments totaled $476.2 million, of which $267.3 million represented short-term, available-for-sale, investmentgrade, domestic debt-securities, compared to $573.0 million of cash, cash equivalents, and short-term investments as of December 31, 2016, of which $445.3million represented short-term, available-for-sale, investment grade, domestic debt-securities. All cash held by the Company is domiciled in the UnitedStates.We believe our current cash, cash equivalents, and short-term investments balance, expected cash generated by operating activities and availability ofcash under our Credit Facilities are sufficient to fund our operations, finance our strategic initiatives, and fund our investment in innovation and new serviceofferings, for the foreseeable future. There can be no assurance that we will continue to generate cash flows at or above current levels or that we will be able tomaintain our ability to borrow under our Credit Facilities.On February 18, 2015, we completed our IPO of 22,222,222 shares of Class A common stock and, upon the underwriters’ exercise of their option topurchase additional shares, issued an additional 3,142,581 shares of Class A common stock for a total of 25,364,803 shares issued. All of the shares issued inthe IPO were primary shares offered by us as none of our stockholders46Table of Contentssold any shares in the IPO. The offering price of the shares sold in the IPO was $27.00 per share, resulting in net proceeds to us, after underwriters’ discountsand commissions and other expenses payable by us, of approximately $639.1 million.On May 4, 2016, the Company announced that our Board of Directors authorized a program to repurchase up to $100 million of Inovalon’s Class Acommon stock through December 31, 2016. Repurchases under the Company’s share repurchase program have been made in open-market or privatelynegotiated transactions. We funded repurchases through a combination of cash on hand, cash generated by operations and sales of short-term investments, asneeded. On November 2, 2016, we announced that our Board of Directors authorized an expansion of the share repurchase program to repurchase up to anadditional $100 million of shares of Inovalon’s Class A Common Stock (bringing the total to $200 million) through December 31, 2017. The sharerepurchase program did not obligate us to acquire any particular amount of Class A common stock. During the year ended December 31, 2017, the Companyrepurchased 7,111,190 Class A common shares for $93.6 million, at an average cost of $13.16 per share, excluding commissions. The share repurchaseprogram expired on December 31, 2017.DebtOn September 19, 2014, we entered into a Credit and Guaranty Agreement with a group of lenders including Goldman Sachs Bank USA, asadministrative agent (the “Credit Agreement”). The terms of the Credit Agreement provide for credit facilities in the aggregate maximum principal amount of$400.0 million, consisting of a senior unsecured term loan facility in the original principal amount of $300.0 million (the “Term Loan Facility”) and a seniorunsecured revolving credit facility in the maximum principal amount of $100.0 million (the “Revolving Credit Facility” and, together with the Term LoanFacility, the “Credit Facilities”).As of December 31, 2017, we had outstanding indebtedness under the Term Loan Facility and capital lease obligations of approximately $236.3million and approximately $12.4 million, respectively. No amounts were outstanding under the Revolving Credit Facility as of December 31, 2017 or 2016.The obligations under the Credit Facilities are guaranteed by our domestic, wholly owned subsidiaries. The Credit Facilities contain customary affirmativeand negative covenants, including limitations on negative pledges and liens. In addition, under the Credit Facilities we are required to maintain certainminimum liquidity levels, ($50.0 million while the Term Loan Facility remains available, or, if the Term Loan Facility has been repaid, $20.0 million),measured at the end of each our fiscal quarters. In addition, our ability to incur debt under the Credit Facilities is subject to compliance with a 4.00 to 1.00leverage ratio under certain circumstances. The Credit Agreement also contains certain mandatory prepayment requirements in connection with certain assetsales and customary events of default, including as a result of certain specified change of control events. The Term Loan Facility has a five-year term and isan amortizing facility with quarterly principal payments and monthly interest payments. Scheduled principal payments totaling $30.0 million and scheduledinterest payments totaling approximately $6.0 million were paid during the year ended December 31, 2017. The interest rate for the Term Loan Facility isLIBOR plus 1.25% per annum or the base rate plus 0.25% per annum (at our election). As of December 31, 2017, we were in compliance with the covenantsunder the Credit Agreement.Cash FlowsOperating Cash Flow ActivitiesCash provided by operating activities consisted of net income adjusted for certain non-cash items, including depreciation and amortization, stock-based compensation, and deferred income taxes, as well as the effect of changes in working capital and other activities.2017 Compared with 2016. Cash provided by operating activities during the year ended December 31, 2017 was approximately $97.7 million,representing an increase in cash inflow of approximately $4.9 million compared with the year ended December 31, 2016. Cash provided by operatingactivities was driven by net income of approximately $34.8 million, as adjusted for the exclusion of non-cash expenses totaling approximately $59.5 million,and approximately $3.4 million related to the effect of changes in working capital and other balance sheet accounts.2016 Compared with 2015. Cash provided by operating activities during the year ended December 31, 2016 was approximately $92.8 million,representing an increase in cash inflow of approximately $25.3 million compared with the year ended December 31, 2015. Cash provided by operatingactivities was driven by net income of approximately $27.1 million, as adjusted for the exclusion of non-cash expenses totaling approximately $48.4 million,and approximately $17.3 million related to the effect of changes in working capital and other balance sheet accounts.Investing Cash Flow ActivitiesWe make investments in innovation, including research and development expense, capital software development costs, and research and developmentinfrastructure investments, on a recurring basis. We expect our investment in innovation to increase in the foreseeable future to support our continued growthand new service offerings.47Table of Contents2017 Compared with 2016. Cash provided by investing activities during the year ended December 31, 2017 was approximately $106.6 millioncompared with approximately $39.8 million during the year ended December 31, 2016. Cash provided by investing activities was primarily due to proceedsgenerated from maturities of available-for-sale securities of approximately $174.4 million, partially offset by approximately $65.5 million of investments inproperty and equipment and capitalized software.2016 Compared with 2015. Cash provided by investing activities during the year ended December 31, 2016 was approximately $39.8 millioncompared with cash used in investing activities of approximately $768.3 million during the year ended December 31, 2015. The cash provided by investingactivities was primarily due to proceeds generated from approximately $167.3 million of sales and maturities of available-for-sale securities, net of purchases.The cash provided by investing activities was partially offset by approximately $88.5 million of our investment in Creehan, (net of cash acquired ofapproximately $0.9 million), and $39.0 million of our investments in property and equipment and capitalized software.Financing Cash Flow Activities2017 Compared with 2016. Cash used in financing activities during the year ended December 31, 2017 was approximately $123.0 million, comparedwith approximately $119.0 million during the year ended December 31, 2016. The cash used in financing activities during the year ended December 31,2017 was primarily due to approximately $93.6 million related to share repurchases and approximately $30.0 million for the repayment of Credit Facilityborrowings.2016 Compared with 2015. Cash used in financing activities during the year ended December 31, 2016 was approximately $119.0 million,compared with cash provided by financing activities of approximately $652.2 million during the year ended December 31, 2015. The cash used in financingactivities during the year ended December 31, 2016 was primarily comprised of approximately $106.2 million related to share repurchases, approximately$15.0 million for the repayment of Credit Facility borrowings, $2.3 million related to the payment of contingent consideration for an earn-out achieved byAvalere, approximately $1.5 million of tax payments related to equity award vesting events, and was offset by approximately $6.2 million of proceedsreceived from the exercise of stock options.Off Balance Sheet ArrangementsWe do not have any off-balance sheet arrangements and did not have any such arrangements during the years ended December 31, 2017, 2016, and2015.Contractual ObligationsOur principal commitments consist of obligations under our Term Loan Facility, purchase obligations, our operating leases for equipment, office space,and co-located data center facilities and our capital leases for office space. See Note 9, “Credit Facilities,” and Note 10, “Commitment and Contingencies,” ofthe notes to our audited consolidated financial statements included elsewhere in this Annual Report on Form 10-K. The following table summarizes ourfuture payments in cash, excluding the effects of time value, on contractual obligations by period as of December 31, 2017 (in thousands). Payments Due by Period Total Less than 1year 1 - 3 years 3 - 5 years More than 5yearsCredit facilities$236,250 $45,000 $191,250 $— $—Purchase obligation2,685 688 1,376 621 —Capital lease obligations12,445 448 1,955 2,031 8,011Operating lease obligations33,537 7,286 9,771 3,878 12,602Total$284,917 $53,422 $204,352 $6,530 $20,613We have cash interest requirements due on the Credit Facilities, payable at variable rates, that are not included in the table above.Our existing operating lease agreements may provide us with the option to renew. Our future operating lease obligations would change if we enteredinto additional operating lease agreements and if we exercised renewal options.Contractual obligations represent future cash commitments and liabilities under agreements with third parties, and exclude purchase orders for goodsand services. Purchase orders are not included in the table above. Our purchase orders represent authorizations to purchase rather than legally bindingagreements. The contractual commitment amounts in the table above are associated with agreements that are legally binding and enforceable, and thatspecify all significant terms, including fixed or minimum services to be used, fixed, minimum or variable price provisions and the approximate timing of thetransaction.48Table of ContentsCritical Accounting Policies and EstimatesWe prepare our consolidated financial statements in accordance with GAAP. The preparation of these consolidated financial statements requires us tomake estimates and assumptions that affect our reported amounts of assets, liabilities, revenue and expenses, as well as related disclosures. To the extent thatthere are material differences between these estimates and actual results, our financial condition or operating results would be affected. We base our estimateson past experience and other assumptions that we believe are reasonable under the circumstances, and we evaluate these estimates on an ongoing basis. Werefer to accounting estimates of this type as critical accounting policies and estimates, which we discuss further below.Our significant accounting policies are described in Note 2, “Summary of Significant Accounting Policies,” of the notes to our audited consolidatedfinancial statements, included elsewhere in this Annual Report on Form 10-K. The following are the accounting policies that we believe involve a greaterdegree of judgment and complexity and are the most critical to aid in fully understanding and evaluating our consolidated financial condition and results ofoperations.Revenue RecognitionWe recognize revenue when it is realized (or realizable) and earned (i.e., when services have been rendered or delivery of applicable deliverables hasoccurred). This occurs when persuasive evidence of an arrangement exists, the product or service has been performed or delivered, fees are fixed ordeterminable, and collection is reasonably assured. When collectability is not reasonably assured, revenue is recognized when cash is collected. Cashcollections and invoices generated in excess of revenue recognized are recorded as deferred revenue until the revenue recognition criteria are met.We have primarily derived our revenue from sales of our data analytics and data-driven intervention platform services. We allocate revenue to our data-driven analytics and data-driven intervention platform services using the relative selling price method. We have generally been unable to establish vendor-specific objective evidence of fair value and, while we continually seek third-party evidence of fair value, meaningful data have generally been unavailableas our services are unique and visibility into our competitors’ pricing is unavailable. As a result, we use our best estimate of selling price to allocatearrangement consideration to its contractual service elements.We have determined an estimated selling price by considering several external and internal factors, including, but not limited to pricing practices,profitability objectives, competition, customer demand, internal costs, and overall economic trends. Generally, the best estimate of selling price is consistentwith the contractual arrangement fee for each element.Revenue is recognized as cloud-based data analytics and data-driven intervention services are performed and information is delivered to clients, whichgenerally align with our right to invoice our clients. Cloud-based data analytics services are considered performed when gaps in care, quality, data integrity,or financial performance, and summarized key analytics and benchmarking analytics reports are delivered to its clients, provided that all contractualperformance requirements and other revenue recognition criteria are met. Cloud-based data-driven intervention services are considered performed uponcompletion, provided that all contractual performance requirements and other revenue recognition criteria are met.We also generate revenue from data-driven advisory services and recognize revenue for these services when persuasive evidence of an arrangementexists, services have been rendered, the contract price is fixed or determinable, and collectability is reasonably assured. We enter into arrangements for data-driven advisory services under time and materials, fixed-price, or retainer based contracts. Revenue for time and material contracts is recognized based uponcontractually agreed upon billing rates applied to direct labor hours expended plus the costs of other items used in the performance of the contract. Revenuesunder fixed-price and retainer-based contracts are recognized ratably over the contract period or upon contract completion. Invoices to clients are generatedin accordance with the terms of the applicable contract, which may not be directly related to the performance of services. Unbilled receivables are invoicedwhen the achievement of specific events as defined by each contract occurs. Unbilled receivables, if any, are classified as a current asset. Advanced billings toclients in excess of revenue earned are recorded as deferred revenue until the aforementioned revenue recognition criteria are met.We also enter into multiple-element software arrangements, which are recognized under ASC 985-605, Software Revenue Recognition, when a softwaresubscription license is provided to customers. Under these arrangements, we provide post-contract support, including help desk support and unspecifiedupgrades. Vendor-specific objective evidence of fair value has not been established for maintenance as maintenance is not renewed separately from thelicense fees. As a result, under these subscription software license agreements, we recognize revenue from the license of software ratably over the life of theagreement. We begin to recognize revenue upon execution of a signed agreement and delivery of the software, provided that the software license fees arefixed and determinable, and collection of the resulting receivable is reasonably assured.Certain of our arrangements entitle a client to receive a refund if we fail to satisfy contractually specified performance obligations. The refund is limitedto a portion or all of the consideration paid. In this case, revenue is recognized when any and all performance obligations are satisfied.49Table of ContentsWe maintain an allowance, charged to revenue, which reflects our estimated future billing adjustments resulting from client concessions or resolutionsof billing disputes. We believe that our approach and judgments applied to estimating our allowance is reasonable, actual results could differ, and we may beexposed to increases or decreases in revenue to the extent that actual results differ from our estimates.Stock-Based CompensationStock-based awards, including employee stock options, Restricted Stock Unit (“RSU”) and Restricted Stock Award (“RSA”) grants, including RSAswith performance conditions, are measured and recognized in the financial statements at fair value as of the grant date in accordance with ASC 718,Compensation—Stock Compensation. RSUs are share awards that, upon vesting, will deliver to the holder shares of the Company’s common stock. RSAs areshares of the Company’s common stock that are reserved in the grantee’s name upon grant which will be delivered to the holder upon vesting.We estimate the fair value of each RSU and RSA based on the fair market values of the underlying common stock on the dates of grant. Additionally,our performance-based RSAs have vesting conditions tied to the achievement of specified performance conditions, which have target performance levels thatspan from three to five years. Upon the conclusion of the performance period, the performance level achieved will be measured and the ultimate number ofshares that vest will be determined.We recognize stock-based compensation expense using the straight-line basis over the requisite service period of the applicable award, which isgenerally three to five years. Stock-based compensation expense for RSAs with performance conditions is recorded ratably over their vesting period,depending on the specific terms of the award and achievement of the specified performance conditions. We record adjustments related to forfeitures as theyoccur.Income TaxesWe account for income taxes using the asset and liability approach, which requires the recognition of deferred tax assets and liabilities related to theexpected future tax consequences of events that have been recognized between financial reporting and income tax reporting. We measure deferred tax assetsand liabilities using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered orsettled.We make estimates, assumptions and judgments to determine our provision for income taxes and also for deferred tax assets and liabilities and anyvaluation allowances recorded against our deferred tax assets. We assess the likelihood that our deferred tax assets will be recovered from future taxableincome and, to the extent we believe that recovery is not likely, we establish a valuation allowance.We account for uncertain tax positions in accordance with ASC 740-10, Accounting for Uncertainty in Income Taxes, that prescribes a recognitionthreshold of more-likely-than-not, and a measurement attribute for all tax positions taken or expected to be taken on a tax return, in order for those positionsto be recognized in the financial statements. We continually review tax laws, regulations and related guidance in order to properly record any uncertain taxliability positions. We adjust these reserves in light of changing facts and circumstances.As a result of the Tax Act, we revalued our ending net deferred tax liabilities at December 31, 2017 and recognized a $15.5 million tax benefit in theCompany’s consolidated statement of operations for the year ended December 31, 2017 pending additional guidance. Refer to Note 14, “Income Taxes,” ofthe notes to our audited consolidated financial statements, included elsewhere in this Annual Report on Form 10-K.We adopted ASU 2016-09 in the fourth quarter of 2016, which resulted in the modification of income tax consequences for several aspects of stock-based payment awards. Excess tax benefits and tax deficiencies for stock-based payments are now included in our tax provision expense rather thanadditional-paid-in-capital. Variability of tax consequences arising from excess tax benefits and tax deficiencies may result due to fluctuations in our stockprice and the volume of our employees’ equity awards that are exercised or vest.GoodwillGoodwill represents the excess of acquisition costs over the fair value of tangible net assets and identifiable intangible assets of businesses acquired.Goodwill is not amortized and is subject to impairment testing annually, or whenever events or changes in circumstances indicate that the carrying amountmay not be fully recoverable. In January 2017, the FASB issued ASU 2017-04, Intangibles—Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment. Thenew standard simplifies the subsequent measurement of goodwill by eliminating the second step of the goodwill impairment test. This ASU will be appliedprospectively and is effective for annual or interim goodwill impairment tests in fiscal years beginning after December 15, 2019. Early adoption is permittedfor interim or annual goodwill impairment tests performed on testing dates after January 1, 2017. The Company early adopted the requirements of the newstandard in the fourth quarter of 2017. As a result, the amendments modify the concept of impairment from the condition that50Table of Contentsexists when the carrying amount of goodwill exceeds its implied fair value to the condition that exists when the carrying amount of a reporting unit exceedsits fair value. If the fair value of the reporting unit exceeds the carrying value of the reporting unit, goodwill is not impaired. If the carrying value of thereporting unit exceeds the fair value of the reporting unit, then the Company will record an impairment loss in the amount equal to the difference between thefair value and the carrying value.The Company performs the goodwill impairment testing annually as of December 31st, or whenever events or changes in circumstances indicate thatthe carrying amount may not be fully recoverable. Significant judgment in testing goodwill for impairment includes assigning assets and liabilities to thereporting unit and assessing or determining the fair value of each reporting unit based on the Company’s best estimates and assumptions, as well as otherinformation including valuations that utilize customary valuation procedures and techniques. The Company tests its goodwill for impairment at the reportingunit level which is one level below the operating segment and has identified three reporting units: Inovalon, Avalere and Creehan.During 2017, the Company performed a qualitative assessment for the Inovalon reporting unit and concluded that it was not impaired. Qualitativefactors that were considered include, but were not limited to, macroeconomic conditions, industry and market conditions, company specific events, changesin circumstances, after tax cash flows and market capitalization.The Company elected to bypass the qualitative assessment and performed a quantitative assessment for its Avalere and Creehan reporting units andconcluded that these reporting units were not impaired. The Company employed a combined valuation approach that included the income approach usingthe discounted cash flow method, the market approach using the guideline public company method and the merger and acquisition method to value thereporting units. Critical estimates in determining the fair value of the reporting units include, but are not limited to, historical and projected customerretention rates, anticipated growth in revenue and earnings, and expected future cash outflows. Based on the Company’s annual impairment evaluationperformed as of December 31, 2017, the Company concluded that there was no impairment of goodwill.During 2016, the Company performed a qualitative assessment for the Inovalon and Creehan reporting units and concluded that they were notimpaired. Qualitative factors that were considered include, but were not limited to, macroeconomic conditions, industry and market conditions, companyspecific events, changes in circumstances, after tax cash flows and market capitalization.The Company performed the first step of the goodwill impairment test for the Avalere reporting and concluded that it was not impaired. The Companyemployed a combined valuation approach that included the income approach using the discounted cash flow method, the market approach using theguideline public company method and the merger and acquisition method to value the reporting units. Critical estimates in determining the fair value of thereporting units include, but are not limited to, historical and projected customer retention rates, anticipated growth in revenue and earnings, and expectedfuture cash outflows. Based on the Company’s annual impairment evaluation performed as of December 31, 2016, the Company concluded that there was noimpairment of goodwill.Business CombinationsBusiness combinations, which may include purchased intangible assets, are accounted for at fair value. Acquisition costs are expensed as incurred andrecorded in general and administrative expenses. Measurement period adjustments relate to information that we should have known at the time ofacquisition; these adjustments and any other changes to purchase accounting are included in earnings in the current period. The fair value amount assignedto intangible assets is based on an exit price from a market participant’s viewpoint, and utilizes data such as discounted cash flow analysis and replacementcost models. We review acquired intangible assets for impairment whenever events or changes in circumstances indicate that the carrying amount of suchassets may not be recoverable. Indefinite-lived intangible assets are reviewed for recoverability at least annually, or more frequently if indicators ofimpairment are present or changes in circumstances suggest that impairment may exist. Management’s best estimates and assumptions are employed indetermining the appropriateness of the assumptions used to derive acquisition date fair value. Future business and economic conditions, as well as differencesactually related to any of the assumptions, could materially impact the financial statements through impairment of goodwill or intangible assets, andacceleration of the amortization period of the purchased intangible assets, which are finite-lived assets.Recently Issued Accounting StandardsRecently issued accounting standards and their expected impact, if any, are discussed in Note 2, “Summary of Significant Accounting Policies,” of thenotes to our consolidated financial statements, included elsewhere within this Annual Report on Form 10-K.51Table of ContentsItem 7A. Quantitative and Qualitative Disclosures About Market Risk.Market risk includes risks that arise from changes in interest rates, equity prices and other market changes that affect market sensitive instruments. Ourprimary market risk exposure is related to changes in interest rates on our variable rate debt and marketable securities.Variable Rate Debt Risk. Our variable rate debt includes our Term Loan Facility and our Revolving Credit Facility. As of December 31, 2017, we had$236.3 million outstanding under our Term Loan Facility at an effective interest rate of 2.6%. As a result, if market interest rates were to increase by 1.0%, or100 basis points, interest expense would decrease future earnings and cash flows, net of estimated tax benefits, by approximately $1.3 million annually,assuming that we do not enter into contractual hedging arrangements. As of December 31, 2017, there was no balance outstanding on the Revolving CreditFacility.Marketable Securities Risk. We had short-term investment portfolios, including cash held in money market funds, totaling approximately $429.6million as of December 31, 2017. This amount was invested primarily in marketable securities including corporate notes and bonds, U.S. agency obligations,U.S. treasury securities and money market funds. Our investments are made for capital preservation purposes. We do not enter into investments for trading orspeculative purposes.Our short-term investments are subject to market risk due to changes in interest rates, which could affect our results of operations. A rise in interest ratesmay adversely affect the market value of fixed rate securities, while floating rate securities may produce less income than expected if interest rates fall. Due inpart to these factors, our future investment income may fluctuate due to changes in interest rates or we may suffer losses in principal if we are forced to sellsecurities that decline in market value due to changes in interest rates. However because we classify our marketable securities as “available-for-sale,” no gainsor losses are recognized due to changes in interest rates unless such securities are sold prior to maturity or declines in fair value are determined to be other-than-temporary.An immediate increase of 100-basis points in interest rates would have decreased the market value of our investment portfolio by approximately$0.8 million as of December 31, 2017. An immediate decrease of 100-basis points in interest rates would have increased the market value of our investmentportfolio by approximately $2.5 million as of December 31, 2017. This estimate is based on a sensitivity model that measures market value changes whenchanges in interest rates occur. Fluctuations in the value of our investment securities caused by a change in interest rates (gains or losses on the carryingvalue) are recorded in accumulated other comprehensive income (loss), and are realized only if we sell the underlying securities prior to their maturity.Item 8. Financial Statements and Supplementary Data.Our consolidated financial statements and supplementary data are included as a separate section of this Annual Report on Form 10-K commencing onpage F-1 and are incorporated herein by reference.The supplementary financial information required by this Item 8 is included in Item 7 under the caption “Quarterly Financial Information,” which isincorporated herein by reference.Item 9. Changes and Disagreements with Accountants on Accounting and Financial Disclosure.None.Item 9A. Controls and Procedures.Disclosure Controls and ProceduresOur management, with the participation of our chief executive officer (“CEO”) and chief financial officer (“CFO”), has evaluated the effectiveness ofour disclosure controls and procedures, (as defined in Rules 13a- 15(e) and 15d- 15(e) under the Exchange Act), as of the end of the period covered by thisAnnual Report on Form 10-K. Based on such evaluation, our CEO and CFO have concluded that, as of December 31, 2017, our disclosure controls andprocedures were designed at a reasonable assurance level to ensure that material information relating to Inovalon Holdings, Inc., including its consolidatedsubsidiaries, is made known to our CEO and CFO by others within those entities, particularly during the period in which this report was being prepared andthat our disclosure controls and procedures were effective in providing reasonable assurance that information we are required to disclose in reports that wefile or submit under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in the rules and forms of the SEC,and that such information is accumulated and communicated to our management, including our CEO and CFO, as appropriate, to allow timely decisionsregarding required disclosure.52Table of ContentsManagement’s Annual Report on Internal Control over Financial ReportingOur management, with the participation of our CEO and CFO, is responsible for establishing and maintaining adequate internal control over financialreporting (as defined in Rule 13a-15(f) under the Exchange Act). Our management conducted an assessment of the effectiveness of our internal control overfinancial reporting based on the criteria established in “Internal Control—Integrated Framework” (2013) issued by the Committee of SponsoringOrganizations of the Treadway Commission (COSO). Based on that assessment, which excluded the integration of our acquisition of CCS, management hasconcluded that our internal control over financial reporting was effective as of December 31, 2017.Our management, including our CEO and CFO, believes that our disclosure controls and procedures and internal control over financial reporting aredesigned to provide reasonable assurance of achieving their objectives and are effective at the reasonable assurance level. However, our management doesnot expect that our disclosure controls and procedures or our internal control over financial reporting will prevent all errors and all fraud. A control system,no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further,the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs.Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances offraud, if any, have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns canoccur because of a simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or morepeople or by management override of the controls. The design of any system of controls also is based in part upon certain assumptions about the likelihoodof future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions; over time,controls may become inadequate because of changes in conditions, or the degree of compliance with policies or procedures may deteriorate. Because of theinherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected.The effectiveness of the Company’s internal control over financial reporting as of December 31, 2017, has been audited by Deloitte & Touche LLP, anindependent registered public accounting firm, as stated in their report which appears in Part II, Item 8 of this Annual Report on Form 10-K.Changes in Internal Control over Financial ReportingThere have been no changes in the Company’s internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) of the ExchangeAct) during the year ended December 31, 2017 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control overfinancial reporting.Item 9B. Other Information.None.53Table of ContentsPART IIIItem 10. Directors, Executive Officers and Corporate Governance.The information required by this Item 10 will be included in the 2018 Proxy Statement and is incorporated herein by reference.Item 11. Executive Compensation.The information required by this Item 11 will be included in the 2018 Proxy Statement and is incorporated herein by reference.Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.The information required by this Item 12 will be included in the 2018 Proxy Statement and is incorporated herein by reference.Item 13. Certain Relationships and Related Transactions and Director Independence.The information required by this Item 13 will be included in the 2018 Proxy Statement and is incorporated herein by reference.Item 14. Principal Accounting Fees and Services.The information required by this Item 14 will be included in the 2018 Proxy Statement and is incorporated herein by reference.54Table of ContentsPART IVItem 15. Exhibits and Financial Statement Schedules.The following is a list of documents filed as a part of this report:(1)Financial Statements(2)Financial Statement Schedule(3)ExhibitsThe exhibits required to be filed by Item 601 of Regulation S-K are listed in the Exhibit Index contained within this Annual Report on Form 10-K.55Table of ContentsEXHIBIT INDEXExhibitNumber Description of Document3.1 Second Amended and Restated Certificate of Incorporation. (Incorporated by reference to Exhibit 3.1 to the Company’s RegistrationStatement on Form S-1/A dated February 6, 2015) 3.2 Second Amended and Restated Bylaws. (Incorporated by reference to Exhibit 3.2 to the Company’s Registration Statement on Form S-1/A dated February 6, 2015) 10.1 Form of Indemnification Agreement. (Incorporated by reference to Exhibit 10.1 to the Company’s Registration Statement on Form S-1dated December 30, 2014) 10.2 Inovalon, Inc. Amended and Restated Long-term Incentive Plan (as amended on October 7, 2010), as assumed by InovalonHoldings, Inc. (Incorporated by reference to Exhibit 10.2 to the Company’s Registration Statement on Form S-1 dated December 30,2014) 10.3 Form of Stock Option Agreement under the Amended and Restated Long- term Incentive Plan (as amended on October 7, 2010), asassumed by Inovalon Holdings, Inc. (Incorporated by reference to Exhibit 10.3 to the Company’s Registration Statement on Form S-1dated December 30, 2014) 10.4 Form of Restricted Stock Units Agreement under the Amended and Restated Long-term Incentive Plan (as amended on October 7, 2010),as assumed by Inovalon Holdings, Inc. (Incorporated by reference to Exhibit 10.4 to the Company’s Registration Statement on Form S-1dated December 30, 2014) 10.5 2015 Omnibus Incentive Plan. (Incorporated by reference to Exhibit 10.5 to the Company’s Registration Statement on Form S-1/A datedJanuary 29, 2015) 10.6 Form of Stock Option Award under the 2015 Omnibus Incentive Plan. (Incorporated by reference to Exhibit 10.6 to the Company’sRegistration Statement on Form S-1/A dated January 29, 2015) 10.7 Form of Restricted Stock Award under the 2015 Omnibus Incentive Plan. (Incorporated by reference to Exhibit 10.7 to the Company’sRegistration Statement on Form S-1/A dated January 29, 2015) 10.8 Form of Restricted Stock Unit Award under the 2015 Omnibus Incentive Plan. (Incorporated by reference to Exhibit 10.8 to theCompany’s Registration Statement on Form S-1/A dated January 29, 2015) 10.9 Form of Stock Option Award under the 2015 Omnibus Incentive Plan (Section 16 Grantees). (Incorporated by reference to Exhibit 10.9to the Company’s Registration Statement on Form S-1/A dated January 29, 2015) 10.10 Form of Restricted Stock Award under the 2015 Omnibus Incentive Plan (Section 16 Grantees). (Incorporated by reference toExhibit 10.10 to the Company’s Registration Statement on Form S-1/A dated January 29, 2015) 10.11 Form of Restricted Stock Unit Award under the 2015 Omnibus Incentive Plan (Section 16 Grantees). (Incorporated by reference toExhibit 10.11 to the Company’s Registration Statement on Form S-1/A dated January 29, 2015) 10.12 Form of Long-Term Incentive Restricted Stock Bonus Award. (Incorporated by reference to Exhibit 10.1 to the Company’s QuarterlyReport on Form 10-Q filed May 4, 2017) 10.13 Form of Non-Employee Director's Restricted Stock Unit Deferral Election Form. (Incorporated by reference to Exhibit 10.1 to theCompany’s Quarterly Report on Form 10-Q filed August 3, 2017) 10.14 Form of Restricted Stock Unit Award under the 2015 Omnibus Incentive Plan (Non-Employee Directors). (Incorporated by reference toExhibit 10.2 to the Company’s Quarterly Report on Form 10-Q filed August 3, 2017) 10.15 Employee Stock Purchase Plan. (Incorporated by reference to Exhibit 10.12 to the Company’s Registration Statement on Form S-1/Adated January 29, 2015) 10.16 Shareholders Voting Agreement, dated as of September 15, 2008, by and among Inovalon Holdings, Inc. and those persons identified onExhibit A thereto. (Incorporated by reference to Exhibit 10.13 to the Company’s Registration Statement on Form S-1 datedDecember 30, 2014) 10.17 Credit and Guaranty Agreement, dated as September 19, 2014 by and among Inovalon Holdings, Inc., certain subsidiaries of InovalonHoldings, Inc., as guarantors, various lenders, Goldman Sachs Bank USA, as joint lead arranger and joint lead book runner, andGoldman Sachs Bank USA, as administrative agent. (Incorporated by reference to Exhibit 10.14 to the Company’s RegistrationStatement on Form S-1 dated December 30, 2014) 56Table of ContentsExhibitNumber Description of Document10.18 Second Amended and Restated Stockholders Rights Agreement, dated as of September 15, 2014, by and among Inovalon Holdings, Inc.and certain of its stockholders. (Incorporated by reference to Exhibit 10.15 to the Company’s Registration Statement on Form S-1/Adated January 29, 2015) 10.19 Amended and Restated Employment Agreement, dated December 3, 2014, by and between Inovalon, Inc. and Dr. Keith R. Dunleavy.(Incorporated by reference to Exhibit 10.16 to the Company’s Registration Statement on Form S-1/A dated January 29, 2015) 10.20 Amended and Restated Employment Agreement, dated December 3, 2014, by and between Inovalon, Inc. and Robert A. Wychulis.(Incorporated by reference to Exhibit 10.17 to the Company’s Registration Statement on Form S-1/A dated January 29, 2015) 10.21 Executive Separation Agreement and Release, dated April 27, 2017, by and between Inovalon Holdings, Inc. and Joseph R. Rostock.(Incorporated by reference to Exhibit 10.3 to the Company’s Quarterly Report on Form 10-Q filed August 3, 2017) 10.22* Employment Agreement, dated November 14, 2017, by and between Inovalon Holdings, Inc. and June D. Duchesne. 10.23* Executive Separation Agreement and Release, dated December 13, 2017, by and between Inovalon Holdings, Inc. and Shauna L. Vernal. 10.24* Indemnification Agreement, dated January 1, 2018, by and between Inovalon Holdings, Inc. and June D. Duchesne. 21.1* Subsidiaries of the Registrant. 23.1* Consent of Deloitte & Touche LLP. 31.1* Certification of Chief Executive Officer pursuant to Rule 13a- 14(a)/15d-14(a) of the Securities Exchange Act of 1934, as amended, asadopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. 31.2* Certification of Chief Financial Officer pursuant to Rule 13a- 14(a)/15d-14(a) of the Securities Exchange Act of 1934, as amended, asadopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. 32.1** Certification of Chief Executive Officer pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of2002. 32.2** Certification of Chief Financial Officer pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of2002. 101.INS* XBRL Instance Document 101.SCH* XBRL Taxonomy Extension Schema 101.CAL* XBRL Taxonomy Extension Calculation Linkbase 101.DEF* XBRL Taxonomy Extension Definition Linkbase 101.LAB* XBRL Taxonomy Extension Label Linkbase 101.PRE* XBRL Taxonomy Extension Presentation Linkbase_______________________________________* Filed herewith.** This certification is deemed not filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended (Exchange Act), or otherwise subjectto the liability of that section, nor shall it be deemed incorporated by reference into any filing under the Securities Act of 1933, as amended (Securities Act),or the Exchange Act.57Table of ContentsSIGNATURESPursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on itsbehalf by the undersigned, thereunto duly authorized. Date:February 21, 2018INOVALON HOLDINGS, INC. By: /s/ KEITH R. DUNLEAVY, M.D. Keith R. Dunleavy, M.D Chief Executive Officer & Chairman (Principal Executive Officer)Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrantand in the capacities and on the dates indicated.Signature Title Date /s/ KEITH R. DUNLEAVY, M.D. Chief Executive Officer & Chairman (principal executiveofficer) February 21, 2018Keith R. Dunleavy, M.D. /s/ CHRISTOPHER E. GREINER Chief Financial & Operating Officer (principal financialofficer & principal accounting officer) February 21, 2018Christopher E. Greiner /s/ DENISE K. FLETCHER Director February 21, 2018Denise K. Fletcher /s/ WILLIAM D. GREEN Director February 21, 2018William D. Green /s/ ANDRÉ S. HOFFMANN Director February 21, 2018André S. Hoffmann /s/ LEE D. ROBERTS Director February 21, 2018Lee D. Roberts /s/ WILLIAM J. TEUBER Director February 21, 2018William J. Teuber 58Table of ContentsINOVALON HOLDINGS, INC.INDEX TO CONSOLIDATED FINANCIAL STATEMENTS Report of Independent Registered Public Accounting FirmF-2Consolidated Balance Sheets as of December 31, 2017 and 2016F-4Consolidated Statements of Operations for the years ended December 31, 2017, 2016, and 2015F-5Consolidated Statements of Comprehensive Income for the years ended December 31, 2017, 2016, and2015F-6Consolidated Statements of Stockholders’ Equity (Deficit) for the years ended December 31, 2017, 2016,and 2015F-7Consolidated Statements of Cash Flows for the years ended December 31, 2017, 2016, and 2015F-8Notes to Consolidated Financial StatementsF-9Consolidated Financial Statement ScheduleF-35F-1Table of ContentsREPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRMTo the Shareholders and the Board of Directors ofInovalon Holdings, Inc.Bowie, MDOpinion on the Financial StatementsWe have audited the accompanying consolidated balance sheets of Inovalon Holdings, Inc. and subsidiaries (the "Company") as of December 31, 2017 and2016, the related consolidated statements of operations, comprehensive income, stockholders' equity (deficit), and cash flows, for each of the three years inthe period ended December 31, 2017, and the related notes (collectively referred to as the "financial statements”). In our opinion, the financial statementspresent fairly, in all material respects, the financial position of the Company as of December 31, 2017 and 2016, and the results of its operations and its cashflows for each of the three years in the period ended December 31, 2017, in conformity with accounting principles generally accepted in the United States ofAmerica.We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company'sinternal control over financial reporting as of December 31, 2017, based on criteria established in Internal Control - Integrated Framework (2013) issued bythe Committee of Sponsoring Organizations of the Treadway Commission and our report dated February 21, 2018, expressed an unqualified opinion on theCompany's internal control over financial reporting.Basis for OpinionThese financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's financialstatements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Companyin accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonableassurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing proceduresto assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks.Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also includedevaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financialstatements. We believe that our audits provide a reasonable basis for our opinion./s/ DELOITTE & TOUCHE LLPMcLean, VirginiaFebruary 21, 2018We have served as the Company's auditor since 2007.F-2Table of ContentsREPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRMTo the Shareholders and the Board of Directors ofInovalon Holdings, Inc.Bowie, MDOpinion on Internal Control over Financial ReportingWe have audited the internal control over financial reporting of Inovalon Holdings, Inc. and subsidiaries (the "Company") as of December 31, 2017, based oncriteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission(COSO). In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2017, basedon criteria established in Internal Control - Integrated Framework (2013) issued by COSO.We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidatedfinancial statements as of and for the year ended December 31, 2017 of the Company and our report dated February 21, 2018, expressed an unqualifiedopinion on those financial statements.Basis for OpinionThe Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness ofinternal control over financial reporting, included in the accompanying Management's Annual Report on Internal Control over Financial Reporting. Ourresponsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firmregistered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and theapplicable rules and regulations of the Securities and Exchange Commission and the PCAOB.We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonableassurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining anunderstanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operatingeffectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. Webelieve that our audit provides a reasonable basis for our opinion.Definition and Limitations of Internal Control over Financial ReportingA company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reportingand the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal controlover financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairlyreflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permitpreparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are beingmade only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention ortimely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation ofeffectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliancewith the policies or procedures may deteriorate./s/ DELOITTE & TOUCHE LLPMcLean, VirginiaFebruary 21, 2018F-3Table of ContentsInovalon Holdings, Inc.Consolidated Balance Sheets(in thousands, except share amounts) December 31, 2017 2016ASSETS Current assets: Cash and cash equivalents$208,944 $127,683Short-term investments267,288 445,315Accounts receivable (net of allowances of $2,038 and $3,782 at December 31, 2017 and 2016,respectively)90,054 85,591Prepaid expenses and other current assets10,441 12,100Income tax receivable11,987 15,165Total current assets588,714 685,854Non-current assets: Property, equipment and capitalized software, net125,768 76,420Goodwill184,932 184,557Intangible assets, net89,326 103,549Other assets6,338 2,964Total assets$995,078 $1,053,344LIABILITIES AND STOCKHOLDERS’ EQUITY Current liabilities: Accounts payable$34,109 $16,474Accrued compensation18,592 15,211Other current liabilities15,277 9,468Deferred revenue6,954 11,850Deferred rent1,818 1,016Credit facilities45,000 30,000Capital lease obligation336 115Total current liabilities122,086 84,134Non-current liabilities: Credit facilities, less current portion191,250 236,250Capital lease obligation, less current portion12,109 215Deferred rent219 1,457Other liabilities— 13,158Deferred income taxes26,642 34,553Total liabilities352,306 369,767Commitments and contingencies (Note 10) Stockholders’ equity: Common stock, $0.000005 par value, 900,000,000 shares authorized, zero shares issued andoutstanding at each of December 31, 2017 and 2016, respectively— —Class A common stock, $0.000005 par value, 750,000,000 shares authorized; 77,588,018 sharesissued and 62,967,843 shares outstanding at December 31, 2017; 72,271,298 shares issued and64,786,705 shares outstanding at December 31, 2016— —Class B common stock, $0.000005 par value, 150,000,000 shares authorized; 80,957,495 sharesissued and outstanding at December 31, 2017; 83,303,628 shares issued and outstanding atDecember 31, 20161 1Preferred stock, $0.0001 par value, 100,000,000 shares authorized, zero shares issued and outstandingat December 31, 2017 and 2016, respectively— —Additional paid-in-capital534,159 516,300Retained earnings308,905 274,087Treasury stock, at cost, 14,620,175 and 7,508,985 shares at December 31, 2017 and 2016,respectively(199,817) (106,231)Other comprehensive loss, net of tax(476) (580)Total stockholders’ equity642,772 683,577Total liabilities and stockholders’ equity$995,078 $1,053,344See notes to consolidated financial statements.F-4Table of ContentsInovalon Holdings, Inc.Consolidated Statements of Operations(In thousands, except per share amounts) Year Ended December 31, 20172016 2015Revenue$449,358 $427,588 $437,271Expenses: Cost of revenue(1)151,046 159,169 146,140Sales and marketing(1)34,103 27,078 14,684Research and development(1)27,383 29,148 22,329General and administrative(1)149,948 137,275 115,029Depreciation and amortization53,089 37,284 22,633Total operating expenses415,569 389,954 320,815Income from operations33,789 37,634 116,456Other income and (expenses): Realized gains (losses) on short-term investments— 4 (328)(Loss) Gain on disposal of equipment(406) 534 —Interest income5,429 5,792 3,003Interest expense(6,225) (5,065) (4,420)Income before taxes32,587 38,899 114,711(Benefit from) Provision for income taxes(2,231) 11,795 48,648Net income$34,818 $27,104 $66,063Net income attributable to common stockholders, basic and diluted$33,828 $26,943 $66,014Net income per share attributable to common stockholders, basic and diluted: Basic net income per share$0.24 $0.18 $0.45Diluted net income per share$0.24 $0.18 $0.45Weighted average shares of common stock outstanding: Basic142,225 150,048 145,745Diluted142,737 150,955 148,275_______________________________________(1) Includes stock-based compensation expense as follows: Cost of revenue$1,652 $483 $164Sales and marketing2,011 613 173Research and development1,293 1,184 1,212General and administrative12,362 7,774 5,866Total stock-based compensation expense$17,318 $10,054 $7,415See notes to consolidated financial statements.F-5Table of ContentsInovalon Holdings, Inc.Consolidated Statements of Comprehensive Income(In thousands) Year Ended December 31, 2017 2016 2015Net income$34,818 $27,104 $66,063Other comprehensive income (loss): Realized (gains) losses on short-term investments reclassified from accumulated othercomprehensive income, net of tax of $0, $4 and $(139), respectively— (6) 191Net change in unrealized gains and (losses) on available-for-sale investments, net of tax of$(94), $(682) and $1,269, respectively104 1,008 (1,773)Comprehensive income$34,922 $28,106 $64,481See notes to consolidated financial statements.F-6Table of ContentsInovalon Holdings, Inc.Consolidated Statements of Stockholders’ Equity (Deficit)(in thousands, except share amounts) Issued Class A CommonStock Issued Class B CommonStock Treasury Stock AdditionalPaid-inCapital RetainedEarnings AccumulatedOtherComprehensiveLoss TotalStockholders’Equity(Deficit) Shares Amount Shares Amount Shares Amount Balance—January 1, 2015 11,109,285 $— 122,257,145 $1 (11,109,285) $(300,017) $110,317 $181,477 $— $(8,222)Issuance of common stockupon initial public offering,net of offering costs 14,255,518 — — — — — 359,170 — — 359,170Issuance of treasury stockupon initial public offering,net of offering costs — — — — 11,109,285 300,017 (20,115) — — 279,902Stock-based compensationexpense — — — — — — 7,259 — — 7,259Issuance of common stockrelated to businesscombination 235,737 — — — — — 3,847 — — 3,847Exercise of stock options — — 3,222,201 — — — 14,652 — — 14,652Tax benefit from exercise ofnon-qualified stock options — — — — — — 18,608 — — 18,608Conversion Class B to Class Acommon stock 27,313,057 — (27,313,057) — — — — — — —Issuance of shares forEmployee Stock PurchasePlan 30,689 — — — — — 8 — — 8Issuance of shares related torestricted stock units 538,383 — 94,784 — — — — — — —Shares withheld for employeetaxes upon conversion ofrestricted stock units — — (30,710) — — — (549) — — (549)Other comprehensive loss — — — — — — — — (1,582) (1,582)Net income — — — — — — — 66,063 — 66,063Balance—December 31, 2015 53,482,669 $— 98,230,363 $1 — $— $493,197 $247,540 $(1,582) 739,156Adjustment to adopt ASU2016-09 — — — — — — 757 (557) — 200Repurchase of common stock — — — — (7,508,985) (106,231) — — — (106,231)Stock-based compensationexpense — — — — — — 9,914 — — 9,914Issuance of common stockrelated to businesscombination 651,355 — — — — — 7,764 — — 7,764Exercise of stock options 660,156 — 158,753 — — — 6,200 — — 6,200Conversion Class B to Class Acommon stock 15,085,488 — (15,085,488) — — — — — — —Issuance of shares forEmployee Stock PurchasePlan — — — — — — (34) — (34)Issuance of shares related torestricted stock units andawards 2,453,593 — — — — — — — — —Shares withheld for employeetaxes upon conversion ofrestricted stock (61,963) — — — — — (1,498) — — (1,498)Other comprehensive loss — — — — — — — — 1,002 1,002Net income — — — — — — — 27,104 — 27,104Balance—December 31, 2016 72,271,298 $— 83,303,628 $1 (7,508,985) $(106,231) $516,300 $274,087 $(580) $683,577Repurchase of common stock — — — — (7,111,190) (93,586) — — — (93,586)Stock-based compensationexpense — — — — — — 17,164 — — 17,164Exercise of stock options 654,035 — 6,833 — — — 4,967 — — 4,967Conversion Class B to Class Acommon stock 2,352,966 — (2,352,966) — — — — — — —Issuance of shares related torestricted stock units andawards 2,546,426 — — — — — — — — —Shares withheld for employeetaxes upon conversion ofrestricted stock (236,707) — — — — — (4,272) — — (4,272)Other comprehensive loss — — — — — — — — 104 104Net income — — — — — — — 34,818 — 34,818Balance—December 31, 2017 77,588,018 $— 80,957,495 $1 (14,620,175) $(199,817) $534,159 $308,905 $(476) $642,772See notes to consolidated financial statements.F-7Table of ContentsInovalon Holdings, Inc.Consolidated Statements of Cash Flows(in thousands) Year Ended December 31, 2017 2016 2015Cash flows from operating activities: Net income$34,818 $27,104 $66,063Adjustments to reconcile net income to net cash provided by operating activities: Stock-based compensation expense17,318 10,054 7,415Depreciation37,853 28,078 19,221Amortization of intangibles15,236 9,206 3,412Amortization of premiums or discounts on short-term investments1,958 3,163 2,212Realized (gains) losses on short-term investments— (4) 328Tax payments for equity award issuances— 127 697Deferred income taxes(6,665) (1,740) 5,786Excess tax benefits from stock-based compensation— — (18,608)Loss (Gain) on disposal of equipment and long-lived assets406 (534) 52Change in fair value of contingent consideration(5,200) 706 —Bargain purchase gain(1,434) — —Bad debt expense— 79 —Changes in assets and liabilities: Accounts receivable(977) 4,683 (24,475)Prepaid expenses and other current assets3,346 (6,198) (1,110)Income taxes receivable3,293 3,639 7,825Other assets(3,355) 4,071 (1,776)Accounts payable8,252 (3,463) 4,474Accrued compensation3,030 243 (6,178)Other liabilities(5,373) 10,479 2,788Deferred rent(440) (770) (575)Deferred revenue(4,360) 3,907 3Net cash provided by operating activities97,706 92,830 67,554Cash flows from investing activities: Acquisition, net of cash acquired of $1,535, $861 and $4,037, respectively(3,490) (88,509) (114,718)Escrow funding associated with acquisition— — (7,875)Maturities of short-term investments174,416 300,524 177,723Sales of short-term investments1,175 31,549 166,930Purchases of short-term investments— (164,737) (964,037)Purchases of property and equipment(32,565) (19,360) (6,486)Investment in capitalized software(32,977) (19,668) (19,951)Proceeds from sale of property and equipment— — 94Net cash provided by (used in) investing activities106,559 39,799 (768,320)Cash flows from financing activities: Proceeds from issuance of common stock, net of underwriters’ discount— — 362,082Proceeds from issuance of treasury stock, net of underwriters’ discount— — 282,172Payment of offering costs— — (5,182)Repurchase of common stock(93,586) (106,231) —Repayment of credit facility borrowings(30,000) (15,000) (18,750)Acquisition-related contingent consideration— (2,300) —Proceeds from exercise of stock options4,967 6,165 14,660Capital lease obligations paid(113) (116) (112)Tax payments for equity award issuances(4,272) (1,498) (1,245)Excess tax benefits from stock-based compensation— — 18,608Net cash (used in) provided by financing activities(123,004) (118,980) 652,233Increase (decrease) in cash and cash equivalents81,261 13,649 (48,533)Cash and cash equivalents, beginning of period127,683 114,034 162,567Cash and cash equivalents, end of period$208,944 $127,683 $114,034Supplemental cash flow disclosure: Cash paid during the year for: Income taxes, net of refunds$962 $11,117 $35,038Interest5,972 4,835 4,359Non-cash investing activities: Capital lease obligations incurred12,231 — 249Accruals of purchases of property, equipment7,924 816 3,189Accruals for investment in capitalized software2,711 913 567See notes to consolidated financial statements.F-8Table of ContentsInovalon Holdings, Inc.Notes to Consolidated Financial Statements1. NATURE OF OPERATIONSInovalon Holdings, Inc., (the “Company”), is a leading technology company providing cloud-based platforms empowering a data-driventransformation from volume-based to value-based models throughout the healthcare industry. Through the Inovalon ONE™ Platform, Inovalon brings to themarketplace a national-scale capability to interconnect with the healthcare ecosystem on a very large scale, aggregate and analyze data in petabyte volumesto arrive at sophisticated insights in real-time, drive impact wherever it is analytically identified best to intervene, and intuitively visualize data andinformation to inform business strategy and execution. Leveraging its platform capabilities, large proprietary data sets, and industry-leading subject matterexpertise, Inovalon enables the assessment and improvement of clinical and quality outcomes and financial performance across the healthcare ecosystem.From health plans and provider organizations, to pharmaceutical, medical device, and diagnostics companies, Inovalon’s unique achievement of value isdelivered through the effective progression of “Turning Data into Insight, and Insight into Action®.”On September 17, 2014, Inovalon, Inc. implemented a holding company reorganization, pursuant to which Inovalon Holdings, Inc. (together with itswholly owned subsidiaries, Inovalon or the Company) became the new parent company of Inovalon, Inc. and Inovalon, Inc. became the direct, wholly ownedsubsidiary of the Company. The Company was incorporated in the state of Delaware on September 11, 2014. Inovalon, Inc. was incorporated in the state ofDelaware on November 18, 2005. The impact of the holding company reorganization is retrospectively presented in the accompanying consolidatedfinancial statements by recognizing the entity as Inovalon Holdings, Inc. The consolidated balance sheet and consolidated statement of stockholders’ equity(deficit) depict the authorized classes of stock. Additionally, earnings per share is calculated based upon the authorized, issued and outstanding shares ofClass A and Class B common stock (refer to Notes 4 and 13 for additional information). On January 14, 2015, the Company’s board of directors approved afive-for-one stock split of the Company’s Class A common stock and Class B common stock. Effective January 16, 2015 the Company amended its certificateof incorporation to give effect to the stock split and to change the Company’s authorized common equity capital to 900,000,000 shares of common stock,750,000,000 shares of Class A common stock, and 150,000,000 shares of Class B common stock, par value $0.000005 per share. All share data included inthese financial statements give retroactive effect to the stock split and related amendment to the Company’s certificate of incorporation.2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIESPrinciples of Consolidation—The accompanying consolidated financial statements include the accounts of Inovalon Holdings, Inc. and its whollyowned subsidiaries. All intercompany accounts and transactions have been eliminated in consolidation.Basis of Presentation and Use of Estimates—These consolidated financial statements have been prepared in accordance with United States GenerallyAccepted Accounting Principles (“GAAP”). The preparation of consolidated financial statements in conformity with GAAP requires management to makeestimates and assumptions that affect the reported amounts of assets and liabilities, disclosures of contingent assets and liabilities as of the date of thefinancial statements, and the reported amounts of revenue and expenses during the reported period. Certain prior period amounts have been reclassified onthe statements of stockholders' equity, within the operating section of the statements of cash flows, and within the investing section of the statements of cashflows to conform with current period presentation. Such reclassifications had no impact on total equity, net cash provided by operating activities or net cashprovided by (used in) investing activities as previously reported.Significant estimates made by management include, but are not limited to: revenue recognition, including selling prices associated with the individualelements in multiple element arrangements; accounts receivable allowances; estimates of the fair value of stock-based awards; fair value of intangibles andgoodwill; depreciable lives of property, equipment and capitalized software; and useful lives of intangible assets. Actual results could differ frommanagement’s estimates, and such differences could be material to the Company’s consolidated financial position and results of operations.Cash and Cash Equivalents—Cash and cash equivalents consist of highly liquid investments with an original maturity of three months or less at thetime of purchase, and demand deposits with financial institutions.Short-term investments—Short-term investments consists of investment grade debt securities. The Company classifies short-term investments asavailable-for-sale at the time of purchase and reevaluates such classification as of each balance sheet date. All short-term investments are recorded atestimated fair value. Unrealized gains and losses for available-for-sale securities are included in accumulated other comprehensive loss, a component ofstockholders’ equity. The Company evaluates its investments to assess whether those with unrealized loss positions are other than temporarily impaired.Impairments are considered to be other-than-temporary if they are related to deterioration in credit risk, if it is more likely than not that the Company will berequired to sell or intends to sell the securities before the recovery of their cost basis. Realized gains andF-9Table of ContentsInovalon Holdings, Inc.Notes to Consolidated Financial Statements (Continued)2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)losses and declines in value judged to be other than temporary are determined based on the specific identification method and are reported as components ofother income and (expenses), in the consolidated statements of operations. Interest, amortization of premiums, and accretion of discount on short-terminvestments classified as available for sale are included as a component of interest income, in the consolidated statements of operations. There were no other-than-temporary impairments during 2017.The Company may sell short-term investments at any time, without significant penalty, for use in current operations or for other purposes, even if theshort-term investments have not yet reached maturity. As a result, the Company classifies these investments, including securities with maturities beyond 12months, as current assets in the accompanying consolidated balance sheets. Gains or losses realized from the sale of securities are reclassified out of othercomprehensive income (loss) into earnings using the specific identification method.Concentrations of Credit Risk—Accounts receivable and cash and cash equivalents subject the Company to its highest potential concentrations ofcredit risk. Although the Company deposits its cash and cash equivalents with multiple financial institutions, the Company’s deposits may exceed federallyinsured limits. The Company has not experienced any losses on cash and cash equivalent accounts to date, and management believes the Company is notexposed to any significant credit risk related to cash and cash equivalents.The Company sells services to clients without requiring collateral, based on an evaluation of the client’s financial condition. Exposure to losses onreceivables is principally dependent on each client’s financial condition. The Company monitors its exposure for credit losses and maintains allowances foranticipated losses.Revenue from a significant client, representing 10% or more of total revenue for the respective periods, is summarized as follows: Year Ended December 31, 2017 2016 2015Client A12% 17% 12%Accounts receivable from a significant client, representing 10% or more of total accounts receivable for the respective dates, is summarized below: December 31, 2017 2016Client A* 14%_______________________________________*Less than 10%Accounts Receivable and Allowances—Accounts receivable consists primarily of amounts due to the Company from its normal business activities. TheCompany provides an allowance for estimated losses resulting from the failure of clients to make required payments (credit losses) and a sales allowance forestimated future billing adjustments resulting from client concessions or resolutions of billing disputes. The provision for sales allowances are chargedagainst revenue while credit losses are recorded in general and administrative expenses.Fair Value Measurements—The Company applies the Accounting Standards Codifications (“ASC”) 820-10, Fair Value Measurements andDisclosures. ASC 820-10 defines fair value, establishes a fair value hierarchy for assets and liabilities measured at fair value, and expands required disclosuresabout fair value measurements. This guidance requires the Company to classify and disclose assets and liabilities measured at fair value on a recurring basis,as well as fair value measurements of assets and liabilities measured on a nonrecurring basis in periods subsequent to initial measurement, in a three-tier fairvalue hierarchy as described below.The guidance defines fair value as the exchange price that would be received for an asset or paid to transfer a liability in the principal or mostadvantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. Valuation techniques used tomeasure fair value must maximize the use of observable inputs and minimize the use of unobservable inputs. The guidance describes three levels of inputsthat may be used to measure fair value:Level 1—Financial assets and liabilities whose values are based on quoted prices (unadjusted) in active markets for identical assets or liabilities thatthe reporting entity can access at the measurement date.F-10Table of ContentsInovalon Holdings, Inc.Notes to Consolidated Financial Statements (Continued)2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)Level 2—Financial assets and liabilities whose values are based on inputs other than quoted prices included within Level 1 that are observable forthe asset or liability, either directly or indirectly.Level 3—Financial assets and liabilities whose values are based on unobservable inputs for the asset or liability.The carrying amounts of accounts receivable, other current assets, accounts payable, and accrued liabilities approximate fair value due to their short-term nature. The Company’s Credit Facilities (as defined in Note 9) approximate fair value because of their floating rate structure.Property, Equipment and Capitalized Software, net—Property and equipment are stated at cost, less accumulated depreciation and amortization.Depreciation and amortization on property, leasehold improvements, equipment, and software is computed on a straight-line basis over the estimated usefullives of the assets, as follows: Useful LifeOffice and computer equipment3 - 5 yearsPurchased software5 yearsCapitalized software3 - 5 yearsFurniture and fixtures7 yearsBuilding*Leasehold improvements*Assets under capital leases*_______________________________________*Lesser of lease term or economic lifeExpenses for repairs and maintenance that do not extend the life of property and equipment are expensed as incurred. Expenses for major renewals andbetterments, which significantly extend the useful lives of existing property and equipment, are capitalized and depreciated. Upon retirement or dispositionof property and equipment, the cost and related accumulated depreciation are removed from the accounts and any resulting gain or loss is recognized.In accordance with ASC 350-40, Internal-use Software, the Company capitalizes certain software development costs while in the applicationdevelopment stage related to software developed for internal use. All other costs to develop software for internal use, either in the preliminary project stage orpost implementation stage, are expensed when incurred. Software development costs are amortized on a straight-line basis over a three to five year period,which management believes represents the useful life of these capitalized costs.In accordance with ASC 985-20, Software to be Sold, Leased, or Marketed, certain software development costs are expensed as incurred untiltechnological feasibility has been established. Thereafter, all software development costs incurred through the software’s general release date are capitalizedand subsequently reported at the lower of amortized cost or net realizable value. Capitalized costs are amortized based on current and expected futurerevenue for each software solution with minimum annual amortization equal to the straight-line amortization over the estimated economic life, which istypically over a three to five year period.Intangible Assets—Intangible assets consist of acquired technology, including developed and core technology, databases, trade names, and customerrelationships. Intangible assets are initially recorded at fair value and amortized on a straight line basis over their estimated useful lives. Acquired intangibleassets are being amortized over the following periods: Useful LifeProprietary software technology3 - 10 yearsTrademark3 - 10 yearsDatabase10 yearsCustomer relationships8 - 15.75 yearsNon-compete agreementsContractual termIn-process research and developmentIndefiniteOn an annual basis, the Company reviews its intangible assets for impairment based on estimated future undiscounted cash flows attributable to theassets. In the event such cash flows are not expected to be sufficient to recover the recorded valueF-11Table of ContentsInovalon Holdings, Inc.Notes to Consolidated Financial Statements (Continued)2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)of the assets, the assets are written down to their net realizable values. There were no impairment charges on intangible assets for the years endedDecember 31, 2017 and 2016.Goodwill—Goodwill represents the excess of acquisition costs over the fair value of tangible net assets and identifiable intangible assets of businessesacquired. Goodwill is not amortized and is subject to impairment testing annually, or whenever events or changes in circumstances indicate that the carryingamount may not be fully recoverable. In January 2017, the FASB issued Accounting Standards Update (“ASU”) 2017-04, Intangibles—Goodwill and Other (Topic 350): Simplifying the Testfor Goodwill Impairment. The new standard simplifies the subsequent measurement of goodwill by eliminating the second step of the goodwill impairmenttest. This ASU will be applied prospectively and is effective for annual or interim goodwill impairment tests in fiscal years beginning after December 15,2019. Early adoption is permitted for interim or annual goodwill impairment tests performed on testing dates after January 1, 2017. The Company earlyadopted the requirements of the new standard in the fourth quarter of 2017. As a result, the amendments modify the concept of impairment from the conditionthat exists when the carrying amount of goodwill exceeds its implied fair value to the condition that exists when the carrying amount of a reporting unitexceeds its fair value. If the fair value of the reporting unit exceeds the carrying value of the reporting unit, goodwill is not impaired. If the carrying value ofthe reporting unit exceeds the fair value of the reporting unit, then the Company will record an impairment loss in the amount equal to the difference betweenthe fair value and the carrying value.The Company performs the goodwill impairment testing annually as of December 31st, or whenever events or changes in circumstances indicate thatthe carrying amount may not be fully recoverable. Significant judgment in testing goodwill for impairment includes assigning assets and liabilities to thereporting unit and assessing or determining the fair value of each reporting unit based on the Company’s best estimates and assumptions, as well as otherinformation including valuations that utilize customary valuation procedures and techniques. The Company tests its goodwill for impairment at the reportingunit level which is one level below the operating segment and has identified three reporting units: Inovalon, Avalere and Creehan. Based on the Company’sannual impairment evaluation performed as of December 31, 2017, the Company concluded that there was no impairment of goodwill. Refer to Note 8 for asummary of changes in goodwill.Valuation of Long-Lived Assets—The Company reviews long-lived assets for events or changes in circumstances that would indicate potentialimpairment. If the Company determines that an asset may not be recoverable, an impairment charge is recorded. There were no impairment charges on long-lived assets for the years ended December 31, 2017, 2016 and 2015.Revenue Recognition—The Company recognizes revenue when it is realized (or realizable) and earned (i.e., when services have been rendered ordelivery of applicable deliverables has occurred). This occurs when persuasive evidence of an arrangement exists, the product or service has been performedor delivered, fees are fixed or determinable, and collection is reasonably assured. When collectability is not reasonably assured, revenue is recognized whencash is collected. Cash collections and invoices generated in excess of revenue recognized are recorded as deferred revenue until the revenue recognitioncriteria are met.The Company primarily derives its revenue from multiple-element arrangement sales of its cloud-based data analytics and data-driven interventionplatform services. Revenue from these multiple element arrangements are recognized in accordance with ASC 605-25, Revenue Recognition—MultipleElement Arrangements. The Company allocates revenue to its cloud-based data analytics and data-driven intervention platform services using the relativeselling price method. The Company has generally been unable to establish vendor-specific objective evidence of fair value, and while the Companyroutinely seeks third party evidence of fair value, meaningful data has generally been unavailable as the Company’s services are unique and visibility intocompetitors pricing is unavailable. As a result, the Company uses its best estimate of selling price to allocate arrangement consideration to its contractualservice elements.The Company has determined a best estimate of selling price by considering several external and internal factors including, but not limited to, pricingpractices, profitability objectives, competition, customer demand, internal costs, and overall economic trends. Generally, the best estimate of selling price isconsistent with the contractual arrangement fee for each element.Revenue is recognized as cloud-based data analytics and data-driven intervention services are performed and information is delivered to clients, whichgenerally align with the Company’s right to invoice its clients. Cloud- based data analytics services are considered performed when gaps in care, quality, dataintegrity, or financial performance, and summarized key analytics and benchmarking analytics reports are delivered to its clients, provided that allcontractual performance requirements and other revenue recognition criteria are met. Cloud-based data-driven intervention services are considered performedupon completion, provided that all contractual performance requirements and other revenue recognition criteria are met.F-12Table of ContentsInovalon Holdings, Inc.Notes to Consolidated Financial Statements (Continued)2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)The Company also generates revenue from data-driven advisory services and recognizes revenue for these services when persuasive evidence of anarrangement exists, services have been rendered, the contract price is fixed or determinable, and collectability is reasonably assured. The Company entersinto arrangements for data-driven advisory services under time and materials, fixed-price, or retainer based contracts. Revenue for time and material contractsis recognized based upon contractually agreed upon billing rates applied to direct labor hours expended plus the costs of other items used in the performanceof the contract. Revenues under fixed-price and retainer-based contracts are recognized ratably over the contract period or upon contract completion.Invoices to clients are generated in accordance with the terms of the applicable contract, which may not be directly related to the performance of services.Unbilled receivables are invoiced when the achievement of specific events as defined by each contract occurs. Unbilled receivables, if any, are classified as acurrent asset. Advanced billings to clients in excess of revenue earned are recorded as deferred revenue until the aforementioned revenue recognition criteriaare met.The Company also enters into multiple-element software arrangements, which are recognized under ASC 985-605, Software Revenue Recognition,when a software subscription license is provided to customers. Under these arrangements, post-contract support is provided, including help desk support andunspecified upgrades. Vendor-specific objective evidence of fair value has not been established for maintenance as maintenance is not renewed separatelyfrom the license fees. As a result, under these subscription software license agreements, revenue is recognized from the license of software ratably over the lifeof the agreement. The Company begins to recognize revenue upon execution of a signed agreement and delivery of the software, provided that the softwarelicense fees are fixed and determinable, and collection of the resulting receivable is reasonably assured.Certain of the Company’s arrangements entitle a client to receive a refund if the Company fails to satisfy contractually specified performanceobligations. The refund is limited to a portion or all of the consideration paid. In this case, revenue is recognized when performance obligations are satisfied.The Company maintains an allowance, charged to revenue, which reflects the Company’s estimated future billing adjustments resulting from clientconcessions or resolutions of billing disputes.Cost of Revenue—Cost of revenue consists primarily of employee-related expenses including salaries, benefits, discretionary incentive compensation,employment taxes, equity compensation costs, and severance for employees that provide direct revenue-generating services to clients. Cost of revenue alsoincludes expenses associated with the integration and verification of data and other service costs incurred to fulfill the Company’s revenue contracts. Cost ofrevenue does not include allocated amounts for occupancy expense, depreciation and amortization.Research and Development—Research and development expenses consist primarily of employee-related expenses. All such costs are expensed asincurred, except for certain internal use software development costs that are capitalized. Research and development excludes any allocation of occupancyexpense, depreciation and amortization.Selling and Marketing—Sales and marketing expense consists primarily of employee-related expenses including salaries, benefits, discretionaryincentive compensation, employment taxes, severance and equity compensation costs for employees engaged in sales, sales support, business development,and marketing. Sales and marketing expense also includes operating expenses for marketing programs, research, trade shows and brand messages, and publicrelations costs. Sales and marketing expense excludes any allocation of occupancy expense, depreciation and amortization.General and Administrative—General and administrative expense consists primarily of employee-related expenses including salaries, benefits,discretionary incentive compensation, employment taxes, severance and equity compensation costs, for employees who are responsible for managementinformation systems, administration, human resources, finance, legal, and executive management. General and administrative expense also includesoccupancy expenses (including rent, utilities, communications, and facilities maintenance), professional fees, consulting fees, insurance, travel, and otherexpenses. General and administrative expense excludes any allocation of depreciation and amortization.Segments—The Company operates its business as one operating segment. The Company develops cloud-based data analytics and data-drivenintervention platforms and provides related services to its clients in order to achieve meaningful insight and improvement in clinical and quality outcomes,utilization, and financial performance. The Company derives substantially all of its revenue from the sale and support of one group of similar products andrelated services—proprietary datasets, advanced integration technologies, sophisticated predictive analytics, and deep subject matter expertise that enablethe Company to provide seamless, end-to-end platforms that bring the benefits of big data and large-scale analytics to clients. Operating segments are definedas components of an enterprise for which separate financial information is available and is evaluated regularly by the Company’s chief operating decisionmaker (“CODM”), in deciding how to allocate resources and inF-13Table of ContentsInovalon Holdings, Inc.Notes to Consolidated Financial Statements (Continued)2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)assessing performance. In the process of allocating resources and assessing performance, the Company’s CODM, its chief executive officer, reviews financialinformation presented on a consolidated basis.Income Taxes—The Company accounts for income taxes in accordance with ASC 740, Income Taxes, which prescribes the use of the asset and liabilityapproach to the recognition of deferred tax assets and liabilities related to the expected future tax consequences of events that have been recognized in theCompany’s financial statements or income tax returns. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxableincome in the years in which those temporary differences are expected to be recovered or settled.Valuation allowances are established, when necessary, to reduce deferred tax assets when it is more likely than not that a portion or all of a givendeferred tax asset will not be realized. In accordance with ASC 740, income tax expense includes (i) deferred tax expense, which represents the net change inthe deferred tax asset or liability balance during the period and any change in valuation allowances and (ii) current tax expense, which represents the amountof tax currently payable to or receivable from a taxing authority and amounts accrued for expected tax contingencies (including both tax and interest). ASC740 prescribes a recognition threshold of more-likely-than-not, and a measurement attribute for all tax positions taken or expected to be taken on a tax return,in order for those positions to be recognized in the financial statements. The Company continually reviews tax laws, regulations and related guidance inorder to properly record any uncertain tax liability positions. The Company adjusts these reserves in light of changing facts and circumstances. As a result ofthe Tax Cuts and Jobs Act of 2017 (the “Tax Act”), which was signed into law on December 22, 2017 and is effective January 1, 2018, the Companyremeasured the ending deferred tax assets to reflect the decrease in the federal corporate tax rate resulting in a tax benefit. Refer to Note 14, “Income Taxes.”Stock-Based Compensation—All stock-based awards, including employee stock option grants, restricted stock unit (“RSU”) grants, and restrictedstock award (“RSA”) grants, are recorded at fair value as of the grant date in accordance with ASC 718, Compensation—Stock Compensation, and recognizedin the statement of operations over the service period of the applicable award using the straight-line method.The Company determines the fair value of its stock option awards on the date of grant, using the Black-Scholes option pricing model. The assumptionsused in calculating the fair value of stock-based awards represent management’s best estimates.The Company measures RSUs and RSAs that vest upon satisfaction of a service condition, a performance condition, or a liquidity condition, if suchconditions are applicable, based on the fair market values of the underlying common stock on the dates of grant. RSUs are share awards that, upon vesting,will deliver to the holder shares of the Company’s common stock. Compensation expense is recognized based upon the satisfaction of the requisite service,liquidity condition as of that date, and or the probability of achievement of the specified performance conditions following the straight-line method.Treasury Stock—The Company records treasury stock activities under the cost method whereby the cost of the acquired stock is recorded as treasurystock. The Company’s accounting policy upon the formal retirement of treasury stock is to deduct the par value from common stock and to reflect any excessof cost over par value as a reduction to additional paid-in capital (to the extent created by previous issuances of the shares) and then retained earnings.Deferred Rent—Deferred rent consists of rent escalation payment terms, tenant improvement allowances and other incentives received from landlordsrelated to the Company’s operating leases for its facilities. Rent escalation represents the difference between actual operating lease payments due andstraight-line rent expense, which is recorded by the Company over the term of the lease, including any construction period. The excess is recorded as adeferred credit in the early periods of the lease, when cash payments are generally lower than straight-line rent expense, and is reduced in the later periods ofthe lease when payments begin to exceed the straight-line expense. Tenant allowances from landlords for tenant improvements are generally comprised ofcash received from the landlord as part of the negotiated terms of the lease or reimbursements of moving costs. These cash payments are recorded as deferredrent from landlords and are amortized as a reduction of periodic rent expense, over the term of the applicable lease.Recently Adopted Accounting StandardsIn March 2016, the FASB issued ASU 2016-09, “Compensation-Stock Compensation (Topic 718): Improvements to Employee Share-Based PaymentAccounting” (“ASU 2016-09”). ASU 2016-09 modifies and intends to improve and simplify several aspects of the accounting for share-based paymentawards, including income tax consequences, and classification on the statement of cash flows, therefore the Company early adopted ASU 2016-09 during thefourth quarter of 2016. Early adoption of ASU 2016-09 required the Company to apply its provisions as of January 1, 2016. Amendments related toaccounting for excess tax benefits have been adopted prospectively, resulting in recognition of excess tax benefits against income tax expenses rather thanadditional paid-in capital of approximately $0.9 million for the year ended December 31, 2016. Excess tax benefitsF-14Table of ContentsInovalon Holdings, Inc.Notes to Consolidated Financial Statements (Continued)2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)for stock-based payments are now included in net operating cash rather than net financing cash. The changes have been applied prospectively in accordancewith the ASU and prior periods have not been adjusted. The Company elected to change its accounting policy to account for forfeitures as they occur. Thechange was applied on a modified retrospective basis with a cumulative effect adjustment to retained earnings of approximately $0.6 million, net of tax ofapproximately $0.2 million, as of January 1, 2016. The adoption of ASU 2016-09 did not materially impact the Company’s consolidated financial position,results of operations, equity or cash flows.In January 2017, the FASB issued ASU 2017-01, Business Combinations (Topic 805): Clarifying the Definition of a Business. The new standardnarrows the definition of a business and provides a framework for evaluation. This ASU is effective for financial statements issued for fiscal years beginningafter December 15, 2017, including interim periods within those fiscal years. The Company will apply the requirements of the new standard beginning in thefourth quarter of 2017 on a prospective basis. In January 2017, the FASB issued ASU 2017-04, Intangibles—Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment. Thenew standard simplifies the subsequent measurement of goodwill by eliminating the second step of the goodwill impairment test. This ASU will be appliedprospectively and is effective for annual or interim goodwill impairment tests in fiscal years beginning after December 15, 2019. Early adoption is permittedfor interim or annual goodwill impairment tests performed on testing dates after January 1, 2017. The Company early adopted the requirements of the newstandard in the fourth quarter of 2017 as it performed its annual impairment analysis. The Company evaluated each of its reporting units based on current andforecasted financial information and finalized the valuations and impairment analysis during the fourth quarter of 2017, resulting in no impairment.Recently Issued Accounting StandardsIn May 2014, the Financial Accounting Standards Board (“FASB”) issued ASU 2014-09, Revenue from Contracts with Customers and subsequentclarifying guidance (“ASU 2014-09”). This revenue recognition guidance supersedes existing GAAP guidance, including most industry-specific guidance.The core principle is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects theconsideration to which the entity expects to be entitled in exchange for those goods or services. The guidance identifies five steps to apply in achieving thisprinciple. ASU 2014-09 is effective for fiscal years beginning after December 15, 2017. ASU 2014-09 may be applied either retrospectively or through theuse of a modified-retrospective method. The Company adopted the new standard as of January 1, 2018 using the modified retrospective approach. TheCompany evaluated existing contracts and implemented policies and changes to our processes, including a process for future contract reviews, and internalcontrol over financial reporting. The impacts of the new standard include accounting for arrangements that include variable consideration, capitalization ofcosts of commissions that were previously expensed as incurred, upfront contract costs and contract fulfillment costs. The Company is finalizing thecalculation of the adjustment to retained earnings and currently expects the impact to be immaterial as the revenue recognition for our subscription licensingof our cloud-based data analytics, intervention and reporting platforms and related support services is materially consistent with our current revenuerecognition model. The Company will provide additional disclosures as required by the new standard in the first quarter of 2018.In February 2016, the FASB issued ASU. 2016-02, Leases (Topic 842) (“ASU 2016-02”). ASU 2016-02 requires the identification of arrangements thatshould be accounted for as leases by lessees. This guidance is effective for public companies for fiscal years, and interim periods within those fiscal years,beginning after December 15, 2018. In general, for lease arrangements exceeding a twelve month term, these arrangements will be recognized as assets andliabilities on the balance sheet of the lessee. Under ASU 2016-02, a right-of-use asset and lease obligation will be recorded for all leases, whether operating orfinancing, while the income statement will reflect lease expense for operating leases and amortization/interest expense for financing leases. The balance sheetamount recorded for existing leases at the date of adoption of ASU 2016-02 will be calculated using the applicable incremental borrowing rate at the date ofadoption. In addition, ASU 2016-02 requires the use of the modified retrospective method, which will require adjustment to all comparative periodspresented in the consolidated financial statements. The Company is currently assessing the impact that adopting this new accounting standard will have onits consolidated financial statements and note disclosures.In August 2016, the FASB issued ASU 2016-15, Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments(“ASU 2016-15”). The update amends the guidance in Accounting Standards Codification 230, Statement of Cash Flows, and clarifies how entities shouldclassify certain cash receipts and cash payments on the statement of cash flows with the objective of reducing the existing diversity in practice related toeight specific cash flow issues. The amendments in this update are effective for annual periods beginning after December 15, 2017, and interim periods withinthose fiscal years. Early adoption is permitted. The Company plans to adopt the requirements of the new standard in the first quarter of 2018 and does notcurrently expect the adoption to have a material impact on its consolidated financial statements.F-15Table of ContentsInovalon Holdings, Inc.Notes to Consolidated Financial Statements (Continued)3. BUSINESS COMBINATIONS2017 AcquisitionOn July 6, 2017, the Company completed the acquisition of ComplexCare Solutions, Inc. and ComplexCare Solutions IPA, LLC (together, “CCS”).CCS is a company which provides technology-enabled interventions and member engagement coordination services for a number of payers and employersthroughout the United States. The fair value included in the consolidated financial statements, in conformity with ASC No. 820, Fair Value Measurementsand Disclosures, represent the Company’s best estimates and valuations. The final purchase price was allocated to identifiable assets acquired and liabilitiesassumed based upon valuation procedures performed to-date. The Company acquired all of the capital stock of CCS for approximately $4.5 million in cashand the settlement of an existing payable to CCS of $2.3 million. The Company acquired approximately $9.8 million of assets, including approximately $1.5million of cash, and approximately $3.9 million of liabilities. The net assets acquired exceeded the consideration paid by approximately $1.4 million, and assuch the Company recorded a bargain purchase gain in general and administrative expenses.2016 AcquisitionOn October 3, 2016, the Company completed its acquisition of Creehan Holding Co., Inc. (“Creehan”). Creehan, through its subsidiary Creehan &Company Corporation, is a leading provider of specialty pharmacy software solutions to the pharmaceutical industry. Pursuant to the terms of the StockPurchase Agreement between the Company and Creehan (the “Stock Purchase Agreement”), Creehan became a wholly owned subsidiary of Inovalon.Pursuant to the terms of the Stock Purchase Agreement, Inovalon acquired all of the issued and outstanding capital stock of Creehan for an aggregatepurchase price of $130.0 million, which was comprised of $120.0 million in cash and $10.0 million in shares of Class A common stock of the Company. TheCompany completed the acquisition of Creehan through the use of cash on hand and the issuance of 651,355 shares of Class A common stock, subject toresale restrictions. Certain components, which are referred to below as contingent consideration, of the aggregate purchase price are subject to theachievement of financial performance objectives. The Company acquired Creehan for the assembled workforce, technology platform, client base, and toaccelerate entry into the specialty pharmacy software market. Transaction costs in connection with the acquisition are expensed as incurred and are includedin general and administrative expenses. The results of operations related to Creehan are included in our consolidated statements of operations beginning fromthe date of acquisition.A summary of the final composition of the stated purchase price and fair value of the stated purchase price is as follows (in thousands):Share Purchase Agreement purchase price$130,000Working capital adjustment755Subtotal130,755Fair value adjustments: Marketability restrictions on equity consideration(2,236)Contingent consideration probability of achievement adjustment. (12,400)Post-acquisition compensation expense(5,952)Total fair value purchase price$110,167The Company finalized the working capital adjustment in the third quarter of 2017 resulting in an increase of approximately $0.4 million to the initialpurchase price allocation. After adjusting for this difference the composition of the fair value of the consideration transferred is as follows (in thousands):Cash$89,803Issuance of Class A common stock7,764Contingent consideration12,600Total fair value purchase price$110,167F-16Table of ContentsInovalon Holdings, Inc.Notes to Consolidated Financial Statements (Continued)3. BUSINESS COMBINATIONS (Continued)Recording of Assets Acquired and Liabilities AssumedThe Company finalized the fair value of acquired assets, assumed liabilities and tax related matters in the third quarter of 2017. The following tablesummarizes the purchase price allocation to assets acquired and liabilities assumed, including identification of measurement period adjustments (inthousands): RecordedValueCash and cash equivalents$861Accounts receivable9,048Other current assets171Property, equipment and capitalized software641Intangible assets(1)50,900Goodwill(2)51,362Total assets acquired112,983Current liabilities(916)Deferred revenue(1,900)Total liabilities assumed(2,816)Net assets acquired$110,167______________________________________(1)Identifiable intangible assets were measured using a combination of an income approach and a market approach.(2)Goodwill is the excess of the consideration transferred over the net assets recognized and represents the future economic benefits, primarily as a result ofother assets acquired that could not be individually identified and separately recognized. Goodwill is not amortized. The goodwill attributable to theCreehan acquisition is deductible for tax purposes.The amounts attributed to identified intangible assets are summarized in the table below (in thousands): WeightedAverageUseful Life RecordedValueCustomer relationships8 years $36,500Tradename4 years 4,000Technology4 years 8,800In-process Research and Developmentindefinite 1,600Total intangible assets $50,900Acquisition-related costs were expensed as incurred. For the year ended December 31, 2016, the Company incurred acquisition-related costs of $1.6million recognized within “General and administrative” expenses in the accompanying consolidated statements of operations.Creehan Results and Pro Forma Impact of AcquisitionThe following table presents revenue and loss before taxes of Creehan since the acquisition date, October 3, 2016, included in the consolidatedstatements of operations and includes amortization expense related to acquired intangible assets (in thousands): Year EndedDecember 31, 2016Revenue$8,106Loss before taxes$(976)F-17Table of ContentsInovalon Holdings, Inc.Notes to Consolidated Financial Statements (Continued)3. BUSINESS COMBINATIONS (Continued)The following table presents pro forma information, based on estimates and assumptions that the Company believes to be reasonable, for the Companyas if the acquisition of Creehan had occurred at the beginning of the earliest period presented (unaudited, in thousands): Year Ended December 31, 2016 2015Pro forma revenue$453,613 $464,646Pro forma income before taxes$44,203 $115,331The pro forma information provided in the table above is not necessarily indicative of the consolidated results of operations for future periods or theresults that actually would have been realized had the acquisition been completed at the beginning of the periods presented.The pro forma impact of the Creehan acquisition on current and prior quarters, subsequent to its acquisition for the three months ended December 31,2016, were not material. The results of operations of Creehan have been included in our consolidated results from the date of acquisition.2015 AcquisitionOn September 1, 2015, pursuant to the provisions of the Share Purchase Agreement, between the Company and Avalere Health Inc. (“Avalere”), theCompany acquired all of the issued and outstanding capital stock of Avalere. Avalere is a provider of data-driven advisory services and business intelligencesolutions primarily to the pharmaceutical and life sciences industry, as well as within their extensive array of client relationships with payers, providers andresearch institutions. Certain portions of the stated purchase price of $140.0 million were contingent upon the achievement of financial and operationalobjectives, and other portions were subject to continued employment provisions. The Company completed the acquisition of Avalere through the use of cashon hand and the issuance of 235,737 shares of Class A common stock, subject to sale restrictions. The addition of Avalere, with its more than 200pharmaceutical and life sciences clients, as well as an extensive array of client relationships with payers, providers and research institutions, is expected toexpand Inovalon’s capabilities and client base into the expansive and adjacent markets of the pharmaceutical and life sciences industry.A summary of the composition of the stated purchase price and fair value of the stated purchase price is as follows (in thousands):Share Purchase Agreement purchase price$140,000Working capital adjustment3,112Subtotal143,112Fair Value Adjustments: Restricted stock marketability discount(1,153)Performance objectives discount from maximum value(700)Post-acquisition compensation expense(16,357)Total fair value purchase price$124,902The composition of the fair value of the consideration transferred is as follows (in thousands):Cash$118,755Issuance of Class A common stock3,847Contingent consideration2,300Total fair value purchase price$124,902Recording of Assets Acquired and Liabilities AssumedEstimates of fair value included in the consolidated financial statements, in conformity with ASC 820, Fair Value Measurements and Disclosures,represent the Company’s best estimates and valuations. In accordance with ASC 805, Business Combinations, the allocation of the consideration value issubject to adjustment until the Company has completed its analysis, but not to exceed one year after the date of acquisition, which was September 1, 2015, toprovide the Company with the time to complete the valuation of its assets and liabilities. As of December 31, 2015, the Company completed and finalized itsanalysisF-18Table of ContentsInovalon Holdings, Inc.Notes to Consolidated Financial Statements (Continued)3. BUSINESS COMBINATIONS (Continued)and allocation of the consideration value to assets acquired and liabilities assumed. In addition, as discussed in Note 2, the Company early adopted theprovisions of ASU 2015-16 and recorded measurement period adjustments that were identified in the process of finalizing the aforementioned analysis andallocation.The following table summarizes the final purchase price allocation to assets acquired and liabilities assumed, including identification of measurementperiod adjustments (in thousands): PreliminaryRecorded Value MeasurementPeriodAdjustments FinalRecordedValueCash and cash equivalents$4,037 $— $4,037Accounts receivable13,011 (120) 12,891Current assets1,958 — 1,958Property, equipment and capitalized software3,248 — 3,248Intangible assets(1)57,520 300 57,820Goodwill(2)74,238 1,226 75,464Deferred income taxes947 (224) 723Other assets224 — 224Total assets acquired155,183 1,182 156,365Current liabilities(11,054) 108 (10,946)Deferred tax liability(17,677) (686) (18,363)Deferred revenue(1,600) — (1,600)Other liabilities(554) — (554)Total liabilities assumed(30,885) (578) (31,463)Net assets acquired$124,298 $604 $124,902_______________________________________(1)Identifiable intangible assets were measured using a combination of an income approach and a market approach.(2)Goodwill is the excess of the consideration transferred over the net assets recognized and represents the future economic benefits, primarily as a result ofother assets acquired that could not be individually identified and separately recognized. Goodwill is not amortized and is not deductible for taxpurposes.The amounts attributed to identified intangible assets are summarized in the table below (in thousands): WeightedAverageUseful Life PreliminaryRecordedValue MeasurementPeriodAdjustments FinalRecordedValueCustomer relationships10 years $45,800 $— $45,800Tradename10 years 8,300 — 8,300Technology5 years 2,600 300 2,900Non-compete agreements3 years 820 — 820Total intangible assets $57,520 $300 $57,820Acquisition-related costs were expensed as incurred. For the year ended December 31, 2015, the Company incurred acquisition-related costs of $1.5million, respectively, recognized within “General and administrative” expenses in the accompanying consolidated statements of operations.Avalere Results and Pro Forma Impact of AcquisitionThe following table presents revenue and loss before taxes of Avalere since the acquisition date, September 1, 2015, included in the consolidatedstatements of operations (in thousands): Year EndedDecember 31, 2015Revenue$17,492Loss before taxes$(29)F-19Table of ContentsInovalon Holdings, Inc.Notes to Consolidated Financial Statements (Continued)3. BUSINESS COMBINATIONS (Continued)The following table presents pro forma information, based on estimates and assumptions that the Company believes to be reasonable, for the Companyas if the acquisition of Avalere had occurred at the beginning of the earliest period presented (unaudited, in thousands): Year EndedDecember 31, 2015Pro forma revenue$469,784Pro forma income before taxes$108,977The pro forma information provided in the table above is not necessarily indicative of the consolidated results of operations for future periods or theresults that actually would have been realized had the acquisition been completed at the beginning of the periods presented.4. NET INCOME PER SHAREDuring September 2014, the Company completed a holding company reorganization. As part of the reorganization, the Company implemented a multi-class stock structure. The Company presents the impact on net income per share (“EPS”) by calculating EPS based on the authorized, issued and outstandingshares of Class A and Class B common stock. Holders of all outstanding classes of common stock participate ratably in earnings on an identical per sharebasis as if all shares were a single class.The Company has issued RSAs of Class A common stock under the 2015 Omnibus Incentive Plan. The Company considers issued and unvested RSAsto be participating securities as the holders of these RSAs have a non-forfeitable right to dividends in the event of the Company’s declaration of a dividendon shares of Class A and Class B common stock. Subsequent to the issuance of the participating securities, the Company applied the two-class methodrequired in calculating net income per share of Class A and Class B common stock.Undistributed net income for a given period is apportioned to participating securities based on the weighted-average shares of each class of commonstock outstanding during the applicable period as a percentage of the total weighted-average shares outstanding during the same period.Under the two-class method, net income attributable to common stockholders is determined by allocating undistributed earnings, calculated as netincome, less earnings attributable to participating securities. The net income per share attributable to common stockholders is allocated based on thecontractual participation rights of the Class A common stock and Class B common stock as if the income for the period has been distributed. As theliquidation and dividend rights are identical for both classes of common stock, the net income attributable to common stockholders is allocated on aproportionate basis.The Company has issued Class A common stock and Class B common stock. Holders of Class A common stock generally have the same rights,including rights to dividends, as holders of Class B common stock, except that holders of Class A common stock have one vote per share while holders ofClass B common stock have ten votes per share. Each share of Class B common stock will convert into one share of Class A common stock immediately uponits sale or transfer. As such, basic and fully diluted earnings per share for Class A common stock and Class B common stock are the same.Basic net income per share of common stock is computed by dividing the net income attributable to common stockholders by the weighted-averagenumber of shares of common stock outstanding during the period. All participating securities are excluded from the basic weighted-average shares ofcommon stock outstanding. Unvested RSAs are excluded from the calculation of the weighted-average shares of common stock until vesting occurs, as therestricted shares are subject to forfeiture and cancellation until vested. For purposes of the diluted net income per share attributable to common stockholderscalculation, unvested shares of common stock resulting from RSAs are considered to be potentially dilutive shares of common stock.Diluted net income per share attributable to common stockholders is computed by dividing net income attributable to common stockholders by theweighted-average shares outstanding, including potentially dilutive shares of common stock assuming the dilutive effect of potential shares of commonstock for the period determined using the treasury stock method. Potentially dilutive securities also include stock options, restricted stock units, and shares tobe purchased under the employee stock purchase plan. Under the treasury stock method, dilutive securities are assumed to be exercised at the beginning ofthe periods and as if funds obtained thereby were used to purchase common stock at the average market price during the period.F-20Table of ContentsInovalon Holdings, Inc.Notes to Consolidated Financial Statements (Continued)4. NET INCOME PER SHARE (Continued)Securities are excluded from the computations of diluted net income per share if their effect would be anti-dilutive to earnings per share.The numerators and denominators of the basic and diluted EPS computations, reconciliations of the weighted average shares outstanding, and resultingbasic and diluted earnings per share for our common stock are calculated as follows (in thousands, except per share amounts): Year Ended December 31, 2017 2016 2015Basic Numerator: Net income$34,818 $27,104 $66,063Undistributed earnings allocated to participating securities(990) (161) (49)Net income attributable to common stockholders—basic$33,828 $26,943 $66,014Denominator: Weighted average shares used in computing net income per share attributable to commonstockholders—basic142,225 150,048 145,745Net income per share attributable to common stockholders—basic$0.24 $0.18 $0.45Diluted Numerator: Net income attributable to common stockholders—diluted$33,828 $26,943 $66,014Denominator: Number of shares used for basic EPS computation142,225 150,048 145,745Effect of dilutive securities512 907 2,530Weighted average shares used in computing net income per share attributable to commonstockholders—diluted142,737 150,955 148,275Net income per share attributable to common stockholders—diluted$0.24 $0.18 $0.45The computation of diluted EPS does not include certain awards, on a weighted average basis, for the years ended December 31, 2017, 2016, and 2015,respectively, because their inclusion would have an anti-dilutive effect on EPS. The awards excluded because of their anti-dilutive effect are as follows (inthousands): Year Ended December 31, 2017 2016 2015Awards excluded from the computation of diluted net income per share because their inclusionwould have been anti-dilutive88 44 6455. SHORT-TERM INVESTMENTSAs of December 31, 2017, short-term investments consisted of the following (in thousands): Amortized Cost Gross UnrealizedGains GrossUnrealizedLosses Estimated FairValueAvailable-for-sale securities: Corporate notes and bonds$232,048 $3 $(572) $231,479U.S. agency obligations15,341 — (99) 15,242U.S. treasury securities20,735 — (168) 20,567Total available-for-sale securities$268,124 $3 $(839) $267,288F-21Table of ContentsInovalon Holdings, Inc.Notes to Consolidated Financial Statements (Continued)5. SHORT-TERM INVESTMENTS (Continued)As of December 31, 2016, short-term investments consisted of the following (in thousands): Amortized Cost Gross UnrealizedGains GrossUnrealizedLosses Estimated FairValueAvailable-for-sale securities: Corporate notes and bonds$349,571 $36 $(918) $348,689U.S. agency obligations34,864 22 (78) 34,808U.S. treasury securities53,681 6 (100) 53,587Commercial paper6,312 — (3) 6,309Certificates of deposit1,921 1 — 1,922Total available-for-sale securities$446,349 $65 $(1,099) $445,315The following table summarizes the estimated fair value of our short-term investments, designated as available-for-sale and classified by the contractualmaturity date of the securities as of the dates shown (in thousands): December 31, 2017 2016Due in one year or less$204,725 $176,696Due after one year through two years62,563 268,619Total$267,288 $445,315The Company has certain available-for-sale securities in a gross unrealized loss position. The Company reviews its debt securities classified as short-term investments on a regular basis to evaluate whether or not any security has experienced an other-than-temporary decline in fair value. The Companyconsiders factors such as the length of time and extent to which the market value has been less than the cost, the financial position and near-term prospects ofthe issuer and the Company’s intent to sell, or whether it is more likely than not the Company will be required to sell the investment before recovery of theinvestment’s amortized-cost basis. If the Company determines that an other-than-temporary decline exists, or if write downs related to credit losses arenecessary, in one of these securities, the unrealized losses attributable to the respective investment would be reclassified to realized losses on short-terminvestments within the statement of operations. There were no impairments considered other-than-temporary as of December 31, 2017.The following table shows the fair values and the gross unrealized losses of available-for-sale securities that were in a gross unrealized loss position, asof December 31, 2017, aggregated by investment category (in thousands): EstimatedFair Value GrossUnrealizedLossesCorporate notes and bonds$223,088 $(572)U.S. agency obligations15,242 (99)U.S. treasury securities20,567 (168) $258,897 $(839)F-22Table of ContentsInovalon Holdings, Inc.Notes to Consolidated Financial Statements (Continued)6. FAIR VALUE MEASUREMENTSThe following table presents the fair value hierarchy for financial assets and liabilities measured at fair value on a recurring basis as of December 31,2017 (in thousands): Level 1 Level 2 Level 3 TotalCash Equivalents: Money market funds$162,347 $— $— $162,347Short-term investments: Corporate notes and bonds— 231,479 — 231,479U.S. agency obligations— 15,242 — 15,242U.S. treasury securities— 20,567 — 20,567Other Current Liabilities: Contingent consideration— — (7,400) (7,400)Total$162,347 $267,288 $(7,400) $422,235The following table presents the fair value hierarchy for financial assets and liabilities measured at fair value on a recurring basis as of December 31,2016 (in thousands): Level 1 Level 2 Level 3 TotalCash Equivalents: Money market funds$44,108 $— $— $44,108Short-term investments: Corporate notes and bonds— 348,689 — 348,689U.S. agency obligations— 34,808 — 34,808U.S. treasury securities— 53,587 — 53,587Commercial paper— 6,309 — 6,309Certificates of deposit— 1,922 — 1,922Other Current Liabilities: Contingent consideration— — (12,600) (12,600)Total$44,108 $445,315 $(12,600) $476,823The Company determines the fair value of its security holdings based on pricing from its pricing vendors. The valuation techniques used to measure thefair value of financial instruments having Level 2 inputs were derived from non-binding consensus prices that are corroborated by observable market data orquoted market prices for similar instruments. Such market prices may be quoted prices in active markets for identical assets (Level 1 inputs) or pricingdetermined using inputs other than quoted prices that are observable either directly or indirectly (Level 2 inputs). The Company performs procedures toensure that appropriate fair values are recorded such as comparing prices obtained from other sources.The following table presents our financial instruments measured at fair value using unobservable inputs (Level 3) as of the years ended December 31 (inthousands): Fair ValueMeasurements UsingUnobservable Inputs(Level 3) 2017 2016Balance, beginning of period$(12,600) $(2,300)Fair value adjustment (recognized in general and administrative expenses)5,200 —Accretion expense (recognized in general and administrative expenses)— (706)Settlement (payment) of liability— 3,006Contingent consideration attributable to Creehan acquisition— (12,600)Total$(7,400) $(12,600)F-23Table of ContentsInovalon Holdings, Inc.Notes to Consolidated Financial Statements (Continued)7. PROPERTY, EQUIPMENT AND CAPITALIZED SOFTWAREProperty, equipment and capitalized software consisted of the following (in thousands): December 31, 2017 2016Office and computer equipment$55,840 $42,530Leasehold improvements10,096 12,480Purchased software26,425 14,421Capitalized software114,569 83,877Furniture and fixtures4,670 5,403Land390 390Buildings14,028 1,797Work in process16,323 3,966Total242,341 164,864Less: accumulated depreciation and amortization(116,573) (88,444)Property, equipment and capitalized software, net$125,768 $76,420The Company leases certain office equipment under capital lease agreements, with bargain purchase options at the end of the lease term. Leased officeequipment included in property and equipment at December 31, 2017 and 2016 was $0.6 million and $0.7 million, respectively.The Company leases certain office space under a lease agreement that was determined to be a capital lease. This capital lease is classified as buildingswithin property and equipment. The total net amount of the capital lease as of December 31, 2017 was $12.0 million. There were no leases of office spacesthat were determined to be capital leases in 2016.Depreciation expense for the years ended December 31, 2017, 2016, and 2015 was $37.9 million, $28.1 million, and $19.2 million, respectively.Amortization of the capital leases included in depreciation expense was $0.3 million, $0.1 million, and $0.1 million, for the years ended December 31, 2017,2016, and 2015, respectively. At December 31, 2017 and 2016, the Company had unamortized capitalized software costs, including costs classified as workin progress, of $54.2 million and $40.9 million, respectively.At December 31, 2017 and 2016, work in process consisted primarily of purchased software licenses, computer equipment, and capitalized software,which was not placed into service.8. GOODWILL AND INTANGIBLE ASSETSGoodwillGoodwill is primarily derived from the Company’s acquisitions of Creehan in 2016, Avalere in 2015, Catalyst Information Technologies, Inc. in 2009,and Medical Reliance Group, Inc. in 2006. Refer to Note 2 for a discussion of our accounting policy. Refer to Note 3 for further information regarding thegoodwill that arose from the Company’s acquisition of Creehan during 2016 and Avalere during 2015.The following table summarizes the activity related to the carrying value of our goodwill during the years ended December 31, 2017 and 2016 (inthousands):Goodwill as of January 1, 2016$137,733Adjustments recorded in connection with the acquisition of Avalere(1)(4,163)Goodwill recorded in connection with the acquisition of Creehan50,987Goodwill as of December 31, 2016184,557Adjustments recorded in connection with the acquisition of Creehan(2)375Goodwill as of December 31, 2017$184,932______________________________________(1)During 2016, the Company adjusted certain assets and liabilities related to the finalization of tax returns for Avalere and prefunded escrow-relatedamounts related to the settlement of a contingent consideration earn-out that was successfully achieved by Avalere. The adjustments had no impact onthe Company’s revenues or expenses. Based on our assessments ofF-24Table of ContentsInovalon Holdings, Inc.Notes to Consolidated Financial Statements (Continued)8. GOODWILL AND INTANGIBLE ASSETS (Continued)qualitative and quantitative factors, the adjustments were not considered to be material to our consolidated financial statements, individually or in theaggregate, to any previously issued consolidated financial statements.(2)During 2017, the Company finalized the working capital adjustments for Creehan. The adjustments had no impact on the Company’s revenues orexpenses. Based on our assessments of qualitative and quantitative factors, the adjustments were not considered to be material to our consolidatedfinancial statements, individually or in the aggregate, to any previously issued consolidated financial statements.Intangible AssetsIntangible assets at December 31, 2017 and 2016 were as follows (in thousands): December 31, 2017 Gross AccumulatedAmortization Net WeightedAverage RemainingUseful Life (years)Proprietary software technologies$16,077 $(16,077) $— —Trademark360 (360) — —Database6,500 (5,362) 1,138 1.8Customer relationships13,650 (10,698) 2,952 7.4Avalere acquisition (see Note 3): Customer Relationships45,800 (10,687) 35,113 7.8Tradename8,300 (1,937) 6,363 7.8Technology2,900 (1,353) 1,547 2.7Non-compete agreements820 (638) 182 0.7Creehan acquisition (see Note 3): Customer Relationships36,500 (5,703) 30,797 6.9Tradename4,000 (1,250) 2,750 2.8Technology8,800 (2,750) 6,050 2.8In-Process R&D1,600 — 1,600 IndefiniteCCS acquisition (see Note 3): Technology800 (133) 667 2.5Tradename200 (33) 167 2.5Total$146,307 $(56,981) $89,326 F-25Table of ContentsInovalon Holdings, Inc.Notes to Consolidated Financial Statements (Continued)8. GOODWILL AND INTANGIBLE ASSETS (Continued) December 31, 2016 Gross AccumulatedAmortization Net WeightedAverage RemainingUseful Life (years)Proprietary software technologies$16,077 $(16,077) $— —Trademark360 (360) — —Database6,500 (4,713) 1,787 2.8Customer relationships13,650 (10,304) 3,346 8.4Avalere acquisition (see Note 3): Customer Relationships45,800 (6,107) 39,693 8.8Tradename8,300 (1,107) 7,193 8.8Technology2,900 (773) 2,127 3.7Non-compete agreements820 (364) 456 1.7Creehan acquisition (see Note 3): Customer Relationships36,500 (1,147) 35,353 7.9Tradename4,000 (250) 3,750 3.8Technology8,800 (556) 8,244 3.8In-Process R&D1,600 — 1,600 IndefiniteTotal$145,307 $(41,758) $103,549 Amortization expense for the years ended December 31, 2017, 2016, and 2015 was $15.2 million, $9.2 million, and $3.4 million, respectively.Estimated future amortization expense of intangible assets, based upon the Company’s intangible assets at December 31, 2017, is as follows (inthousands): AmountYear ending December 31: 2018$15,312201914,967202013,320202110,366202210,366Thereafter23,395Total$87,7269. CREDIT FACILITIESOn September 19, 2014, the Company entered into a Credit and Guaranty Agreement (“Credit Agreement”), with a group of lenders including GoldmanSachs Bank USA, as administrative agent, to provide credit facilities in the aggregate maximum principal amount of $400.0 million, consisting of a seniorunsecured term loan facility in the original principal amount of $300.0 million (the “Term Loan Facility”), and a senior unsecured revolving credit facility inthe maximum principal amount of $100.0 million (the “Revolving Credit Facility” and, the “Credit Facilities”).F-26Table of ContentsInovalon Holdings, Inc.Notes to Consolidated Financial Statements (Continued)9. CREDIT FACILITIES (Continued)The Credit Facilities consisted of the following (in thousands): December 31, 2017 December 31, 2016Revolving Credit Facility$— $—Term Loan Facility236,250 266,250Total Credit Facilities236,250 266,250Less: current portion45,000 30,000Non-current Credit Facilities$191,250 $236,250The revolving credit facility became available to the Company on February 18, 2015, upon the consummation of its IPO.The Company’s borrowing rate under the Credit Facilities is dependent on whether the Company elects Eurodollar loans or base rate loans. Interestaccrues on Eurodollar loans at a defined Eurodollar rate, defined as the London Interbank Offer Rate (“LIBOR”) plus the applicable margin of 1.25%, asdefined in the Credit Agreement. Interest is payable monthly in arrears.The Credit Facility requires the Company to comply with specified financial covenants, including the maintenance of a $50.0 million minimum cashand cash equivalents balance as of each calendar quarter end. The minimum cash and cash equivalents balance is not required to be held with any of thegroup of lenders and may be commingled with the Company’s operating funds. The Credit Facility also contains various covenants, including affirmativecovenants with respect to certain reporting requirements and maintaining certain business activities, and negative covenants that, among other things, maylimit or impose restrictions on the Company’s ability to incur liens, incur additional indebtedness, make investments, make acquisitions and undertakecertain additional actions. As of, and during, the year ended December 31, 2017, the Company was in compliance with the financial covenants under theCredit Agreement.Scheduled maturity of the Credit Facilities follows (in thousands): Amount2018$45,0002019191,250Total$236,25010. COMMITMENTS AND CONTINGENCIESOperating Leases—The Company leases office space and co-located data center facilities under operating lease arrangements, some of which containrenewal options. Future non-cancellable lease payments as of December 31, 2017 are as follows (in thousands): AmountYear ending December 31, 2018$7,28620196,57120203,20020211,93920221,939Thereafter12,602Total$33,537Total expense under operating leases was $11.3 million, $8.9 million, and $7.2 million, during the years ended December 31, 2017, 2016, and 2015,respectively. Certain operating leases contain rent escalation clauses, which are recorded on a straight-line basis over the initial term of the lease, with thedifference between the rent paid and the straight-line rent recorded as a deferred rent liability. Lease incentives received from landlords are recorded asdeferred rent liabilities and are amortized on a straight-line basis over the lease term as a reduction to rent expense. The deferred rent liability was $2.0million and $2.5 million at December 31, 2017 and 2016, respectively.F-27Table of ContentsInovalon Holdings, Inc.Notes to Consolidated Financial Statements (Continued)10. COMMITMENTS AND CONTINGENCIES (Continued)Capital Leases—The total capital lease liability at December 31, 2017 and 2016 was $12.4 million and $0.3 million, respectively. Future minimumlease payments as of December 31, 2017 are as follows (in thousands): AmountYear ending December 31, 2018$45820191,01520201,05120211,09020221,182Thereafter10,091Total minimum lease payments14,887Less amount representing interest(2,442)Present value of minimum lease payments$12,445Legal Proceedings—From time to time the Company is involved in various litigation matters arising out of the normal course of business. TheCompany consults with legal counsel on those issues related to litigation and seeks input from other experts and advisors with respect to such matters.Estimating the probable losses or a range of probable losses resulting from litigation, government actions and other legal proceedings is inherently difficultand requires an extensive degree of judgment, particularly where the matters involve indeterminate claims for monetary damages, may involve discretionaryamounts, present novel legal theories, are in the early stages of the proceedings, or are subject to appeal. Whether any losses, damages or remedies ultimatelyresulting from such matters could reasonably have a material effect on the Company’s business, financial condition, results of operations, or cash flows willdepend on a number of variables, including, for example, the timing and amount of such losses or damages (if any) and the structure and type of any suchremedies. The Company’s management does not presently expect any litigation matters to have a material adverse impact on the condensed consolidatedfinancial statements of the Company.On June 24, 2016, a purported securities class action complaint (Xiang v. Inovalon Holdings, Inc., et.al., No. 1:16-cv-04923) was filed in the UnitedStates District Court for the Southern District of New York against the Company, certain officers, directors and underwriters in the Company’s initial publicoffering (the “Complaint”). The Complaint was brought on behalf of a purported class consisting of all persons or entities who purchased shares of theCompany’s Class A common stock pursuant or traceable to the Registration Statement relating to the Company’s initial public offering on February 18,2015. The Complaint asserted violations of Sections 11 and 15 of the Securities Act based on allegedly false or misleading statements and omissions withrespect to, among other things, the Company’s revenues from sales in the city and state of New York and the Company’s effective tax rate. The Complaintsought certification as a class action and unspecified compensatory damages plus interest and attorneys’ fees. On June 28, 2016, a nearly identical complaintwas filed in the same court captioned Patel v. Inovalon Holdings, Inc., et. al., No. 1:16-cv-05065. On July 5, 2016, the court consolidated the Xiang and Patelactions. On September 20, 2016, the court appointed a lead plaintiff and lead counsel. On December 21, 2016, lead plaintiff filed a consolidated class actioncomplaint (the “Amended Complaint”) purporting to assert violations of Sections 11, 12(a)(2), and 15 of the Securities Act of 1933, as amended, based onallegedly false or misleading statements and omissions with respect to substantially the same topics as alleged in the Complaint. On February 21, 2017, andas required by the court’s individual practices, the Company invoked the pre-motion process required prior to filing a motion to dismiss. On May 23, 2017,the court issued a decision and order construing the pre-motion letter submitted by the defendants as a motion to dismiss, granting dismissal of the Section 12claims against the individual defendants, but denying dismissal of the remaining claims. On June 6, 2017, defendants filed a joint motion for reconsiderationand supporting memorandum of law seeking reconsideration of the court’s decision and arguing that plaintiff’s claims are time-barred. Also on June 6, 2017,defendants submitted a letter to the court requesting, in the alternative to the motion for reconsideration, a pre-motion conference concerning defendants’anticipated motion for certification of an interlocutory appeal to resolve a controlling question of law. On July 11, 2017, the Company and its officers anddirectors filed their answer to the Amended Complaint denying that plaintiffs are entitled to any relief. On July 28, 2017, the court issued a decision andorder denying both the motion for reconsideration and defendant’s request for an interlocutory appeal. On January 22, 2018, lead plaintiff filed its motion forclass certification, and on February 12, 2018, defendants filed an opposition to such motion for class certification, which motion remains pending. Theparties presently are engaged in discovery. The court has set October 22, 2018 as the deadline for the completion of all discovery. In light of, among otherthings, the early stage of the litigation, the Company is unable to predict the outcome of theseF-28Table of ContentsInovalon Holdings, Inc.Notes to Consolidated Financial Statements (Continued)10. COMMITMENTS AND CONTINGENCIES (Continued)consolidated actions and is unable to make a meaningful estimate of the amount or range of loss, if any, that could result from this proceeding.On June 29, 2017, Virginia Rodriquez filed a putative shareholder derivative suit in the Supreme Court of the State of New York, County ofWestchester, against certain of the Company’s present and former directors and officers (the “Derivative Complaint”). The Company was named as a nominaldefendant. The Derivative Complaint makes allegations similar to the allegations in the securities class action Amended Complaint described above andasserts claims for breach of fiduciary duty, unjust enrichment, abuse of control and gross mismanagement, and seeks unspecified damages, an order directingthe Company “to reform and improve” certain corporate governance and internal procedures, restitution from the defendants and disgorgement of all profits,benefits and other compensation received and costs and disbursements incurred in connection with the action, including attorneys’ fees. On September 12,2017, the Company and the individual defendants filed a joint motion to dismiss the Derivative Complaint. As directed by the court, the parties submittedmemoranda of law concerning only the forum selection provision contained in the Company’s Second Amended and Restated Certificate of Incorporation.On December 27, 2017, the court issued a decision and order granting the defendants’ joint motion to dismiss plaintiff’s Derivative Complaint on the basis ofthe forum selection provision.11. STOCK-BASED COMPENSATIONOn December 31, 2006, the Company and its stockholders established the 2007 Long-Term Incentive Plan (the “2007 Plan”), under which theCompany’s Board of Directors, at its discretion, could grant stock options to employees and certain directors of the Company. During 2009, the Plan wasamended and currently authorizes the grant of stock options or other equity instruments for up to 10,275,000 shares of common stock. The stock-basedawards granted under the Plan generally expire at the earlier of a specified period after termination of service or the date specified by the Board of Directors atthe date of grant, but not more than ten years from such grant date. Stock issued as a result of exercised stock options will be issued from the Company’sauthorized available stock. Effective June 5, 2012, the 2007 Long-Term Incentive Plan changed its name to the Inovalon, Inc. 2007 Long-Term IncentivePlan. Options granted under the Plan may be incentive stock options or non-qualified stock options under the applicable provisions of the Internal RevenueCode. The 2007 Long-Term Incentive Plan was terminated upon completion of the IPO. Awards granted under the 2007 Long-Term Incentive Plan willremain outstanding until the earlier of exercise, forfeiture, cancellation or expiration.On February 18, 2015, the date of the completion of the Company’s IPO, the Company’s 2015 Omnibus Incentive Plan (the “2015 Plan”) becameeffective. The 2015 Plan provides for the grant of incentive stock options, within the meaning of Section 422 of the Internal Revenue Code of 1986, asamended (the “Code”), to the Company’s employees and any parent and subsidiary employees, and for the grant of non-qualified stock options, stockappreciation rights, restricted stock, RSAs, RSUs, dividend equivalent rights, cash-based awards (including annual cash incentives and long-term cashincentives), and any combination thereof to the Company’s employees, directors, and consultants and to employees, directors, and consultants of certainaffiliated entities. The Company reserved for issuance under the 2015 Plan shares of its Class A common stock equal to the sum of: (i) 7,335,430 shares ofClass A common stock; and (ii) the number of shares of its Class A common stock underlying awards granted under the Company’s 2007 Long-TermIncentive Plan, which was terminated upon completion of the IPO, that are forfeited, canceled, or expire (whether voluntarily or involuntarily).Stock OptionsThe Company uses the Black-Scholes option-pricing model to determine the estimated fair value for stock option awards. The Black-Scholes option-pricing model requires the use of estimates, including the fair market value of the Company’s common stock prior to the Company’s IPO, expected stockprice volatility, expected term, estimated forfeitures and the risk-free interest rate. The fair value of stock option awards is amortized on a straight-line basisover the requisite service period of the awards, which is generally the vesting period.Prior to the Company’s IPO, determining the fair value of the Company’s common stock required complex and subjective judgment and estimates.There is inherent uncertainty in making these judgments and estimates. Since the Company’s share price was not publicly quoted and lacked an activetrading market prior to the Company’s IPO in February 2015, the Company’s Compensation Committee was required to estimate the fair value of the commonstock at each meeting at which options were granted based on factors including, but not limited to, contemporaneous valuations of the Company’s commonstock performed by an unrelated third-party specialist, the lack of marketability of the Company’s common stock, developments in the business, sharerepurchase arrangements, the status of the Company’s development and sales efforts, revenue growth, valuations of comparable companies, and additionalobjective and subjective factors relating to the Company’s business.F-29Table of ContentsInovalon Holdings, Inc.Notes to Consolidated Financial Statements (Continued)11. STOCK-BASED COMPENSATION (Continued)Expected volatility was calculated as of each grant date based on reported data for several unrelated public companies within the Company’s industrythat are considered to be comparable to the Company and for which historical information was available. The average expected term was determined underthe simplified calculation as provided by the Securities and Exchange Commission’s Staff Accounting Bulletin No. 107, Share-Based Payment, which is themid-point between the vesting date and the end of the contractual term. The dividend yield assumption of zero was based upon the fact that the Companydoes not have a formal dividend payment policy, the Company does not intend to pay cash dividends on its common stock in the future, and, to the extentthe Company pays dividends in the future, there is no assurance that any such dividends will be comparable to those previously declared. Any declarations ofdividends and the establishment of future record and payment dates are subject to the final determination of the Company’s Board of Directors. The risk-freeinterest rate was determined by reference to the U.S. Treasury yield curve rates with the remaining term commensurate with the expected life assumed at thedate of grant. Forfeitures are recorded as adjustments to expense as they occur.The Company did not grant any options during the years ended December 31, 2017, 2016 and 2015. Stock option activity is as follows: Number ofSharesOutstanding Weighted-AverageExercisePrice Weighted-AverageGrant-dateFair Valueof UnderlyingCommonStock Weighted-AverageRemainingContractualLife (in years) AggregateIntrinsicValue(in thousands)Balance at January 1, 20172,184,281 $7.32 5.7 $6,514Stock options granted— $— — Stock options exercised(660,868) $7.13 Stock options cancelled(210,103) $6.97 Balance at December 31, 20171,313,310 $7.47 5.4 $9,895Exercisable at December 31, 2017782,710 $7.48 4.7 $5,886Vested and expected to vest at December 31, 20171,313,310 $7.47 5.4 $9,895As of December 31, 2017, there is $2.8 million of total unrecognized compensation expense related to unvested stock options, and this expense isexpected to be recognized over a weighted-average period of 1.4 years.The aggregate intrinsic value in the table above represents the total intrinsic value (the difference between the fair value of the Company’s commonstock and the exercise price, multiplied by the number of in-the-money options) that would have been received by the option holders had all option holdersexercised their options. This amount is subject to change based on changes to the fair market value of the Company’s common stock. The total intrinsic valueof options exercised during the years ended December 31, 2017, 2016 and 2015 was $4.2 million, $7.7 million, and $53.4 million, respectively.Restricted Stock UnitsIn November 2014, the Company began issuing RSUs pursuant to the 2007 Plan. The Company uses the fair market value of the underlying commonstock on the date of grant to determine the fair value of RSUs. The RSUs vest upon the satisfaction of both a service condition and a liquidity condition. Theservice condition for these awards is satisfied over five years. The liquidity condition is satisfied upon the occurrence of a qualifying event, defined as achange of control transaction or six months following the completion of the Company’s IPO. As of December 31, 2014, no stock-based compensationexpense had been recognized for these RSUs because the qualifying events (described above) had not occurred. This six-month period following the IPO isnot a substantive service condition and, accordingly, in 2015, the year in which the Company consummated its IPO, the Company recognized cumulativestock-based compensation expense for the portion of the RSUs that had met the service condition as of that date, following the straight-line method, net ofestimated forfeitures. All remaining unrecognized stock-based compensation expense related to these RSUs is recorded over the remaining requisite serviceperiod using the straight-line method.During 2015, the Company began granting RSUs pursuant to the 2015 Plan. These awards vest ratably over five years on each anniversary of the grantdate. Upon vesting, the Company will deliver to the holder shares of the Company’s Class A common stock under the 2015 Plan. Pursuant to the terms of theawards, any unvested shares terminate upon the RSU holders’ separation from the Company. The Company recognizes stock-based compensation expenseratably over the requisite service period and records adjustments related to forfeitures as they occur.F-30Table of ContentsInovalon Holdings, Inc.Notes to Consolidated Financial Statements (Continued)11. STOCK-BASED COMPENSATION (Continued)A summary of RSU activity is as follows: Number of RSUs WeightedAverageFair ValuePer UnitRSUs granted and unvested at January 1, 2017293,489 $21.85RSUs granted during 201745,625 13.70RSUs vested during 2017(87,444) 21.54RSUs forfeited during 2017(30,732) 24.42RSUs granted and unvested at December 31, 2017220,938 $19.94The weighted-average fair value of RSUs granted during the years ended December 31, 2017, 2016 and 2015 was $13.70, $0.00 and $30.64,respectively. During the years ended December 31, 2017, 2016 and 2015, these awards had an aggregate grant date fair value of $0.6 million, $0.0 millionand $2.3 million, respectively. The total fair value of RSUs vested during the years ended December 31, 2017, 2016 and 2015 was $1.3 million, $1.5 millionand $1.7 million, respectively. As of December 31, 2017, there was a total of $3.6 million in unrecognized compensation cost related to unvested RSUs,which are expected to be recognized over a weighted-average period of approximately 1.8 years.Restricted Stock AwardsDuring 2015, the Company began granting RSAs pursuant to the 2015 Plan. RSAs granted to directors fully vest upon the one year anniversary of theaward grant date, and RSAs granted to employees vest ratably over five years on each anniversary of the grant date. Upon vesting, the Company will delivershares of the Company’s Class A common stock to the holders. Pursuant to the terms of the awards, any unvested shares terminate upon the RSA holders’separation from the Company. The Company recognizes stock-based compensation expense for the RSAs following the straight-line method over therequisite service period. The Company records adjustments related to forfeitures as they occur.In March 2017, the Company began issuing RSAs with performance conditions under the 2015 Plan. The awards have vesting conditions tied to theachievement of specified performance conditions, which have target performance levels that span from three to five years. Upon the conclusion of theperformance period, the performance level achieved will be measured and the ultimate number of shares that vest will be determined. Stock-basedcompensation expense for these awards is recorded ratably over their vesting period, depending on the specific terms of the award and the probability ofachievement of the specified performance conditions. During 2017, the Company granted 2.6 million RSAs, of which 1.2 million had performance vestingconditions.A summary of RSA activity is as follows: Number ofRSAs WeightedAverageFair ValuePer UnitRSAs granted and unvested at January 1, 20172,836,860 $14.47RSAs granted during 20172,648,102 12.64RSAs vested during 2017(621,851) 14.42RSAs forfeited during 2017(261,479) 14.35RSAs granted and unvested at December 31, 20174,601,632 $13.43The weighted-average fair value of an RSA granted during the years ended December 31, 2017, 2016 and 2015 was $12.64, $13.81 and $18.79,respectively. During the years ended December 31, 2017, 2016 and 2015, these awards had an aggregate grant date fair value of $33.5 million, $36.9 millionand $11.2 million, respectively. The total fair value of RSAs vested during the years ended December 31, 2017, 2016 and 2015 was $9.3 million, $3.0million and $0, respectively. As of December 31, 2017, there was a total of $56.0 million in unrecognized compensation cost, net of estimated forfeitures,related to unvested RSAs, which are expected to be recognized over a weighted-average period of approximately 3.7 years.Employee Stock Purchase PlanOn February 18, 2015, the date of the completion of the Company’s IPO, the 2015 Employee Stock Purchase Plan (“2015 ESPP”) became effective. The2015 ESPP provides (i) for six months purchase periods (commencing each March 1 andF-31Table of ContentsInovalon Holdings, Inc.Notes to Consolidated Financial Statements (Continued)11. STOCK-BASED COMPENSATION (Continued)September 1) and (ii) that the purchase price for shares of Class A common stock purchased under the 2015 ESPP will be 85% of the fair market value of theCompany’s Class A common stock on the last day of the applicable offering period. Eligible employees are able to select a rate of payroll deduction between1% and 15% of their base cash compensation subject to a maximum payroll deduction per offering period of $7,500. The 2015 ESPP is intended to qualify asan employee stock purchase plan under Section 423 of the Code. The Company reserved 1,833,857 shares of Class A common stock for issuance under the2015 ESPP. The following table summarizes the ESPP activity during the years shown: Year Ended December 31, 2017 2016 2015Shares purchased and issued49,247 61,184 30,689Weighted average discounted price per share$11.08 $14.03 $18.61Stock-based compensation expense (in thousands)$154 $140 $15612. EMPLOYEE BENEFIT PLANSOn June 1, 2007, the Company adopted a 401(k) Profit Sharing Plan and Trust (“401(k) Plan”). The 401(k) Plan was amended on February 1, 2010. Theamended 401(k) Plan allows employees to become eligible to participate upon the completion of 30 days of service. The Company matches employeecontributions up to 4.0% of their compensation and the employer contributions vest immediately.During the years ended December 31, 2017, 2016, and 2015, total expense recorded for the Company’s matching 401(k) contributions were $5.2million, $5.2 million, and $4.2 million, respectively.13. STOCKHOLDERS’ EQUITY (DEFICIT)On February 18, 2015, the Company completed its initial public offering of 22,222,222 shares of Class A common stock and, upon the underwriters’exercise of their option to purchase additional shares, issued an additional 3,142,581 shares of Class A common stock for a total of 25,364,803 shares issued(the “IPO”). All of the shares issued in the IPO were primary shares offered by the Company as none of the Company’s stockholders sold any shares in the IPO.The offering price of the shares sold in the IPO was $27.00 per share, resulting in net proceeds to the Company, after the underwriters’ discounts andcommissions and other expenses, payable by the Company, of approximately $639.1 million.On May 4, 2016, the Company announced that its Board of Directors authorized a program to repurchase up to $100.0 million of Inovalon’s Class Acommon stock through December 31, 2017. Repurchases under the Company’s share repurchase program have been made in open-market or privatelynegotiated transactions. The Company funded repurchases through a combination of cash on hand, cash generated by operations and sales of short-terminvestments, if needed. On November 2, 2016, the Company announced that its Board of Directors authorized an expansion of the share repurchase programto repurchase up to an additional $100.0 million of shares of Inovalon’s Class A Common Stock (bringing the total to $200.0 million) through December 31,2017. The share repurchase program did not obligate the Company to acquire any particular amount of Class A common stock. During the years endedDecember 31, 2017 and 2016, the Company repurchased 7,111,190 and 7,508,985 Class A common shares for $93.6 million and $106.2 million,respectively, at an average cost of $13.16 and $14.15 per share, respectively, excluding commissions. The share repurchase program expired on December 31,2017.14. INCOME TAXESIn December 2017, the Tax Act was enacted which includes a number of changes to existing U.S. tax laws that impact the Company, most notably areduction of the U.S. corporate income tax rate from 35% to 21% for tax years beginning after December 31, 2017. The Tax Act also provides for theacceleration of depreciation for certain assets placed into service after September 27, 2017 and prospective changes beginning in 2018, including repeal ofthe domestic manufacturing deduction, acceleration of tax revenue recognition, capitalization of research and development expenditures, additionallimitations on executive compensation and limitations on the deductibility of interest. As a result of the reduction in the U.S. corporate income tax rate from35% to 21% under the Tax Act, the Company revalued its ending net deferred tax liabilities at December 31, 2017 and recognized a $15.5 million tax benefitin the Company’s consolidated statement of operations for the year ended December 31, 2017. The tax benefit recognized may be impacted if additionalguidance is released.F-32Table of ContentsInovalon Holdings, Inc.Notes to Consolidated Financial Statements (Continued)14. INCOME TAXES (Continued)The provision for income taxes consisted of the following (in thousands): Year Ended December 31, 2017 2016 2015Current: Federal$2,194 $7,480 $31,351State2,162 5,788 10,937Foreign (Puerto Rico)78 267 574Total current provision4,434 13,535 42,862Deferred: Federal(8,333) (1,533) 4,708State1,668 (207) 1,078Total deferred provision(6,665) (1,740) 5,786Total provision for income taxes$(2,231) $11,795 $48,648The provision for income taxes reconciles to the amount computed by applying the federal statutory rate, 35.0%, to income before income taxes asfollows (in thousands, except percentages): Year Ended December 31, 2017 2016 2015Expected federal income tax35.0 % $11,406 35.0 % $13,650 35.0 % $40,149State income taxes, net of federal income tax effect8.0 % 2,606 7.4 % 2,859 6.8 % 7,753Permanent items0.3 % 88 (0.9)% (357) 0.3 % 390Research and development tax credits(2.6)% (850) (1.9)% (756) (0.8)% (864)Excess tax benefits and stock-based compensation(0.7)% (243) (3.0)% (1,165) — % —Acquisition-related tax adjustments(1.4)% (445) (4.3)% (1,686) — % —Enactment of the Tax Act(47.4)% (15,461) — % — — % —Other2.0 % 668 (2.0)% (750) 1.1 % 1,220Income tax expense(6.8)% $(2,231) 30.3 % $11,795 42.4 % $48,648F-33Table of ContentsInovalon Holdings, Inc.Notes to Consolidated Financial Statements (Continued)14. INCOME TAXES (Continued)Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reportingpurposes and the amounts used for income tax purposes. Significant components of the Company’s deferred tax assets and liabilities were as follows (inthousands): December 31, 2017 2016Components of deferred tax assets and liabilities Deferred tax assets: Accrued expenses and reserves$313 $3,135Stock-based compensation3,040 2,849Deferred rent581 987Net operating loss carryforwards2,654 1,047Other758 904Total deferred tax assets7,346 8,922Deferred tax liabilities: Intangibles9,568 18,046Property, equipment and capitalized software21,564 23,108Prepaids and other2,639 2,083Total deferred tax liabilities33,771 43,237Net deferred tax liabilities before valuation allowance26,425 34,315Valuation Allowance217 238Net deferred tax liabilities$26,642 $34,553Uncertain Tax Positions—During the years ended December 31, 2017, 2016, and 2015, changes in the liability for gross uncertain tax position,including interest, totaled $0.1 million, $0.1 million, and $0.0 million, respectively. The following table presents the changes in uncertain tax position (inthousands). 2017 2016 2015Uncertain tax position January 1$80 $— $—Gross increase in tax positions in prior period291 80 —Gross decrease in tax positions in prior period(160) — —Gross increase in tax positions from acquisitions— — —Settlement(211) — —Lapse of statute of limitations— — —Uncertain tax position at December 31$— $80 $—Net Operating Losses (“NOL”) carryforwards —At December 31, 2017 and 2016, we had U.S. federal and state NOL carryforwards of approximately$3.3 million and $1.0 million, respectively. These NOL carryforwards will expire by 2037.While the Company believes it has adequately provided for all tax positions, amounts asserted by taxing authorities could differ from the Company’saccrued position. Accordingly, additional provisions on federal, state and foreign tax-related matters could be recorded in the future as revised estimates aremade or the underlying matters are settled or otherwise resolved.The Company is subject to taxation by the United States of America, various United States of America jurisdictions, and Puerto Rico. The number ofyears with open tax audits varies depending on the tax jurisdiction.F-34INOVALON HOLDINGS, INC.Schedule IIValuation and Qualifying Accounts and Reserves(in thousands) Allowance for Accounts Receivable Balance atBeginningof Year AdditionsChargedAgainstRevenue AdditionsCharged toCost andExpense Deductions Balance atEnd of YearYear Ended December 31, 2017$3,782 $8,886 $— $(10,630) $2,038Year Ended December 31, 2016$1,022 $3,792 $— $(1,032) $3,782Year Ended December 31, 2015$1,827 $1,126 $— $(1,931) $1,022F-35Exhibit 10.22EMPLOYMENT AGREEMENTThis Agreement (“Agreement”) is made and entered into as of November 14, 2017 by and between Inovalon Holdings, Inc., aDelaware corporation, with its principal office at 4321 Collington Road, Bowie, Maryland 20716 (including its affiliates andsubsidiaries, “Employer” or “Inovalon”), and June D. Duchesne (“Employee” or “you”), whose home address is 15 Auburn Place,Brookline, Massachusetts 02446. Employee enters into this Agreement in connection with Employee’s current acceptance ofemployment with Inovalon Holdings, Inc. or its subsidiary or affiliate, and any future transfer to or employment with Inovalon, Inc. oranother of its subsidiaries or affiliates (depending on the circumstances, each an “Employer”).” Each of Employer and Employee mayalso be referred to in this Agreement as a “party” or collectively as the “parties.”Employee desires to be employed by Employer. You acknowledge that as a result of such employment, you will be trained inEmployer’s business procedures and will have access to Confidential Information (defined below) and other non-public informationbelonging to Employer and its clients, including protected health information, customer lists, pricing practices, contract negotiations,business plans, proprietary data, technical data and other business information. Moreover, you acknowledge and agree that Employerhas developed favorable goodwill with its clients and the business community, and you understand Employer’s need to safeguard itsgoodwill and Confidential Information, as well as that of its clients. You acknowledge that you have had an opportunity to review thisAgreement and agree that your employment with Employer is adequate consideration for all of the obligations set forth in thisAgreement, including without limitation the non-compete and non-solicitation provisions that apply during and after the Term.1.EMPLOYMENT TERMS AND DUTIES1.1 Employment. This Agreement begins on January 1, 2018 (the “Start Date”) and continues until terminated by eitherEmployer or Employee under Section 4 below (the “Term”). Notwithstanding the Term, this Agreement does not give Employee anyright to employment for any specific period of time, and Employee will remain an employee-at-will during the Term of Employee’semployment with Employer. Each party reserves the right to terminate this Agreement at any time, with or without Cause (as hereafterdefined).1.2 Duties. Employee will have the duties and will initially serve in the capacity set forth on Schedule A attached hereto. In theabsence of the express written consent of Employer to the contrary, you will devote the entirety of your professional and business time,attention, skill, and energy exclusively to the business of Employer, will use your best efforts to promote the success of Employer’sbusiness, and will cooperate fully with the board of directors and executive officers of Employer in the advancement of the bestinterests of Employer. Moreover, Employee must at all times adhere to the confidentiality, non-disclosure, and other terms set forth inSections 5 and 6 below. Participation in other activities, such as Advisory Boards, teaching engagements, and the like, will bepermitted, provided that i) such do not materially distract from the role and responsibilities of your duties to Employer, and ii) do notconflict with or bias your role and responsibilities of your duties to Employer, and iii) such are approved in accordance with Inovalon’sOutside Board and Advisory Board Membership Policy. INOV Employment Agreement (JDuchesne)November 14, 2017Page 2 of 121.3 Compliance with Laws. Employee understands that Employer’s business is highly regulated. In particular, Employer in thecourse of its business handles protected health information and often serves as a business associate of its clients, as those terms aredefined under the Health Insurance Portability and Accountability Act of 1996, as amended (“HIPAA”), any applicable state privacylaws and, all applicable regulations promulgated thereunder. As such, Employer and its personnel are subject to the HIPAA rules andregulations promulgated by the Secretary of Health and Human Services, as well as strict privacy and security contract provisions withits clients. You agree to conduct your duties in compliance with applicable laws and to abide by such HIPAA requirements and suchother compliance policies and procedures of Employer. If you become aware of any violation of these requirements, or you have anyquestions regarding the same, you will contact Employer’s Chief Compliance Officer or Chief Privacy Officer.2.COMPENSATION2.1 Compensation. During the Term, you will be paid the base salary (“Salary”) and bonus, and additional incentivecompensation, if any, as is set forth on, and subject to the terms of, Schedule B attached hereto. Salary will be payable in equal periodicinstallments according to Employer’s customary payroll practices, but no less frequently than monthly. Salary will be reviewed byEmployer not less frequently than annually, and may be adjusted upward or downward in Employer’s sole discretion. Bonuses, if any,are at the discretion of Employer and subject to Employer’s then current bonus policy, which may include such criteria as Employerprofitability and success and individual performance. More information regarding bonuses and other incentive compensation you maybe eligible for, if any, is provided in Schedule B.2.2 Benefits. During the Term, you will be permitted to participate in such 401(k), medical insurance, and other employeebenefit plans of Employer that may be in effect from time to time, to the extent you are eligible under the terms of those plans(collectively, the “Benefits”). Such Benefits as of the Start Date are as generally described on Schedule B and may be modified byEmployer at its discretion.2.3 Paid Time Off (“PTO”) and Holidays. You will be entitled to the number of PTO days (vacation, sick leave and personalleave) as is set forth on Schedule B and accordance with the policies of Employer in effect from time to time. You will also be entitledto the paid holidays determined each year in accordance with Employer’s policies then in effect. PTO days and holidays during anycalendar year that you do not use during that year will expire and may not be carried forward and used in any subsequent year.3.REIMBURSEMENT OF EXPENSESEmployer will pay on behalf of Employee (or reimburse Employee for) reasonable expenses incurred by Employee at therequest of, or on behalf of, Employer in the performance of Employee’s duties under this Agreement, and in accordance withEmployer’s employment policies. In order to receive these reimbursements, you must file expense reports in accordance withEmployer’s policies.4.TERMINATION4.1 Termination Without Cause. Either Employer or you may terminate your employment with Employer for any reason or noreason upon delivery of a Termination Notice to the other party, which will set forth the date on which your employment and thisAgreement will terminate. For purposes of this Agreement, a termination of employment due to Employee’s death or Disability (asdefined below) will be considered a termination without Cause.4.2 Termination With Cause. Employer may terminate your employment at any time for “Cause.” “Cause” includes each of thefollowing, either alone or in any combination: (a) a material breach by EmployeeINOV Employment Agreement (JDuchesne)November 14, 2017Page 3 of 12of the terms of this Agreement or any other agreement between Employee and Employer or an affiliate of Employer; (b) the persistentand willful failure by Employee to perform Employee’s duties or obligations under any agreement between Employee and Employer oran affiliate of Employer or to adhere to any written policies of Employer or such affiliate of Employer, unless the failure is cured within10 days after written notice thereof to Employee (Employer in its sole discretion may determine that a failure is not subject to cure andmay dispense with the cure period); (c) the appropriation (or attempted appropriation) of a material business opportunity of Employer oran affiliate of Employer, including attempting to secure or securing any personal profit in connection with any transaction entered intoon behalf of Employer or such affiliate of Employer, as the case may be; (d) the misappropriation (or attempted misappropriation) offunds or property of Employer or an affiliate of Employer; (e) the commission (or attempted commission) of any act of theft, fraud,dishonesty or which has or in the reasonable discretion of Employer may have a detrimental effect on the reputation or business ofEmployer or an affiliate of Employer; (f) the disclosure of Confidential Information of Employer or an affiliate of Employer orconfidential information of their respective clients; or (g) conviction of, the indictment for (or its procedural equivalent), or the enteringof a guilty plea or a plea of no contest with respect to, a felony, the equivalent thereof, or any other crime with respect to whichimprisonment is a possible punishment, or any act involving moral turpitude. Employer in its sole discretion will decide whether acircumstance constitutes Cause, and no Employer proof thereof is required. If your employment is terminated for Cause, youremployment and this Agreement will immediately terminate.4.3 Death. Upon Employee’s death, Employee’s employment with Employer will terminate and Employer will not be obligatedto make any further payments to Employee, except as otherwise described in this Agreement.4.4 Disability. If Employer reasonably determines in good faith that you are unable to perform the essential functions of youremployment with Employer due to illness, injury or incapacity, taking into account any reasonable accommodation that does notimpose an undue hardship on Employer, for 90 consecutive days or more than 120 days in any rolling one-year period (“Disability”),Employer may terminate your employment, and under such circumstances, will not be obligated to make any further payments to you,except as otherwise described in this Agreement. Employer at all times reserves the right to permanently replace Employee upontermination due to a Disability. This Subsection 4.4 of this Agreement is intended to be interpreted and applied consistent with anylaws, statutes, regulations and ordinances prohibiting discrimination, harassment, and/or retaliation on the basis of a disability.4.5 Continuing Obligations. The termination of your employment and termination of this Agreement do not affect certainobligations set forth herein (such as Sections 4.7, 5, 6 and 7.1) that continue to apply after your employment with Employer is ended.4.6 Termination Pay. Effective on the date on which your employment and this Agreement terminate (the “Termination Date”),Employer will be obligated to pay you only the compensation as is provided in this Section 4. Upon termination, you will be entitled toreceive your base Salary only through the Termination Date. You will not be entitled to receive any bonus for the year during which theTermination Date occurs. No other incentive compensation will be granted or provided to you after the Termination Date. You will notreceive, as part of your termination pay, any payment or other compensation for any unused PTO or unused holidays.4.7 Severance Pay. If your employment is terminated by Employer other than for Cause, and if (on or before the 52nd dayfollowing the Termination Date) you execute and let become effective an agreement acceptable to Employer acknowledging the receiptof such severance and your release of any and all claims that you may have against Employer or any person or entity associated withEmployer, as well as an additional commitments to comply with the Agreement terms that survive termination of the Agreement, suchas thoseINOV Employment Agreement (JDuchesne)November 14, 2017Page 4 of 12in Sections 5 and 6, Employer will provide you, as soon as practicable thereafter, but no later than the 60th day following theTermination Date, a cash severance benefit equal to the greater of (i) one month’s Salary or (ii) one month’s Salary per each full year ofyour service with Employer, subject to a maximum of six months’ Salary. For the sake of clarity, severance pay is based solely on baseSalary and does not include benefits, bonuses, or any other incentive compensation.4.8 Benefits. Employee’s accrual of, or participation in most plans providing for, the Benefits will generally cease as of the endof the month in which the Termination Date occurs, and Employee will be entitled to accrued Benefits under the plans only as providedin those plans. Some Benefits may terminate as of the Termination Date.4.9 Cooperation after Employment. After Employee’s employment with Employer terminates for any reason, Employee willcooperate fully with Employer with respect to any litigation, investigation, government proceeding, patent prosecution or other businessmatter that relates to matters as to which the Employee acquired knowledge during Employee’s employment with Employer.5.NON-DISCLOSURE COVENANT; OWNERSHIP OF EMPLOYEE WORKS5.1 Acknowledgments by Employee. You acknowledge that (a) during the Term and as a part of your employment, you willbe afforded access to Confidential Information; (b) public disclosure of Confidential Information could have an adverse effect onEmployer and its business; (c) Employer will obtain exclusive ownership of each Employee Work (defined below), and Employer willbe at a substantial competitive disadvantage if it fails to acquire exclusive ownership of each Employee Work; and (d) the provisionsincluded in this Section 5 are reasonable and necessary to prevent the improper use or disclosure of Confidential Information and toprovide Employer with exclusive ownership of all Employee Works.5.2 Confidential Information. The term “Confidential Information” means any and all: (a) trade secrets concerning the businessand affairs of Employer or its clients (previous, current, or those actively being pursued), product and services specifications, data,know-how, formulae, compositions, processes, designs, sketches, photographs, graphs, drawings, samples, inventions and ideas, past,current, and planned research and development, current and planned product development or distribution methods and processes, clientlists, current and anticipated client requirements, price lists and methodologies, market studies, business plans, computer software andprograms (including object code and source code), computer software and database technologies, systems, structures, and architectures(and related formulae, compositions, processes, improvements, devices, know-how, inventions, discoveries, concepts, ideas, designs,methods and information), however documented, that is a trade secret within the meaning of applicable state trade secret law;(b) information collected by Employer in the performance of its services on behalf of its clients (previous, current, or those activelybeing pursued), which may include certain medical and patient related information and any other information protected by law;(c) information concerning the business and affairs of Employer (which includes historical financial statements, financial projectionsand budgets, historical and projected sales, capital spending budgets and plans, the names and backgrounds of key personnel,personnel training and techniques and materials), however documented; and (d) notes, analysis, compilations, studies, summaries, andother material prepared by or for Employer containing or based, in whole or in part, on any information included in the foregoing.5.3 Agreements of Employee. Employee covenants as follows:(a) Confidentiality.INOV Employment Agreement (JDuchesne)November 14, 2017Page 5 of 12(i) During and following the Term, Employee will hold in confidence the Confidential Information and will notdisclose it to any person or entity, or use it for the benefit of Employee or any third party, except with the specific prior writtenconsent of Employer or except as otherwise expressly permitted by the terms of this Agreement.(ii) Any trade secrets of Employer will be entitled to all of the protections and benefits under applicable state tradesecret law and any other applicable law. If any information that Employer deems to be a trade secret is found by an arbitrator ora court of competent jurisdiction not to be a trade secret for purposes of this Agreement, such information will, nevertheless, beconsidered Confidential Information for purposes of this Agreement. Employee hereby waives any requirement that Employersubmits proof of the economic value of any trade secret or posts a bond or other security.(iii) None of the foregoing obligations and restrictions applies to any part of the Confidential Information thatEmployee demonstrates was or became generally available to the public other than as a result of a disclosure by Employee.(iv) Employee will not remove from Employer’s premises (except to the extent such removal is for purposes of theperformance of Employee’s duties, or except as otherwise specifically authorized by Employer) any document, record,notebook, plan, model, component, computer hardware, device, or computer software or code, whether embodied in a disk orin any other form (collectively, the “Proprietary Items”). Employee recognizes that, as between Employer and Employee, all ofthe Proprietary Items, whether or not developed by Employee, are the exclusive property of Employer. Upon termination of thisAgreement by either party, or upon the request of Employer during the Term, Employee will return to Employer all of theProprietary Items in Employee’s possession or subject to Employee’s control, and Employee will not retain any copies,abstracts, notes, sketches, or other physical embodiment of any of the Proprietary Items.(v) Following any termination of employment with Employer, Employee will not solicit or accept any ConfidentialInformation or Proprietary Items from any of Employer’s other employees or former employees or from any of Employer’scurrent or former service providers, customers, clients, directors, vendors, or representatives.(vi) Notice of Immunity under the Economic Espionage Act of 1996, as amended by the Defend Trade Secrets Actof 2016 (“DTSA”). Notwithstanding any other provision of this Agreement, Employee shall not be held criminally or civillyliable under any federal or state trade secret law for any disclosure of a trade secret that: (A) is made: (1) in confidence to afederal, state, or local government official, either directly or indirectly, or to an attorney; and (2) solely for the purpose ofreporting or investigating a suspected violation of law; or (B) is made in a complaint or other document that is filed under seal ina lawsuit or other proceeding. Notwithstanding any other provision of this Agreement, if Employee files a lawsuit for retaliationby Employer for reporting a suspected violation of law, Employee may disclose Employer’s trade secrets to Employee’sattorney and use the trade secret information in the court proceeding if Employee: (x) files any document containing the tradesecret under seal; and (y) does not disclose the trade secret, except pursuant to court order.(b) Employee Work-Product.(i) To the extent permitted under applicable laws, each Employee Work (defined below), including any copyrights,patents, or other intellectual property rights pertaining thereto,INOV Employment Agreement (JDuchesne)November 14, 2017Page 6 of 12will constitute “works made for hire” and the ownership of each Employee Work will vest in Employer at the time created. If itis determined that any Employee Works are not works made for hire under applicable laws, Employee hereby assigns andtransfers to Employer all of Employee’s right, title, and interest, including all rights of copyright, patent, and other intellectualproperty rights, to or in such Employee Works. To the extent that the rights that Employee has in any Employee Work are notfully or effectively transferred or assigned to Employer by this Agreement, Employee hereby grants and promises to grant toEmployer a perpetual, worldwide, paid-up and royalty-free, non-exclusive, and sublicensable right and license to freely exploitand exercise such rights in that Employee Work. Employee covenants that Employee will promptly: (1) disclose to Employer inwriting any Employee Work; (2) assign to Employer or to a party designated by Employer, at Employer’s request and withoutadditional compensation, all of Employee’s right to Employee Work for the United States and all foreign jurisdictions;(3) execute and deliver to Employer such applications, assignments, and other documents as Employer may request in order toapply for and obtain patents or other registrations with respect to any Employee Work in the United States and any foreignjurisdictions and to otherwise transfer, vest, or confirm Employer’s right, title, and interest in the Employee Work; (4) sign allother papers necessary to carry out the above obligations; and (5) give testimony and render any other assistance but withoutexpense to Employee in support of Employer’s rights to any Employee Work.(ii) The term “Employee Work” means any idea, data, invention, document, technique, modification, process, orimprovement (whether patentable or not), any industrial design (whether registerable or not), any mask or software work,however fixed or encoded, that is suitable to be fixed, embedded or programmed (in a semiconductor product, software media,or other fashion, whether recordable or not), and any work of authorship (whether or not copyright protection may be obtainedfor it) created, conceived, or developed by Employee, either solely or in conjunction with others, during the Term, or a periodthat includes a portion of the Term, that relates in any way to, or is useful in any manner in, the business then being conductedor proposed to be conducted by Employer or clients of Employer (previous, current, or those actively being pursued byEmployer) and any such item created by Employee, either solely or in conjunction with others, following termination ofEmployee’s employment with Employer, that is based upon or uses Confidential Information.6.NON-COMPETITION AND NON-INTERFERENCE6.1 Acknowledgments by Employee. You acknowledge that: (a) the services to be performed by you in connection with youremployment with Employer are of a special, unique, unusual, extraordinary, and intellectual character; (b) Employer’s business isnational in scope and its products and services are marketed and sold throughout the United States; and (c) the provisions hereof arereasonable and necessary to protect Employer’s legitimate business interests.6.2 Covenants of Employee. Employee covenants that:(a) During the Term and the Post-Employment Period (defined below), except in the course of employment hereunderor as otherwise provided below, Employee will not, directly or indirectly, engage or invest in, own, promote, develop, sell, manage,operate, finance, control, or participate in the ownership, management, operation, financing, or control of, be employed by,associated with, or in any manner connected with, lend Employee’s name or any similar name to, lend Employee’s credit to orrender services or advice to, any business whose products or activities compete in whole or in part with the products or activities ofEmployer anywhere within the United States. However, Employee mayINOV Employment Agreement (JDuchesne)November 14, 2017Page 7 of 12purchase or otherwise acquire up to (but not more than) one percent of any class of securities of any enterprise (but withoutotherwise participating in the activities of such enterprise) if such securities are listed on any national or regional securitiesexchange or have been registered under Section 12(g) of the Securities Exchange Act of 1934. The intent of this Section 6.2(a)covenant is to prevent Employee from engaging directly or indirectly in activities that compete with Employer’s business. ThisSection 6.2(a) is not intended to be construed to prevent Employee during the Post-Employment Period from working for anotherentity involved in technology or health care activities, so long as that entity is not in competition with Employer. If Employeewishes to be employed by a large entity with multiple activities, and in that new position will be screened from and will not in anyway participate in or provide advice to any part of the business that competes with Employer’s business, then Employee mayrequest a waiver of this paragraph 6.2(a), in exchange for representations from Employee and the new employer that are satisfactoryto Employer. Grant of any waivers under this Section will be at the sole discretion of Employer and subject to any terms Employerfinds necessary to protect its business, confidential information, and proprietary information.(b) Whether for or on the Employee’s own account or for the account of any other person or entity, at any time duringthe Term and the Post-Employment Period, Employee will not, directly or indirectly, solicit business of the same or similar typebeing carried on by Employer, from any person or entity known by Employee to be a previous, current, or actively pursuedpotential customer of Employer, whether or not Employee had personal contact with such person or entity during and by reason ofEmployee’s employment with Employer.(c) Whether for or on the Employee’s own account or the account of any other person or entity at any time during theTerm and the Post-Employment Period, Employee will not, directly or indirectly, (i) solicit, employ, be employed by, or otherwiseengage as an employee, employer, independent contractor, service provider, or otherwise, any person who is or was an employeeor service provider of Employer at any time during the Term or in any manner induce or attempt to induce any employee or serviceprovider of Employer to terminate employment or service with Employer; or (ii) interfere with Employer’s relationship with anyperson or entity, including any person or entity who at any time during the Term was an employee, contractor, supplier, serviceprovider, or customer of Employer.(d) Employee will not, directly or indirectly, at any time during or after the Term, disparage Employer or any of its past,present or future shareholders, directors, officers, employees, agents, or clients. This Section 6.2(d) non-disparagement covenant isintended to prevent disparaging personal and similar comments by Employee in any context, including in the context of any disputeproceedings (see Section 7.1 below). The foregoing shall not be violated by truthful statements (i) in response to legal process,required governmental testimony or filings or administrative or arbitral proceedings (including depositions in connection with suchproceedings) or (ii) made in the course of Employee discharging his/her duties for Company.6.3 Post-Employment Period. For purposes hereof, the term “Post-Employment Period” means the two-year period beginningon the Termination Date. If any of the foregoing covenants is held to be unreasonable, arbitrary, or against public policy, such covenantwill be considered to be divisible with respect to scope, time, and geographic area, and such lesser scope, time, or geographic area, orall of them, as an arbitrator or court of competent jurisdiction may determine to be reasonable, not arbitrary, and not against publicpolicy, will be effective, binding, and enforceable against Employee.INOV Employment Agreement (JDuchesne)November 14, 2017Page 8 of 126.4 Notice to Employer. Employee will give notice to Employer, within ten days after accepting any other employment duringthe Post-Employment Period, of the identity of Employee’s new employer. Employer may notify such employer that Employee is boundby this Agreement and, at Employer’s election, furnish such employer with a copy of this Agreement or with any relevant portionsthereof.6.5 Successors and Assigns. The promises, covenants and obligations of Sections 5 and 6 of this Agreement shall be bindingupon and inure to the benefit of Employer and its successors and assigns, and Employee agrees that Sections 5 and 6 of the Agreementmay be assigned by Employer without Employee’s consent. The promises, covenants and obligations contained in Sections 5 and 6 ofthis Agreement are not assignable by Employee.7.GENERAL PROVISIONS7.1 Dispute Resolution.(a) General. It is the parties’ intent that most disputes will be resolved by discussions between Employer and Employee.It is recognized, however, that one or both parties may seek a litigated resolution of a dispute, with or without first seeking toresolve the dispute in a non-litigated manner. The parties agree that all such litigated disputes will be resolved in accordance withbinding mandatory arbitration, as described in Section 7.1(b) below, except as described in Section 7.1(c) below.(b) Mandatory Arbitration. Except as provided in Section 7.1(c), any dispute arising out of this Agreement, Employee’semployment with Employer, the termination of that employment, the interpretation of this Agreement, any matters affected by thisAgreement, or whether the parties have agreed to arbitrate a particular claim, must be submitted by one or both parties to bindingarbitration before a single arbitrator under the rules of the American Arbitration Association (“AAA”) then applicable to commercialdisputes. In agreeing to mandatory arbitration, the parties expressly understand and agree that they are waiving their rights to pursueother available dispute resolution processes, such as a court action or administrative proceeding, to settle their disputes. The partiesexpressly waive any rights they may otherwise have to a jury trial to settle their disputes. Any such arbitration will be held withinthe State of Maryland and judgment upon any award thus obtained may be entered in any court having jurisdiction thereof. In anysuch arbitration, each party will bear its own expenses, including expenses of attorneys, financial experts and other witnesses,unless otherwise required by law. Any arbitration fees, including compensation for the arbitrator, will be divided equally betweenthe parties, unless otherwise required by law.The parties agree that to the maximum extent permitted by law, the claims subject to this mutual promise to arbitrate include,but are not limited to, all claims and rights that Employee may have against Employer arising out of the employment relationshipwith Employer, including but not limited to all statutory claims arising out of the employment relationship or its termination.Specifically included among the claims intended to be subject to mandatory arbitration are any claims that Employee may haveunder Title VII of the Civil Rights Act of 1964, as amended, and the Civil Rights Act of 1991, the Age Discrimination inEmployment Act, the Rehabilitation Act of 1973, the Older Workers Benefit Protection Act, the Pregnancy Discrimination Act, theAmericans with Disabilities Act, the federal Family and Medical Leave Act, Section 1981 of the Civil Rights Act of 1866, theEmployee Retirement Income Security Act, the federal Equal Pay Act, the Fair Labor Standards Act, the federal Worker Adjustmentand Retraining Notification act, all similar state and local laws, rules and regulations, and all amendmentsINOV Employment Agreement (JDuchesne)November 14, 2017Page 9 of 12to such laws, and/or any other law, statute, regulation or ordinance prohibiting discrimination, harassment and retaliation.(c) Injunctive Relief. Employee acknowledges that the injury that would be suffered by Employer as a result of a breachof the provisions of this Agreement (including any provision of Sections 5 or 6) would be irreparable and that an award of monetarydamages to Employer for such a breach would be an inadequate remedy. Consequently, notwithstanding the mandatory arbitrationprovision of Section 7.1(b), Employer will have the right, in addition to any other rights it may have, to obtain injunctive relief torestrain any breach or threatened breach or otherwise to specifically enforce any provision of this Agreement, and Employer willnot be obligated to post bond or other security in seeking such relief. This right of Employer to seek injunctive relief is agreed to bea limited exception to the obligation for each party to resolve any litigated dispute through mandatory, binding AAA arbitration andis intended to (a) ensure that the relief sought in arbitration is not rendered ineffectual by any interim harm or (b) prevent any actualor threatened breach of this Agreement or any other agreement regarding Sections 5 or 6 of this Agreement. The parties consent topersonal jurisdiction of the courts in Maryland (state or federal) in any such injunctive proceeding and it is agreed that suchMaryland courts will be the exclusive forum for any such court proceeding. Without limiting Employer’s rights hereunder or anyother remedies of Employer, if Employee breaches any of the provisions of Section 5 or 6, Employer will have the right to ceasemaking any payments otherwise due to Employee(d) Covenants of Section 5 and 6 are Essential and Independent Covenants. The covenants by Employee in Sections 5and 6 are essential elements of this Agreement, and without Employee’s agreement to comply with such covenants, Employerwould not have employed or continued the employment of Employee. Employer and Employee have independently consulted (orbeen afforded the opportunity to consult with) their respective counsel and have been advised in all respects concerning thereasonableness and propriety of such covenants, with specific regard to the nature of the business conducted by Employer.Employee’s covenants in Sections 5 and 6 are independent covenants and the existence of any claim by Employee againstEmployer will not excuse Employee’s breach of any covenant in Sections 5 or 6. If Employee’s employment terminates, theSections 5 and 6 covenants will continue in full force and effect as set forth in this Agreement.(e) Confidential Information in any Dispute Proceeding. The parties agree that in any dispute proceeding involvingarbitration or injunctive relief, the parties may need to use Confidential Information. The parties further agree that they will takeevery measure permitted by law, including the filing of data under seal under applicable arbitration and/or court rules, in order topreserve the secrecy of Confidential Information. Accordingly, in any arbitration, all pleadings, documents, testimony, and recordsrelating to the dispute will be maintained in secrecy and will be available for inspection by Employer, Employee, and theirrespective attorneys and experts, who will agree, in advance and in writing, to receive and maintain all such information in secrecy,except as may be limited by them in writing. In any court proceeding, the parties will avoid including Confidential Informationexcept to the extent necessary to a claim or defense, will use non-confidential information instead of Confidential Informationwhenever reasonably possible, and will protect, and use all means to protect, Confidential Information to the maximum extentpermitted by the court’s rules.7.2 Section 409A. This Agreement and any payments provided hereunder are intended to comply with, or be exempt from,Section 409A of the Internal Revenue Code of 1986, as amended from time to time (including any valid and binding governmentalregulations, court decisions and other regulatory and judicial authority issued or rendered thereunder) (“Section 409A”). ThisAgreement will in all respects be interpreted, operated, and administered in accordance with this intent. Payments provided under thisAgreement may only be made upon an event and in a manner that complies with Section 409A or an applicable exemption,INOV Employment Agreement (JDuchesne)November 14, 2017Page 10 of 12including to the maximum extent possible, exemptions for separation pay due to an involuntary separation from service and/or short-term deferrals. Any payments provided under this Agreement to be made upon a termination of service that constitute deferredcompensation subject to Section 409A will only be made if such termination of service constitutes a “separation from service” underSection 409A. Any installment payment provided under this Agreement will be treated as a separate identified payment for purposes ofSection 409A. To the extent required by Section 409A, each reimbursement or in-kind benefit provided under this Agreement will beprovided in accordance with the following: (i) the amount of expenses eligible for reimbursement, or in-kind benefits provide, duringeach calendar year cannot affect the expenses eligible for reimbursement, or in-kind benefits to be provided, in any other calendar year;(ii) any reimbursement of an eligible expense will be paid to Employee on or before the last day of the calendar year following thecalendar year in which the expense was incurred; and (iii) any right to reimbursements or in-kind benefits under this Agreement will notbe subject to liquidation or exchange for another benefit. Notwithstanding anything in this Agreement to the contrary, if you aredeemed by Employer at the time of your Termination Date to be a “specified employee” for purposes of Section 409A and Employer orany member of a control group including the Employer is publicly traded on an established securities market or otherwise (asdetermined in accordance with Section 409A), your severance benefits (except to the extent otherwise eligible for exclusion from therequirements of Section 409A) will not be paid or provided to you prior to the earlier of (i) the expiration of the six-month periodmeasured from the date of your Separation from Service or (ii) the date of your death. Upon the first business day following theexpiration of the applicable Section 409A period, all payments deferred pursuant to the preceding sentence will be paid in a lump sumto you (or your estate or beneficiaries), and any remaining payments due to you under this Agreement will be paid as otherwiseprovided herein. Employer makes no representations or warranties that the payments provided under this Agreement comply with, orare exempt from, Section 409A, and in no event will Employer be liable for any portion of any taxes, penalties, interest, or otherexpenses that may be incurred by Employee on account of non-compliance with Section 409A.7.3 Representations and Warranties by Employee. Employee represents and warrants to Employer that employment withEmployer or the execution and delivery by Employee of this Agreement do not, and the performance by Employee of Employee’sobligations to Employer hereunder or otherwise will not, with or without the giving of notice or the passage of time, or both: (a) violateany judgment, writ, injunction, or order of any court, arbitrator, or governmental agency applicable to Employee; or (b) conflict with,result in the breach of any provisions of or the termination of, or constitute a default under, any agreement or other covenant to whichEmployee is a party or by which Employee is or may be bound, including any agreements with former employers regarding non-competition (other than those disclosed to Employer), the protection of confidential information, and non-solicitation of customers oremployees, that prohibits, limits, restricts, or otherwise affects Employee’s ability to provide services to Employer or its clients.7.4 Foreign Worker Status. Employee represents and warrants that Employee will provide all information, cooperation, andcoordination for the timely, complete, and accurate execution and adherence to all forms, regulations, requirements, and requests putforth by the United States Department of Immigration and Naturalization Service, other United States federal, state, or local governmentorganization, or foreign government (the “Foreign Worker Status Associated Organizations”), as required by law. Employee furtherrepresents and warrants that Employee will promptly inform Employer of any requirements, requests, or communications made byForeign Worker Status Associated Organizations that could impact Employee’s foreign worker status. It is understood that to the fullestextent permissible, Employee will bear any and all costs directly or indirectly associated with obtaining, extending, maintaining,regaining, or losing, his or her foreign worker status.7.5 Waiver. The rights and remedies of the parties to this Agreement are cumulative and not alternative. Neither the failure norany delay by either party in exercising any right, power, or privilegeINOV Employment Agreement (JDuchesne)November 14, 2017Page 11 of 12under this Agreement will operate as a waiver of such right, power, or privilege, and no single or partial exercise of any such right,power, or privilege will preclude any other or further exercise of such right, power, or privilege or the exercise of any other right,power, or privilege. To the maximum extent permitted by applicable law: (a) no claim or right arising out of this Agreement can bedischarged by one party, in whole or in part, by a waiver or renunciation of the claim or right unless in writing signed by the otherparty; (b) no waiver that may be given by a party will be applicable except in the specific instance for which it is given; and (c) nonotice to or demand on one party will be deemed to be a waiver of any obligation of such party or of the right of the party giving suchnotice or demand to take further action without notice or demand as provided in this Agreement.7.6 Binding Effect; Delegation and Assignment of Duties Prohibited. This Agreement will inure to the benefit of, and will bebinding upon, the parties hereto and their respective successors, assigns, heirs, and legal representatives, including any entity withwhich Employer may merge or consolidate or to which all or substantially all of its assets may be transferred. The duties and covenantsof Employee under this Agreement, being personal, may not be delegated or assigned.7.7 Notices. All notices, consents, waivers, and other communications under this Agreement must be in writing and will bedeemed to have been duly given when (a) delivered by hand (with written confirmation of receipt), (b) sent by facsimile (with writtenconfirmation of receipt), provided that a copy is mailed by registered mail, return receipt requested, or (c) when received by theaddressee, if sent by a nationally recognized overnight delivery service (receipt requested), if to Employer, at its principle executiveoffice, if to Employee, to the address in the records of Employer (or to such other addresses and facsimile numbers as a party maydesignate by notice to the other parties).7.8 Entire Agreement; Amendments. This Agreement contains the entire agreement between the parties with respect to thesubject matter hereof and supersedes all prior agreements and understandings, oral or written, between the parties hereto with respect tothe subject matter hereof. This Agreement may not be amended orally, but only by an agreement in writing signed by the parties hereto.7.9 Governing Law. This Agreement will be governed by the laws of the State of Maryland without regard to conflicts of lawsprinciples and principles of law that would direct the application of the substantive laws of another jurisdiction.7.10 Section Headings, Construction. The headings of Sections in this Agreement are provided for convenience only and willnot affect its construction or interpretation. All words used in this Agreement will be construed to be of such gender or number as thecircumstances require. Unless otherwise expressly provided, the word “including” does not limit the preceding words or terms.7.11 Severability. If any provision of this Agreement is held invalid or unenforceable by an arbitrator or by any court ofcompetent jurisdiction, the other provisions of this Agreement will remain in full force and effect. Any provision of this Agreement heldinvalid or unenforceable only in part or degree will remain in full force and effect to the extent not held invalid or unenforceable.7.12 Counterparts. This Agreement may be executed in one or more counterparts, each of which will be deemed to be anoriginal copy of this Agreement and all of which, when taken together, will be deemed to constitute one and the same agreement.[Signature Page Follows]INOV Employment Agreement (JDuchesne)November 14, 2017Page 12 of 12This Agreement is signed and delivered as of the date above first written above.EMPLOYER:By: /s/ Keith Dunleavy Name: Keith Dunleavy Title: Chief Executive OfficerEMPLOYEE: /s/ June D. Duchesne Name: June D. Duchesne Schedule A Page 1 of 2SCHEDULE AEmployee Services / Job DescriptionThis Schedule A outlines the Employee Services (certain responsibilities and duties) in connection with your employment withEmployer. Defined terms used, but not otherwise defined in this Schedule A, have the meanings assigned to those terms in theAgreement.Position: Chief Legal Officer FLSA status: ExemptResponsibilities: The responsibilities and duties of this position include:1.Develop and maintain an expert level of knowledge regarding vision, products, services, infrastructure, operations, markets,competitors, and regulations of Employer to achieve optimal insight into Employer’s goals, opportunities, capabilities, strategies,functionality requirements, compliance, and risks;2.Oversee and be ultimately responsible for all legal affairs of Employer and its affiliates and subsidiaries. Without limiting thegenerality of the foregoing, such responsibility shall extend to such aspects as:a.General corporate matters;b.Employment matters;c.Intellectual property maters;d.Regulatory matters;e.Capital equity matters;f.Corporate development matters;g.Board of directors matters; andh.Risk management and dispute resolution matters.3.Manage and ultimately be responsible for the resolution of client legal questions, concerns, and service issues related to Employerand Employer’s client products and services;4.Support contracting requirements required for business development processes as may be required for successful product launchesand ongoing product growth and operations;5.Develop and oversee the ongoing successful execution of policies and procedures for Employer and its affiliates and subsidiaries;6.Manage relationships with outside counsel and any matters for which they are retained in a fashion that is appropriatelyconscientious of the expenses associated with such;7.Stay current with applicable laws and regulations effecting Employer, its affiliates and subsidiaries, and their respective businesses;8.Assist in liaising with Employer’s shareholders, potential investors, investment banks, strategic investors, and lenders with respect tolegal matters;9.Maintain comprehensive communication with Inovalon management and appropriate internal personnel, vendors, and clientsregarding timelines, readiness, needs, risks, cost implications, resource requirements, and all other material aspects related to legalaffairs;10.Serve as Employer’s Corporate Secretary and the responsibilities implicated thereby;11.Serve as Employer’s Chief Compliance Officer and the responsibilities implicated thereby, and in the setting of such role beingdelegated to personnel other than Employee, Employee shall serve as oversight of such positions and retain the responsibilities ifnot for the delegation;Schedule A Page 2 of 212.Establish and maintain a process and schedule to keep the CEO of the Employer current on all material legal, liability exposure, riskmanagement, and other such matters related to the responsibilities of Employee;13.Participate with Employer leadership in the strategic development of initiatives to identify enhancements which may improveproducts, services, operations, client appeal, process flow, risk exposure, and overall business function, industry reputation, andfinancial performance;14.Adhere to all confidentiality and HIPAA requirements as outlined within Employer’s Operating Policies and Procedures in all waysand at all times with respect to any aspect of the data handled or services rendered in the scope of work; and15.Fulfill those responsibilities and/or duties that may be reasonably provided by Inovalon for the purpose of achieving operationaland financial success.General Expectations: The following constitute specific general expectations regarding Employee’s provision of services withEmployer:1.Travel. The position will require travel to Employer’s headquarters in Bowie, Maryland. In addition, the position will require sometravel to be necessary to client locations, other Employer office locations, and other miscellaneous locations (e.g., conferences,board meetings, corporate development related, management offsite retreat related, etc.).2.Location. Employee will principally perform Employee’s role from a remote location. The primary office-based location ofEmployee will be that of Employer’s headquarters in Bowie, Maryland. Onsite business operation presence is expected atEmployer’s headquarters during two or more full days per week on average, with some periods of higher incidence expected fromtime to time (e.g., during the initial months of employment, during periods associated with quarterly earnings preparation andannouncements, board of directors meetings, corporate development transactions, and other such events that can reasonably beexpected to result in higher demand and senior leadership onsite presence benefit). Regardless of location, Employee will endeavorto be available in a fashion commensurate with the executive level and role of Employee’s position as Chief Legal Officer.3.Performance Reviews/Merit Increases. Inovalon’s performance review process is administered twice a year on a calendar-yearbasis. The bonus, which is typically awarded at the beginning of each year, is designed to reward performance contributionstoward the execution of goals. The merit increase is designed to invest in future potential, and is typically assessed at the mid-yearpoint. Associates who are actively employed as of October 15 will be scheduled to receive a year-end performance review, andwill be considered for participation in the annual bonus program. Associates who are actively employed as of March 31 will bescheduled to receive a mid-year performance review, and will be considered for participation in the annual merit program. 4.Leadership. The position outlined is expected to require significant energy, self-motivation, perseverance, and leadership tosuccessfully execute.5.Beliefs and Core Values. Inovalon is aligned around the seven core values of I.N.S.P.I.R.E.: Integrity, Nimbleness, Service, Passion,Innovation, Respect and Excellence. Employees are expected to perform their regular duties in ways which adhere to and exemplifyEmployer’s Core Values.Schedule B Page 1 of 2SCHEDULE BCompensation and BenefitsThis Schedule B outlines your compensation and benefits in connection with your employment with Inovalon. Defined terms used, butnot otherwise defined in this Schedule B, have the meanings assigned to those terms in the Agreement.1.Base Salary. Employee will be paid a gross base salary by Employer at the rate of $350,000 per year, less all tax and otherwithholdings and deductions required to be made by applicable law (the “Salary”). The Salary will be paid by Employer to theEmployee every two weeks, or in such other periodic payments as are in accordance with Employer’s then applicable payrollpolicies.2.Performance Incentive: Employee will be eligible annually, subject to annual approval by the compensation committee of the boardof directors of Employer, for a performance incentive of cash and equity awards, generally targeting 225% of Employee’s Salaryduring the year for which the Performance Incentive is paid (the “Target Total”). The Performance Incentive is subject to certaincriteria (as further described below). If your promotion date occurs after the first business day of the year, the PerformanceIncentive for that year will be prorated accordingly. Employee will not be eligible for any Performance Incentive for any particularyear unless continuously employed by Employer through the date the Performance Incentive for that year becomes payable. ThePerformance Incentive consists of i) a cash bonus opportunity, ii) a Traditional Equity Incentive opportunity, and iii) a Long-TermEquity Incentive opportunity. The components of the Performance Incentive will generally be split 50%, 75%, and 100%,respectively, totaling to the aforementioned Target Total of 225%. Payment of this Performance Incentive is dependent (a) firstupon Employer performance (success, profitability, and other metrics) within the ranges approved by Employer’s board ofdirectors; (b) second, performance of the departments and personnel you are responsible for supervising, in accordance with thebudget, metrics and strategic objectives that may be established by Employer and/or the board of directors from time to time; and(c) third, upon your individual performance. As with all executive compensation, Performance Incentives are subject tomodification by the compensation committee of the board of directors as determined appropriate each year in connection with theirduties to review executive compensation. For the sake of clarity, Performance Incentives might not be paid in years whereEmployer does not achieve its performance goals within the parameters established by the board of directors.3.Equity Incentives. In recognition of your expected future contributions to Inovalon’s success, it is the desire of the board ofdirectors to align your interests with those of Employer’s shareholders. Accordingly, you will be granted an initial incentive equityaward (“Initial Award”) of $1,100,000 at the next quarterly board meeting following your Start Date in the form of RestrictedStock. You will also be eligible for annual grants of Equity Incentives, as described in Section 2 of this Schedule B, as determinedby and subject to the approval of the board of directors. At the discretion of the board of directors, equity incentives/awards aregranted to recognize contributions of Employer’s executives to the growth and success of Employer and may be in any formpermitted by Employer’s 2015 Omnibus Incentive Plan (“Omnibus Plan”), as in effect at the time of the award. Currently, under theOmnibus Plan, these awards may consist of Restricted Stock, Restricted Stock Units (“RSUs”), options to purchase shares of thecommon stock of Employer (the “Options”), or certain other forms providing similar incentive opportunities. The frequency,amount, timing, and vesting of any Equity Incentive will be asSchedule B Page 2 of 2determined by the board of directors. Currently, Equity Incentives referred to as “Traditional Equity Incentives” vest equally overfive years, with 20% vesting on each anniversary of the grant, and Equity Incentives referred to as “Long-Term Equity Incentives”vest 100% upon the fifth anniversary of the grant with 50% of such vesting being subject to the Company’s achievement of specificfinancial performance metrics. The date of annual Equity Incentive grants will be as determined by the Board. The determination ofthe forms of Equity Incentives will be at the sole discretion of Employer.4.Form and Vesting of Initial Award. Your Initial Award of $1,100,000 will be granted in the form of Restricted Stock. The numberof Restricted Stock shares for your Initial Award will be calculated by dividing the amount of the Initial Award by the closing priceper share of Employer’s Class A common stock on The NASDAQ Global Select Market on the date of grant. Your Initial Awardwill be in the form of a Traditional Equity Incentive and vest in 20% annual increments over five years (e.g., a 5,000 share grantwill vest 1,000 on the first anniversary of the grant, an additional 1,000 on the second anniversary, etc.).5.Health Care Coverage. You will be eligible to participate in Employer’s health care insurance coverage, subject to the policy, co-pay, and specific benefits of Employer’s group plan or plan of materially similar benefits. Partial Employee contribution towardpremium is required for participation in health care coverage. 6.Dental Care Coverage. You will be eligible to participate in Employer’s dental coverage, subject to the policy, co-pay, and specificbenefits of Employer’s group plan or plan of materially similar benefits. Partial Employee contribution toward premium is requiredfor participation in dental coverage. 7.Vision Care Coverage. You will be eligible to participate in Employer’s vision coverage, subject to the policy, co-pay, and specificbenefits of Employer’s group plan or plan of materially similar benefits.8.Group Life Insurance. You will be eligible to participate in a life insurance policy carrying a benefit equal to your gross annualbase Salary, up to a maximum of $250,000. You will also have the option to purchase supplemental insurance coverage (for you, aspouse, a domestic partner, or children), subject to certain maximums and other terms and conditions of the insurance underwriter. 9.Disability Insurance. You will be eligible to participate in a short-term & long-term disability coverage payable for lost income dueto illness or injury. You will also be eligible to participate in an additional buy-up long-term disability plan, which would be 100%paid for by Employee. 10.401(k) Plan Benefits. You will be eligible to participate in Employer’s 401(k) Plan benefits. Such participation may be matched byEmployer up to such percentage of your Salary as may be determined from time to time, which is currently 4%, and subject toapplicable annual limitations on your contributions. The exact parameters of the 401(k) Retirement Savings Plan benefits maychange from time to time as dictated by ERISA compliance and Employer’s Summary Plan Description.11.Personal Time Off (“PTO”). You will receive PTO (paid vacation / personal days / sick days) as provided for in Employer’s PTOpolicies or as may be modified thereafter. Employer acknowledges that you may not always be able to predict with significantforewarning when you may need to take vacation or sick days. Nevertheless, Employer respectfully requests as much forewarning(of at least four weeks if possible) as is reasonably possible prior to requested vacation periods for which the desired vacationperiods are of duration of two or more consecutive business day (for example: a consecutive Thursday and Friday, or a Friday andfollowing Monday).Exhibit 10.23ConfidentialDecember 7, 2017Via Hand DeliveryShauna Vernal[ADDRESS][ADDRESS] Re: Executive Separation Agreement (the “Agreement”) Dear Shauna,This confirms that your position as Chief Legal Officer (“CLO”) and Corporate Secretary with Inovalon, Inc. and InovalonHoldings, Inc. (collectively, the “Company”) will terminate effective November 30, 2017. If you agree to the terms and conditions inthis Agreement, you will remain an employee of the Company through December 31, 2017 (the “Termination Date”). You will receiveregular base pay through that date.The Company is prepared to enter into this Agreement with you, which provides you certain benefits to which you otherwiseare not entitled, provided that you agree to all the terms set forth below.1.Severance. In addition to regular base pay through December 31, 2017, the Company is prepared to make an additionalpayment to you, subject to the terms and conditions in this Agreement. Specifically, the Company will pay you (i) $150,000,representing an amount equivalent to six months of regular base pay, plus (ii) an additional amount equal to $2,970, less applicabletaxes and withholdings (such amounts collectively referred to as, “Severance Pay”). Provided that you have executed the Waiver andRelease Agreement attached hereto as Exhibit A (the “Release”) and any revocation periods described therein have expired within sixty(60) days of the Termination Date (such 60 day period, the “Release Effective Date”), the Severance Pay will be paid out in equalinstallments following the Release Effective Date through June 30, 2018, in accordance with Company’s regular payroll schedule. Anyamounts of Severance Pay that would otherwise be scheduled to be paid out prior to the Release Effective Date will accrue and be paidout on the first payroll date that follows the Release Effective Date.Through November 30th, you agree that you have fulfilled your current responsibilities to the Company as CLO and CorporateSecretary. Although you will not be required to come into the office after November 30th, you also agree that you will be available,upon request, through the Termination Date to assist with any transitional matters.During the time period that you are receiving payments against the Severance Pay, if you are rehired by the Company, yourSeverance Pay will cease and you will not be paid the remaining portion of the Severance Pay. The Company will issue a Form W-2 toyou covering payment of the Severance Pay and amounts paid to you pursuant to paragraph 3 below.2.Unemployment Compensation. The Company agrees not to contest any claim you may make for unemploymentcompensation benefits based upon the fact of your termination. However, the Company reserves the right to make truthful statements tocorrect any inaccuracies. 3.Cooperation and Support. Subject to your execution, delivery and non-revocation of the Release by the Release EffectiveDate, the Company shall also pay to you an amount equal to $50,990, less applicable taxes and withholdings (the “Support Retainer”),which amount shall be paid to you over the period beginning on July 1, 2018 through August 31, 2018, in accordance with Company’sregular payroll schedule. The Support Retainer is in consideration for your ongoing cooperation with and support to the Companyregarding matters in which you have been involved during your employment with the Company. Accordingly, at any time followingthe Termination Date, to the extent reasonably requested by the Company, you shall cooperate with the Company in connection withmatters arising out of your employment with the Company and you shall be reimbursed for reasonable documented expenses incurredin connection with this cooperation to the extent that such expenses exceed the Support Retainer.4.Benefit Continuation. If you currently participate in any Company health benefits plans, your current coverage willcontinue until the end of the month in which your employment terminates. You will have the ability to elect to continue your currentgroup medical and/or dental insurance coverage for you and your eligible dependents (if any) under the federal law known as theConsolidated Omnibus Reconciliation Act (COBRA) for the applicable COBRA continuation period. Except as provided herein, yourright to any and all Company benefits will terminate on the Termination Date.5.Full and Complete Compensation. The payments and benefits described above satisfy and are in lieu of: (i) all obligationswhich the Company and/or any of the Inovalon Parties (defined in the Release) may have owed to you or which may be owed to you;(ii) all compensation, vacation pay, and benefits which may be owing to you; and (iii) all claims which you may have against any of theInovalon Parties based on any act, conduct, policy, practice, or omission occurring prior to the date that you execute the Release. Youagree you have received all payments (other than the benefits described in this Agreement) owed to you by the Company and the fullbenefit of, any policy of the Company or any agreement between you and any of the Inovalon Parties.6.Confidentiality. You will keep the terms of this Agreement confidential, except that you may disclose this Agreement to:(1) your spouse and your parents, provided they agree to keep the terms of this Agreement confidential; (2) your accountant orattorney, in which case, you agree not to waive any applicable privilege regarding that discussion; and (3) any other person to whomdisclosure is necessary in order to comply with a legal duty, such as a duty that may arise under the Internal Revenue Service or SocialSecurity regulations or statutes. You agree that if you (or anyone to whom you permissibly disclose the terms of this Agreement)disclose the terms, manner, amount, conditions and/or substance of this Agreement, you will be liable to the Company for liquidateddamages in the amount of $5,000 for each disclosure, up to a maximum of $20,000. You agree that these liquidated damages in theamount above represent compensation, not a penalty, and although the Company’s damages for your breach of this paragraph areincapable of being accurately measured at this time, this liquidated damage amount is a reasonable estimation of damage to theCompany in the event of such breach.During your employment with Company you have had access to confidential Company and employee-related information. ThisAgreement, as well as the Amended and Restated Employment Agreement that you executed on or about December 3, 2014 (the“Employment Agreement”) as incorporated herein, prohibits you from disclosing or using, either directly or indirectly, any confidentialinformation of Company or its employees or retaining or removing any confidential information of Company or its employees.Additionally, you must return all confidential and proprietary information obtained during your employment with Company. Please beadvised that your obligation not to disclose any proprietary and/or confidential information of Company continues after the TerminationDate and you must not either directly or indirectly disclose any confidential or proprietary information of Company or its employees. 7.No Current Filings. You affirm that, except for anonymous or confidential whistleblower complaints and reports of allegedviolations of law to an appropriate government, you have not filed, caused to be filed, or presently are a party to any claim, complaint,or action against the Company in any forum or form. You further affirm that you have been paid and/or have received all leave (paidand unpaid), compensation, wages, bonuses, and/or benefits that are due to you, except as provided in this Agreement. Youfurthermore affirm that you have no known workplace injuries and have been provided and/or have not been denied any leaverequested under the Family and Medical Leave Act. You have not been retaliated against for reporting any allegations of wrongdoingby the Company or its officers, including any allegations of corporate fraud.8.No Violations of Code of Conduct. You acknowledge that the Company has encouraged you to report to the Company’sChief Executive Officer and/or Board of Directors, or through any of the available reporting avenues set up by the Company, anyviolations or suspected violations of the Inovalon Code of Business Conduct and Ethics as contained within the Inovalon EmployeeHandbook.9.Non-Admission. The foregoing payments and agreements are made without any admission as to fault, liability,wrongdoing or the validity of any other party’s position by you or any of the Inovalon Parties, all of who expressly deny any and allfault, liability or wrongdoing.10.Non-Disparagement. You agree not to make or authorize the making of any disparaging remarks, comments, orstatements about the Company, including its present or former agents, employees, officers, or directors. The Company agrees not tomake any disparaging remarks, comments, or statements about you and, as appropriate, will advise selected personnel to avoiddisparaging comments about you. Nothing in this Agreement precludes you from discussing terms and conditions of employment orexercising rights protected under federal labor law.11.Return of Company Property. By signing this Agreement, you agree and acknowledge that you will return to theCompany prior to your Termination Date all originals and copies of Company documents and all Company property, including withoutlimitation, computer files, diskettes, database information, client information, sales documents, financial statements, budgets andforecasts, computers, keys, and corporate credit cards.12.Protected Rights.(a) Notwithstanding anything to the contrary in this Agreement, you understand that nothing in this Agreement is intendedto prohibit you and you are not prohibited from reporting possible violations of law to, filing charges with, making disclosuresprotected under the whistleblower provisions of U.S. federal law or regulation, or participating in investigations of U.S. federal law orregulation by the U.S. Securities and Exchange Commission, National Labor Relations Board, Equal Employment OpportunityCommission, the Occupational Safety and Health Administration, the U.S. Department of Justice, the U.S. Congress, any U.S. agencyInspector General or any other self-regulatory agencies or federal, state or local governmental agencies (collectively, “GovernmentAgencies,” and each a “Government Agency”). Accordingly, you do not need the prior authorization of the Company to make anysuch reports or disclosures or otherwise communicate with Government Agencies and are not required to notify the Company that youhave engaged in any such communications or made any such reports or disclosures. You agree, however, to waive any right to receiveany monetary award resulting from such a report, charge, disclosure, investigation or proceeding, except that you may receive and fullyretain any award from a whistleblower award program administered by a Government Agency.(b) In addition, you are advised that 18 U.S.C. § 1833(b) states: “An individual shall not be held criminally or civilly liable under any Federal or State trade secret law for thedisclosure of a trade secret that-(A) is made-(i) in confidence to a Federal, State, or local government official, eitherdirectly or indirectly, or to an attorney; and (ii) solely for the purpose of reporting or investigating a suspectedviolation of law; or (B) is made in a complaint or other document filed in a lawsuit or other proceeding, if such filingis made under seal.”Accordingly, you have the right to disclose in confidence trade secrets to Federal, State, and local government officials, or to anattorney, for the sole purpose of reporting or investigating a suspected violation of law. You also have the right to disclose trade secretsin a document filed in a lawsuit or other proceeding, but only if the filing is made under seal and protected from public disclosure.Nothing in this Agreement is intended to conflict with 18 U.S.C. § 1833(b) or create liability for disclosures of trade secrets that areexpressly allowed by 18 U.S.C. § 1833(b).13.Agreement Void Upon Rehire. By signing this Agreement, you agree and acknowledge that if you accept employmentwith the Company or any other employer prior to your Termination Date, this Agreement will become null and void.14.Entire Agreement. This Agreement contains the entire agreement between us concerning the subject matter hereof andsupersedes all prior oral and written communications and agreements between the parties concerning such subject matter. Neither thisAgreement, nor any of its terms, may be waived, added to, changed or altered except in a writing signed by you and an authorizedrepresentative of Company.15.Survival of Employment Agreement Provisions. You hereby acknowledge and agree that the obligations under Sections4.9, 5, 6, 7.1 and 7.2 of the Employment Agreement shall continue and survive in accordance with its terms following the TerminationDate.16.Consultation with an Attorney. You have been advised to consult with your attorney before signing this Agreement. Youagree, however, that Company shall not be required to pay any of your attorneys’ fees in this or any related matter and that theseverance monies received pursuant to paragraphs 1 and 3 are in full and complete settlement of all matters between you and theCompany, including, but not limited to, attorneys’ fees and costs.17.Governing Law. This Agreement shall be governed by and construed in accordance with the laws of the State ofMaryland, without regard to conflicts of laws or other principles which would seek to apply the laws of any other jurisdiction.18.At-Will Employment. By signing this Agreement, you acknowledge that you have been, at all times, an “at will”employee of the Company.19.Knowing and Voluntary. By signing this Agreement, you acknowledge that you have carefully read and fully understandall its provisions, and that you are signing it voluntarily. You also acknowledge that you are not relying on any representations by anyrepresentative of the Company concerning the meaning of any aspect of this Agreement.20.Severability. Any provision of this Agreement which is held to be prohibited or unenforceable in any jurisdiction shall,as to such jurisdiction, be ineffective to the extent of prohibition or unenforceability, without invalidating the remaining provisionshereof or affecting the validity or enforceability of such provision in any other jurisdiction.  Inovalon, Inc. and Inovalon Holdings, Inc. By:/s/ Shauna L. Vernal By:/s/ Keith Dunleavy, MD Shauna L. Vernal Keith Dunleavy, MD Chief Executive Officer Date:12.12.17 Date:12.13.17 WAIVER AND RELEASE OF CLAIMSIn connection with the termination of employment of Shauna Vernal, (“Executive”) pursuant to the separationagreement between Executive and Inovalon, Inc. and Inovalon Holdings, Inc., (collectively, the “Company”), dated as of December 7,2017 (the “Separation Agreement”), Executive agrees to the terms of this Waiver and Release of Claims (this “Release”). Capitalizedterms used but not defined herein shall have the meanings given to them in the Separation Agreement.1. Waiver and Release. For and in consideration of the payments and benefits provided in paragraphs and 3 of the SeparationAgreement (the “Severance Amount”), Executive, for and on behalf of Executive and her heirs, administrators, executors, and assigns,effective as of the Effective Date (as defined in Section 2 below), does fully and forever waive and release, remise, and discharge theCompany, and its affiliates, subsidiaries, divisions, and related companies, and its and their present, former, and future successors andassignees, and all of its and their current, former, and future owners, officers, stockholders, employees, officers, attorneys, accountants,directors, assigns, and agents thereof, both individually and in their representative capacities, and insurers, Company employee benefitplans, programs, arrangements and their administrators, functionaries and fiduciaries (collectively, the “Inovalon Parties”), from anyand all claims, suits and causes of action, known or unknown, in any way arising out of, relating to, or resulting from: (a) Executive’semployment with any of the Inovalon Parties or the termination thereof; (b) any fact, statement, or conduct made or occurring prior tothe execution of this Release by Executive; (c) Executive’s employment or business custom, practice, or policy of any of the InovalonParties; or (d) any conduct or decision of any of the Inovalon Parties which in any way affected Executive, or discussions leading up toand/or culminating in the Separation Agreement, or Executive’s rights, if any, to any benefit due to Executive under any pension planbased upon Executive’s service with the Company through the Termination Date. This release of claims includes, but is not limited to,all claims arising under the National Labor Relations Act, as amended; Title VII of the Civil Rights Act of 1964, as amended; the CivilRights Act of 1991, as amended; the Americans with Disabilities Act of 1990, as amended; the Family and Medical Leave Act, asamended; the Age Discrimination in Employment Act, as amended; the Occupational Safety and Health Act of 1990, as amended; theMaryland Occupational Safety and Health Laws, as amended; the Maryland Equal Pay Law, as amended; the Maryland Human RightsAct, as amended; and any other federal, state or local civil or human rights law or any other federal, state or local law, regulation orordinance; any public policy, contract, tort, or common law; or any allegations for compensation, damages, costs, fees, or otherexpenses, including attorneys’ fees incurred in these matters. This general release may not be construed to waive any right that is notsubject to waiver by private agreement, including without limitation, any claims arising under state unemployment insurance or workerscompensation laws.2. Specific Release of ADEA Claims. In further consideration of the payments and benefits provided to Executive in the SeparationAgreement, Executive hereby irrevocably and unconditionally fully and forever waives, releases and discharges the Company from anyand all claims, whether known or unknown, from the beginning of time to the date of the execution of this Release arising under theAge Discrimination in Employment Act of 1967 (“ADEA”), as amended, and its implementing regulations. By signing this Release,Executive hereby acknowledges and confirms that: (i) Executive has read this Release in its entirety and understand all of its terms; (ii)Executive has been advised of and has availedherself of her right to consult with her attorney prior to executing this Release; (iii) Executive knowingly, freely and voluntarily assentsto all of the terms and conditions set out in this Release including, without limitation, any covenants contained herein; (iv) Executive isexecuting this Release in exchange for good and valuable consideration in addition to anything of value to which Executive isotherwise entitled; (v) Executive was given at least twenty-one (21) days to consider the terms of this Release and consult with anattorney of her choice, although she may sign it sooner if desired; (vi) Executive understands that she have seven (7) days from the dateshe signs this Release to revoke this Release by delivering written notice of revocation to Patty Donnelly, Senior Vice President, HumanResources, at the address of the Company, 4321 Collington Road, Bowie, Maryland 20716; and (vii) Executive understands that thisRelease does not apply to rights and claims under the ADEA or the Older Workers Benefits Protection Act that may arise after the dateon which you sign this Release. This Release shall not become effective until the eighth (8th) day following Executive’s execution of it(the “Effective Date”).3. Governing Law. This Release shall be construed and enforced under and be governed in all respects by the laws of the State ofMaryland without regard to the conflict of laws principles thereof.IN WITNESS WHEREOF, Executive has hereunto set her hand as of the day and year set forth opposite Executive’s signaturebelow.12.12.17 /s/ Shauna Vernal DATE Shauna VernalExhibit 10.24INDEMNIFICATION AGREEMENTThis Indemnification Agreement (“Agreement”) by and between Inovalon Holdings, Inc. (“Inovalon”) and June D. Duchesne(“Indemnitee”) is entered into as of January 1, 2018 (the “Effective Date”).RecitalsA.Inovalon believes it is essential to retain and attract qualified directors and officers.B.Indemnitee has agreed to serve, or to continue to serve, as a member of the Inovalon Board of Directors (“Board”), a director of anInovalon affiliate, or an officer of Inovalon or an affiliate of Inovalon.C.Both Inovalon and Indemnitee recognize the increased risk of litigation and other claims being asserted against directors andofficers of public companies.D.Inovalon’s Amended and Restated Certificate of Incorporation, as amended (the “Certificate”), allows, and Inovalon’s Amendedand Restated Bylaws (the “Bylaws”) require, Inovalon to indemnify and advance expenses to its directors and officers to the extentpermitted by Delaware General Corporation Law, as amended (the “Code”).E.Indemnitee, in agreeing to serve or continue to serve, as a director or an officer of Inovalon is in part doing so in reliance on theindemnification provisions of the Certificate and Bylaws.F.In recognition of Indemnitee’s need for (1) substantial protection against personal liability based on Indemnitee’s reliance on theCertificate of Incorporation, the Bylaws and the rights afforded under this Agreement, and (2) an inducement to provide effectiveservices to Inovalon or an affiliate of Inovalon as a director or officer, Inovalon wishes to provide for the indemnification ofIndemnitee and to advance expenses to Indemnitee to the fullest extent permitted by law, subject to certain exceptions contained inthis Agreement, and, to the extent insurance is maintained by Inovalon, to provide for the continued coverage of Indemnitee underInovalon’s directors’ and officers’ liability insurance policies.AgreementNOW, THEREFORE, in consideration of the mutual covenants and promises contained in this Agreement, and for other goodand valuable consideration, the receipt and sufficiency of which is acknowledged, the parties, intending to be legally bound, agree asfollows: Indemnification AgreementJanuary 1, 2018Page 2 of 121.CERTAIN DEFINITIONS.1.1.“Change in Control” means the occurrence of any of the following events:(a)Any “person” (as such term is used in Sections 13(d) and 14(d) of the Securities Exchange Act of 1934 (the “Act”))becomes the “beneficial owner” (as defined in Rule 13d-3 under the Act), directly or indirectly, of securities of Inovalonrepresenting more than 20% of the total voting power represented by Inovalon’s then outstanding Voting Securities, otherthan:(i)a trustee or other fiduciary holding securities under an employee benefit plan of Inovalon;(ii)a corporation owned directly or indirectly by the stockholders of Inovalon in substantially the same proportions astheir ownership of stock of Inovalon; or(iii)any current beneficial stockholder or group, as defined by Rule 13d-5 of the Exchange Act, including the heirs,assigns and successors thereof, that, as of the Effective Date, is the beneficial owner, within the meaning ofRule 13d‑3 of the Exchange Act, of securities possessing more than 20% of the total combined voting power ofInovalon’s outstanding securities.(b)There is (1) a sale of all or substantially all assets of Inovalon or (2) a merger, consolidation or similar transactioninvolving (directly or indirectly) Inovalon if, immediately after the consummation of such merger, consolidation orsimilar transaction, the stockholders of Inovalon immediately prior thereto do not own, directly or indirectly, either(A) outstanding Voting Securities representing more than 50% of the combined outstanding voting power of thesurviving entity in such merger, consolidation or similar transaction or (B) more than 50% of the combinedoutstanding voting power of the parent of the surviving entity in such merger, consolidation or similar transaction.1.2.“Expenses” will be broadly construed and will include, without limitation, all direct and indirect costs of any type or naturewhatsoever (including, without limitation, judgments, fines or penalties and all attorneys’, witness, or other professional feesand related disbursements, and other out-of-pocket costs of whatever nature), actually and reasonably incurred by Indemniteein connection with the investigation, defense or appeal of a Proceeding, participation in a Proceeding as a witness orestablishing or enforcing a right to indemnification under this Agreement, the Code or otherwise, and amounts paid insettlement by or on behalf of Indemnitee, but will not include any judgments, fines or penalties actually levied againstIndemnitee for such individual’s violations of law.1.3.“Independent Legal Counsel” means an attorney or firm of attorneys, selected in accordance with the provisions of Section 5,who have not otherwise performed services for Inovalon (or for any entity that as of the time of selection of the attorney orfirm of attorneys is controlled by, controlling or under common control with Inovalon) or Indemnitee within the last threeyears (other than with respect to matters concerning the Indemnification AgreementJanuary 1, 2018Page 3 of 12rights of Indemnitee under this Agreement, or of other indemnitees under similar indemnity agreements).1.4.“Proceeding” means and includes, without limitation, any threatened, pending, or completed action, suit, arbitration, alternatedispute resolution mechanism, investigation, inquiry, administrative hearing, whether brought in the right of or by Inovalon orotherwise and whether of a civil, criminal, administrative or investigative nature, and whether formal or informal in any case,in which Indemnitee was, is or will be involved as a party or otherwise by reason of the fact that:(a)Indemnitee is or was a director, officer, employee or agent of Inovalon;(b)Indemnitee took an action while acting as director, officer, employee or agent of Inovalon; or(c)Indemnitee is or was serving at the request of Inovalon as a director, officer, employee or agent of another corporation,partnership, joint venture, trust, employee benefit plan or other enterprise, including as a deemed fiduciary thereto, and inany such case described above, whether or not serving in any such capacity at the time any Expense is incurred for whichindemnification, reimbursement, or advancement of Expenses may be provided under this Agreement.For the avoidance of doubt, an action by Indemnitee to enforce Indemnitee’s rights to indemnification under this Agreementwill be a “Proceeding” for purposes of this Agreement.1.5.“Voting Securities” means any securities of Inovalon which vote generally in the election of directors.2. SERVICES TO INOVALON.Indemnitee will serve, at the will of Inovalon or under separate contract, if any such contract exists, as a director or officer of Inovalonor of an affiliate of Inovalon (including, but not limited to, any employee benefit plan of Inovalon) faithfully and to the best ofIndemnitee’s ability so long as Indemnitee: (a) remains an officer or director of Inovalon or an affiliate of Inovalon; and (b) if anemployee of Inovalon or an affiliate of Inovalon, remains employed by Inovalon or such affiliate. Indemnitee may at any time and forany reason resign from such position (subject to any contractual obligation that Indemnitee may be subject to apart from thisAgreement), and Inovalon or any affiliate of Inovalon will have no obligation under this Agreement to continue Indemnitee in anysuch position.3. INDEMNITY OF INDEMNITEE.Inovalon will hold harmless and indemnify Indemnitee to the fullest extent authorized or permitted by the Code, as the same may beamended from time to time (but only to the extent that such amendment permits Inovalon to provide broader indemnification rights thanthe Bylaws, the Certificate or the Code permitted prior to adoption of such amendment). These obligations and the other obligations ofInovalon in this Agreement apply regardless of whether the conduct giving rise Indemnification AgreementJanuary 1, 2018Page 4 of 12to the obligations occurred before or occur after the date this Agreement is executed. Notwithstanding any other provision of thisAgreement, to the extent that Indemnitee has been successful on the merits or otherwise in defense of any Proceeding relating in wholeor in part to an Indemnifiable Event or in defense of any issue or matter therein, Indemnitee will be indemnified against all Expensesincurred in connection therewith. For these purposes, Indemnitee will be deemed to have been “successful on the merits” upontermination of any Proceeding or of any claim, issue or matter therein, by the winning of a motion to dismiss (with or withoutprejudice), motion for summary judgment, or settlement (with or without court approval).4. PARTIAL INDEMNIFICATION.Indemnitee will be entitled under this Agreement to indemnification by Inovalon for a portion of the Expenses that Indemniteebecomes legally obligated to pay in connection with any Proceeding even if not entitled hereunder to indemnification for the totalamount thereof, and Inovalon will indemnify Indemnitee for the portion thereof to which Indemnitee is entitled.5. DETERMINATION OF ENTITLEMENT; CHANGE IN CONTROL.(a)If there is a Change in Control of Inovalon then, with respect to all matters thereafter arising concerning the rights ofIndemnitee to indemnification (including, but not limited to, any right to advancement of Expenses) under this Agreement, anyother agreement with Inovalon providing for indemnification, the Certificate, Bylaws and applicable law (collectively, the“Indemnification Provisions”) as now or hereafter in effect, Independent Legal Counsel may be selected by Indemnitee andapproved by Inovalon (which approval will not be unreasonably withheld or delayed). Such Independent Legal Counsel willrender its written opinion within 90 days to Inovalon and Indemnitee as to whether and to what extent Indemnitee would bepermitted to be indemnified under the Indemnification Provisions before and after the completion of the Change in Control andsuch opinion will be binding upon Inovalon and Indemnitee. Inovalon will pay the reasonable fees and expenses of theIndependent Legal Counsel referred to above and will fully indemnify such counsel against any and all Expenses arising out ofor relating to this Agreement or its engagement under this Agreement.(b)In making any determination concerning Indemnitee’s right to indemnification, there will be a presumption that Indemnitee hassatisfied the applicable standard of conduct, and Inovalon may overcome such presumption only by its adducing clear andconvincing evidence to the contrary. Any determination by Inovalon (including without limitation by its directors or itsstockholders) concerning Indemnitee’s right to indemnification that is adverse to Indemnitee may be challenged by Indemniteein the Court of Chancery of the State of Delaware. No determination by Inovalon (including without limitation by its directorsor its stockholders) that Indemnitee has not satisfied any applicable standard of conduct will be a defense to any Claim byIndemnitee for indemnification or reimbursement or advance payment of Expenses by Inovalon hereunder or create apresumption that Indemnitee has not met any applicable standard of conduct.(c) If the person or persons so empowered to make a determination under Section 5(b) fail to make the requested determinationwithin ninety (90) days after any judgment, order, Indemnification AgreementJanuary 1, 2018Page 5 of 12settlement, dismissal, arbitration award, conviction, acceptance of a plea of nolo contendere or its equivalent, or otherdisposition or partial disposition of any Proceeding or any other event that could enable Inovalon to determine Indemnitee’sentitlement to indemnification, the requisite determination that Indemnitee is entitled to indemnification will be deemed to havebeen made.6. NOTIFICATION AND DEFENSE OF CLAIM.As promptly as practicable, but in any event not later than thirty (30) days after receipt by Indemnitee of notice of the commencementof any Proceeding, Indemnitee will, if a claim in respect thereof is to be made against Inovalon under this Agreement, notify Inovalonof the commencement thereof, provided that the failure so to notify Inovalon will not relieve Inovalon from any liability which it mayhave to Indemnitee under this Agreement or otherwise. With respect to any such Proceeding as to which Indemnitee notifies Inovalonof the commencement thereof:(a)Inovalon will be entitled to participate in the Proceeding at its own expense;(b)except as otherwise provided below, Inovalon may, at its option and jointly with any other indemnifying party similarly notifiedand electing to assume such defense, assume the defense thereof, with counsel reasonably satisfactory to Indemnitee. Afternotice from Inovalon to Indemnitee of its election to assume the defense thereof, Inovalon will not be liable to Indemnitee underthis Agreement for any Expenses subsequently incurred by Indemnitee in connection with the defense thereof except forreasonable costs of investigation or otherwise as provided below. Indemnitee will have the right to employ separate counsel insuch Proceeding but the Expenses of such counsel incurred after notice from Inovalon of its assumption of the defense thereofwill be at the expense of Indemnitee; provided, however, that the Expenses of Indemnitee’s separate counsel will be borne byInovalon if (i) the employment of separate counsel by Indemnitee has been authorized by Inovalon and Inovalon has agreed inwriting to bear such Expenses, (ii) Indemnitee reasonably will have concluded that there may be a conflict of interest betweenInovalon and Indemnitee in the conduct of the defense of such Proceeding, or (iii) Inovalon in fact will not have employedcounsel to assume the defense of such Proceeding or will at any time have ceased to actively pursue the defense thereof.Inovalon will not be entitled to assume the defense of any Proceeding brought by or on behalf of Inovalon or as to whichIndemnitee will have made the conclusion provided for in clause (ii) above; and(c)Inovalon will not be liable to indemnify Indemnitee under this Agreement for any amounts paid in settlement of any Proceedingeffected without its written consent, which will not be unreasonably withheld or delayed. Inovalon will be permitted to settleany Proceeding except that it will not settle any Proceeding in any manner that would impose any penalty or limitation onIndemnitee without Indemnitee’s written consent, which may be given or withheld in Indemnitee’s sole discretion.7. EXPENSES.Promptly following a request by Indemnitee for the advancement of Expenses, Inovalon will advance, prior to the final disposition ofany Proceeding, all Expenses incurred by Indemnitee in Indemnification AgreementJanuary 1, 2018Page 6 of 12connection with such Proceeding (through the final disposition of any such Proceeding from which all rights of appeal have either beenexhausted or have lapsed) Indemnitee will qualify for advances upon the execution and delivery to Inovalon of this Agreement, whichwill constitute an undertaking providing that Indemnitee undertakes to the fullest extent permitted by law to repay the advance (withoutinterest) if and to the extent that Indemnitee is ultimately determined by a court of competent jurisdiction in a final judgment, notsubject to appeal, that Indemnitee is not entitled to be indemnified by Inovalon. No other form of undertaking will be required otherthan the execution of this Agreement. Any advances and undertakings to repay under this Section will be unsecured and interest free.Prior to an ultimate determination by a court of competent jurisdiction in a final judgment, not subject to appeal, that Indemnitee is notentitled to be indemnified by Inovalon, Inovalon may not refuse to advance Expenses to Indemnitee under this Agreement on thegrounds that Indemnitee has not satisfied any applicable standard of conduct or is not ultimately entitled to be indemnified, heldharmless or exonerated under the other provisions of this Agreement. Advances will be made without regard to Indemnitee’s ability torepay. Such advances are intended to be an obligation of Inovalon to Indemnitee hereunder and will in no event be deemed to be apersonal loan. Without limiting the generality or effect of the foregoing, within thirty days after any request by Indemnitee, Inovalonwill, in accordance with such request (but without duplication), (a) pay such Expenses on behalf of Indemnitee, (b) advance toIndemnitee funds in an amount sufficient to pay such Expenses, or (c) reimburse Indemnitee for such Expenses.8. ENFORCEMENT. Any right to indemnification or advances granted by this Agreement to Indemnitee will be enforceable by or on behalf of Indemnitee inany court of competent jurisdiction if (a) the claim for indemnification or advances is denied, in whole or in part, or (b) no dispositionof such claim is made within ninety (90) days of request therefor. Indemnitee, in such enforcement action, if successful in whole or inpart, also will be entitled to be paid the Expense of prosecuting Indemnitee’s claim. Neither the failure of Inovalon (including its Boardof Directors or its stockholders) to have made a determination prior to the commencement of such enforcement action thatindemnification of Indemnitee is proper in the circumstances, nor an actual determination by Inovalon (including its Board of Directorsor its stockholders) that such indemnification is improper will be a defense to the action or create a presumption that Indemnitee is notentitled to indemnification under this Agreement or otherwise.9. INSURANCE.(a)Unless otherwise approved by the Board of Directors prior to a Change in Control, Inovalon will obtain and maintain duringthe term of this Agreement directors’ and officers’ liability insurance (“D&O Insurance”) with respect to which Indemnitee willbe named as an insured. Notwithstanding any other provision of this Agreement, Inovalon will not be obligated to indemnifyIndemnitee for Expenses that have been previously paid directly to Indemnitee by D&O Insurance; but payment made toIndemnitee under an insurance policy purchased and maintained by Indemnitee at Indemnitee’s own expense of any amountsotherwise indemnifiable or obligated to be made under this Agreement will not reduce Inovalon’s obligations to Indemniteeunder this Agreement, except to the extent of the amounts actually recovered by the Indemnitee from the personal insurancepolicy that the Indemnitee does not otherwise repay or reimburse on the terms of such insurance policy. If Inovalon has Indemnification AgreementJanuary 1, 2018Page 7 of 12D&O Insurance in effect at the time Inovalon receives from Indemnitee any notice of the commencement of a Proceeding,Inovalon will give prompt notice of the commencement of such Proceeding to the insurers in accordance with the proceduresset forth in the policy. Inovalon will thereafter take all reasonably necessary action to cause such insurers to pay, on behalf ofIndemnitee, all amounts payable as a result of such Proceeding in accordance with the terms of such policy.(b)In the event that (i) the D&O Insurance policy is renewed but the renewed policy does not provide for prior act’s coverage,(ii) Inovalon obtains a new D&O Insurance policy for any period following the termination of the prior D&O Insurance, andsuch new D&O Insurance policy does not provide for prior act’s coverage, or (iii) Inovalon does not renew the D&O Insurancepolicy or obtain a new D&O Insurance policy following the termination of a D&O Insurance policy, then unless otherwisedetermined by the Board of Directors, Inovalon will add to the D&O Insurance policy or the applicable successor D&OInsurance policy a run-off endorsement (the “Endorsement”) on the existing D&O Insurance policy (and in the case of(iii) above, do so prior to the termination of the existing D&O Insurance policy if necessary) or the applicable successor D&OInsurance policy subject to the same terms and conditions in all material respects. Unless otherwise approved by the Board ofDirectors prior to the date on which the Endorsement is obtained, the Endorsement will be non-cancelable and will provide forat least a six-year extended coverage period for any and all claims covered under the D&O Insurance policy. Inovalon will payall premiums, commissions and other costs or charges incurred in obtaining the Endorsement.(c)In the event of a Change of Control (other than, at the discretion of a majority of the Board) or Inovalon’s becoming insolvent,Inovalon will maintain in force any and all insurance policies then maintained by Inovalon in providing insurance--directors’and officers’ liability, fiduciary, employment practices or otherwise--in respect of the individual directors and officers ofInovalon and its affiliates, or will replace all such policies with insurance coverage substantially comparable in scope andamount as the expiring policies, in each case for a fixed period of six years thereafter.10. SUBROGATION.In the event of payment under this Agreement, Inovalon will be subrogated to the extent of such payment to all of the rights ofrecovery of Indemnitee, who will execute all documents required and will do all acts that may be reasonably necessary to secure suchrights, including the execution of such documents necessary to enable Inovalon effectively to bring suit to enforce such rights.Inovalon’s obligation to indemnify, hold harmless, exonerate or advance Expenses hereunder to Indemnitee who is or was serving atthe request of Inovalon as a director, officer, trustee, partner, managing member, fiduciary, employee or agent of any other enterprisewill be reduced by any amount Indemnitee has actually received as indemnification, hold harmless or exoneration payments oradvancement of expenses from such enterprise. Notwithstanding any other provision of this Agreement to the contrary, (i) Indemniteewill have no obligation to reduce, offset, allocate, pursue or apportion any indemnification, hold harmless, exoneration, advancement,contribution or insurance coverage among multiple parties possessing such duties to Indemnitee prior to Inovalon’s satisfaction andperformance of all its obligations under this Agreement, and (ii) Inovalon will Indemnification AgreementJanuary 1, 2018Page 8 of 12perform fully its obligations under this Agreement without regard to whether Indemnitee holds, may pursue or has pursued anyindemnification, advancement, hold harmless, exoneration, contribution or insurance coverage rights against any person or entity otherthan Inovalon.11. CONTRIBUTION.To the fullest extent permissible under applicable law, if the indemnification provided for in this Agreement is unavailable to theIndemnitee, Inovalon, in lieu of indemnifying the Indemnitee, will contribute to Indemnitee’s Expenses in connection with any claimrelating to any Proceeding, in such proportion as is deemed fair and reasonable in light of all of the circumstances of such proceedingin order to reflect:(a)the relative benefits received by Inovalon and Indemnitee as a result of the events and transactions giving rise to suchProceeding; and(b)the relative fault of Indemnitee and Inovalon (and its other directors, officers, employees and agents) in connection with thecircumstances, events or transactions that gave rise to the Proceeding.12. NON-EXCLUSIVITY AND SURVIVAL OF RIGHTS.(a)All agreements and obligations of Inovalon contained in this Agreement will continue during the period Indemnitee is adirector, officer, employee or other agent of Inovalon (or is or was serving at the request of Inovalon as a director, officer,employee or other agent of another corporation, partnership, joint venture, trust, employee benefit plan or other enterprise)and will continue thereafter so long as Indemnitee will be subject to any possible Proceeding. The benefits hereunder willinure to the benefit of the heirs, executors and administrators and assigns of Indemnitee. The rights conferred on Indemniteeby this Agreement will not be exclusive of any other right Indemnitee may have or hereafter acquire under any statute,provision of the Certificate or Bylaws, agreement, vote of stockholders or disinterested directors, or otherwise, both as toaction in Indemnitee’s official capacity and as to action in another capacity while holding office.(b)The obligations and duties of Inovalon to Indemnitee under this Agreement will be binding on Inovalon and its successorsand assigns until terminated in accordance with its terms. Inovalon will require any successor (whether direct or indirect, bypurchase, merger, consolidation or otherwise) to Inovalon or to all or substantially all of the business or assets of Inovalon,expressly to assume and agree to perform this Agreement and to indemnify Indemnitee to the fullest extent permitted by law.(c)No amendment, alteration or repeal of this Agreement or of any provision hereof will limit or restrict any right of Indemniteeunder this Agreement in respect of any action taken or omitted by Indemnitee prior to such amendment, alteration or repeal.To the extent that a change in the Code, whether by statute or judicial decision, permits greater indemnification oradvancement of Expenses than would be afforded currently under the Certificate, Bylaws and this Agreement, it is the intentof the parties hereto that Indemnitee will enjoy by this Agreement the greater benefits so afforded by such change. No right orremedy conferred in this Agreement is intended to be exclusive of any other right or remedy, and Indemnification AgreementJanuary 1, 2018Page 9 of 12every other right and remedy will be cumulative and in addition to every other right and remedy given hereunder or now orhereafter existing at law or in equity or otherwise. The assertion or employment of any right or remedy hereunder, orotherwise, by Indemnitee will not prevent the concurrent assertion or employment of any other right or remedy byIndemnitee.13. SEVERABILITY.Each of the provisions of this Agreement is a separate and distinct agreement and independent of the others, so that if any provision isheld to be invalid for any reason, such invalidity or unenforceability will not affect the validity or enforceability of the other provisions.Furthermore, if this Agreement is invalidated in its entirety on any ground, then Inovalon nevertheless will indemnify Indemnitee to thefullest extent provided by the Certificate, Bylaws, the Code or any other applicable law.14. GOVERNING LAW.This Agreement will be governed exclusively by and construed according to the laws of the State of Delaware, as applied to contractsbetween Delaware residents entered into and to be performed entirely within Delaware.15. AMENDMENT, MODIFICATION, WAIVER AND TERMINATION.No amendment, modification, termination or cancellation of this Agreement will be effective unless signed in writing by both partieshereto; provided, however, that Inovalon will have the right to amend, modify, terminate or replace this Agreement if Inovalon amends,modifies, terminates or replaces its form of Indemnification Agreement for directors, officers, employees and other agents of Inovalon;provided, further, that such amended or modified agreement or such new agreement does not diminish in any material respect the rightsof Indemnitee hereunder. No waiver of any of the provisions of this Agreement will be deemed or will constitute a waiver of any otherprovision hereof (whether or not similar) nor will such waiver constitute a continuing waiver.16. ENTIRE AGREEMENT.This Agreement constitutes the entire agreement between the parties with respect to the subject matter hereof and supersedes all prioragreements, understandings and negotiations, written and oral, between the parties with respect to the subject matter of this Agreement;provided, however, that this Agreement is a supplement to and in furtherance of the Certificate, Bylaws, the Code and any otherapplicable law, and will not be deemed a substitute therefore, nor to diminish or abrogate any rights of Indemnitee thereunder.17. MONETARY DAMAGES INSUFFICIENT / SPECIFIC PERFORMANCE.The parties agree that a monetary remedy for breach of this Agreement may be inadequate, impracticable, and difficult to prove andthat such breach may cause Indemnitee irreparable harm. Indemnitee may therefore enforce this Agreement by seeking injunctiverelief and specific performance, without any necessity of showing actual damage or irreparable harm (since actual and irreparableharm will result if Inovalon does not specifically perform its obligations under Indemnification AgreementJanuary 1, 2018Page 10 of 12this Agreement). Seeking injunctive relief or specific performance does not be preclude Indemnitee from seeking or obtaining anyother relief to which Indemnitee may be entitled. Indemnitee is entitled to specific performance and injunctive relief, includingtemporary restraining orders, preliminary injunctions and permanent injunctions, without the necessity of posting bonds or otherundertakings in connection therewith. Inovalon acknowledges that in the absence of a waiver, a bond or undertaking may be requiredof Indemnitee by the applicable court, and Inovalon hereby waives any such requirement of a bond or undertaking.18. DETERMINATION OF GOOD FAITH/SAFE HARBOR.For purposes of any determination of “good faith,” to the extent permitted under the Code, Indemnitee will be presumed to have actedin good faith if Indemnitee's action is based on reliance on the records or books of account of Inovalon and its affiliates, includingfinancial statements, or on information supplied to Indemnitee by the officers of Inovalon or its affiliates in the course of their duties, oron the advice of legal counsel for Inovalon or its affiliates or for the Board or counsel selected by any committee of the Board or oninformation or records given or reports made to Inovalon or its affiliates by an independent certified public accountant or by anappraiser, investment banker, compensation consultant, or other expert selected with reasonable care by Inovalon or its affiliates or bythe Board or any committee of the Board. The provisions of this Section will not be deemed to be exclusive or to limit in any way theother circumstances in which Indemnitee may be deemed to have met the applicable standard of conduct. Whether or not theforegoing provisions of this Section are satisfied, it will in any event be presumed that Indemnitee has at all times acted in good faithand in a manner he or she reasonably believed to be in or not opposed to the best interests of Inovalon.19. INTERPRETATION OF AGREEMENT.It is understood that the parties hereto intend this Agreement to be interpreted and enforced so as to provide indemnification toIndemnitee to the fullest extent now or hereafter permitted by law.20. IDENTICAL COUNTERPARTS.This Agreement may be executed in one or more counterparts, each of which will be deemed for all purposes to be an original but allof which together will constitute this Agreement.21. HEADINGS.The headings of the Sections of this Agreement are inserted for convenience only and are not part of this Agreement or intended toaffect the interpretation of this Agreement.22. NOTICES.All notices, demands, and other communications required or permitted under this Agreement will be made in writing and will bedeemed duly given if delivered by hand, against receipt, or mailed, postage prepaid, certified or registered mail, return receiptrequested, and addressed to the parties at the Notice Addresses set forth on the signature page at the end of this Agreement. Indemnification AgreementJanuary 1, 2018Page 11 of 12Notice of change of address will be effective only when done in accordance with this Section. All notices complying with this Sectionwill be deemed received on the date of delivery or on the third business day after proper mailing.[Signatures on Next Page] Indemnification AgreementJanuary 1, 2018Page 12 of 12Signed and delivered by the parties as of January 1, 2018:INOVALON HOLDINGS, INC.“Inovalon” By: /s/ Keith R. Dunleavy, M.D. Printed Name: Keith R. Dunleavy, M.D.Title: Chief Executive OfficerNotice Address:4321 Collington RoadBowie, Maryland 20716Attn: Legal & Compliance DepartmentTel: 301-809-4000Email: legal@inovalon.comINDEMNITEE:By: /s/ June D. Duchesne Printed Name: June D. Duchesne Notice Address:[ADDRESS][ADDRESS]Office Phone:E-mail: Exhibit 21.1 SIGNIFICANT SUBSIDIARIESSubsidiary State of OrganizationInovalon, Inc. DelawareAvalere Health, Inc. DelawareCreehan Holding Co., Inc. PennsylvaniaExhibit 23.1 CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM We consent to the incorporation by reference in Registration Statement No. 333-202111 on Form S-8 of our reports dated February 21, 2018, relating to theconsolidated financial statements and financial statement schedule of Inovalon Holdings, Inc. and subsidiaries and the effectiveness of Inovalon Holdings,Inc. and subsidiaries' internal control over financial reporting, appearing in the Annual Report on Form 10-K of Inovalon Holdings, Inc. and subsidiaries forthe year ended December 31, 2017./s/ DELOITTE & TOUCHE LLPMcLean, VirginiaFebruary 21, 2018Exhibit 31.1 CERTIFICATIONI, Keith R. Dunleavy, M.D., certify that: 1. I have reviewed this Annual Report on Form 10-K of Inovalon Holdings, Inc.; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in lightof the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition,results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: (a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure thatmaterial information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period inwhich this report is being prepared; (b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to providereasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally acceptedaccounting principles; (c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of thedisclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and (d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (theregistrant's fourth fiscal quarter in the case of an Annual Report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal controlover financial reporting; and 5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditorsand the audit committee of the registrant's board of directors (or persons performing the equivalent functions): (a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely toadversely affect the registrant's ability to record, process, summarize and report financial information; and(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financialreporting./s/ KEITH R. DUNLEAVY, M.D.Keith R. Dunleavy, M.D.Chief Executive Officer & Chairman(Principal Executive Officer)Date: February 21, 2018Exhibit 31.2 CERTIFICATIONI, Christopher E. Greiner, certify that: 1. I have reviewed this Annual Report on Form 10-K of Inovalon Holdings, Inc.; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in lightof the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition,results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: (a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure thatmaterial information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period inwhich this report is being prepared; (b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to providereasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally acceptedaccounting principles; (c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of thedisclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and (d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (theregistrant's fourth fiscal quarter in the case of an Annual Report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal controlover financial reporting; and 5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditorsand the audit committee of the registrant's board of directors (or persons performing the equivalent functions): (a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely toadversely affect the registrant's ability to record, process, summarize and report financial information; and(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financialreporting./s/ CHRISTOPHER E. GREINERChristopher E. GreinerChief Financial & Operating Officer(Principal Financial Officer & Principal AccountingOfficer)Date: February 21, 2018Exhibit 32.1 CERTIFICATION PURSUANT TO18 U.S.C. SECTION 1350,AS ADOPTED PURSUANT TOSECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the Annual Report of Inovalon Holdings, Inc. (the "Company") on Form 10-K for the period ended December 31, 2017 as filed with the Securities andExchange Commission on the date hereof (the "Report"), I, Keith R. Dunleavy, M.D., the Chief Executive Officer and Chairman of the Company, certify, to my knowledge,pursuant to 18 U.S.C. §1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:1. the Report fully complies with the requirements of Section 13(a) or Section 15(d) of the Securities Exchange Act of 1934, as amended; and 2. the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company./s/ KEITH R. DUNLEAVY, M.D.Keith R. Dunleavy, M.D.Chief Executive Officer & Chairman(Principal Executive Officer)Date: February 21, 2018Exhibit 32.2 CERTIFICATION PURSUANT TO18 U.S.C. SECTION 1350,AS ADOPTED PURSUANT TOSECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the Annual Report of Inovalon Holdings, Inc. (the "Company") on Form 10-K for the period ended December 31, 2017 as filed with the Securities andExchange Commission on the date hereof (the "Report"), I, Christopher E. Greiner, Chief Financial and Operating Officer of the Company, certify, to my knowledge, pursuant to18 U.S.C. §1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:1. the Report fully complies with the requirements of Section 13(a) or Section 15(d) of the Securities Exchange Act of 1934, as amended; and 2. the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. /s/ CHRISTOPHER E. GREINER Christopher E. Greiner (Principal Financial Officer &Principal Accounting Officer) Date: February 21, 2018

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