| SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Principles of Consolidation —The accompanying consolidated financial statements include the accounts of Inovalon Holdings, Inc. and its wholly owned 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 Generally Accepted Accounting Principles (“GAAP”). The preparation of consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosures of contingent assets and liabilities as of the date of the financial statements, and the reported amounts of revenue and expenses during the reported period. Certain prior period amounts have been reclassified within the current and non-current liabilities section of the consolidated balance sheets and within the operating section of the consolidated statements of cash flows to conform with current period presentation. Such reclassifications had no impact on current and non-current liabilities or net cash provided by operating activities as previously reported. Significant estimates made by management include, but are not limited to: revenue recognition; accounts receivable allowances; fair value of intangibles and goodwill; fair value of contingent consideration; depreciable lives of property, equipment and capitalized software; and useful lives of intangible assets. Actual results could differ from management’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 the time of purchase, and demand deposits with financial institutions. Concentrations of Credit Risk —Accounts receivable and cash and cash equivalents subject the Company to its highest potential concentrations of credit risk. Although the Company deposits its cash and cash equivalents with multiple financial institutions, the Company’s deposits may exceed federally insured limits. The Company has not experienced any losses on cash and cash equivalent accounts to date, and management believes the Company is not exposed 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 on receivables is principally dependent on each client’s financial condition. The Company monitors its exposure for credit losses and maintains allowances for anticipated losses. The Company did not have revenue from a significant client, representing 10% or more of total revenue for the years ended December 31, 2019 and December 31, 2018 . For the year ended December 31, 2017 , the Company had revenue from a significant client representing 12% of total revenue. For the year ended December 31, 2019 , the Company had accounts receivable from a significant client representing 13% of total accounts receivable. The Company did not have accounts receivable from a significant client, representing 10% or more of total accounts receivable as of December 31, 2018 . Accounts Receivable and Allowances —Accounts receivable consists primarily of amounts due to the Company from its normal business activities. The Company provides an allowance for estimated losses resulting from the failure of clients to make required payments (credit losses) and a sales allowance for estimated future billing adjustments resulting from client concessions or resolutions of billing disputes. The provision for sales allowances are charged against 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 and Disclosures . ASC 820-10 defines fair value, establishes a fair value hierarchy for assets and liabilities measured at fair value, and expands required disclosures about 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 fair value 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 most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. Valuation techniques used to measure fair value must maximize the use of observable inputs and minimize the use of unobservable inputs. The guidance describes three levels of inputs that 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 that the reporting entity can access at the measurement date. Level 2—Financial assets and liabilities whose values are based on inputs other than quoted prices included within Level 1 that are observable for the 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. Interest Rate Swaps —The Company uses interest rate swaps to mitigate the risk of a rise in interest rates. The Company applies ASC 815, Derivatives and Hedging and the interest rate swaps are recorded on the balance sheet at fair value as either assets or liabilities and any changes to the fair value are recorded through accumulated other comprehensive income and reclassified into interest expense in the same period in which the hedged transaction is recognized in earnings. Cash flows from interest rate swaps are reported in the same category as the cash flows from the items being hedged. 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 useful lives of the assets, as follows: Useful Life Office and computer equipment 3 - 5 years Purchased software 5 years Capitalized software 3 - 5 years Furniture and fixtures 7 years Building 40 years Leasehold improvements * Assets under finance leases * _______________________________________ *Lesser of lease term or economic life Expenses for repairs and maintenance that do not extend the life of property and equipment are expensed as incurred. Expenses for major renewals and betterments, which significantly extend the useful lives of existing property and equipment, are capitalized and depreciated. Upon retirement or disposition of 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 application development stage related to software developed for internal use. All other costs to develop software for internal use, either in the preliminary project stage or post 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 until technological feasibility has been established. Thereafter, all software development costs incurred through the software’s general release date are capitalized and subsequently reported at the lower of amortized cost or net realizable value. Capitalized costs are amortized based on current and expected future revenue for each software solution with minimum annual amortization equal to the straight-line amortization over the estimated economic life, which is typically over a three to five year period. Intangible Assets —Intangible assets consist of acquired technology, including developed and core technology, databases, trade names, and customer relationships. Intangible assets are initially recorded at fair value and amortized on a straight line basis over their estimated useful lives. Acquired intangible assets are being amortized over the following periods: Useful Life Technology 3 - 13 years Trademark and trade names 3 - 17 years Database 10 years Customer relationships 8 - 15.75 years Non-compete agreements Contractual term At least annually, or whenever events or changes in circumstances indicate a revision to the useful life, the Company reviews the remaining useful lives of its definite-lived intangible assets. There were no impairment charges on indefinite-lived intangible assets for the year ended December 31, 2019 . Goodwill —Goodwill 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 amount may not be fully recoverable. The Company performs the goodwill impairment test annually as of November 1st, or whenever events or changes in circumstances indicate that the carrying amount may not be fully recoverable. Impairment is the condition that exists when the carrying amount of a reporting unit exceeds 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 of the 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 between the fair value and the carrying value. Significant judgment in testing goodwill for impairment includes assigning assets and liabilities to the reporting unit and assessing or determining the fair value of each reporting unit based on the Company’s best estimates and assumptions, as well as other information including valuations that utilize customary valuation procedures and techniques. The Company tests its goodwill for impairment at the reporting unit level which is one level below the operating segment and has identified four reporting units: Inovalon, ABILITY, Avalere and Creehan. Based on the Company’s annual impairment evaluation performed as of November 1, 2019 , the Company concluded that there was no impairment of goodwill. Refer to “Note 9 —Goodwill and Intangible Assets” for a summary of changes in goodwill. Valuation of Long-Lived Assets —The Company reviews long-lived assets for events or changes in circumstances that would indicate potential impairment. 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 year ended December 31, 2019 . Leases —The Company determines whether a contract is or contains a lease at inception. At the lease commencement date, the Company records a liability for the lease obligation and a corresponding asset representing the right to use the underlying asset over the lease term. Leases with an initial term of 12 months or less are not recorded on the consolidated balance sheet and are recognized in expense using a straight-line basis for all asset classes. Variable lease payments are expensed as incurred, which primarily include maintenance costs, services provided by the lessor, and other charges reimbursed to the lessor. Revenue Recognition —The Company generates a substantial majority of its revenue through the sale or subscription licensing of its platform solutions, as well as revenue from related arrangements for advisory, implementation, and support services. The Company recognizes revenue when performance obligations under the terms of a contract are satisfied. A performance obligation is a contractual promise to transfer a distinct good or service to the customer. This occurs when the control of the product or service is transferred to the customer. The majority of the Company’s platform solutions contracts contain a series of separately identifiable and distinct services that represent performance obligations that are satisfied over time. The Company allocates revenue to platform services by determining the standalone selling price of each performance obligation. The determination of standalone selling price for each performance obligation is determined based on the terms of the contract and can require judgment. Generally, the best estimate of standalone selling price is consistent with the contractual arrangement fee for each element. Revenue is generally recognized on platform offerings over the contract term. For these contracts, the Company has determined that it will use the practical expedient under ASC 606-10-55-18 to recognize revenue when it has the right to invoice. The Company qualifies for this practical expedient because the right to invoice corresponds directly with the value transferred to the customer. The Company also generates revenue from advisory, implementation, and support services. The Company primarily enters into arrangements for advisory services under fixed-price, time and materials, or retainer-based contracts. Revenues under fixed-price and retainer-based contracts are recognized ratably over the contract period or upon contract completion. Revenue for time and material contracts is recognized based upon contractually agreed upon billing rates applied to direct labor hours expended plus the costs of other items used in the performance of the contract. The Company recognizes revenue when the Company has the right to invoice the customer using the allowable practical expedient under ASC 606-10-55-18 since the right to invoice the customer corresponds with the performance obligations completed. Certain of the Company’s arrangements entitle a client to receive a refund if the Company fails to satisfy contractually specified performance obligations. 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 client concessions 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 also includes expenses associated with the integration and verification of data and other service costs incurred to fulfill the Company’s revenue contracts. Cost of revenue does not include allocated amounts for occupancy expense, depreciation and amortization. Selling and Marketing —Sales and marketing expense consists primarily of employee-related expenses including salaries, benefits, discretionary incentive 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 public relations costs. Sales and marketing expense excludes any allocation of occupancy expense, depreciation and amortization. Research and Development —Research and development expenses consist primarily of employee-related expenses. All such costs are expensed as incurred, except for certain internal use software development costs that are capitalized. Research and development 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 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. General and administrative expense excludes any allocation of depreciation and amortization. Segments —The Company operates its business as one operating segment. The Company provides cloud-based platforms under a shared infrastructure 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 or subscription licensing of its platform solutions, as well as revenue from related arrangements for advisory, implementation, and support services of one group of similar product offerings—proprietary datasets, core connectivity, advanced integration technologies, sophisticated predictive analytics, and deep subject matter expertise that enable the Company to provide seamless, end-to-end platforms that bring the benefits of big data and large-scale analytics to clients. Operating segments are defined as components of an enterprise for which separate financial information is available and is evaluated regularly by the Company’s chief operating decision maker (“CODM”), in deciding how to allocate resources and in assessing performance. In the process of allocating resources and assessing performance, the Company’s CODM, its chief executive officer, reviews financial information 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 liability approach to the recognition of deferred tax assets and liabilities related to the expected future tax consequences of events that have been recognized in the Company’s financial statements or income tax returns. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income 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 given deferred tax asset will not be realized. In accordance with ASC 740, income tax expense includes (i) deferred tax expense, which represents the net change in the deferred tax asset or liability balance during the period and any change in valuation allowances and (ii) current tax expense, which represents the amount of tax currently payable to or receivable from a taxing authority and amounts accrued for expected tax contingencies (including both tax and interest). ASC 740 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 in order to properly record any uncertain tax liability positions. The Company adjusts these reserves in light of changing facts and circumstances. Stock-Based Compensation —All stock-based awards, including restricted stock award (“RSA”) grants, restricted stock unit (“RSU”) grants, and employee stock option grants, are recorded at fair value as of the grant date in accordance with ASC 718, Compensation—Stock Compensation , and recognized in the statement of operations over the service period of the applicable award using the straight-line method or using a graded vest schedule for RSAs with a performance condition and ratable vest terms. The Company measures RSUs and RSAs that vest upon satisfaction of a service condition, a performance condition, or a liquidity condition, if such conditions 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 or using a graded vest method, depending on the specific terms of the award. The Company determines the fair value of its stock option awards on the date of grant, using the Black-Scholes option pricing model. The assumptions used in calculating the fair value of stock-based awards represent management’s best estimates. Treasury Stock —The Company records treasury stock activities under the cost method whereby the cost of the acquired stock is recorded as treasury stock. 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 excess of 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. Recently Adopted Accounting Standards In February 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2016-02, Leases (Topic 842) , and in July 2018 and in March 2019 issued subsequent clarifying guidance (collectively, “ASU 2016-02”). ASU 2016-02 requires the recognition of lease assets and lease liabilities on the balance sheet and enhanced disclosure about leasing arrangements. The Company adopted the new standard on January 1, 2019 using the additional transition approach, while prior period amounts are not adjusted and continue to be reported in accordance with the Company’s historic accounting under Accounting Standards Codification (“ASC”) 840. Refer to “Note 8 —Leases.” In June 2018, the FASB issued ASU 2018-07, Compensation–Stock Compensation (Topic 718) . ASU 2018-07 expands the scope of ASC 718, Compensation–Stock Compensation: Improvements to Nonemployee Share-Based Payment Accounting, to include share-based payment transactions for acquired goods and services from non-employees. This update includes changing the accounting for non-employee stock-based compensation as it relates to the award measurement date, the fair value measurement of the awards, and forfeitures, among other changes to align the accounting with ASC 718. The Company adopted the new standard on January 1, 2019. There was no material impact of adoption on its consolidated financial statements and notes disclosures. In October 2018, the FASB issued ASU 2018-16, Derivatives and Hedging (Topic 815): Inclusion of the Secured Overnight Financing Rate (SOFR) Overnight Index Swap (OIS) Rate as a Benchmark Interest Rate for Hedge Accounting Purposes in response to the potential transition away from the London Interbank Offer Rate (“LIBOR”). This update permits the use of the Overnight Index Swap Rate based on the Secured Overnight Financing Rate as a U.S. benchmark interest rate for hedge accounting purposes under ASC Topic 815. The Company will apply the requirements of the new standard for any new or redesignated hedging agreements. Refer to “Note 6 —Fair Value Measurements.” Recently Issued Accounting Standards In June 2016, the FASB issued ASU 2016-13, Financial Instruments–Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments and subsequent clarifying guidance (“ASU 2016-13”). ASU 2016-13 replaces the current incurred loss impairment method with a methodology that reflects the amortized cost basis net of expected credit losses that are calculated based on certain relevant information. The standard also amends the credit loss guidance for available-for-sale debt securities and requires the measurement and recognition of an expected allowance for credit losses for financial assets held at amortized cost. This guidance is effective for public companies for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019. The Company adopted the requirements of the new standard on January 1, 2020 using the modified-retrospective approach. The Company determined that the standard is applicable to its accounts receivables and available-for-sale debt securities. The Company is in the process of finalizing and documenting the methodology for and implementing changes to processes and internal controls. The Company is finalizing the impact of adoption and currently does not expect a material impact on the consolidated financial statements. The Company will provide additional disclosures as required by the standard in the Company’s Quarterly Report on Form 10-Q the first quarter of 2020. In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework–Changes to the Requirements for Fair Value Measurement. This update changes the fair value measurement disclosure requirements of ASC 820. The standard consists of removals, modifications, and additions to the existing disclosure requirements. This guidance is effective for public companies for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019. The Company plans to adopt the requirements of the new standard for disclosures in the first quarter of 2020. The Company is in the process of evaluating the impact of adoption on the notes disclosures. In August 2018, the FASB issued ASU 2018-15, Intangibles—Goodwill and Other— Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract. This update aligns the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software. The standard requires that an entity in a hosting arrangement that is a service contract to follow the guidance in Subtopic 350-40 to determine which implementation costs to capitalize as an asset related to the service contract and which costs to expense. This guidance is effective for public companies for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019. The Company adopted the requirements of the new standard on January 1, 2020 and does not expect a material impact on its consolidated financial statements and notes disclosures. In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes. This update removes certain exceptions and provides additional requirements that simplify the accounting for income taxes. This guidance is effective for public companies for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2020. Early adoption of the standard is permitted. The Company is in the process of evaluating the timing and impact of adoption on the consolidated financial statements and notes disclosures. |
