Image source: Inovalon.

What: Shares of Inovalon (NASDAQ:INOV), a cloud-based analytics company focused on the healthcare industry, tumbled on Thursday following the release of the company's second-quarter report. Inovalon reported lower revenue than expected, and it cut its guidance for the full year. At 12:00 p.m. ET, the stock was down about 24%.

So what: Inovalon reported second-quarter revenue of $123.8 million, up 5% year over year but $3 million lower than the average analyst estimate. CFO Thomas Kloster explained why the company came up short:

During the quarter we initiated the process of transitioning several of our more legacy platforms to more advanced cloud-based technologies, initiated several new platform initiatives, and accelerated an expansion of our big data cloud capability infrastructure. These decisions, and the associated decision to avoid inappropriately chasing lower-profitability business, will have an impact on our shorter-term financial performance over the next few quarters.

Non-GAAP EPS came in at $0.14, down from $0.18 during the prior-year period and in line with analyst expectations. EPS on a GAAP basis was $0.11, down from $0.17. Total costs soared 35% year over year, driving down profitability. CEO Keith Dunleavy pointed to a slower-than-expected payoff time for investments in sales capacity:

Concurrently, while we achieved many significant milestones during the quarter, the time it took for our investment in sales capacity to translate into pipeline growth has resulted in the associated benefit being achieved later in the year than planned. In addition, we have seen an accelerated change in our clients' purchasing patterns on one of our older product lines.

Now what: A weaker-than-expected second quarter led Inovalon to lower its outlook for the full year.


New Guidance

Previous Guidance 


$470 million to $490 million

$510 million to $520 million

Non-GAAP net income

$60 million to $70 million

$88 million to $92 million


$0.39 to $0.46

$0.57 to $0.60

Data source: Inovalon Q2 earnings report.

Inovalon still expects to reach $1 billion of revenue by 2020, with the company believing that the current issues affecting its performance are temporary. With the stock crashing 24% on the news, investors don't seem so sure.

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