Inovalon Holdings, Inc.
Q4 2019 Earnings Call Transcript

Published: 20 Feb 2020

[Operator:]

Good day, ladies and gentlemen and welcome to the Inovalon Fourth Quarter and Full Year 2019 Earnings Call. [Operator Instructions] As a reminder, this conference is being recorded. And now, I will turn the conference over to your host, Kim Collins. Please begin.

[Kim Collins:]

Good afternoon. This is Kim Collins, Senior Vice President of Communications at Inovalon. I am here today with Dr. Keith Dunleavy, Inovalon’s Chief Executive Officer and Chairman of the Board and Jonathan Boldt, Inovalon’s Chief Financial Officer. I would like to welcome you to our fourth quarter and full year 2019 earnings call.The press release announcing our financial results for the fourth quarter and full year 2019 was distributed this afternoon and a replay of today’s call will be available shortly, posted on the Investor Relations page on Inovalon’s website.For those of you listening to the rebroadcast of this call, we remind you that the remarks made herein are as of today, February 19, 2020 and will not be updated subsequent to the initial earnings call.I will remind you that certain statements made during this call maybe characterized as forward-looking under the Private Securities Litigation Reform Act of 1995, including statements related to future results of operations and financial position, our business strategy and plans, market growth and our objectives for future operations. Those statements involve a number of factors that could cause actual results to differ materially. Additional information concerning these factors is contained in the company’s earnings release and filings with the SEC.In an effort to provide additional information to investors, this conference call and webcast is accompanied by a presentation, which is available on the IR section of our website. You’re encouraged to download a copy of this presentation to follow along with our prepared remarks. Our presentation also includes certain non-GAAP financial measures. You will find definitions of these non-GAAP measures and reconciliation charts at the end of the company’s earnings release and on the company’s website.Now, it is my pleasure to turn the call over to Dr. Keith Dunleavy

[Keith Dunleavy:]

Thank you, Kim. Good afternoon, everyone and thank you for joining our call. The fourth quarter of 2019 demonstrated another period of strong performance with not only record revenue and adjusted EBITDA but also with record sales strength and data growth. The strength to the capabilities brought to the marketplace by Inovalon, the demonstration of differentiated value to our clients and the cohesiveness of the teams that are making this happen have never been stronger.Across the key performance metrics that we track on a daily, weekly, monthly and quarterly basis we are very pleased with what we are seeing. This is not to say that we do not have a great amount of work to do. There continue to be many areas for improvement, continued scaling and long lists of technological capabilities that we are arduously developing to bring to market but Inovalon vision for empowering data-driven healthcare is resonating in the marketplace and our teams are energized.The fourth quarter and the full year of 2019 was a great demonstration of how the market is embracing our platforms capabilities. That said we are anything but complacent. We're aware of the tremendous opportunity that we have before us and we are determined to execute on it. You can count on us to keep our heads down as we see another strong year ahead.As we navigate the opportunities before us I'd like to share with you our three guideposts that describe our execution strategy. We've laid these out on slide 6 of our supplemental deck. The first is lead in innovation. Bring to the market the industry's most advanced, most differentiated cloud-based software platforms with the greatest breadth of connectivity, the deepest access to primary source data and the most advanced analytics to empower the transformation of data-driven healthcare.In 2019 we did exactly that. We led in innovation. We advanced the company's cloud-based pharmacy platform known as ScripMed cloud. We advanced our cloud-based clinical data extraction capabilities known as CDE-as-a-service and we advanced our cloud-based natural language processing toolsets known as NLP-as-a-service and we significantly expanded a number of artificial intelligence applications within the overall platform.Additionally, during 2019 Inovalon moved into production of its fire enabled API toolset providing data and data derivatives on demand for cloud-based applications allowing for real-time availability of data and analytics on a transactional basis.Lastly, as we announced on January 13 we introduced our cloud-based healthcare data like offering providing organizations with an industry-leading single source of truth aggregation of clients otherwise disparate datasets, supporting translation of structured and unstructured data and data supplementation from the industry's largest primary source healthcare data set Inovalon's MORE2 Registry of de-identified data empowering clients to unlock the value of their own data assets and reduce costs from the elimination of their often multiple legacy enterprise data warehouse environments. Quite exciting about this offering is its applicability to all audiences in healthcare, health plans, provider organizations, pharmaceutical companies and other large complex organizations operating in the healthcare ecosystem.The second strategic guideposts has been to become the enablement layer. That is to bring to bear the resulting capabilities of our innovations to become the ubiquitous independent connection data and analytics layer serving as the Intel Inside that empowers the healthcare ecosystems innumerable transformation initiatives.As the use of our platform expands a sort of network effect and virtuous cycle develops. In addition to serving as a high value element of individual organizations the enablement layer that Inovalon has been developing serves to facilitate innovative offerings between multiple concurrent organizations which would be otherwise unlikely to inter coordinating.Disparate silos of healthcare can leverage capabilities of the Inovalon one platform in a way that allows them to collaborate on a single goal. Health plans can achieve goals across a nation of disparate providers. Pharmacy organizations can gain access to data to speed time to fulfillment and lower errors with access to historical data of patients otherwise too costly or time consuming to access.Pharmaceutical companies can design outcomes based contracts with health plans for high cost and high complexity patients spread across their wide member catchment areas. As they do this the depth and uniqueness of value able to be delivered by Inovalon increases. The data set expands and the network effect and virtuous cycle takes another step forward.You see this in the expansion of our client base and our datasets. Now with more than 314 million unique patients and 53 billion medical events an increase of 19% and 24% year-over-year respectively.And the third of the three strategic guideposts is the mantra of landing and expanding efficiently. Inovalon focuses on providing its capabilities in highly efficient scalable client friendly and flexible ways that align with the growth and success of our clients. Meaning once the platform is in place too during one of many potential capabilities it makes it easier for us to demonstrate value and achieve greater adoption of our solution within the organization. Given the nature of our platform this also translates into not only strong growth and stickiness but also strong operating leverage and resulting strong financial performance.In 2019 we added a 111 new logos to our client base counting only those with more than a 100,000 in expected annual revenue. These new logos contributed 64.4% of our sales driven revenue expansion and the balance of 35.6% was added through successful expansion within our existing client base.As an organization sees the value ease of implementation gained insight or outcomes impact of utilizing Inovalon platform in one line of business or geographical area we gained the ability to expand the relationship with the client further and as we deliver for our clients and focus on their success this is precisely what we are seeing. In fact both of the announcements on January 13th and 14th were not only examples of meaningful incremental multi-year engagements but they were also examples of successful land and expand strategy execution. In both cases the clients had previously begun working with the Inovalon platform and added meaningfully new solution capabilities in the fourth quarter of 2019.To reiterate there are three strategic guideposts of our growth. Number one lead and innovation. Number two become the enablement layer. And number three land and expand efficiently. Execution on these three takes great coordination throughout many teams and I am proud to report that this is precisely what we are achieving.We have a truly great team. They are energized and I am thankful to have the opportunity to work with them. As always though we know that we have much work ahead to capitalize on a huge opportunity that is expanding before us. Together we are proud of the execution we are seeing the value it is delivering for our clients and the strong performance that is resulting for Inovalon and its shareholders. We're pleased with the performance in 2019 and we look forward to continuing this in 2020.With that allow me to turn the call over to Jonathan to review the results of the quarter and our outlook for the year ahead. Jonathan?

[Jonathan Boldt:]

Thank you Keith and good afternoon everyone. I'd like to begin by highlighting a few key points building on Keith's opening remarks. First the fourth quarters financial results reflect another quarter of solid execution with revenue adjusted EBITDA and non-GAAP EPS within or at the high end of our previous guidance ranges. Second, based on our increased creditworthiness and cash flow generation we are able to reprice our term loan and revolving credit facility to reduce the applicable margin in February of 2020 which will reduce our annual cash interest expense and will increase shareholder return. And third, we are increasing our 2020 GAAP and non-GAAP net income and EPS guidance ranges, increasing our net cash provided by operations guidance ranges and reaffirming our previously announced revenue, adjusted EBITDA and capital expenditure guidance ranges.Now turning to our fourth quarter and full year results. Fourth quarter 2019 revenue was a $173.5 million, an organic increase of 27% year-over-year. Subscription-based platform revenue grew to 83% of fourth quarter revenue compared to 81% in the fourth quarter of 2018.Services revenue represented 11% of fourth quarter 2019 revenue with legacy revenue the remaining 6%. The $37.2 million year-over-year organic revenue increase in the fourth quarter was driven by an increase of $18.8 million in revenue from new customers and an increase of $18.4 million in revenue from existing customers. Both reflecting continued strong adoption of our platform offerings.Full year 2019 revenue was $642.4 million which was within our initial guidance range provided on November 7, 2018. The 22% year-over-year revenue increase and 14% organic growth was driven by an increase of $48.2 million in revenue contributed from new customers an increase of $26.7 million in revenue from existing customers and $39.8 million in organic revenue contribution.Looking at our vertical markets all four of our verticals payer, provider, pharmacy and life sciences each grew at 10% organic revenue growth or greater during 2019. Finally we continue to meaningfully reduce our customer concentration with our top 10 customers representing only 35% of 2019 revenue with no client representing 10% of revenue or more. For comparison this is down significantly from the customer concentration metric of 76% of revenue reported by the company in 2014. New sales ACV during the quarter came in at a record $73.5 million, an increase of 60% year-over-year and represents a quarterly sales record.Fourth quarter 2019 new platform sales ACV excluding services was $52.7 million or an increase of 96% year-over-year.Turning to gross margin, fourth quarter 2019 gross margin was a solid 73.2%. Gross margin decreased by 50 basis points year-over-year primarily as a result of increased investments in data connectivity and employee investments.Full-year gross margin was strong at 73.9%, an increase of a 130 basis points year-over-year. Sales and marketing expense for the fourth quarter was $18.4 million, an increase of $4.6 million year-over-year. Sales and marketing as a percentage of revenue was 10.6% in the fourth quarter of 2019 which was in line year-over-year.Full year 2019 sales and marketing was $62.4 million or 9.7% of revenue compared to full year 2018 sales and marketing expense of $45.5 million or 8.6% of revenue. We continued to see attractive returns on our investments in our sales and marketing engines as demonstrated in our record fourth-quarter new sales ACV and strong quarterly organic growth.Now I like to spend a moment on profitability. As highlighted in slide 18 of our earnings supplement deck our investments in cloud architecture, automation and connectivity have allowed us to reduce the number of headcount in our business model. From Q4 2015 to Q4 2019 the company has been able to reduce more than 1400 net positions even after our significant investment and expansion in personnel within our sales and marketing engine.This reduction and necessary headcount together with more efficient technology platform operating environments a progression of product mix shift and a continued stronger market value pricing trend has driven continued profitability expansion.For the fourth consecutive quarter adjusted EBITDA grew to a record $57.6 million, an increase of $18.8 million or 48% year-over-year. Adjusted EBITDA margin for the fourth quarter was a notable 33.2% representing an increase of 470 basis points year-over-year.Full year 2019 adjusted EBITDA was $210.7 million, an increase of $58.7 million or 39% from the year ago period. Full year 2019 adjusted EBITDA margin was 32.8% which represents a 400 basis point increase compared to full year 2018 adjusted EBITDA margin of 28.8%. Fourth quarter 2019 non-GAAP net income per share was $0.15 which increased $0.10 per share or 200% from the year ago period. Full year 2019 non-GAAP net income per share was $0.52, an increase of 93% compared to $0.27 during full year 2018.Turning the cash flow, net cash provided by operating activities in the fourth quarter 2019 was $34.2 million which is net of or after the payment of $14.9 million in interest payments and $106.5 million for the full year 2019 which is also net off or after the payment of $62.8 million in interest payments. For the full year 2019 net cash provided by operating activities was impacted by the timing of certain client account receivables which has since been collected. As a result the company has increased its 2020 operating cash flow guidance for the corresponding amount of approximately $25 million to reflect the timing of these account receivable collections.Fourth quarter CapEx was $18.9 million and for the full year was $58.9 million. Pulling this together Inovalon generated $47.5 million in positive free cash flow in 2019, an increase of $22.2 million or 87% as compared to $25.4 million of free cash flow in 2018.Notably Inovalon's free cash flow was after net incremental cash outflows of $19.2 million in cash interest payments. Inovalon's s cash flow generation capabilities continues to highlight the profitability and scale of the business model.Additional details of full-year results and CapEx can be found on slide 16 and 25 of our earning supplement deck.Moving to the balance sheet Inovalon financial position continues to build in strength. In 2019 the company repaid $59.8 million in principle on our credit facility. Additionally subsequent to year end the company successfully repriced our term loan and revolving credit facility to reduce the interest rate margin on both by 50 basis points with a further automatic reduction of 25 basis points to 75 basis point reduction when our net leverage ratio falls to 3.45 to 1 or lower.The interest rate margin reduction represents a cumulative pre-tax cash interest cost savings of $23 million at the 50 base point reduction mark and $34.5 million at the 75 basis point reduction mark over the remaining life of the facility assuming no additional voluntary early principal pay downs in excess of our $9.8 million scheduled annual payments.The company exited 2019 with cash and cash equivalents of $93.1 million, total outstanding debt of $917.8 million, reported balance sheet debt of $893.7 million net of issuance discounts and deferred financing fees and the company had not drawn any amount from the $100 million revolving credit facility. As a result the company's net debt position at year-end was $824.7 million and the net debt leverage ratio as defined within our debt agreement decreased from 4.23 to 1 as of the end of Q3 2019 to approximately 3.83 to 1 at year-end.Now let me conclude by sharing updates the company's 2020 financial outlook. For the full year of 2020 first we are reaffirming our prior guidance ranges for revenue adjusted EBITDA and capital expenditures. Second, we are increasing our guidance for GAAP and non-GAAP net income and GAAP and non-GAAP net income per share by $0.02 to reflect the positive impact on the company's debt repricing. And third we are increasing our net cash provided by operating activities to reflect the impact of accounts receivable collections timing.For the first quarter of 2020 we are providing the following guidance ranges. For revenue we see revenue at $158.5 million to $163 million reflecting year-over-year organic growth of 9% to 12% as previously messaged during our Q3, 2019 update. Adjusted EBITDA of $48 million to $51 million and non-GAAP diluted net income per share of $0.11 to $0.13. We encourage you to refer to today's earnings release in our fourth-quarter supplemental earnings deck for more details on our 2020 guidance ranges.Before going to Q&A I will close by echoing Keith's comments. The fourth quarter and full year of 2019 was a strong reflection of the company's capabilities and their reception by the market and we are seeing more of the same in 2020. With that let me turn the call back over to our operator to conduct our Q&A session.

[Operator:]

Thank you. [Operator Instructions] Our first question comes from Sandy Draper with SunTrust.

[Sandy Draper:]

Thanks very much and good afternoon. I guess first a product question Keith I appreciate the update on the data like maybe just a little bit deeper or looking back competitively when customers are looking across the board at data like what is the Inovalon providing that Google and Amazon or some of the other healthcare specific data like providers what are you guys bringing to the table that the competitors you don't think have?

[Keith Dunleavy:]

Right. Thanks Sandy. Thanks for the question. I appreciate it. Before I hit the question if you don't mind I just want to take a moment to welcome Hulus Alpay. Hulus is our new head of Investor Relations, he comes to us from the marketplace known to many of you I'm sure. A lot of Investor Relations in Wall Street experience you might know him from reputation from his work at Metadata, the global provider vertically specialized cloud-based solutions for the pharmaceutical marketplace. It was recently acquired by Sole Systems.We're very excited to have him join the team and then also today with us for Q&A is Jason Capitel our Chief Operating and Revenue officer. Now to your question Sandy. So the data like, the marketplace whether it be health plans whether it be pharmaceutical companies whether it be large provider systems finds themselves having multiple different enterprise database environments perhaps several in each hospital in the health plan arena, several from different initiatives over years perhaps in acquired parts of their business and the pharmaceutical marketplace the same as well as those purchased data sets that they've accumulated over time.The point being traditional enterprise environment data warehouses that carry with them individual cost to operate cost to maintain and typically do not allow the healthcare marketplace to do analysis across their whole data landscape.So the first aspect of it would be as you point out also capable by other organizations in the cloud marketplace. The Googles of the world, the Amazons of the world to put in place a cloud-based data like environment that takes over for those previously disparate enterprise systems but from there our solution starts to change quite notably and that is because we have a lot of connectivity those other enterprise or other industry players don't have which allow us to start to create a more holistic a single source of truth of the data blinking together the data from their disk sprits, data silos and adding into it the data that represents the patient base and provider base with longitudinally matched data aggregate or data supplementation.We’re able to get that from the more squared registry, none of the other players in the marketplace have that capability. So the 314 million patients worth of data, down 998,000 providers, some 60 or so billion medical events are able to then fill-in imperative information for that client.But then we go a step further, we have connectivity into the clinical data that represents that healthcare organizations world and that allows us to import clinical data and input it through our natural language processing capability to wireless layer in both structured and unstructured data that they previously couldn’t bring on board or if they did bring on board had trouble or impossibility of longitudinally linking it with the rest of the data.So we're able to bring all those things together rather rapidly give them common reporting capability, common analytical capability and then as they want to apply individual use cases on top of that data set. We're able to power that in a very fast fashion, meaning want to compute across that whole data set on a rapid basis, minute's hours faster than before they could have done it.So number of variables there to the benefit as well as the cost savings with the elimination of their enterprise legacy systems.

[Sandy Draper:]

Great, that's really helpful Keith. And then follow-up. Just sort of given the quick numbers. Look, you obviously had a strong year on the payer side on my calculation, looks like payer revenue grew about 17% and that's after 3-years of declining revenue.Was there any one product or any one thing that was really driving that and I'm just trying to think about the sustainability of the payer business still growing some type of double-digit rate or is it just a function of you had the easier comp and it's going to moderate, just trying to think about longer-term.Certainly nice to see the improvement of what's the sustainability like on the payer revenue side. Thanks.

[Jonathan Boldt:]

Sure, same as sustainability looks great, Sandy. We're seeing a multi-product uptake in the marketplace across our quality products or risk products, the data visualization products, the data warehouse products, the connectivity, the NLP. Really the salesforce that Jason and his team have put together are now out in the marketplace if not one or two not three not four not five but many different solution that are really resonating well.So don’t want to make any predictions of what that growth rate is going to be this year except for what the guidance we put out but we feel really good about what we're seeing.

[Sandy Draper:]

Okay great, thanks.

[Operator:]

Thank you. Our next question comes from Donald Hooker with KeyBanc.

[Donald Hooker:]

Great, good afternoon. I wanted to touch, I think you wanted curious as to some of the detail breakout of the revenues in terms of the legacy revenues or focused on the growth of the SaaS revenues. But the legacy revenues were very low. I know there's a seasonal element there but a little bit lower than I thought.I think you said 6% of total revenues. Can you talk about how that booking going into next year and maybe is that kind of eventually fade down or what's the update on the legacy side of the business?

[Keith Dunleavy:]

Yes Don, thanks for the question. Legacy is precisely where we expected it to be but let me hand it over to Jon to give you more color.

[Jonathan Boldt:]

Yes. On a year-over-year basis Don, we had legacy growing about 2.5 million and really consistent kind of quarter-to-quarter. As we messaged before, we see legacy at about 6% of 2020 revenue guidance. And really those are signed contracts and we expect that same revenue to repeat in our 2020 revenue streams. It's just being offset obviously by the strong growth we have in our subscription base.

[Keith Dunleavy:]

And maybe just to add a little bit of color on that. If you look as we've been messaging for a couple of years now, we expect that piece to stay roughly the same on an absolute basis but the rest of the company is growing obviously at a nice clip. So on a percentage basis you're going to see that piece decline but we're not out in the market selling legacy solutions anymore.We did as we had message go through renewals of that legacy piece. So that's in there tightly but it's just going to kind of hang out at a very similar absolute number as the rest of the company continues to grow but by design.

[Donald Hooker:]

Sure. And then, also the services line, I'd love to hear a little bit more about some of these non-core areas. I see there is an element there that stealed earlier and sort of life sciences. Can you maybe talk about how that's trending over time and as we look into 2020 and then into 2021?

[Keith Dunleavy:]

Sure. So services are made up as you point out has a fair amount in there from a legacy Avalere. But there is also services in there that help support the implementation integration and just overall questions and support that clients have on the cloud foundation work and also some of our quality analytic support.There is a sitting 1% or so of those services fall into that category. So it's a mix of a few different things. It grew consistent with the rest of the business in 2019. We had it at roughly 10% for the full-year and again in 2020 we have a directionally the same number. It's growing alongside.Everything as we match up those services with the implementations of a lot of our other work. So it's great having the reputation that group has in the marketplace, in the C-Suites and in the strategic thought processes of a number of our large clients and it's proving very helpful proceeding introducing and supporting a larger more complex implementations.

[Donald Hooker:]

Super. Maybe one last numbers question from me. On the sales and marketing side, I know you guys have been ramping up the salesforce there pretty aggressively in terms of staff and personnel that at some point I guess that sales and marketing line is going to start to stabilize and you'll start seeing scale on that particular expense line. When do you think that would happen or is that going to be more beyond 2020 or are you going to start seeing a scale on that line maybe in the next few quarters?

[Jason Capitel:]

Yes thanks, Don. This is Jason. So different parts of the business are in different innings of the game if you will in its maturation process. And we try to manage it on a productivity per head basis and a density of coverage basis and where we can optimize value creation and delivery for the clients.So all of those things are taken into effect. I'd say in the payer business we're probably in the six inning or so. I think in the provider business, we're probably in a similar space. In the specialty pharmacy side, we're probably in an earlier innings of maturing how we go to market in those spaces.And so, we really take a disciplined approach when we add people and we're really excited about the theme we have in place that's driving great value for our clients.

[Donald Hooker:]

Thank you.

[Jason Capitel:]

Jon, anything you want to add to that?

[Jonathan Boldt:]

Yes. The only thing I like to add is that as we continue to see our investment sales and marketing, we're still able to grow adjusted EBITDA pretty nicely year-over-year. So even though we've had that increased investment over 2019, we still been able to grow over 400 basis points of improvement in our adjusted EBITDA margin line.And very pleased with the sales growth that we are able to produce in the fourth quarter and full-year.

[Donald Hooker:]

Got you. Thank you, so much.

[Operator:]

Thank you. Our next question comes from Ryan Daniels with William Blair.

[Unidentified Analyst:]

Yes, good evening. This is Jared Haase for Ryan. Thanks for the questions. Just on the 2020 sales outlook, it looks like you guys reiterated the quarterly revenue cadence of 9% to 12% growth each quarter.As you kind of look at the pipeline today, I'm just curious if there's anything unique with sort of the deployments that you have expected that could cause any sort of noise or timing related issues associated with that cadence?

[Keith Dunleavy:]

Hi, Jared. Thanks for the question. Look our pipeline's huge, right. I mean it's got 100s and 100s and 100s and 100s of deals on its instrument stages. So we don’t control exactly when they close and exactly when they implement. But as we hopefully demonstrated very nicely in 2019 have a good feel for that and a good cadence to that.And we see that occurring again this year but at the end of the day the client's goals are what are most important to us and their desired timing. Things look really great right now but we're always going to listen to our client. And you, Jason?

[Jason Capitel:]

Yes. I think you said it well, Keith. I mean, we're focused as a business on being predictable for our clients on value delivery being predictable for our shareholders and making sure whether doing the right things. And as Keith stated, the pipeline looks good, we feel real good about the year ahead and we're excited to get after it.

[Unidentified Analyst:]

Got it, I appreciate the color there. And then maybe just one more on the 2020 outlook. Should we kind of continue to expect roughly sort of 65/35 split between the contribution from new logos versus the landed expand existing customer opportunity going forward?

[Keith Dunleavy:]

Great question, Jared. We've historically encouraged people. I think of it as a 50/50 split, 50% new and 50% cross sell, up sell. We've seen because we're growing faster and we're landing a bunch of new logos. You saw that get a little bit 60/40ish and in the most recent period.But we still think longer term, the right way to think about it is 50/50 and we wouldn’t change our thinking from a shorter period. That 60/40 was really because of more from new customers and more excited about that but we're seeing both really strong.

[Unidentified Analyst:]

Got it. I appreciate the color, thanks.

[Keith Dunleavy:]

Sure, thanks.

[Operator:]

Thank you. Our next question comes from Sean Wieland with Piper Sandler.

[Sean Wieland:]

Hi, thanks very much. I think you said 65% ACV where it's from new clients. Could you break that down a bit maybe by market, a little more insight on what products are resonating and is that a handful of big fish or is it spread across numerous clients and whatever detail you can provide.

[Keith Dunleavy:]

Hey Sean, good evening. So, for clarity with 65% on the new revenue, on a revenue growth of the year. So the revenue growth of the year was 65 from new logos balanced from existing logos, there is no big fish phenomena as Jonathan pointed out in his prepared remarks. Client concentration is less than half of what it was a number of years ago.We don’t know if any clients of significant size and we're down with sort of 30 --.

[Jonathan Boldt:]

35%.

[Keith Dunleavy:]

35% top 10 clients on an average book, obviously 3.5% or so. So no big fish in there but as far as the cause of the growth. And really we're seeing strong uptake of quite a few of the products. Look, to give you a couple of colorful examples, the two deals announced in January I think it was the 12th and 13th of top of my head.Both of them were previously existing customers. One of them the one that bought the pharmacy platform became a client just in the first quarter'ish or might have been second quarter but early. Jonathan signaling first quarter of 2019. So they bought the first solution on a classic set of pair solutions in early 2019.And then by fourth quarter they bought a larger side implementation on the pharmacy platform side. In the other example, the Healthcare Data Lake that we announced at roughly the same time, that client started with us in 2016. They started with an earlier version of one of our software platforms. They went over in 2018 or '19 to the cloud based versions of those solutions.And then in 2019, I think they bought two or three or four additional solutions in '019 and then in the fourth quarter of '19 they bought the Healthcare Data Lake implementation which is a larger implementation solution for them. So we're seeing a lot of that sort of scenario both new logos which we try to get in there easy.Be easy to buy from, be easy to implement, be easy to do work with and then do the job and we see a lot of growth coming from that.

[Sean Wieland:]

Super, thank you. And Jonathan, what about do you care to give us some insight on 2020 free cash flow guidance?

[Jonathan Boldt:]

Sure, Sean. So as we looked at our free cash flow guidance there, range we've given for operating cash flow is a $170 million to a $185 million and our CapEx guidance range was [$52 million $58 million]. So the difference there will be our cash flows.

[Sean Wieland:]

Okay. So there won't be anything else in there. What were the DSOs in the quarter?

[Jonathan Boldt:]

DSO, it's slightly around 66 days.

[Sean Wieland:]

Okay, thank you very much.

[Operator:]

Thank you. And our final question will come from Ricky Goldwasser with Morgan Stanley.

[Ricky Goldwasser:]

Yes, hi, good afternoon. So I'm having couple of follow-up questions here. First of all if we think about the salesforce expansion and we touched a little bit about it earlier but how should we think about, how long does it take for the salesforce to reach full productivity and also I think you mentioned that in the payer and provider you're in the sixth innings and expanding the salesforce earlier on the pharmacy side. Considering that now you're leading with tech sale personnel should we think about kind of like the sale first that you have now about 255 ramp is that infrastructure that you can use across the customer base?

[Jason Capitel:]

So thanks for the question Ricky. This is Jason. So I would suggest you that there's very different business units and different buyers in those segments and if you think about our provider business and you think about the number of transactions that happen roughly 500 per month, getting somebody up to productivity to do smaller size deals happens much more rapidly than doing multi-million dollar solutions that you really have to build relationships with, the board and CEOs and CFOs and do those sorts of things. So the maturation process to full productivity on a payer rep might take three or four quarters and we've gone through a lot of that already and we feel great about the team that we have there. It's faster time to productivity on the provider side.And then on the pharmacy side particularly in the specialty pharmacy world I don't want you to think it's just tech people that are going out and selling. They are very specific nuanced things in the marketplace for specialty pharmacy that we need experts and we have those experts in place. So we're in the process of marrying that sales discipline, sales DNA with the expertise of a specialty pharma solution and those things take a little bit of time but we're confident and we've seen the productivity on the payer side. We've seen the productivity actually across all business units but we're looking for accelerating the productivity in all of those areas in the coming year.

[Ricky Goldwasser:]

Okay and the one follow-up on the data lake contract. It seems like it hit in the [4Q ACV]. Was that also included in your revenue guidance that you provided earlier?

[Keith Dunleavy:]

So let me make sure I understand the question Ricky. The data like you're asking, okay, yes it was in Q4 ACV. That's a correct statement and you're asking is it also in our revenue guidance?

[Ricky Goldwasser:]

Was it in the original revenue guide?

[Keith Dunleavy:]

Was it in the, yes it was in the original revenue guidance. By that time we got to the year we already knew or we had good insight into where things stood.

[Ricky Goldwasser:]

Okay. Great and then when we think one-quarter guidance versus kind of second half of the year when we think about the level of investment that you're making earlier in the year versus second half, any color there that you can provide us?

[Keith Dunleavy:]

When you say investment Ricky, you are talking CapEx, you are talking operating investment?

[Ricky Goldwasser:]

More in the operating side right because if we think about the guidance again through the first quarter versus what's implied for the rest of the year it seems is just we're going to see margin expansion throughout the year. So what's driving it? Is it the additional investments? Is it how you think about the customer mix that's going to ramp throughout the year?

[Keith Dunleavy:]

So we give a little bit of a layman's description. I'll hand it over to someone smarter to walk you through the number on it but as we look at the year there's a, we're looking at a very large set of clients that we're onboarding here and those are growing throughout the year. So yes we're spending time and energy on getting systems prepped for them implementing those. We just closed on $73.5 in the quarter that's a record amount and this quarter looks good also.So we're making sure we have the right personnel on staff and have them out with the clients implementing these capabilities. So we have a fantastic team here. I can't tell you how great everybody is operating with each other, if we stood here thanking all the people that have made 2019 as good as it was and how many are just doing a fantastic job now we'd be here all night but those do provide some operating expense for us here in the earlier part is we implement and get those revenues up to match. But John?

[Jonathan Boldt:]

Yes Ricky, just to hit the investment, so obviously we have a little investment throughout the year but really where the operational leverage is coming is where you're seeing at the margin expansion right. So as we continue to grow the top-line and still manage the expenses on the bottom line that's where we see the expansion continuing and you can see that as we have just looking through our expenses from Q4 to Q1 that's what you're seeing.

[Keith Dunleavy:]

The only other thing Ricky it add on to that is we're continuing to expand our connectivity, continuing to expand our NLP applications; all of those initiatives which you saw contribute quite nicely to operational efficiency and operational leverage in 2019. Those are all still implementing and expanding here in 2020. So the tools we have are giving us more levers in the profitability realm and allowing us to decide more where do we want to apply that additional income to continue to accelerate the growth of the company.

[Ricky Goldwasser:]

Thanks and congrats on a very good quarter and year.

[Keith Dunleavy:]

Thank you Ricky. Thank you and with that before I close a call I just wanted to leave with a few salient points. First, I think this is a really important thing to keep in mind we are in the early innings of a huge opportunity, a $161 billion opportunity to help our clients with meaningful measurable value empowerment as they move into a data-driven healthcare cloud world. The second is the strategic investments we made in sales and marketing and research and development you're seeing them bear a lot of fruit. You're seeing record performance as a result of this. You're seeing ACDS of $73.5 million. You're seeing 111 new logos added. Those investments are really doing very well and then third the scale the company continues to improve our efficiency, the Inovalon platform continues to improve in its sophistication and its connectivity.This is all driving more operating leverage profitability and cash flow to the bottom line. I am certainly pleased with our strong performance in 2019 and the momentum we're seeing right here in 2020 following through. So we remain very laser focused on the plans to execute on 2020. Look forward to speaking you at the next quarter. Thank you for your time this evening. Thanks for your interested in Inovalon and good night.

[Operator:]

Ladies and gentlemen this concludes today's conference call. Thank you for your participation. You may now disconnect.