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Medidata Solutions Inc  (NASDAQ:MDSO)
Q4 2018 Earnings Conference Call
Feb. 12, 2019, 8:00 a.m. ET

Contents:

Prepared Remarks:

Operator

Good day, ladies and gentlemen. Welcome to the Medidata Fourth Quarter 2018 Conference Call and Webcast. At this time, all participants are in a listen-only mode. Later there will be a question-and-answer session, and instructions will follow at that time. (Operator Instructions) As a reminder, this conference call is being recorded.

I would now like to turn the conference over to Betsy Frank, Head of Investor Relations. Ma'am, you may begin.

Betsy Frank -- Senior Vice President, Investor Relations

Thank you, Shannon. Good morning, everyone. Thank you for joining Medidata's fourth quarter 2018 earnings call. I'm here today with our Chairman and Chief Executive Officer, Tarek Sherif; our President, Glen de Vries; and our Chief Financial Officer, Rouven Bergmann. They will each deliver prepared remarks, and then we will open it up for your questions.

But first, I would like to remind you that elements of this discussion are forward-looking and based on our best view of the business as we see it today. I refer you to our detail disclaimer set forth in the press release and our filings with the SEC. Forward-looking statements are subject to risks that could cause actual results to differ from expectations. We disclaim any obligation to update or revise these.

We will also discuss some non-GAAP financial measures that we think help to explain our underlying performance. Today's press release provides a reconciliation of U.S. GAAP to these measures.

And with that, I will turn the call over to Tarek.

Tarek Sherif -- Chairman & Chief Executive Officer

Thank you, Betsy, and good morning. Thanks for joining us today. It's great to be with you all as we start which should be another exciting year for Medidata. Our solid execution in the fourth quarter capped a year of good revenue profitability and backlog growth, giving us confidence that 2019 will be another year of strong growth and profitability.

Notable highlights for 2018 includes our success in showing the validity and value of our data and analytic capabilities delivering significant enhancements to our platform, improving global sales execution in a new regionalized model that drove important customer wins from the Nordics to China, and our acquisition of SHYFT which brought us advanced capabilities allowing us to enter new markets in commercial analytics and RWE and adding over $1 billion of TAM.

We saw continued high levels of customer satisfaction and strong services growth. And we're recognized for our culture being named one of the best companies in the industry to work for. Clearly, we have a lot to be proud of.

For the full year, we grew revenue a healthy 17%. Subscription growth rates trended higher as the year went on supported by increasing attach and adoption rates. Overall our win rate hit all-time highs and customer retention was nearly 100%, all of which drove substantial backlog and great coverage for 2019.

While we made major investments in innovation and closed a strategically important acquisition, our margins were strong and we grew profitability. Focus and execution have made us the leading cloud platform in life sciences with nearly half the companies in the world running trials on Rave.

I'd like to give you some perspective on the strength of our core business. We ended the year with over 1,200 active customers, an all-time record. We now run over 16,000 trials on our platform and we're adding more at an accelerating pace. Based on the most recent data available, in 2017, we were the platform used for developing the top 15 selling drugs. No other company comes close to operating at our global scale. Also with each consecutive quarter, we increased our win rate throughout the year approaching 70% by Q4. This led to strong rate bookings and accelerated growth in the number of customers with four or more products. And we continued to see lots of opportunities to increase adoption.

I'd like to touch on the importance of our broader ecosystem for a moment. We built an extensive partner network of well over 100 CROs and our relationships continue to become more strategic. We're putting more platform-focused enterprise agreements in place and better aligning our go-to-market.

Our announcement yesterday was strategic alliance with Cognizant, wherein they will wrap their services around our technologies, another proof point of our strong strategic position.

Moving on to SHYFT. We're six months into the acquisition and the opportunity we see here is significant, but it's still early days. Given the broad-based interest in RWE and the early sales traction, we are optimistic that we will see some wins here in 2019. Our ability to tie together pre- and post-approval data is groundbreaking for the industry.

Now, I will take a moment to expand on the value of our analytics capabilities, clinical data and our opportunity around these. Over the past decade, we built Medidata into the largest tech company focused on clinical development by helping life sciences companies and CROs successfully adopt cloud-based technology.

With a number of novel drugs approved last year growing 30%, it's clear that precision medicine will play an ever-increasing role in the coming decade, which means innovation and growth for our customers will be driven by managing complexity, gaining insights and extracting more value from data. That requires four things, technology, data, domain expertise and analytical capabilities, all on a global scale.

We have the broadest, most scalable and most reliable platform in the industry and the numbers to back up that claim. Our unique data assets are deep, global and can't be replicated. We have a 20-year history of serving as a strategic partner to life sciences in the adoption of new technology. We understand the problems and we help deliver the solutions. And as you'll hear from Glen, our analytic capabilities are creating opportunities to do better science and solving real problems today.

Disruption is coming to life sciences. Medidata is the best positioned company to help customers succeed as the historical paradigm shift. We're very focused on capitalizing on this opportunity through innovation, partnerships and targeted investments. Over the past year, we've seen life sciences companies globally accelerating their digital transformation and increasingly building up their data science capabilities.

The requirements in decision-making associated with this are different from EDC and our other solutions which means we need to approach the opportunity differently. To lead our efforts here, we've built a new team being led by former McKenzie Partner Sastry Chilukuri. Sastry is a visionary and trusted advisor to life sciences companies and regulators. For the past six years, he has helped industry leaders develop the digital strategies our customers are currently looking to implement.

Before I turn the call over to Glen, I'm going to take a moment to recognize our employees around the world. Their dedication and commitment to excellence helped us execute our corporate objectives in 2018 as well as building a great foundation for 2019. We are a mission-driven company and our culture is at the core of our success.

Let me share a few highlights with you. Last year we documented our corporate social responsibility commitments and initiatives in our first ever GRI report. We were signatory on the U.N. Global Compact, a multi-year initiative to drive business awareness and action and support of achieving sustainable development goals by 2030.

After signing the 2020 Women on Boards pledge, we added a new board member fulfilling two important goals to add deep expertise in life sciences and expand the diversity of our board. And finally, we were the only company in our verticals be named by Fortune in their Top 50 2019 Best Workplaces in Technology.

In summary, with focus and driven by a singleness of purpose, we are entering 2019 on track to generate nearly $750 million of revenue and have clear line of sight on our $1 billion goal. Very few cloud-based software companies have achieved these levels of scale and we are doing it with high margins and expanding profitability and even rare achievement.

Looking ahead, our opportunity is massive. Life sciences companies are embracing digital transformation turning to data-driven insights to power the treatment that will improve patients lives. And by investing, innovating and executing, we've become a trusted partner to our customers as they focus on the next wave of scientific innovation.

Today, we are living our mission in ways we couldn't have imagined when we started Medidata. We have much to be thankful for in this past year, and we have so much to be excited about in the coming years.

And now, I'll turn it over to Glen.

Glen de Vries -- President

Thanks, Tarek. Let me underscore a couple of things Tarek said. We are the only technology company at a significant scale that is singularly and fully committed to life sciences, committed to the current and future state. That was our mission 20 years ago and we remain true to it. In 2018, we started almost 3,000 studies on the Medidata platform. Our cloud is the place where clinical research happens. There is nowhere else that has the breadth and depth of solutions that we offer.

I want to ground that statement in a couple of examples, three about today and two about the future state of life sciences. First, randomization and trial supply management, while you hear us talk about as Rave RTSM. We've ramped up our global services and support capabilities around the core technology, providing a complete customer experience. This is expanding adoption among our existing clients as well as helping us gain new adoption.

The core technology is incredible. This is the only randomization and trial supply management that's functionally, visually, from a data perspective completely unified with EDC. That creates operational and scientific value for data management for cleanups for sites. And I want to make a side note here, randomization is going to continue to play a critical role in research. Even as we look at new evidence models, I mean in fact as you look at some of the most advanced research where you're preferentially randomizing patients to therapies that are most likely going to be beneficial to them that requires the kind of sophisticated randomization that we already support that we built into Rave RTSM from the day we started it.

I also think if you're not in the industry hearing about managing supplies and research may sound relatively mundane, but actually this is a critical piece of how clinical trials are done. Supplies are inclusive of the drugs and devices. They require precise handling, tracking and increasingly are including samples and supplies that are specific to individual patients, for example, if you're doing actually personalized medicine. This is a key element of value today.

Another example eTMF. At the end of 2018, we rolled out some EDC integrated features that meaningfully create efficiency for sites. Given the footprint that you heard Tarek talking about that we have at virtually every site around the world doing research that drives what we think will be increasing use of eTMF in 2019 because that value for sites drives value for the sponsors and CROs who want them to view them as the best place to do research.

Another example, electronic patient-reported outcomes or ePRO. We see huge potential in the ePRO market. Again we delivered unified with clinical data management workflows and Rave in a completely unique way. And ePRO is not just about the IT systems, it also is about content. We talk about validated instruments. Simply put, that is taking a digital approach to a traditional paper-based data collection exercise and being able to mathematically show that you can compare that data that's been collected in different ways.

We have a first in industry library of those validated instruments. What does that mean? It means that if you sponsor a CRO, it's incorporating ePRO into your Medidata study, you get significantly reduced build times. Can we do ePRO differently and better? Thanks to our tech and thanks to that services and expertise around it.

Now those are three examples of the kind of advantages we create on our platform today. But we're also paving the way for the reinvention of research and how people actually answer the call of precision medicine. We're blazing this trail by demonstrating real value, actual improved outcomes powered by our AI, advanced analytics and data.

As Tarek was saying, modern trial execution isn't just about shortening time spent on the key milestone, like when you got the last patient and unlocking a database by days or weeks. That's important, but our clients are looking to unlock the maximum value from the data itself that they're gathering. It used to be siloed, now it's on one unified platform. And this is the area for innovation that we're also focused on.

And it is not just us been focused on that, we were delighted to see Scott Gottlieb's latest FDA letter, where the FDA is calling for precisely it as well. I will quote, the FDA's Oncology Center of Excellence is investigating whether well-matched, contemporaneous and better controlled arms based on prior clinical trials can be used to make inferences regarding the effect of a new drug. That's the end of the quote.

As you know, the Medidata platform allows us to take data from multiple trials from multiple clients. We homogenize and we integrate it into cross industry data sets. This includes control data which can then be assembled into those synthesized groups of patients through synthetic controls exactly what Gottlieb is referring to. In fact, we were just presenting our work on this with the Friends of Cancer Research Organization and some of our partners to an audience of FDA regulators.

We did exactly as described. We took data from multiple studies and we mathematically selected patients according to their baseline characteristics, matching them to treatment arms and randomized controlled trials. We presented the statistical models that show how these synthetic controls can provide similar estimates of things like survival versus a traditional standard of care arm that you would create with prospectively enrolled patients.

We are helping to open the possibility for synthetic controls to be used in place of randomized controls. This brings incredible operational and economic advantage directly to our clients. It also creates incredible value for patients. Number of patients will need to be exposed to less effective standard of care therapies and research will be minimized and we will be significantly accelerating time-to-market from making these new therapies available to patients everywhere.

I want to give you one more example of the future state. You've heard us talk about a little bit last year as what we've been doing with the Castleman's disease collaborative network. In the end of the year, we were presenting our work at the 2018 American Society of Hematology or ASH, and this was based around Rave Omics, a machine learning base capability. Castleman's is a rare inflammatory disorder affects about 5,000 patients a year. And with Rave Omics, we were able to identify previously unknown subgroups of Castleman's patients based on their proteomic signatures.

For particular therapy that had a 19% overall response rate, in one of these subgroups, they had a 65% response rate. So, we'll put that simply. The Medidata platform allows us to go from one in five chance that the right patient gets the right therapy to more than a three in five chance for patients in that subgroup. That is advancing the state of precision medicine. And what we're doing for Castleman's was done on a platform that can scale that to more and ultimately we think as a place of all therapeutic areas.

With that, I'll pass the call over to Rouven.

Rouven Bergmann -- Chief Financial Officer

Thanks, Glen. As you heard from Tarek, we closed the year on a very strong note. Looking at the results from my side, 2018 clearly demonstrated the consistency of delivering continued strong profitable growth, highlighted by 17% total revenue growth and 23% non-GAAP net income growth, despite the diluted impact of the SHYFT acquisition.

We entered the fourth quarter with a strong pipeline and executed well posting subscription revenue growth of 18% year-on-year, up by more than 100 basis points over last quarter's growth and reaching total backlog of $1.17 billion, up by 15% quarter-over-quarter.

As part of my prepared remarks, I will start up with a review of financials for the quarter and full year 2018, then wrap up with a summary and conclude with our view of 2019. We recorded total revenue of $635.7 million for the full year, an increase of 17% in line with our guidance. Subscription revenue grew a solid 17%, while professional services grew 16%, reflecting strength in platform implementations, partner enablement services and ongoing support services which is the fastest-growing component of our services business as discussed at Investor Day. This recurring revenue represented over $50 (ph) million or more than half of total services revenue in 2018.

Gross margins of 75% declined by approximately 170 basis points, mainly driven by SHYFT and associated purchase accounting implications as well as depreciation expense of capitalized R&D and investments in our infrastructure.

Looking at R&D, we ended the year investing 25.6% of revenue in R&D in line with 2017 levels. Our R&D investments are centered around three priorities. First, delivering the platform to support the continued growth and health of our core business as evidenced by the very positive trend in density and intensity that I will walk you through shortly. Second, we decided to accelerate our road map (ph) and Data Science & AI that will unlock the value of our data as just highlighted by Glen. And third, on the heels of the SHYFT acquisition, we are investing to enable to scale. These investments will continue in 2019 and in combination put us in even stronger strategic position.

Sales and marketing was 23.9% of revenue, and you may remember, we called out beginning of 2018 that we will increase the coverage across our routes to markets and regions with a specific focus on China and Europe. More than half of the total increase of 110 basis points was driven by the inclusion of SHYFT.

We've been focused on driving the productivity in our business, specifically in G&A functions. Excluding the acquisition impact of SHYFT, G&A would have declined as a percent of revenue by 70 basis points year-on-year. So in aggregate, we delivered solid EBITDAO of $148.8 million at a 23.4% margin essential in line with what we've projected at our acquisition call back in June. For the full year, non-GAAP net income of $104.3 million was up 23% year-on-year and non-GAAP EPS of $1.71 was up 20%.

Looking at our GAAP tax rate, we estimated a full year tax rate of 21% going into 2018. And as anticipated, we updated the tax rate after Q1 to reflect discrete benefits from stock-based comp. After Q2, we updated to reflect SHYFT specifically the non-taxable gain we recorded on our initial investment. The tax benefit in Q4 reflects the U.S. tax reform, R&D credits as well as additional excess tax benefits from stock-based comp. And for the full year, we recognized an income tax benefit of $1.8 million.

Moving on to the balance sheet, we ended the year with $241 million in cash and marketable securities. Operating cash flow was $89 million for the year in line with our expectations communicated last quarter. In the second half of 2018, we generated $65 million, putting us in a trajectory to generate more than $100 million in 2019.

Also reflected in our strong cash flow trends are Q4 collections of nearly $160 million. Calculated billings for the quarter were in line with revenue growth. DSOs remain essentially flat quarter-over-quarter at 72 days, based on $132 million AR. As discussed on previous calls, this does not include unbilled receivables which is the result of a few consumption-based contracts that are ramping up.

Before turning to the 2019 outlook, let me briefly summarize the momentum and progress reflected in our core business -- reflected in our growth drivers of density, intensity and new customer wins that continue to propel us forward. The gaining market share was now more than 1,200 customers and our rate -- win rate growing to over 60%. We're also very focused on expanding relationships with our existing clients, and as a proof point, growth in the number of customers with four or more products increased 35% to 275 in total. Our revenue retention rate remains nearly 100%.

Now, let's talk about the products that are driving momentum in the market in addition to EDC. First, we had a record year in payments and imaging and RTSM, and we saw a strong momentum building in Q4 with ePRO. We see customers at an increasing rate attaching these products to EDC to simplify and standardize the business processes. And second, we're excited to see momentum building in our data-driven solutions which include SHYFT, Data Science & AI plus Risk Based Monitoring, our second largest revenue generator. Together, they are on a path to become $100 million business entering 2020.

And all of these ultimately results in further strengthening of our total subscription backlog which represents fully committed future subscription revenue. Despite a very light renewal volume in 2018, we grew our total backlog to an impressive $1.17 billion at year-end more than doubling it over the last three years.

A couple of points that are important to keep in mind here. Total backlog growth is lower than the previous two years when we went through large renewal cycles and were able to meaningfully extend the duration of those contracts. What that means is in 2018 we simply had fewer large customers up for renewal, while in 2017, we renewed with 10 of our top 15 clients. So this end year (ph) and year-over-year lumpiness and the timing of large enterprises renewals resulted in a year-over-year reduction of backlog duration impacting its total size. And despite all this, we grew total backlog a strong 13% which was in part driven by a stellar increase in renewal/upsell of 34% above prior annual contract volume.

Now with this, let's talk about 2019 guidance. I want to start off by highlighting that this year's revenue outlook reflects a higher level of visibility compared to any year past, meaning we dialed up coverage provided by our backlog. At the same time, we are narrowing the range reducing it by half to reflect confidence.

As for the backlog, we ended the year with the 2019 adjusted subscription backlog of $560 million, up 17% from a year ago. And as Tarek mentioned, this reflects strong bookings in Q4. Based on this level of visibility, our total revenue guidance ranges from $734 million to $746 million. We estimate professional services to account for up to $115 million. At the midpoint, this represents 17% growth in subscription revenue and 16% growth in total revenue.

Meanwhile, total coverage of over 91% is more than 100 basis points higher than we guided it to last year. Of course, this includes SHYFT with $12 million of acquired revenue and another estimated $13 million of incremental growth that we considered as organic. This is consistent with what we discussed at our Investor Day. So essentially if you're doing the math of excluding acquired revenue from both 2018 and 2019, our guidance midpoint is an organic growth rate of 16%.

From a profitability perspective, the midpoint of our EBITDAO guidance is $179 million, representing strong growth of 20%. This growth includes three components. First, significant margin expansion in our core business; second, investing in areas of AI, Data Analytics and SHYFT to achieve scale and enable our next wave for growth; and third, we show margin expansion on the bottom line to the tune of 80 basis points at the midpoint.

So in summary, we remain focused on prioritization to invest resources for long-term growth in sizable opportunities, by being financially disciplined as we work through the integration of a dilutive acquisition. Please keep in mind that 2018's first half does not include SHYFT and hence profit as well as expense to revenue ratio comparisons in the first half of 2019 will be tough.

On a non-GAAP basis, the 80 basis points of margin expansion will be distributed across all operating expense lines. Meanwhile, gross margins are expected to remain flat year-over-year due to the inclusion of SHYFT.

Our current estimate for the effective tax rate is 19% for the full year. This of course does not include discrete items such as the impact of stock-based comp and we will revise our expectations as those items occur. At this point, stock-based compensation is expected to be approximately $80 million for the full year. This reflects core business growth, the addition of SHYFT as well as key talent in Data Science and AI.

We expect cash from operations for the full year to exceed $100 million, and finally CapEx should increase to $60 million as we expand our presence in Boston, China and New York and make investments in infrastructure and software development.

Now while we don't give quarterly guidance, I want to make a couple of additional and final points as you update your models. First, Q1 typically is the lowest quarter in terms of both profitability and cash flow generation due to seasonality with EBITDAO approximately 250 basis points lower than last year's Q1, driven by the inclusion of SHYFT. And second, sequential total revenue growth is expected to be around 3%.

So in summary, we had a good year in 2018 taking the next step in building our foundation to enable growth toward our $1 billion goal. We continued to win market share while expanding our relationships with existing customers driving sustainable growth. We grew and diversified our addressable market with the addition of SHYFT to lead the digital transformation in life sciences. I want to close with sharing my confidence in our 2019 outlook as we continue focused investments to drive long-term growth.

With that, let us open the call to start the conversation.

Questions and Answers:

Operator

Thank you. (Operator Instructions) Our first question comes from Jamie Stockton with Wells Fargo. Your line is open.

Jamie Stockton -- Wells Fargo -- Analyst

Good morning. Thanks for taking my question. I guess maybe if we look at the Q4 numbers, you guys seem to have really stepped up the investment kind of across the board, but especially in OpEx. How should we expect ultimately see that in the numbers? I mean, should we expect to see an improvement in the backlog growth in 2019 versus 2018? Can you just talk about how should we expect to see this investment pay off?

Rouven Bergmann -- Chief Financial Officer

Yes. So on the OpEx side, you'll recall when we did the acquisition call back in June, we looked at a revised EBITDAO profit point of $150 million and we pretty much came into that range as close to $150 million reflecting and that approximately reflects about 200 basis points of margin dilution compared to what we initially had planned for when we entered the 2018, excluding the dilutive impact of SHYFT.

And when I look now into the line items and the P&L, the core Medidata business is very well on track to achieve the margin expansion that we've always targeted to achieve. So the 100 basis points outlook we gave at the beginning of 2018, we actually achieved that for 2018 for the Medidata core business, but the inclusion of SHYFT simply because also of the purchase accounting impact where you have the mismatch of revenue and expenses in the first year that creates the situation.

Now when you fast forward now into 2019, we will have some overhang of purchase accounting implications in the first six months of 2019, but we see strong margin improvements for our core business. So if you look for the core business year-over-year, we expect there again about over 100 basis points of improvement. And so that in aggregate plus the dilutive impact of the SHYFT acquisition gets us to another 100 basis points improvement year-over-year for all in, right. We are now targeting to get to 24.3% margin in 2019.

Tarek Sherif -- Chairman & Chief Executive Officer

So, Jamie, let me just take a qualitative shot at it as well after thank you Rouven for walking us through that. So we've got a couple of areas that have enormous TAM that are white space to us. One has to do with commercial and real world evidence, and the other has to do with some of the analytics and data science work we're doing. And so you've seen us invest in those. Obviously, there was a strategic reason for doing the SHYFT acquisition, we're laying the seeds for growth for the business for the next five years.

So, yes, we'd like -- we will see some traction this year. We're already seeing it with SHYFT in particular with some of the CROs that we work with, but we have a lot of opportunity there. And then similarly on a data -- from a data science perspective we talked about Sastry joining in building out a team, we see a lot of opportunities there in back half of 2019 going into 2020, but that is sort of a next new white space area for us to go after. So core business is doing very well, but we're also investing for the next five years and 10 years.

Operator

Thank you. Our next question comes from Sean Wieland with Piper Jaffray. Your line is open.

Sean Wieland -- Piper Jaffray -- Analyst

Hi. Thank you. So looking out to 2019, can you comment on what the renewal cycle looks like to present some opportunities for upsell and further drive the bookings in backlog?

Tarek Sherif -- Chairman & Chief Executive Officer

Yes, absolutely, Sean. That's of course something we are looking into very closely when we plan for 2019 looking at the renewal cycles that are coming up. So 2019 will be in terms of large renewals again be a year where there are just a few of those contracts coming up in 2019. So we do not expect that to be a significant driver of growth in the sense that there is a lot of large contracts to be renewed. There are a few ones that are coming up, but it's not comparable to a year like in 2017, where we had a very strong renewal year where we essentially -- we renewed there 10 of our top 15 in 2017. So we have much less of those renewals coming up in 2019. They will actually be coming back in 2020 and after. And so we factor that into our guidance.

Operator

Thank you. Our next question comes from Brian Essex with Morgan Stanley.

Jonathan Lee -- Morgan Stanley -- Analyst

Hey, this is Jonathan on for Brian. Thanks for taking my question. Can you talk about your agreement with Cognizant and how that came to fruition? And whether you have some agreements with other system integrators?

Tarek Sherif -- Chairman & Chief Executive Officer

Sure. So, obviously we work with all of the biggest systems' integrators out there. We've been working with Cognizant over a number of years in different accounts. And I think what we're seeing is a maturation of both our customers' needs relative to where we are, our strategic position in the industry. And I think it was -- it came about because we both saw that there was a win-win situation that we would have within the customer base around having more targeted services from their perspective around some of our solutions that are now much more mature, payments being a good example, but there are multiple other ones. We are constantly working with Accenture with Cognizant in the various accounts. We have very strong relationships, but this is our first real strategic relationship.

Operator

Thank you. Our next question comes from Sterling Auty with J.P. Morgan. Your line is open.

Sterling Auty -- J.P. Morgan -- Analyst

Yes, thanks. Hi, guys. The 34% uplift -- hey, the 34% uplift on the renewals. I think that's up from somewhere around 28% I believe last year. And what I'm wondering is can you bridge that increase versus the comment about the 99% or almost 100% revenue retention?

Rouven Bergmann -- Chief Financial Officer

Yes. So I think, Sterling, let's start with the 99%, almost 100% revenue retention. This means essentially that we are not losing customers and we are -- we continue to keep the revenue that we have with customers on our books, right. So but then -- and that is -- it goes back to we actually for the 99 point -- close to 100%, we're actually looking back to see everything that was supposed to renew at the par level, it is actually renewed to that level. So that measures the retention of revenue, but it doesn't measure the uplift we are getting from renewals when we saw more to that, right. And that's what we are measuring with when we look at how much are we upsizing contracts across all the renewals that we did. And that was over 30% -- 34%, right. So, and that of course is (inaudible) flat to it depending on the opportunity that presents on the white space, and yes.

Operator

Thank you. Our next question comes from David Windley with Jefferies. Your line is open.

David Windley -- Jefferies -- Analyst

Hi. Good morning. Thanks for taking my question. I wanted to follow-up on the Cognizant deal. Tarek could you talk about the timing cadence of them building out the services and when you think they will be available? And then secondly, in that deal does that lift any professional services activities off your plate or those mutually exclusive? And then finally from a strategic standpoint if you could just talk about what you were seeing in client adoption? And does -- in some of your products, I think, you've been trying to displace some existing, in some cases old technology and maybe clients have been slow to make those changes. And I wondered if this is targeted at trying to jump-start some of that change?

Tarek Sherif -- Chairman & Chief Executive Officer

So, I'm happy to answer a good question there. So we actually expected to be in the market in 2019. It's the best start there. We've been working together in the market over a number of years. So there is not some -- a significant ramp time there. I would say that the -- from a client adoption perspective one of the commentary -- one commentary we had was that we are seeing the attach rate increase as we get -- as we got through the year. I think some of that's a function of some of the things we're doing like the win room we have internally and a greater focus, and some of it has to do with the maturity of some of our products, where we achieve feature parity or above or when significantly beyond that. And the areas we are seeing it are ePRO and payments and randomization and trial supply management.

We have seen a significant uptick in all of those as we went through Q4 and we expect that momentum to continue into 2019. Obviously Cognizant will be a partner in that, but I would say that all of our channel partners are really have been rolling around our products and we are seeing the attach in direct sales as well. So it's pretty broad based.

Operator

Thank you. Our next question comes from Sandy Draper with SunTrust. Your line is open.

Sandy Draper -- SunTrust Robinson Humphrey -- Analyst

Thanks very much. Just one quick clarification question and then a broader question. The clarification I think for you Rouven, just wanted to make sure I heard it correctly, you said 3% sequential growth in the first quarter in revenue, was that accurate?

Rouven Bergmann -- Chief Financial Officer

Yes, total revenue.

Sandy Draper -- SunTrust Robinson Humphrey -- Analyst

Now, it's total revenue. And do you have any in terms of the split will be sort of consistent between subscription and professional services? Or do you see much of a difference between the sequential growth in the two separate lines?

Rouven Bergmann -- Chief Financial Officer

No, I would keep it at that level. Professional services we don't expect such a strong growth that what we had in the last two years. So we see that -- that's also reflected in the total year growing number which is below subscription revenue. So I would keep it -- it's on a total revenue basis.

Sandy Draper -- SunTrust Robinson Humphrey -- Analyst

Okay. Great. That's helpful. And then, I'm not sure if this is for Tarek or you Rouven, when I think about your comments about the renewals, I mean it seems like there is a good news and bad news. The good news is you guys are a dominant incumbent with a lot of the major players. So you are there. The downside is the real opportunity to get uplift is when you revenue, and so you are a little bit tied to -- it sounds like renewal cycles, but when you renew, you're doing a great job expanding renewing, but there is not a lot you can do in between. Is that a fair assessment?

And then the follow-up to that would be when you think about the opportunities outside of the existing base to get bigger uplift in revenue. What are the opportunities they are looking like? Thanks.

Tarek Sherif -- Chairman & Chief Executive Officer

Sure. So I was going to recharacterize it as a good news good news rather than good news bad news in the sense that, yes, I mean it's nice to have large renewals and to be able to outsize them. We're not just limited to selling into our accounts. Once we have an MSA in place, we can pretty much sell at any time, that's usually compelling around a renewal. But the reason, I said, it's good news good news is we put strong guidance out there for the year, despite not having a big renewal year.

And I think that's what we're really saying as we have a lot of confidence that we're going to sell-through to new customers, we're going to have a higher attach rate, there is market share gains -- bunch of elements that are coming into it that give us a lot of confidence coming into 2019. We don't need to have the big renewals just to get uplift in our overall growth rate. It will be good to have them when it hits 2020 and beyond, that will obviously be -- it will be good thing to have for us, but I think in 2019, we feel very good about how we're entering the year, and you can see it in the way we guided with good coverage and a tighter range than we've had in probably three or four years. So, I'll leave it at that.

Operator

Thank you. Our next question comes from Scott Berg with Needham. Your line is open.

Scott Berg -- Needham & Company -- Analyst

Hi, Rouven, thanks for taking my question here. I guess, my question is probably for Glen and Tarek. As you look at '19, how you look at the sales capacity? And should that be relative to productivity last year? Is sales productivity where you wanted to be with 2018, it sounds like, attach rates have been better, but as you look for 2019, you look for improvements in productivity or are you looking at -- at maybe a certain amount of headcount to, I don't know, directly target to some of the SHYFT areas you might be a little bit later in?

Tarek Sherif -- Chairman & Chief Executive Officer

Yes, I think last year was big investment year for us as we moved to the regionalized model. We expect to see good leverage out of sales for this year. So, the typical ramp time for sales people, especially in industry like ours with the domain experience that you need is probably about a year. And we did some hiring at the beginning of last year and those people have gone through a full cycle, and so my expectation, and I think, the sales leadership expectation is that we will see good leverage, and we are seeing it. So we saw the momentum at the end of Q4 and we have high expectations for the org as we look out for 2019. These are not -- these are complex sales. So, it's not like going out and selling some other products in the marketplace. So it does take a bit more time to ramp.

Glen de Vries -- President

And I think the sales team to Tarek's point is doing an amazing job of getting those renewal lists that Rouven was talking about of getting those attach rates. But I also think it's worth pointing out that those attach rates are something that we see as reflective of the changing market. You need to have the broad capabilities around executing studies when people are putting in the next generation of their clinical trial infrastructure. I see this as a mathematical proof point these kinds of deals of the fact that it is not a best of breed world anymore. People need a platform that has all the capabilities and research. So that's an important piece of how we make those sales people out in field successful is backing them up with that platform.

Operator

Thank you. (Operator Instructions) Our next question comes from Joe Munda with First Analysis. Your line is open.

Joseph Munda -- First Analysis -- Analyst

Good morning. Thanks for taking the questions. Real quick. What was the contribution from SHYFT in the quarter? And then on the unbilled receivables, you have a footnote in the 8-K. Rouven, you talked about it being related to consumption-based contracts. Can you give us a little bit more color on that? And why it's up essentially 3x year-over-year?

Rouven Bergmann -- Chief Financial Officer

Yes, sure. So to your first point, we have provided a lot of transparency last year at Investor Day around SHYFT. What to expect, what's included in '18 and how we think about the inclusion of '19? We haven't broken it out by quarter. It's not really material if you look at it from an overall number. So I leave it at that. And then with regards to the unbilled receivables, in previous calls, I referred to -- as implementing on model very successfully where we are invoicing based on consumption, and so when our customers -- we have a few large customers, where we have a model in place as they adopt more of our technologies and run more trials, we invoice them based on the consumption. It's predominately for the partner channel.

And so it's like a utility model, right. It's like invoicing in arrears. And so it's building up, but as we are going through those contracts and they consume them, I think it's going to be leveling out around where we are right now as long as we don't add more, but that can be, so we will update you as we progress, but it's a utility model, it's very successful. It provides the right economics between the channel partner and us and the end customers. And it has helped us to drive adoption through the channel.

Operator

Thank you. Our next question comes from Gene Mannheimer with Dougherty & Company. Your line is open.

Gene Mannheimer -- Dougherty & Company -- Analyst

Thank. Good morning. Just back on SHYFT, the SHYFT change the cadence of your backlog and all in terms of how fast it converts to revenue or is it similar to your core business driven? And how does that mix of subscription in professional services revenue look for SHYFT relative to the core business? Thank you.

Rouven Bergmann -- Chief Financial Officer

Yes, so SHYFT is immaterial in our backlog as we enter 2019. And can you please repeat the second question? I didn't fully understand.

Tarek Sherif -- Chairman & Chief Executive Officer

I'll just take it, Rouven. So the mix is different, because much like it's fully (ph) in the earlier days when we were selling EDC, there was a higher services component. I think it's something we discussed when we first announced the acquisition. There is a higher services component especially on the commercial side when you're doing an implementation for a customer. Over time, we expect the sort of the mix to shift, no pun intended, to the kind of ratios we see at Medidata, but it's still very early days there. And part of the reason we bought SHYFT was they had great technology, and first really company to bring a platform into the commercial space and into RWE. But there is a heavier service component when you're first bringing a customer online.

Operator

Thank you. And our next question comes from David Larsen with SVB Leerink. Your line is open. David, your line is open. Please check your mute button.

David Larsen -- SVB Leerink -- Analyst

Hi, sorry about that. Last quarter you guys talked about on increasing deal size in the Asia Pacific region. I was just wondering if you could give us some updated comments there?

Yes, I mean we had another stellar quarter in Asia Pacific sort of Ex-Japan. Japan is a pretty quiet market. Actually some of the trial activity there has slowed down. But if you look at Korea and China, in particular, it's an extraordinarily high growth market. There are some large companies that have global aspirations, and we are working with them. And so it's been high growth, we expect it to continue to be in 2019.

Operator

Thank you. And I'm currently showing no further questions at this time. I'd like to turn the call back over to Tarek Sherif for closing remarks.

Tarek Sherif -- Chairman & Chief Executive Officer

Just want to thank all of you for joining us on today's call. As you heard in my commentary, we're really excited about 2019. We have a lot of opportunity. I think we are feeling a great sense of confidence coming into this year, given both the momentum that we had in Q4 and the dynamics of our backlog. And we're looking forward to talking to you on our next call, giving you an update on how the year is progressing. Thanks very much.

Operator

Ladies and gentlemen, this concludes today's conference. Thanks for your participation. Have a wonderful day.

Duration: 49 minutes

Call participants:

Betsy Frank -- Senior Vice President, Investor Relations

Tarek Sherif -- Chairman & Chief Executive Officer

Glen de Vries -- President

Rouven Bergmann -- Chief Financial Officer

Jamie Stockton -- Wells Fargo -- Analyst

Sean Wieland -- Piper Jaffray -- Analyst

Jonathan Lee -- Morgan Stanley -- Analyst

Sterling Auty -- J.P. Morgan -- Analyst

David Windley -- Jefferies -- Analyst

Sandy Draper -- SunTrust Robinson Humphrey -- Analyst

Scott Berg -- Needham & Company -- Analyst

Joseph Munda -- First Analysis -- Analyst

Gene Mannheimer -- Dougherty & Company -- Analyst

David Larsen -- SVB Leerink -- Analyst

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