Inovalon Holdings (INOV) Q3 2019 Earnings Call Transcript

Inovalon Holdings (INOV)
Q3 2019 Earnings Call
Oct 30, 2019, 5:00 p.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants

Prepared Remarks:

Operator

Good day, ladies and gentlemen, and welcome to the Inovalon third-quarter 2019 earnings call. [Operator instructions] As a reminder, this conference is being recorded. And now I'll turn the conference over to your host, Kim Collins. Please begin.

Kim Collins -- Senior Vice President Corporate Marketing

Good afternoon. This is Kim Collins, senior vice president of communications at Inovalon. I'm 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'd like to welcome you to our third-quarter 2019 earnings call. The press release announcing our financial results for the third quarter was distributed this afternoon, and a replay of today's call will be available shortly, posted on the investor relations page of 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, October 30, 2019, and will not be updated subsequent to the initial earnings call. I'll remind you that certain statements made during this call may be 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 operation.

Those statements involve a number of factors that could cause actual results to differ materially. Additionally, 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'll 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 -- Chief Executive Officer and Chairman of the Board

Thank you, Kim. Good afternoon, everyone, and thank you for joining our call. Over the past several years, we have focused on executing across a number of key objectives. We have transitioned our foundational technology from an enterprise approach to a modular, cloud-based platform approach.

We have transitioned our contracting structure from a more complex legacy approach to a more streamlined subscription-based approach. We have diversified and expanded our end customer base through acquisitions and organic development. And we have dramatically increased the scale and sophistication of our sales capability. And the result is that today, we stand as the unique provider of the market's leading cloud-based platform empowering data-driven healthcare.

Concurrent with the focus on these four key pillars of strategic transition, we've continued to focus on our primary differentiating strengths of healthcare ecosystem connectivity, depth of primary-source data sets, sophistication of analytics and the ability to empower patient-specific, data-driven interventions at the point of care. And further still, we have focused on raising the bar for how we operate, from the degree that we automate our processes to the manner by which we structure our organization and incentivize associates' performance. And the impact of this focus on execution is showing up in the strong growth and profitability of the company. On a trailing 12-month basis, revenue was up 20% year over year.

This quarter saw organic growth that was 6% sequentially versus the second quarter of 2019 and up 14% organically versus the year-ago third quarter of 2018. From two years ago, we have increased our gross margins from 66% to greater than 74%, and we have increased our adjusted EBITDA margin from 24% to 33%. We've increased our trailing 12-month net cash provided from operations to more than $102 million. And we've have increased our free cash flow to $45 million, reflecting a greater than 1,000% increase from the year-ago period.

And we have started our debt paydown ahead of schedule with a payment of an additional $50 million from our excess cash flow from operations. For the third consecutive quarter, we've reported results that are at the high end or ahead of our guidance for revenue and profitability. And for the third consecutive quarter, we are again raising the ranges for our net income, net income per share, adjusted EBITDA, non-GAAP net income and non-GAAP net income per share ranges. For all of this, I credit our strong customer partnerships with whom we are honored to work.

And I credit my colleagues, all of the associates of Inovalon, who are doing a tremendous job every day. But despite all these positives, it is not time for us to take a victory lap. We're not here to celebrate. We have a lot of work ahead to realize the significant opportunity that we have in front of us.

We are indeed just getting started. So a message to you today is that we are excited and pleased with what we have accomplished, but we remain focused on execution. With that, allow me to touch on some of the exciting advancements and how they speak to a strong and positive 2020 and beyond. First is the continued advancement of our portfolio of platform capabilities and the market's response to them.

During 2019, we have been launching significant cloud-based capabilities in all areas of our client base, from pharmacy platforms supporting specialty pharmacy to ScriptMed exchange platforms supporting hubs and electronic risk evaluation and mitigation strategies or e-REMS capabilities. Additionally, we're seeing exciting news of the company's elastic container technology or ECT now readily being selected by clients desiring to burst or accelerate analytical runs. We've also seen new platform offerings supporting population health initiatives, our automated EHR data extraction modules and our natural language processing of nonstructured clinical data modules are all seeing meaningful sales. We're in the midst of launching a new cloud-based interface supporting larger team utilizations of our NLP tools, expanding applications of our AI capabilities.

I'm very excited about the arrival of real-time patient-specific data supplementation tool sets and the growing availability of Inovalon's capabilities through transactional APIs. All these examples are exciting areas of differentiated value delivery that are benefiting our clients, driving demand and resulting in client stickiness and sales growth. Second is the continued expansion of the client patient populations that are connected to the Inovalon ONE Platform. As Inovalon continues to add new client logos to its customer base, 81 new logos so far this year, and expand the number of populations within an organization that are utilizing the Inovalon ONE Platform, the reach of Inovalon's value benefit expands.

Recently, Inovalon has entered into new contracts incorporating very large, additional new member populations, which will become more evident as implementation occurs in 2020. The continued strong expansion of patient populations allows Inovalon's solutions to expand its positive benefit of clinical-quality improvement and economic performance for clients, setting the scene for even greater expansion of business with the respective organizations, the classic land and expand that is achieved as positive value is demonstrated. We are excited about these population expansions, what they reflect as far as Inovalon's reception by the marketplace and what they portend for the financial performance in 2020. Lastly, I want to draw your attention to the meaningful differentiation and positive value impact that the Inovalon ONE Platform is bringing to the clients in the marketplace and why this is translating into both expanding market demand and meaningful positive impact on the healthcare ecosystem.

As reported on Monday, for the sixth year in a row, clients utilizing Inovalon's platform outperformed the rest of the marketplace in the improvement of their clinical quality performances scores known as Star scores. While the nation as a whole improved their clinical quality scores, as reported by the federal government's Center for Medicare & Medicaid Services or CMS on October 11, clients utilizing Inovalon software improved nearly 300% more than those not using Inovalon software. Inovalon's breadth of data, connectivity, analytics and data-driven intervention tools are delivering highly differentiated capabilities, resulting in highly differentiated market share expansion, stickiness and land-and-expand opportunity. As Inovalon integrates additional populations into its client base and platform, the scene is increasingly set for the growing network effect, increasingly deepening our moats and meaningfully differentiating our value delivery.

These differentiated capabilities are but one example. The breadth of the Inovalon ONE Platform is growing. The number of patients on the platform is expanding. The barriers between silos within the ecosystem are coming down.

And the cross-pollination between clients and network effective growth and value delivery is occurring. This is translating into our clients realizing differentiated performance and Inovalon experiencing the same as a result. With that, I will end my comments as I began them. We're proud of the execution that we are seeing and the value it is delivering to our clients and to the strength of the performance that's resulting for Inovalon.

While the third-quarter performance marks an important demonstration of Inovalon 2.0's strength, we are not viewing today as a day to celebrate but rather an exciting point along a path of many steps. We have much on which we need to focus and much on which we need to execute to deliver this great opportunity on behalf of our clients, our associates and our shareholders. With that, please allow me to turn the call over to Jonathan to review the results of the quarter and our outlook for the balance of the year and 2020 ahead. Jonathan?

Jonathan Boldt -- Chief Financial Officer

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 third quarter's financial results reflect another quarter of solid execution, with revenue, adjusted EBITDA and non-GAAP EPS at the high end or above our previous provided guidance ranges. Second, we are updating our full year 2019 guidance.

For the third consecutive quarter this year, we are tightening our revenue guidance within our range and revising upward our GAAP and non-GAAP earnings guidance range and increasing our adjusted EBITDA range. Third, in the setting of our strong continued cash flow and our positive financial outlook, we initiated an acceleration of our debt repayment on October 4, 2019, with a $50 million payment, incremental to our mandatory obligations. And fourth, the company is again providing forward annual guidance before the year begins. With strong continued sales and client retention rates, we are pleased to provide 2020 organic revenue guidance for growth of 9% to 12%, net income growth of 100% to 155%, adjusted EBITDA guidance for growth of 9% to 14% and non-GAAP diluted net income per share growth of 12% to 20%.

Now turning to our third-quarter results. Third-quarter 2019 revenue was $166.5 million, an organic increase of 14% year over year and 6% sequentially. Subscription-based platform revenue grew to 84% of third-quarter revenue compared to 83% in the third quarter of 2018. The year-over-year organic revenue increase of $20.6 million was driven by an increase of $11.9 million in revenue from existing customers, reflecting expanded relationships; and an increase of $8.7 million in revenue from new customers, reflecting continued adoption of our platform offerings.

On a trailing 12-month basis, third-quarter 2019 trailing 12-month revenue was $605.2 million, an increase of 20% compared to the third-quarter 2018 trailing 12-month period. Trailing 12-month revenue growth continued to be driven by continued strong new client sales growth and strong client contractual renewal retention rates. New sales annual contract value or ACV during the quarter came in at $44.1 million and $28.1 million excluding services. While ACV is down year over year, it is important to remember that numerous factors and dynamics, such as deal size and signature timing, can result in quarter-to-quarter variability of this metric.

Turning to gross margin. Third-quarter 2019 gross margin was a strong 74.2%. Strong gross margin continues to be driven by higher-value product shifts as well as increasing scale and efficiency of the company's platform offerings. As the company's performance has demonstrated through 2019, the company's platform offerings and delivery structure position the company nicely for continued profitable, scalable growth.

Sales and marketing expense for the third quarter was $16.2 million, an increase of $4.4 million or 37% year over year and $1.8 million sequentially. Sales and marketing as a percentage of revenue was 9.7% for the third quarter of 2019 compared to 8.1% in the third quarter of 2018. Third-quarter 2019 trailing 12-month sales and marketing expense was $57.8 million or 9.6% of revenue, which represents an increase of $16.3 million or 39% compared to the third-quarter 2018 trailing 12-month period of $41.5 million or 8.2% of revenue. Our increased investment in sales and marketing engine continues to be driven by the company's focus on delivering strong organic revenue growth.

General and administrative expenses for the third quarter of 2019 continued to demonstrate very positive operational leverage and was only $49.3 million, which represents an increase of only $2.1 million or 4% year over year. G&A expense as a percentage of revenue was only 29.6% in the third quarter of 2019 compared with 32.4% in the third quarter of 2018. Increased revenue, strong gross margin and continued operating expense efficiency drove strong profitability during the quarter. Adjusted EBITDA for the third quarter was $56.3 million, an increase of $3.8 million or 7% year over year inclusive of the increased investment in sales and marketing expense of $4.4 million.

Adjusted EBITDA margin for the third quarter was an impressive 33.8%. On a trailing 12-month basis, third-quarter 2019 adjusted EBITDA was $191.9 million, an increase of 38% when compared to $138.6 million during the preceding 12-month period, which includes the increased investment of sales and marketing activities of $16.3 million. Third-quarter 2019 trailing 12-month adjusted EBITDA margin was 31.7%, which represents a 430-basis-point increase compared to the year-ago period. Third-quarter 2019 non-GAAP net income per share was $0.15, which increased $0.04 per share or 36% from the year-ago period.

And third-quarter 2019 trailing 12-month non-GAAP net income per share was $0.43, an increase of 65% compared to $0.26 during the preceding 12-month period. Turning to cash flow. Net cash provided by operating activities in the third quarter of 2019 was $32.4 million, which is after our debt service interest payments of $16.4 million and after an incremental cash payment for acquisition-related contingent consideration of $2.5 million. Third-quarter capex was $14.7 million or 9% of revenue, continuing to return the company back toward historical levels as previously projected.

For the trailing 12 months ended September 30, 2019, Inovalon generated $45 million in positive free cash flow, an increase of $41.8 million or 1,304% as compared to $3.2 million of free cash flow in the year-ago period. Importantly, this free cash flow was after incremental cash outflows of $34.6 million in cash interest payments, further highlighting the company's business model's very strong cash flow generation capability. Additionally, over the same trailing 12-month basis, capex decreased by $21.9 million or 29% as we continue to see capex return to normalized levels. Additional details on trailing 12-month results and capex can be found on Slides 10 and 23 of our earnings supplement deck.

On the balance sheet. Inovalon's financial position remains solid. The company exited Q3 with cash and cash equivalents of $133.6 million, total outstanding debt of $970.2 million, reported balance sheet debt of $944.9 million, and the company had not drawn any of its $100 million revolving credit facility. Bringing this all together, as of the end of the quarter, the company's net debt position was $836.6 million, and our net debt ratio as defined under our credit agreement was approximately 4.23 to 1.

As we announced earlier today, subsequent to the end of the quarter, the company initiated an accelerated paydown of our debt with an incremental repayment of $50 million above our mandatory payment schedule of $2.4 million per quarter. This incremental payment was made from surplus cash flow from operations, and as of today, the company continues to have no amount drawn on its $100 million revolving credit facility. Using current 1-month LIBOR rates, this principal reduction will drive an estimated decrease in annual cash interest expense of $2.8 million and thereby increasing return to our shareholders. Now let me conclude by sharing updates on the company's 2019 guidance and the full year 2020 financial outlook.

For the full year 2019, first, we are tightening our revenue range previously provided to be $638 million to $643 million, reflecting a year over year as-reported revenue growth of 21% to 22% and organic revenue growth of 13% to 14%. Second, we are once again increasing our guidance for GAAP and non-GAAP net income, GAAP and non-GAAP net income per share and adjusted EBITDA. And third, we are reaffirming our prior-guidance ranges for capital expenditures and net cash provided by operating activities. This results in fourth-quarter 2019 guidance as follows.

We see $169 million to $174 million in revenue, reflecting year-over-year growth of 24% to 28% compared to the fourth quarter of 2018. We see adjusted EBITDA to be between $56 million to $62 million, a year-over-year increase of 44% to 60%. And third, we see non-GAAP diluted net income per share of $0.12 to $0.15, a year-over-year increase of 140% to 200%. Looking ahead, our 2020 financial outlook is as follows.

First, we see revenue of $698 million to $718 million, representing organic revenue growth of 9% to 12%. Second, we see 2020 adjusted EBITDA of $231 million to $241 million, representing growth of 9% to 14%. Third, we see non-GAAP diluted net income per share of $0.57 to $0.61, representing year-over-year increase of 12% to 20%. And finally, we expect capex to be flat year over year, with our full year 2020 capex range of $52 million to $58 million or 7% to 8% of expected 2020 revenue.

We encourage you to refer to today's earnings release and our third-quarter supplement earnings deck for more details on our 2019 and 2020 guidance ranges. With that, let me turn the call back over to our operator to conduct our Q&A session.

Questions & Answers:

Operator

[Operator instructions] And our first question comes from Ricky Goldwasser with Morgan Stanley. Your line is open.

Ricky Goldwasser -- Morgan Stanley -- Analyst

Hi, there. Good evening.

Keith Dunleavy -- Chief Executive Officer and Chairman of the Board

Hi, Ricky. Good evening.

Ricky Goldwasser -- Morgan Stanley -- Analyst

So thank you very much for the early comments on guidance. A couple of questions on there. First of all, when we think about next year, I know that last year, you talked about kind of like the visibility that you had when you provided us the early guide. So can you just give us some color on that? And then second of all, when we think about the margin expansion opportunity, obviously, in the fourth quarter, you're showing very nice margin expansion, seem more muted next year.

So can you maybe talk about how we should be thinking about margins when you're introducing new products and what that means to the margin and how we should think about the margin progression? Because when we think about the 2020 outlook, it seems that there are a lot of new product and service offerings that you are selling to your customer base.

Keith Dunleavy -- Chief Executive Officer and Chairman of the Board

Great, Ricky. Thanks for the questions. I think I got about four or five of them there. Let me see if I can try and report to you quickly.

So first, thanks for taking the time out for the call. Visibility is really good. We have very strong client retention rates going, very strong client retention rates, strong pricing power in the market. We're very excited about all of the above.

Last year, as you know, we were transitioning from a period of negative 10% organic growth to positive 13%, 14% growth, so a swing of about 23%, 24% that we rightfully wanted to provide a lot of visibility to the market. This year, after having delivered on that, we think, really nicely and hit and/or beat quarter after quarter and raised as we marched our way through the year, we spent some time looking at competitor metric benchmarks. We took a look at what sort of market information our peers in the space were giving out. And we really wanted to take the opportunity to then realign with them as we put out these numbers today.

But again, for clarity, really strong pipeline, really strong visibility, really strong retention rates. And then also, last thing I'll give you on the visibility and processing through 2020 before moving on to the other parts of your question. In the supplemental deck, Slide 21, we give you revenue cadence that you should expect throughout the year. So there's a graphic in there, an illustrative graphic that basically shows The Street should look for 9% to 12% organically each quarter over the 2019 quarters.

So just a nice progressive cadence like you saw in 2019. You'll see the same thing in 2020, just higher, 9 to 20 -- or 9% to 12%. The second thing you asked is on profitability. You made comments on the 33% EBITDA, and the muted number, I think, is the number you -- or the word you used.

We've seen really strong progression of our profitability here in 2019, marching it up virtually every single quarter with strong ability to show operational leverage, increased connectivity and increased automation, bringing more and more of that to the forefront. We've been pretty loud, if you will, in the marketplace about how we want to spend this expanding profitability on further accelerating our growth and investing in new products and new markets. And that's what you're going to see us do. So really strong ability to generate profitability, we hope that that's been very clear to the marketplace.

We have very comfortable levers, if you will, on those profitability metrics. And we want to spend a good amount of money on further accelerating our growth and taking advantage of further broadening our breadth. So strong profitability is what we're conveying and a strong control on that profitability also. And then the last part of your question had to do with new products, and if I'm interpreting it right, new products versus existing products.

So a number of different things are receiving our investments, certainly, investments in expanding our sales and marketing capacity and sophistication in expanding our product offerings, as well to your implication. Product -- new products do tend to be a little less profitable on their initial launch. But with this broad of a client base that we have, what we find is a very strong inbound indication to us from the market as to what capabilities they are looking for. That gives us the advantage to use the portfolio of modules that we have, those LEGO blocks, if you will, on the Inovalon ONE Platform, and bring a product to market quickly and profitably -- nicely profitably year 1.

So we're very content there on new product launches and content on what you'll see profitability from them.

Operator

Thank you. And our next question comes from Stephanie Demko with Citi. Your line is open.

Stephanie Demko -- Citi -- Analyst

Hey, thank you for taking my question, Keith.

Keith Dunleavy -- Chief Executive Officer and Chairman of the Board

Hey, Stephanie.

Stephanie Demko -- Citi -- Analyst

Very similar to the prior question, just looking at the midpoint of your 2020 guidance, it does imply some top line deceleration from where you were this year. So I'd just love to know the balance that's driven from conservatism versus law of large numbers or some visibility that you're seeing as you ramp up some of these larger contracts.

Keith Dunleavy -- Chief Executive Officer and Chairman of the Board

Yeah. Well, first of all, Stephanie, great to have you on the call, thank you. And we definitely appreciate the question and the various versions of it. As I'm sure you all know, this is a function of continued demonstration of credibility and reliability to the marketplace and making sure that we underpromise and overdeliver to the market, to our clients, to all involved.

Certainly, street expectations from us was a bit lower than we're conveying here. So we're a good $20 million in revenue above where consensus was and very significantly ahead on EBITDA and earnings. And that's the message we want to strongly send to the marketplace, that things are going very well. We expect them to go very well.

Mathematically, you're correct. It's not an unfair conclusion you're coming from mathematically. But we also want you to hear very strong confidence and excitement about what we're seeing from our customer base going into the year. But let's underpromise and overdeliver.

Stephanie Demko -- Citi -- Analyst

Understood. Understood. That makes sense in order to kind of create that track record. One quick follow-up on a different topic, just thinking about your EHR data extraction tools that you have.

With players like Cerner and Allscripts now entering the foray into healthcare data, does that make them competitors? Or does your tool make it more of an opportunity for partnership?

Keith Dunleavy -- Chief Executive Officer and Chairman of the Board

We really see it as the latter, Stephanie. So any entity out there -- obviously, those EHRs you mentioned are great organizations that have great market presence. But still, typically, they would have only roughly around 15% of any one patient's clinical data. And it's really tough for an organization to have a small window, an important window but a small window on a patient's clinical life to do analytical capabilities on that.

It's hard to predict whether or not a patient's diabetes is being properly managed or how to improve upon it. It's tough to predict whether or not their chemotherapeutic agents should be changed or adjusted and so forth. So the platforms of an EHR are excellent partners and utilizers, frankly, of API calls into the Inovalon ONE Platform that give them the ability to aggregate the data that they do have together with the analysis of the broader assessment that Inovalon can bring. And that's also not only the strength of the API tool sets but what you heard us mention in our prepared remarks about supplemental data.

Supplemental data is something you're going to hear a lot about as we move forward into 2020. We've started rolling that into our product offerings here in the pharmaceutical space already. The ability to aggregate a holistic view on a patient from across multiple different EHR brands, multiple different HIE networks, multiple different claim sources, lab sources, administrative data sources, decision support platform sources and our data sources, all in just a couple of seconds, aggregate that, analyze it, spit back an answer from anywhere securely in a transactional API format, we see that capability as unique in the marketplace, and we see it as applicable in any mobile device, any EHR device, any clinical point-of-care environment. And we're excited to be putting that to work in the marketplace.

Stephanie Demko -- Citi -- Analyst

Good to hear. Well, thank you for taking my questions, Keith.

Keith Dunleavy -- Chief Executive Officer and Chairman of the Board

Thanks, Stephanie.

Operator

Thank you. Our next question comes from Frank Sparacino with First Analysis. Your line is open.

Frank Sparacino -- First Analysis -- Analyst

Hey, Keith. Maybe just one for me. Earlier, you talked about ScriptMed. And I was wondering if you could give an update just on the pharmacy side of things and then also perhaps touch on -- I think it's been a while since we've talked about some of the value-based contracts in pharma.

I know you had some news recently with AstraZeneca, but I was more interested in some of the contracts that were signed perhaps a year or two ago and in terms of how those are performing. Thanks.

Keith Dunleavy -- Chief Executive Officer and Chairman of the Board

Great, Frank. Thanks for the question. First of all, all those areas, we're seeing really nice double-digit growth. So an important way to start to answer to that question.

The pharmacy space is likely to be the strongest area of growth here as we go forward, so obviously very substantive double-digit growth. That set of implementations and new client additions to it is nothing short of very robust. And what is interesting, intentionally or unintentionally, is the second part of your question actually is now tying into that first part, which is we're seeing that the OBC marketplace is now becoming, as you heard in my opening remarks, a reflection of the breaking down of silos between the different parts of the ecosystem. So because of the fact that we now have so many payers on our platform and pharmacy on our platform and the life sciences on our platform, we're finding that serving as that single source of truth and that trusted independent mediator for the data aggregation and analysis reporting around OBC contracts is proving an additional value add.

So we anticipate you'll hear a lot more about that. I'm actually off to our ScriptMed conference down in Florida this weekend where I think just about every major pharmacy company will be as well as many life sciences companies. And that's one of the major talks of the town as we're rolling that out with partners. So it's looking good, very strong double-digit growth in 2020.

We're excited about it.

Frank Sparacino -- First Analysis -- Analyst

Thank you.

Operator

Thank you. Our next question comes from Ryan Daniels with William Blair. Your line is open.

Jared Haase -- William Blair -- Analyst

Yeah, good evening. This is Jared Haase in for Ryan. Thanks for taking the question. Just wanted to maybe take a step back and talk a little bit about kind of the competitive landscape.

And given the investments that you've talked about for a couple of quarters here in sales and marketing and product development, I'm kind of just curious if you've kind of seen any sort of meaningful change in your competitive positioning and, maybe more specifically, if you've seen a material uptick or change in your win rate given those investments.

Keith Dunleavy -- Chief Executive Officer and Chairman of the Board

Sure, Jared. Thank you. Thanks for being on the call. So the competitive landscape for us, we classify it in three different pieces.

We laid these out, I think it's on Slide 23 if I'm not mistaken on our Investor Day deck from December of last year. We break it into three categories: clients deciding to do work themselves, insourcing whole or part; number two, the classic competitor, right, the poster-board, large-company, brand-named competitor; and category number three, small individual points or solutions that could be brought together to serve capabilities that a client might need. We reported back in December of last year that we were seeing a trend change in the marketplace that was a positive in our favor in that competitive landscape for reasons we laid out at the time, a lot of organizations that tried to insource and found that to be more challenging than they thought, more expensive, harder to find the right talent, subject matter expertise, not having the connectivity and not having access to the primary-source data that we had. The poster-child competitors really have not changed a whole lot in the marketplace we reported at the time and were very respectable organizations that we kept strong and good eye on but certainly one that was not moving against us any disproportionate way and, in fact, the opposite.

Then the last one, the smaller players. We reported -- again, I'm just reiterating what we said roughly a year ago. That space, we were seeing a movement by the marketplace away from -- or not liking as much, if you will, not selecting as much the smaller players. And the word that we were hearing was organizations are reticent to entrust their data, entrust their business-critical operations and platforms to smaller organizations that have less investment in things like cybersecurity and data governance and disaster recovery and so on and so forth.

That environment, Jared, has not really changed. We actually have seen upticks in our win rates over 2019 in many areas. We're very respectful of the competition. We work hard to stay ahead of it, but we have been winning some very substantive and recurrent themed wins in the marketplace against competition, and we'll continue to work hard to make that the case.

But it's been a positive story for us in 2019.

Jared Haase -- William Blair -- Analyst

Great. Appreciate the color.

Keith Dunleavy -- Chief Executive Officer and Chairman of the Board

Thanks.

Operator

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

Sandy Draper -- SunTrust Robinson Humphrey -- Analyst

Thanks very much. A lot of my questions have been asked. Maybe just as a fine-tune on the last question. I know, Jonathan, you mentioned, on ACV, it was down year over year, but there's quarterly volatility, in fact, we appreciate.

Can you just, one, remind me, was there any specific large deals that made third quarter a tough comp? And then following up, was there -- it doesn't sound like competitively, it was an issue, but was there any -- in terms of deal flow, slowing down, but the visibility for deal flow in the fourth quarter is improving. Just any commentary around those two things would be great.

Jonathan Boldt -- Chief Financial Officer

Hey, Sandy, great to talk to you. For your first question, the Q3 was a tough compare from an ACV perspective. There were some large deals in Q3 of 2018. But the continued velocity of all of our other deals in Q3 2019 were impressive for sure.

I'd actually say that our October is currently shaping up already to be a record ACV sales for the last five years. So it's pretty strong or very strong, I should say. But the continued velocity, strength of the pipeline continues to be impressive, and the delivery of our sales force team has been really kind of top-notch.

Sandy Draper -- SunTrust Robinson Humphrey -- Analyst

That's really helpful. And then my one follow-up on the capital deployment. Nice to see the $50 million debt paydown. Don't necessarily expect that quarter to quarter, but generally, would you say that's going to be a strategy you're going to be looking at, every time as you generate free cash flow that that's going to be the primary use of your capital? Thanks.

Jonathan Boldt -- Chief Financial Officer

Yeah. Sandy, that's one area that we continue to focus on and how we're deploying our capital. And we're sitting in a very strong position really from our cash flow. We continue to have a lot of flexibility as to how we deliver and deploy that cash flow for our shareholder return.

And as we continue to accumulate excess cash flow or capital on our balance sheet, we'll look for areas to maximize the return for our shareholders.

Sandy Draper -- SunTrust Robinson Humphrey -- Analyst

Great. Thanks.

Keith Dunleavy -- Chief Executive Officer and Chairman of the Board

Great. That being our final question, please allow me to give a few comments before we close. Number one, Inovalon is increasingly being seen as the leading provider of cloud-based platform capabilities empowering data-driven healthcare. Number two, the market demand for these capabilities, as you heard us comment on tonight, is very strong.

And it's translating into double-digit organic revenue growth, and we're very excited how that is playing out. Number three, as we continue to expand our scale and efficiencies, you're also seeing all of that growth translate into very nice operational leverage and profitability, which we also see continuing nicely here into 2020. We're excited about the momentum. We're excited about the positive outlook, not only for the remaining portions here of 2019 but for 2020 and beyond.

We remain committed to execution. Execution we know is really the name of our game that is important for being our focus here in the remainder of this year and into next. We expect to give you very strong revenue growth and very strong profitability as well as very strong value for our clients. Thank you this evening for your time, and thanks as always for your interest in Inovalon.

Good night, everybody.

Operator

[Operator signoff]

Duration: 46 minutes

Call participants:

Kim Collins -- Senior Vice President Corporate Marketing

Keith Dunleavy -- Chief Executive Officer and Chairman of the Board

Jonathan Boldt -- Chief Financial Officer

Ricky Goldwasser -- Morgan Stanley -- Analyst

Stephanie Demko -- Citi -- Analyst

Frank Sparacino -- First Analysis -- Analyst

Jared Haase -- William Blair -- Analyst

Sandy Draper -- SunTrust Robinson Humphrey -- Analyst

More INOV analysis

All earnings call transcripts