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Inovalon Holdings (NASDAQ:INOV)
Q4 2019 Earnings Call
Feb 19, 2020, 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 fourth-quarter and full-year 2019 earnings call. [Operator instructions] As a reminder, this conference is being recorded. And I'll now turn the conference over to your host, Kim Collins. Please begin.

Kim Collins -- Senior Vice President of Communications

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 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 this 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 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 are 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.

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

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 of 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 list of technological capabilities that we are arduously developing to bring to market. But the 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 platform's capabilities. That said, we are anything but complacent. We are 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 ScriptMed 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 FHIR-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 Lake offering, providing organizations with an industry-leading single source of truth aggregation of clients otherwise disparate data sets, supporting translation of structured and unstructured data and data supplementation from the industry's largest primary source healthcare dataset, Inovalon's MORE2 Registry of deidentified 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 guidepost 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-coordinate.

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 the 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 data sets. 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 our platform is in place, delivering one of many potential capabilities and 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 111 new logos to our client base, counting only those with more than $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's 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 13 and 14 were not only examples of meaningful incremental multiyear engagements, but they were also examples of successful land-and-expand strategy execution.

In both cases, the clients have previously begun working with the Inovalon ONE Platform and added meaningfully new solution capabilities in the fourth quarter of 2019. To reiterate, there are three strategic guideposts of our growth: No. 1, lead in innovation; No. 2 two, become the enablement layer; and No.

3, land and expand efficiently. Execution on these three takes great coordination throughout many teams. And I'm proud to report that this is precisely what we are achieving. We have a truly great team.

They are energized. And I'm thankful to have the opportunity to work with them. As always, though, we know that we have much work ahead to capitalize on the 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?

Jon 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 fourth-quarter's 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 credit worthiness 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 $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 inorganic 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 a 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 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 continue 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'd like to spend a moment on profitability. As highlighted on Slide 18 of our earnings supplement deck, our investments in cloud architecture, automation and connectivity have allowed us to reduce the number of head count in our business model. From Q4 2015 to Q4 2019, the company has been able to reduce more than 1,400 net positions even after our significant investment and expansion in personnel within our sales and marketing engine.

This reduction in necessary head count, 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 to cash flow.

Net cash provided by operating activities in the fourth quarter of 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 of 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 $22.1 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 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 earnings supplement deck.

Moving to the balance sheet, Inovalon's financial position continues to build in strength. In 2019, the company repaid $59.8 million in principal 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 a 75 basis-point reduction when our net leverage ratio falls to 3.45:1 or lower. The interest rate margin reduction represents a cumulative pre-tax cash interest cost savings of $23 million at a 50 basis-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 paydowns 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 4.23:1 as of the end of Q3 2019 to approximately 3.83:1 at year end. Now let me conclude by sharing updates of 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 and 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.

Questions & Answers:


Operator

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

Sandy Draper -- SunTrust Robinson Humphrey -- Analyst

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

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

Great. Well, 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 and wall street experience.

You might know him from reputation from his work at Medidata, a global provider of vertically specialized cloud-based SaaS solutions for the pharmaceutical marketplace. It was recently acquired by Dassault Systemes. We're very excited to have him joined 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 lake, 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 for different initiatives over years, perhaps in acquired parts of their business. And the pharmaceutical marketplace is 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. 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 lake 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 that those other enterprise or other industry players don't have, which allow us to start to create a more holistic, single source of truth of their data.

Linking together the data from their disparate data silos, and adding into it are the data that represents their patient base and provider base with longitudinally matched data aggregate or data supplementation. We're able to get that from the MORE2 Registry. None of the other players in the marketplace have that capability. So the 314 million patients' worth of data, about 998,000 providers, some 60-or-so billion medical events, we're able to then fill in imperative information for that client.

But then we go a step further, right? We have connectivity into the clinical data that represents the healthcare organizations world, and that allows us to import clinical data and then put it through our natural language processing capability to allow us to layer in both structured and unstructured data that they previously couldn't bring on board, or if they did bring it 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, run a compute across that whole data set on a rapid basis, minutes, hours faster than before they could have done it. So a number of variables that are to their benefit as well as the cost savings with the elimination of their enterprise legacy systems.

Sandy Draper -- SunTrust Robinson Humphrey -- Analyst

Great. That's really helpful, Keith. And then maybe my follow up. Just sort of doing the quick numbers.

Look, obviously, you had a strong year on the payer side on my calculation. Looks like payer revenue grew about 17%, and that's after three 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 you had the easier comp, and it's going to moderate. I'm 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.

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

Sure. Sustainability looks great, Sandy. We're seeing a multi-product uptake in the marketplace across our quality products or risk products, our data visualization products, the data warehouse products, the connectivity, the NLP. Really the sales force that Jason and his team have put together are now out in the marketplace with not one, not two, not three, not four, not five, but many different solutions 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've put out, but we feel really good about what we're seeing.

Sandy Draper -- SunTrust Robinson Humphrey -- Analyst

OK. Great. Thanks.

Operator

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

Don Hooker -- KeyBanc Capital Markets -- Analyst

Great. Good afternoon. I am curious as to some of the detailed breakout of the revenues. In terms of the legacy revenues, we're focused on the growth of the SaaS revenues, but legacy revenues were very low.

I know there's a seasonal element there. But a little bit lower than I had thought. I think you said 6% of total revenues. Can you talk about how that's looking going into next year? And maybe is that going to eventually stay down? Or what's the update on the legacy side of the business?

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

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.

Jon Boldt -- Chief Financial Officer

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've 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.

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

Don, maybe just to add a little bit of color on that. 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 have messaged, 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 or absolute number as the rest of the company continues to grow, by design.

Don Hooker -- KeyBanc Capital Markets -- Analyst

Sure. And then also the services line, love to hear a little bit more about some of these noncore areas. I assume there's an element there that's still Avalere and sort of life sciences. Can you maybe talk about how that's trending over time, and as we look into 2020 and into 2021?

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

Sure. So our services are made up, as you point out, it has a fair amount in there from legacy Avalere, but there's 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 analytics support. There's a 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 it 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 to seeding, introducing and supporting our larger, more complex implementations.

Don Hooker -- KeyBanc Capital Markets -- Analyst

Super. Maybe one last numbers question for me. On the sales and marketing side, I know you guys have been ramping up the sales force there pretty aggressively in terms of staff and personnel. At some point, I guess, that sales and marketing line is going to start to stabilize and you'll start seeing scale in that particular expense line.

When do you think that would happen? Is that going to be beyond 2020? Or are we going to start seeing scale on that line, maybe in the next few quarters?

Jason Capitel -- Chief Operating and Revenue Officer

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 sixth 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 the 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 team that we have in place that's driving great value for our clients.

Don Hooker -- KeyBanc Capital Markets -- Analyst

Thank you.

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

Thank you Jon, anything you want to add to that?

Jon Boldt -- Chief Financial Officer

Yes, the only thing I'd like to add is that as we continue to see our investment in sales and marketing, we were still able to grow adjusted EBITDA pretty nicely year over year. So even though we've had that increased investment for 2019, we've 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 were able to produce in the fourth quarter and full year.

Don Hooker -- KeyBanc Capital Markets -- Analyst

Thank you so much.

Operator

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

Jared Haase -- William Blair -- Analyst

Good evening. This is Jared Haase in for Ryan. 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, 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?

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

Hey Jared, thanks for the question. Look, our pipeline is huge, right? I mean, it's got hundreds and hundreds and hundreds and hundreds of deals on it at different stages. So we don't control exactly when they close and exactly when they implement, but we, as we've 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 clients' 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. I don't know, Jason?

Jason Capitel -- Chief Operating and Revenue Officer

Yes, I think you said it well, Keith. I mean, we're focused as a business on being predictable for our clients on the value delivery, being predictable for our shareholders and making sure we're 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.

Jared Haase -- William Blair -- 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 a roughly sort of 65%-35% split between the contribution from new logos versus the land and expand existing customer opportunity going forward?

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

Great question, Jared. We have historically encouraged people to 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%-40%-ish 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 we're excited about that, but we're seeing both really strong.

Jared Haase -- William Blair -- Analyst

Got it. Appreciate the color. Thanks.

Operator

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

Sean Wieland -- Piper Sandler -- Analyst

Hi. Thanks very much. I think you said 65% ACV was 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, whatever detail you can provide?

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

Hey Sean, good evening to you. So for clarity, it was 65% on the revenue growth of the year. So the revenue growth of the year was 65% from new logos, balance from existing logos. There's no big fish phenomenon.

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 have any clients of significant size and we're down, what, 35%. Our top 10 clients, on average, about obviously 3.5% or so. So no big fish in there, but as far as the cause of the growth, really, we're seeing strong uptake of quite a few of the products.

To give you a couple of colorful examples, the two deals announced in January, I think it was the 12 and 13 off the 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, might have been second quarter, but early. Jonathan is signaling first quarter of 2019. So they bought their first solution on a classic set of payer 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 '19. 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 a good job.

And we see a lot of growth coming from that.

Sean Wieland -- Piper Sandler -- Analyst

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

Jon Boldt -- Chief Financial Officer

Sure, Sean. So as we look at free cash flow guidance, the range we're giving for operating cash flow is $170 million to $185 million, and our capex guidance range was $52 million, $58 million. So the difference there would be our free cash flows.

Sean Wieland -- Piper Sandler -- Analyst

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

Jon Boldt -- Chief Financial Officer

DSO is slightly around 66 days.

Sean Wieland -- Piper Sandler -- Analyst

OK. Thank you very much.

Operator

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

Ricky Goldwasser -- Morgan Stanley -- Analyst

Hi good afternoon. So I have a couple of follow-up questions here. First of all, if we think about the sales force expansion, I know we touched a little bit about it earlier. But how should we think about how long does it take for the sales force 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 sales force earlier on the pharmacy side.

Considering that now you're leading with tech sale personnel, should we think about kind of like the sales force that you have now about 255 ramp is that infrastructure that you can use across the customer base?

Jason Capitel -- Chief Operating and Revenue Officer

So thanks for the question, Ricky. This is Jason. So I would suggest to you that there's very different business units and different buyers in those segments, right? And if you think about our provider business and you think about the number of transactions that happened roughly 500 per month, getting somebody up to productivity to do smaller-sized deals happens much more rapidly than doing multimillion 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. There are very specific nuance things in the marketplace for a 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 -- Morgan Stanley -- Analyst

OK. And then 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?

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

So let me make sure I understand the question, Ricky. The data lake, you're asking. OK, yes, it was in Q4 ACV. That's a correct statement.

You're asking, is it also in our revenue guidance?

Ricky Goldwasser -- Morgan Stanley -- Analyst

Was it in the original revenue guide?

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

Was it in the original? 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 -- Morgan Stanley -- Analyst

OK, great. And then when we think one quarter guidance versus kind of second half of the year. When we think about the level of investments that you're making earlier in the year versus second half, any color there that you can provide us?

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

When you say investment, Ricky, are you talking capex? Are you talking operating investments?

Ricky Goldwasser -- Morgan Stanley -- Analyst

So more on the operating side, right? Because if we think about the guidance you gave for the first quarter versus what's implied for the rest of the year, it seems like 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?

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

So let me give a little bit of a layman's description, then, I'll hand it over to someone smarter to walk you through the number on it. But as we look at the year, 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 prep for them in implementing those.

We just closed on $73.5 million 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 as we implement and get those revenues up to match, but Jon?

Jon Boldt -- Chief Financial Officer

Yes, Ricky, just to hit the investments. So obviously, we have a level of investment throughout the year. But really, where the operational leverages coming in is where you're seeing 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.

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

And the only other thing, Ricky, to 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.

And with that, before I close the 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, $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 ACVs of $73.5 million. You're seeing 111 new logos added. Those investments are really doing very well. And then third, the scale of the company continues to improve our efficiency.

The Inovalon ONE Platform continues to improve in its sophistication and its connectivity, and this is all driving more operating leverage, profitability and cash flow to the bottom line. I'm 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 to you at the next quarter.

Thank you for your time this evening. Thanks for your interest in Inovalon, and good night.

Operator

[Operator signoff]

Duration: 50 minutes

Call participants:

Kim Collins -- Senior Vice President of Communications

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

Jon Boldt -- Chief Financial Officer

Sandy Draper -- SunTrust Robinson Humphrey -- Analyst

Don Hooker -- KeyBanc Capital Markets -- Analyst

Jason Capitel -- Chief Operating and Revenue Officer

Jared Haase -- William Blair -- Analyst

Sean Wieland -- Piper Sandler -- Analyst

Ricky Goldwasser -- Morgan Stanley -- Analyst

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