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Edited Transcript of MDSO earnings conference call or presentation 30-Apr-19 12:00pm GMT

Q1 2019 Medidata Solutions Inc Earnings Call

NEW YORK May 21, 2019 (Thomson StreetEvents) -- Edited Transcript of Medidata Solutions Inc earnings conference call or presentation Tuesday, April 30, 2019 at 12:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Betsy Frank

Medidata Solutions, Inc. - Head of Investors Relation

* Glen M. de Vries

Medidata Solutions, Inc. - Co-Founder, President & Director

* Rouven Bergmann

Medidata Solutions, Inc. - CFO

* Tarek A. Sherif

Medidata Solutions, Inc. - Co-Founder, Chairman & CEO

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Conference Call Participants

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* Alexander Yearley Draper

SunTrust Robinson Humphrey, Inc., Research Division - MD of Equity Research

* Brian Lee Essex

Morgan Stanley, Research Division - Equity Analyst

* David Howard Windley

Jefferies LLC, Research Division - Equity Analyst

* David M. Larsen

SVB Leerink LLC, Research Division - MD, Healthcare Information Technology and Distribution

* Donald Houghton Hooker

KeyBanc Capital Markets Inc., Research Division - VP and Equity Research Analyst

* Eugene Mark Mannheimer

Dougherty & Company LLC, Research Division - Senior Research Analyst of Healthcare

* Glen Joseph Santangelo

Guggenheim Securities, LLC, Research Division - Analyst

* Jeffrey Robert Garro

William Blair & Company L.L.C., Research Division - Research Analyst

* Sean William Wieland

Piper Jaffray Companies, Research Division - MD & Senior Research Analyst

* Sterling Auty

JP Morgan Chase & Co, Research Division - Senior Analyst

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Presentation

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Operator [1]

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Good morning. My name is Jessa, and I will be your conference operator today. At this time, I would like to welcome everyone to the Medidata First Quarter 2019 Conference Call and Webcast. (Operator Instructions) Thank you.

Ms. Betsy Frank, Head of Investor Relations, you may begin your conference.

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Betsy Frank, Medidata Solutions, Inc. - Head of Investors Relation [2]

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Thank you, Jessa. Good morning, everyone. Thank you for joining Medidata's First Quarter 2019 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 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 detailed 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.

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Tarek A. Sherif, Medidata Solutions, Inc. - Co-Founder, Chairman & CEO [3]

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Thanks, Betsy. Good morning, and thank you all for joining us. We started the year with solid financial and operational results, and we continued to solidify our position as the leading cloud platform driving the digital transformation of life sciences. We're winning more business with Rave, attaching more products and we're laying the foundation for the future with the launch of Acorn AI.

I'd like to start by diving deeper on Acorn. Those of you who have followed us for some time know that our mission and our passion since day 1 has been to positively impact patients' lives. Acorn builds on the foundation we've built in our 20-year journey of innovation. We are the cloud that powers over 1,200 of the world's most innovative life sciences companies' development, and we hold their most valuable IP. Nearly a decade ago, we began amassing what has become the industry's largest structured standardized clinical data repository. It's unique in its scale, global footprint and breadth. Simply put, it's one-of-a-kind in the world and it has tremendous scientific and ethical value. Acorn is in part designed to help unlock that value hand-in-hand with our customers. After investing heavily in fit-for-purpose data pipelines, data science and automation, we've created breakthrough innovations in collaboration with leading academics and regulators. Glen will talk more about this shortly.

Our pioneering work has positioned us well for scale and for commercialization. As you will have seen from several press releases in the quarter, we're assembling a team of proven innovators and thought leaders to scale and drive our commercial efforts. We're entering a new era in life sciences defined by precision medicine. In forming Acorn AI, we are creating a hub for focused innovation in collaboration with our customers. We also see value in creating unique branding and driving a different go-to-market strategy and approach. We're off to a fast start, and we're already in the early stages with anchor customers. Our plan is to take a measured approach delivering high-quality actionable insights to our customers, so they can bring smarter treatments to patients faster. This is us living our mission for the betterment of patients around the globe.

Our timing with Acorn couldn't be better aligned with commentary from our domestic regulators. We hear the FDA talk about modernizing clinical trials. They are encouraging the use of enhanced data both clinical and real world in more innovative and insightful models. We see that our efforts are squarely focused in the right direction. We recognize that we're not the only ones trying to solve these enormous challenges, but we feel confident we are the best positioned to make it real and to make it work.

Glen will speak more about the applications and scientific breakthroughs this enables later in the call. Let me take a minute to talk about the world-class team we're assembling. We've spoken previously about Sastry, who is leading our efforts in Acorn AI. We're now fortunate to have Rachel Sherman, former Principal Deputy Commissioner of the FDA, join Acorn as Chief Scientific and Medical Adviser. She joined us because she shares our passion for innovation that impacts patients, and because of the uniqueness of what we built. She brings to us rigor, expertise and credibility required to succeed in this rapidly evolving space.

We also named our first ever CIO at Medidata, Dr. Rama Kondru, former CIO of Janssen Americas. In addition to playing a key role within the broader organization, he will be heavily involved in the build-out of Acorn as its CTO. We have also had several other very talented new members join the team. They bring many years of industry and technology experience to Medidata. The quality of our team and the depth and breadth of our data, the investments we've made in recent years, and Medidata's position and reputation in the industry makes Acorn AI one of, if not the most credible AI player in life sciences. And I want to say the industry is taking notice.

Moving on to business results for the quarter. We're winning more business with Rave and attaching more products to those sales. In CTMS, with fully unified modern infrastructure, we're continuing to improve our market position. We crossed the 100-customer milestone during the quarter, as we're displacing legacy systems that dominate the market yet are unable to keep up with the complexity of clinical trials today. This momentum positions us well to also continue growing payments given the benefits of integration here. We continue to see a lot of momentum and interest for eTMF in the mid-market, particularly on the heels of some new functionality we rolled out during the quarter.

In RTSM, we made a commitment to full end-to-end services in 2018, matching the requisite software and service, and thus streamlining the process for customers. We are seeing early success and believe momentum will continue to grow throughout the year. In ePRO, we see a lot of opportunity. Momentum is picking up particularly in the partner channel as it becomes increasingly more common to gather quality of life data in trials.

And finally, on SHYFT, with regulatory interest in the use of RWD, we're investing in the QUANTUM product. This past quarter, we brought on a team of experts and are refining our go-to-market strategy. This allows us to address a large market opportunity still in the early stages of adoption. Overall, we're innovating faster across the platform and bringing that innovation to market with better focus and better execution.

To dig into who's adopting products, I want to start with our momentum in med device, where we've historically been under-penetrated. The market here is healthy and growing as evidenced by the all-time high number of approvals last year. This quarter, we signed a new top 10 med device client, Stryker, and they adopted 7 of our products out of the gate. The win was very competitive. It was also once again a strong quarter for our partner business, an important channel for us given that their global capabilities in distribution. Two top 10 CROs increased their commitments with us in Q1. This reflects not only market share gains, but the health of the clinical trial environment overall.

Moving on to our people and culture. They are essential elements of our ability to execute on our mission and are at the heart of our success. Barron's named us to the most sustainable U.S. companies list for the second consecutive year. The Human Rights Campaign awarded us a perfect score of 100 on the Corporate Equality Index, recognizing us among the best places to work for LGBTQ, and we received the prestigious LEED Gold for -- environmental certification for our new London office, the first one ever awarded in the UK.

Finally, 2 of our executives were recognized as leaders in their fields. Our CTO, Julie Iskow, was named one of the top 50 women in tech by the National Diversity Council; and our Head of Product, Jackie Kent, was honored by PM360.

In summary, we had a good quarter, and we're excited about what the future holds for industry and for us. We continue to be laser-focused on execution of our mission, as a best way to create long-term relevance and value for all of our constituents.

I'm now going to hand the call over to Glen.

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Glen M. de Vries, Medidata Solutions, Inc. - Co-Founder, President & Director [4]

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Thanks, Tarek. So you've heard, our teams are doing great work. We're delighting our customers. We have unique, seamless, unified capabilities across EDC, eCOA and ePRO, CTMS, eTMF, randomization, supplies, basically the essential functions necessary to run a successful research project. We are outpacing everyone with the breadth and depth of our platform, and with our rapid innovation cycles. From patient consent to close-out of a study, we are defining what good looks like in research platforms. That's why our customers and partners are increasing their adoption, and that's why we continue to win new business across the Medidata Rave portfolio.

Now apropos to Tarek's comments on Acorn, we're also helping our clients solve some of their most complex challenges. I want to reinforce that Acorn is built on the same industry-leading foundational infrastructure and data across the Medidata platform. There are 4 initial solutions that are available under this Acorn umbrella. One, is our value discovery engine. It's around helping maximize the patient and the corresponding commercial value of all the therapies that are in our clients' portfolios. Number two, is intelligent trials. This helps improve study success and speed of study execution. I'll give you an example of this in a sec. Three, integrated evidence. How new models demonstrating therapeutic value to regulators, payers, providers, patients can be leveraged as well. I'll have more on that in a moment too. And number four, connected devices. How we integrate the next generation of medical devices with the digital healthcare broader ecosystem. And as I said, these are all delivered on Medidata's foundation of tech and data as well as on our second-to-none ecosystem of sponsors, CROs and sites. This is coming from our experience base, now at 17,000 trials with close to 5 million patients.

So here's an example of an actual client engagement on the operational side and intelligent trials. We're helping a client run better data-driven processes to select the best sites, making sure they work with investigators who will enroll their study quickly and provide high-quality data. To be clear, this goes well beyond just providing a list of sites or a primitive selection tool. Of course, it starts with Medidata's master site data from around the world, and it is -- and certainly built on our investments in site performance management. But we're linking these into our clients' workflows, and we're augmenting the capabilities and data with expertise, all ensuring that their potential value is fully realized by our client.

Let me give you a proof point on the scientific side, of leveraging our bio stats and regulatory expertise, helping our clients measure outcomes in new ways and this is from integrated evidence. Regulators, payers, providers, they want to see real world and research grade data supporting their approvals, their prescriptions, their reimbursements. And I really need to emphasize research grade. Yes, the FDA is interested in looking at real-world data, but they are also sending companies back to do more traditional Phase III trials when submissions that are overleveraged on real-world data aren't providing sufficient evidence for safety and efficacy.

I think it's also worth noting that the demonstration of this therapeutic value is going to get harder and harder as we see more targeted therapies on the market. That's not a bad thing. That's a great thing for patients and our clients. It means that we as the broader life sciences industry are executing on our shared mission of helping patients, but this is where our research grade data and research based, not just real-world based, synthetic control arms become so important.

We recently signed a research collaborative agreement with CDER, that's the FDA Center for Drug Evaluation and Research, to explore how we can use these research-based synthetic control arms. And we told you last quarter about some work we presented to the FDA on the topic, along with some clients and collaborators at Friends of Cancer Research. I am delighted to report that we will be at ASCO once again this year, presenting our latest developments in that field.

So in closing, it's incredibly exciting to see the vision that we had 20 years ago, trying to revolutionize clinical research and really move the needle for patients in need, actually coming to fruition. We still have a lot of work to do in line with those ultimate goals, but now as the connective tissue for the people and the data and such a broad part of life sciences, we're really in a terrific position, a better position than ever to make that vision a reality.

With that, I'll hand the call to Rouven.

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Rouven Bergmann, Medidata Solutions, Inc. - CFO [5]

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Thanks, Glen, and good morning to all of you. Q1 was a good starter to the year. Total revenue grew 16% year-over-year and 4% sequentially, reflecting broad-based contribution across our portfolio with subscription revenue up 16% and professional services revenue up 19% year-over-year. Our high levels of customer satisfaction continue to drive strong product adoption rates. At the end of Q1, we now have almost 300 customers subscribing to 4 or more products. This is up by 40% year-over-year. You see this momentum also reflected in our increasing professional services revenue. And by the way, the repeatable service revenue portion is now approaching 60%.

EBITDAO for the quarter was $35.9 million with a margin of 20.7%, a decline of 220 basis points, which is primarily driven by a gross margin decline of the same amount, as the SHYFT businesses is early in its life cycle. As discussed last quarter, our 2019 expectations reflect healthy trends in our core business, but are also temporarily impacted by the acquisition.

Within R&D, the majority of the increase relates to the investments we're making to unify our platform, combining pre- and post-approval data flows and Acorn AI, where we see tremendous opportunity to monetize our data assets and capitalize on our prior and ongoing investments in data science. And 2 things to keep in mind here. First, we see attractive returns on those investments as we are expanding our TAM. And second, as we discussed at our Q4 call, we're committed to delivering a margin expansion to the tune of 80 basis points this year.

There are several unique items that impacted expenses in the quarter. First, the acquisition-related expenses, which were phased out in the second half of this year. Next, we experienced increased cost related to the Viva litigation, which is moving forward. And finally, we had some onetime costs related to the relocation of our Boston office. The majority of these items impacted our G&A expense line.

GAAP net income of $11.1 million was up 8% year-over-year. This includes an income tax benefit in the quarter of $6.4 million, primarily related to excess tax benefits from stock-based compensation. And as a result, we now expect the full year tax rate to be around 5%.

We ended the quarter with cash of $206 million. Operating cash flow for the trailing 12 months was $90 million, up slightly versus the 12 months ending December 2018. As a reminder, Q1 is typically our seasonally weakest quarter for cash flow. Calculated billings were affected by timing of 2 large contracts, where billings shifted by one quarter. Normalized for this, calculated billings would have increased 16%. Based on billed accounts receivables, DSOs declined to 68 days, down by 5 days sequentially and I expect this number to improve further in the coming quarters.

With this in mind, let me transition to highlight some important drivers of our financial results. Consistent with the past, our growth drivers of density, intensity and new customer wins continue to propel us forward. We continue to gain market share in our core business adding more than 50 net new customers during the quarter. As it relates to density or the success of add-on sales to Rave EDC, we saw strong momentum in growth for RTSM, imaging and ePRO, where subscription revenue on a combined basis is up over 35% year-over-year.

We continue to see strong renewal rates. Over the last 12 months, we have renewed our subscription contracts at an annualized run rate that is north of 30% above par value of prior contracted volume. And finally, when looking at the geographical distribution, we continue to see strong growth in China and Korea. And in Q1, in particular, we expanded our relationships with key CROs, including Tigermed, CTI and others in the region.

As you know, total backlog is subject to timing of renewals and will fluctuate as a result of this. At the end of Q1, our total unadjusted subscription backlog was $1.079 billion, up 5% year-over-year, reflecting a very light renewal volume in Q1. For the remainder of 2019, our adjusted subscription backlog of $432 million is up 17% from the prior year. Together with our professional services guidance of $115 million, this provides coverage of 91.9% to the midpoint of our 2019 revenue guidance. And looking ahead, we expect for Q2 a sequential total revenue growth between 3% to 4%, and EBITDA margin expansion of more than 100 basis points.

And with that, let us open the call for your questions. Thank you.

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Questions and Answers

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Operator [1]

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(Operator Instructions) Your first question comes from the line of Sandy Draper from SunTrust.

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Alexander Yearley Draper, SunTrust Robinson Humphrey, Inc., Research Division - MD of Equity Research [2]

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First, just a quick financial question, Rouven, just to make sure I get it. The unbilled receivables going up, is that's what's tied to the 2 large contracts that got pushed out by one quarter in terms of re-signing?

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Rouven Bergmann, Medidata Solutions, Inc. - CFO [3]

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No. So let me clarify. Yes, so the -- happy to clarify this. So the DSOs for the billed receivables actually went down by 5 days to 68 days. For the unbilled receivables, they were up by 3 days sequentially. And that is due to what we've discussed on prior calls, where we are working through some consumption-based billing schedules with some of our largest CRO partners that are ramping. But I expect this, as we are turning towards the end of 2019 and 2020, to really flat out and decline, right? We're just working through the ramp of those contracts, but that's temporarily. The 2 changes in invoicing schedule that I referred to, that's what has impacted the calculated billings. So if I normalize for that shift in the quarter by 1 quarter, our billings are actually up 16% year-over-year.

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Alexander Yearley Draper, SunTrust Robinson Humphrey, Inc., Research Division - MD of Equity Research [4]

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Okay. Great. That's really helpful. And then maybe for Tarek or Glen. In terms of the Acorn, SHYFT, I would assume you're still looking at selling that or you will offer that independently, but how do you think about in terms of going to market for Acorn? Is this something that you're driving and pushing together or pushing this whole bundle package together for the clients? Are you letting the clients come to you? I'm just trying to understand how this is going to fit into the sales process versus just stand-alone SHYFT.

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Tarek A. Sherif, Medidata Solutions, Inc. - Co-Founder, Chairman & CEO [5]

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Sure, sure. So there's different constituents that we call on at our clients. So Rave, clearly, just to start there, it's the clinical data management, the ClinOps teams that are looking for those tools. But all the data and all the things that are part of Rave feed some of these things in Acorn and that exact same thing applies to SHYFT. So typically, if we're looking at STRATA, LUMEN, QUANTUM, we're calling on people who're sitting in the commercial departments of our clients. They are looking to get their CRM data, get real-world data into dashboards that they can use to prioritize how they go-to-market, et cetera. And you guys know the SHYFT products, but that data, just like the Rave data, is just as applicable to somebody who's trying to look at optimizing their portfolio both from the perspective of what they have as assets in development and what the market potential looks like.

So when we are out selling something related to Acorn, we are probably calling on a C suite member, who is probably not in that commercial department that's buying SHYFT as a direct customer today nor in that data management department today. It really is 3 different go-to-market motions, but all that stuff that's in the SHYFT portfolio is just as much part of that Medidata platform and part of what we are using in the Acorn offering as the stuff in Rave.

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Operator [6]

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Your next question comes from the line of Glen Santangelo from Guggenheim Securities.

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Glen Joseph Santangelo, Guggenheim Securities, LLC, Research Division - Analyst [7]

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Rouven, just wanted to follow-up with some comments you made about the renegotiation this quarter. I think you suggested that the contracts that you re-signed were 30% above par value? Is that just in this quarter? And then maybe the follow-up to that, for Glen is, what's really driving that incremental growth? Could you give us a sense for maybe what core Rave is sort of growing at today? And then maybe some of the other products that you mentioned, like CTMS, randomization, patient consent, what's really driving that incremental growth above par value?

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Rouven Bergmann, Medidata Solutions, Inc. - CFO [8]

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Yes. Great question, Glen. Thank you. I have -- I think there are some really bright spots to report this quarter. I mentioned one really important source of growth has been the add-on to Rave EDC. And just this quarter, if you look at RTSM, so randomization and supply management, imaging and ePRO, if you just look at this combined, we were up 35% in revenue year-over-year. And that's what is really behind the attached business where we are optimizing every bit that comes into -- on our table to see how much share of wallet we can gain and how broad we can get in driving revenue, bookings and backlog growth. And so that, of course, is a core driver as well as every time when we renew our business with our existing subscription contracts. And so that's what's behind the 30%. And the 30% that I talked about in terms of renewal rate uptick, that's a trailing 12 months number. Because we always go through some fluctuations quarter-by-quarter, so it's better to look at this on 12 months basis, but it's very healthy.

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Operator [9]

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Your next question from the line of Donald Hooker from KeyBanc.

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Donald Houghton Hooker, KeyBanc Capital Markets Inc., Research Division - VP and Equity Research Analyst [10]

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A question as you look at sort of the competitive landscape, do you see more interest from larger, potentially tech competitors coming into this space? Just kind of an update there. And also maybe an update on your previously announced expanded relationship with Cognizant? Is that helping bring new business in? Or is that going to take a little bit of time to develop?

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Tarek A. Sherif, Medidata Solutions, Inc. - Co-Founder, Chairman & CEO [11]

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So on the overall competitive landscape, we don't actually see more large tech competitors coming into the space. I think something that we've talked about over the years is that it requires a lot of deep vertical knowledge to be successful here. So I think some of the larger players have attempted to be successful here and there've been some pretty public failures. So we don't worry about that necessarily. I mean, we're always paranoid about everything. But it is -- I think it's such a specific area that generally you don't see anybody moving in a big way into the industry. And as it relates to Cognizant, that relationship is going very well. I mean, you have -- it's -- we're a few months into it, but I would say on both sides, there is a lot of activity, there is a lot of good feeling and we're feeling good about the impact it will have in 2019 and beyond.

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Operator [12]

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Your next question comes from the line of Brian Essex from Morgan Stanley.

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Brian Lee Essex, Morgan Stanley, Research Division - Equity Analyst [13]

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Maybe, Rouven, if I could follow-up on Glen's question. If we look at the contribution from Rave in some of the initiatives you have for expanding the platform, any way we can get some quantification for progress towards customers with more than 4 products, the density and subscription revenue per product? As we kind of assess how you're progressing with regard to attach rates and contribution from expansion in the suite.

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Rouven Bergmann, Medidata Solutions, Inc. - CFO [14]

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Yes, happy to do this, Brian. Just to start off with one of the core KPIs, we -- I just said that we have now almost 300 customers subscribing to 4 or more products, and that KPI is up by 40% year-over-year, so you see that we are making good progress driving adoption with our customers. And keep in mind, sometimes this can start small, but it's expanding over time. So we are landing and expanding, and that has always been part of our strategy.

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Operator [15]

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Your next question comes from the line of Sterling Auty from JP Morgan.

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Sterling Auty, JP Morgan Chase & Co, Research Division - Senior Analyst [16]

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Actually I had 2 questions, I'll put them both out there for you. It's the 2 questions that I'm getting asked most by investors, and you probably know what it's going to be. But given the news reports about Dassault looking at a potential acquisition of Medidata, what are your thoughts? Or is there anything that you can comment to that? Or even if it's just more generally what your thoughts are around remaining an independent company versus potentially entering into some sort of acquisition? And the second one is, you talk about Rave in the prepared remarks. Deva did announce a win at a top 20 pharmaceutical company. While I don't believe it's an existing Medidata customer, it is the first top 20 pharma customer that you guys have not won. Just any kind of talk to, is that a one-off situation that may had some special circumstances? Or maybe some commentary around the competitive landscape there.

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Tarek A. Sherif, Medidata Solutions, Inc. - Co-Founder, Chairman & CEO [17]

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Nice, Sterling. You really made an action-packed question here. So first off, let me address the rumor. So obviously, we're a public company. We don't address market rumors and we don't ever comment on them. But I think it's a good opportunity for me to reiterate sort of the guiding principle that we, as Medidata's management team, run the company by, which is that we're always driven by our mission and our vision. And we will do the right things for our patients, customers, shareholders as well as for our employees. And I think that -- if you take that into mind, that's I think the sort of the way you should think about how we view long-term value creation and everything we've done in this business over a very long period. It's been -- we're coming up on 20 years now.

As it relates to the competitive situation, it's kind of interesting. So first of all, I think if you want to understand the dynamics of the competitive situation, you will have to go to Deva to ask them the question because I can't comment on position -- market positioning that they put out there. I will tell you, we have not had anything happen in our customer base. We have not had a large customer defection, nor have we had one since we started this company. And I think you should probe around the question of what competitive means because usually when there is an RFP out there, like 100% of the time, we're involved in those RFPs. I can tell you, we were not involved in any RFP dealing with a top 20 customer, so you can draw your own conclusions from that.

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Operator [18]

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Your next question comes from the line of David Larsen from Leerink.

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David M. Larsen, SVB Leerink LLC, Research Division - MD, Healthcare Information Technology and Distribution [19]

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Can you talk a little bit about the unadjusted backlog growth rate? And your professional services revenue grew very nicely. I think that backlog growth rate was up about 5%, a little bit lower than what we had been looking for. That doesn't seem to be impacting your revenue growth rate, though, and are you still sort of expecting the high-teens revenue growth longer-term?

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Rouven Bergmann, Medidata Solutions, Inc. - CFO [20]

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Yes. So the longer-term outlook hasn't changed, so that remains intact. As it relates to the unadjusted backlog for 2019, so the data -- we always combine the intra-year renewals with our unadjusted backlog to look at our adjusted backlog because we assume that all the renewals that are up for renewal within a year will be renewed. And we are conservative in assuming that we do this at par value, and that has always helped us to give a good outlook for revenue generation in a year and how much we can cover in terms of our revenue goal that we are going to get after.

So that's the concept overall. So my -- I would recommend that you really look combined at our adjusted backlog with the unadjusted plus intra-year renewals. So for 2019, as of 3/31, the unadjusted backlog is at $410 million, plus the remaining intra-year renewals which is $22 million and that gets us to the $400 million and roughly $32 million, $33 million as an adjusted backlog, and that was what I was referencing to before.

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Operator [21]

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Your next question comes from the line of Jeff Garro from William Blair & Co.

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Jeffrey Robert Garro, William Blair & Company L.L.C., Research Division - Research Analyst [22]

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Speaking on competitive dynamics, I want to ask what were the deciding factors in that big med device win? And maybe any more comments you have generally on your win rate in the quarter?

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Tarek A. Sherif, Medidata Solutions, Inc. - Co-Founder, Chairman & CEO [23]

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So our win rate continued to be at the levels that we've seen coming into the back half of the year. So I think that focus that we talked about, some of the things we changed mid-year last year have both improved our win rates and kept them at high levels, and have improved our overall attach. And to an earlier comment that someone -- or question someone had asked, I think one of the other things that's influencing the improved attach rate that we're seeing is that, we finally got -- we've kind of broken through, from a functionality and a service wrapper perspective, around the products, the non-Rave products that we're selling into the market and so that's all contributing. It's better focus, better execution and having superior products in the marketplace.

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Glen M. de Vries, Medidata Solutions, Inc. - Co-Founder, President & Director [24]

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And I think that was actually an interesting illustration of why we think our strategy is successful in that competitive win. It's a 7 product deal. And it all started as all research does, with actually getting the scientific part done, helping create better devices for patients, but it was also 7 products that spanned across both the scientific and the business, the operational part of our platform. So of course, as you probably imagine, it was inclusive of Rave EDC, but it was inclusive of CTMS and TMS. And how the integration across the entire span of our platform could actually deliver value and that was a drawn out, very detailed competitive process with significant demonstrations of value along the way, so we're really happy with that outcome.

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Operator [25]

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Your next question comes from the line of David Windley from Jefferies.

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David Howard Windley, Jefferies LLC, Research Division - Equity Analyst [26]

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I was hoping to ask 2. On this renewal topic and increase to par, you've been through a period where you were, I think, optimistically -- or positively signing clients to longer duration contracts. Their commitment to you was extending from, I think, 3 to like 5-ish years. Is that still in cycle, in-flight? And if so how much is that contributing to the increase of contract renewal versus par? Second question is, Rouven, if you could explain a little bit more these consumption contracts with the larger CROs? And what about the contract prevents you from billing as the client is consuming? I would appreciate it.

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Rouven Bergmann, Medidata Solutions, Inc. - CFO [27]

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Yes. To your first question -- or maybe let's start with the CRO question first, because we touched that topic already. So what we are doing here is, our channel partners in many ways are sell-through to end sponsors. And as we are working with our customer -- our CRO partners really strategically together to help them standardize their operations on our predict portfolio and product sets, and they are adopting more and more of our platform, they are looking for ways to align their economics in terms of cash flow and billing terms and bill -- timing of billings with their end customers with the way we invoice our CRO partners. So essentially on an order-to-order level, whenever a CRO partner wins a trial with an end sponsor, we then trigger an invoice from our perspective. But upfront, it's important to understand that all those contracts with those CROs partners are upfront committed. But for example, they are committing to X million dollars over 2 or 3 years, and then they draw from this contract on a quarter-to-quarter basis as studies occur and as they provision studies. So we're just aligning those mechanics and so that results in some ramping of those contracts as it relates to the consumption of those contracts.

And then to your first question, that was the duration question. So yes, of course, we are focused on working with our customers around arrangements that gives them time to consume our platform and make them a long-term Medidata client. So our intent is always to drive a long-term relationship. And with that, there's a lot of incentive and good reasons to increase the contract duration. But when we talk about our increases in terms of our renewal rate, that's an annualized number. So that doesn't impact -- it's not impacted by any duration increase. We're comparing this apple-to-apple for 12-month period, so when I talk about a 30% uptick compared to renewals at par, we compare that to an annualized subscription number.

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Operator [28]

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Your next question comes from the line of Sean Wieland from Piper Jaffray.

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Sean William Wieland, Piper Jaffray Companies, Research Division - MD & Senior Research Analyst [29]

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So wanted to go back to Acorn AI a little bit and just get a better understanding of the size of the opportunity, maybe relative to what an EDC client would be spending? How is it priced? And also is risk-based monitoring part of this?

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Tarek A. Sherif, Medidata Solutions, Inc. - Co-Founder, Chairman & CEO [30]

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So let me take the first part of the question, which is, I don't want to throw numbers out there. What I would say is that the opportunity is very substantial. And if you look at the spend that pharma has on making things like robotics, digital and some of the new AI initiatives that they have and the amount of money they spend on data overall, I would say that it dwarfs the EDC market, but I'm not prepared to put an absolute number to it at this point.

We just see a lot of opportunity and we are seeing a lot of very, sort of, substantive interest from our customers in what we're doing. So the strategy at least at the earliest stages seems to be working very well and the message is resonating. Obviously, it's up to us to execute. And I think this industry is in its infancy. In some cases, it's not that we're -- in some cases we're helping to answer questions, in some cases we're helping our customers to formulate the questions. So it's early days, but it's very good momentum out of the gate.

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Glen M. de Vries, Medidata Solutions, Inc. - Co-Founder, President & Director [31]

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And just to answer your question on RBM specifically, similar to a previous answer, there's obviously a lot of demand for risk-based monitoring solutions in the customers who are consuming Rave, right? If you are ClinOps department, whether you're a CRO or you're a direct client, a sponsor, we have solutions for risk-based monitoring, which include a lot of transactional capabilities. How you actually manage the people doing all the work, as well as the risk planning, KPI benchmarking, machine learning to identify patterns that you can use to actually then change the way you're doing transactions. So that stuff sits as part of the Rave portfolio and, again, we're outselling in deals like the competitive one I was just talking about.

However, those are also capabilities that sit on the Medidata platform that are, in this case, hugely relevant to people in the intelligent trial space. They are looking sometimes at clinical operations, but more often at a much higher level at how they can streamline and speed up execution of clinical trials. Those operational KPIs and the benchmarks that we have across our industry dataset are incredibly relevant and part of what we're doing in the intelligent trials. The machine learning capabilities that we use to identify opportunities in a single trial are actually things that we extend into looking at opportunities across a portfolio of the trials that somebody might manage.

So it's another perfect example of where our investments -- our significant investments now over, as Tarek was saying, literally 2 decades have created assets that are great to some of our Rave constituents, but are 100% part of what we think makes Acorn such a, kind of, ahead of the curve opportunity for us. And so you will see that RBM style data and the kinds of technologies and analytics that are part of it as part of some of these Acorn offerings as well.

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Tarek A. Sherif, Medidata Solutions, Inc. - Co-Founder, Chairman & CEO [32]

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I want to add one thing to what Glen said, which is -- because we got the question earlier about competition and large companies coming into the space, et cetera, and there's always a lot of noise. Obviously, when there is a lot of noise about competition, it's because it's an interesting market. There was a good end market there. I think the important thing to take away from what Glen was saying from the perspective of our core franchise is, it's just another reason for people to continue to work with Medidata or ultimately move to Medidata. Because all the benefits that you get, or the vast majority of the benefits that you can get from Acorn and, certainly, the ones you would get long-term, come from being on our infrastructure in the first place, from using Rave and from using our various other solutions. And so I think we're creating sort of this virtuous cycle that is going to create a lot of value for our customers, a lot of value for us, but it also means that we are building up that competitive moat more and more.

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Operator [33]

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Your next question comes from the line of Gene Mannheimer from Dougherty.

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Eugene Mark Mannheimer, Dougherty & Company LLC, Research Division - Senior Research Analyst of Healthcare [34]

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Congrats on a good quarter. I had a question on the remaining subscription backlog coverage. Rouven, you said it's about 92% or so. I just want to know how that compares to this time last year? And what percent of that backlog is the SHYFT business? And finally, is there anything unique about SHYFT's backlog? Does it convert to revenue any faster or slower than your traditional business?

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Rouven Bergmann, Medidata Solutions, Inc. - CFO [35]

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Yes. Thanks, Gene, for the question. So just let me quickly go through the numbers again, and then I'll address SHYFT. So our adjusted subscription backlog for the remainder of 2019 is at $432 million and that is up 17% year-over-year. And that together with professional services, guidance of $115 million, this together provides coverage of 91.9% to the midpoint, which is the $740 million of our 2019 total revenue guidance. So when that compares to last -- if I look back now to 2018, it actually is in line with our actual performance of last year when we consider where we ended last year and how the composition of revenue was. And so it's well in line with where we were last year, and it's actually -- I compare it to the guidance of last year. So when we planned last year and set our guidance, we actually are ahead of where we were last year at this time.

And as it relates to SHYFT, that is pretty similar to the way we recognize the core Medidata revenue and the cycles of backlog and the revenue recognition of backlog. There is no real difference. There is a little more services revenue attached to that, but I think we discussed that. So when we talk about total revenue, there's only -- there's less ending in the subscription backlog number from a percent of total revenue, as you would expect it on the Medidata business where we only have about 15% of total revenue, which is services revenue.

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Operator [36]

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There are no further questions at this time. Mr. Sherif, I turn the call back over to you for closing remarks.

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Tarek A. Sherif, Medidata Solutions, Inc. - Co-Founder, Chairman & CEO [37]

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Thanks very much, and thanks to all of you for joining us on today's call. As we're a couple of ways -- a couple of months away from celebrating our 20th anniversary as a company and our 10th as a public company, believe it or not, I just want to reflect back on what Glen closed with earlier, which is our mission is, ultimately, to impact patient lives. And I can say with certainty that we're all very proud that we're fulfilling that now more than ever before both in terms of what we've been doing with the industry to date and with the launch of Acorn AI. So stay tuned. It's going to be an exciting next 10 years for us. With that, thanks very much.

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Operator [38]

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Thank you. This concludes today's conference call. You may now disconnect.