Livongo Health Inc (LVGO) Q4 2019 Earnings Call Transcript

Livongo Health Inc (LVGO)
Q4 2019 Earnings Call
Mar 02, 2020, 4:30 p.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants

Prepared Remarks:

Operator

Ladies and gentlemen, thank you for standing by, and welcome to the Livongo Health fourth-quarter 2019 earnings conference call and webcast. [Operator instructions] Please be advised that today's conference is being recorded. [Operator instructions] I would now like to hand the conference over to your speaker today, Alex Hughes, vice president of investor relations. Thank you.

Please go ahead, sir.

Alex Hughes -- Vice President of Investor Relations

Thanks, Gigi. Thank you for joining us this afternoon on our fourth-quarter and year-end 2019 earnings call. This call is being broadcast live over the web and can be accessed until we hold our next quarter's earnings call in the Investor Relations section of our Livongo's website, www.livongo.com. Joining me today to discuss our results are Zane Burke, our chief executive officer; Dr.

Jennifer Schneider, our president; Lee Shapiro, our chief financial officer; and Glen Tullman, our founder and executive chairman. Our prepared remarks will be followed by a Q&A session. We would like to remind you that during the course of this call, Livongo's management team will make projections and other forward-looking statements regarding future events or our future financial performance. We wish to caution you that such statements are simply predictions based on internal assumptions, and actual events may differ materially.

We refer you to the documents that we file from time to time with the Securities and Exchange Commission, specifically our most recent filing on Form 10-Q and our upcoming filing on Form 10-K. These documents identify important factors that could cause actual results to differ materially from those contained in our projections or forward-looking statements. In addition, to assist with the financial portion of this earnings call, you will find supplemental slides on our investor relations site. I also want to inform our listeners that management will make some reference to non-GAAP financial measures during the call.

You will find supplemental data in our press release, which includes reconciliations of the non-GAAP measures to the GAAP comparable results. Finally, we have adopted a new revenue standard, ASC 606, using the modified retrospective transition method effective December 31, 2019. In the script, we will report our 2019 financial performance under the old revenue standard ASC 605, and we'll offer our financial outlook for 2020 under the new method, ASC 606. We have provided a reconciliation of the two standards in the slide deck on our investor relations site, as well as attached to our fourth-quarter and full-year earnings press release.

With that, I would now like to turn the call over to our chief executive officer, Zane Burke.

Zane Burke -- Chief Executive Officer

Thanks, Alex, and thank you, everyone, for joining us this afternoon. We finished 2019 with excellent momentum and entered 2020 well-positioned to pursue our mission of empowering people with chronic conditions to live better and healthier lives. Before I turn the call over to Dr. Schneider to discuss the progress we are making with our whole person platform and to lead to review our financials and 2020 outlook, let me highlight our momentum in this very large market opportunity.

We continue to experience very strong financial growth, exceeding across all our guidance metrics for the quarter and year. Revenue increased 137% year over year in the fourth quarter and by 148% for the full year. We grew Livongo for Diabetes members by 96% for the year, adding 109,000 members and finishing the year with 222,700 members. And we continue to drive greater leverage in the business, which Lee will talk about more in a minute.

We also continued to experience robust new client signings. We had a record Q4 EVA of $76.7 million and finished the year with 804 clients. Perhaps the most important statistic of all, we have experienced a record number of client launches so far in the first quarter with 424 already launched, compared to 231 launches in all of Q1 last year. This is a significant statistic for us because early launches in a monthly recurring revenue business gives us more months of revenue in the year.

We are also seeing great adoption of both our core diabetes offering as well as our other offerings. In addition to accelerating the adoption of Livongo for Diabetes in the self-insured market, where we now reach over 30% of the Fortune 500 companies, we are successfully extending into fully insured and government markets. This was evidenced in 2019 by our agreements with Blue Cross Blue Shield of Kansas City and the Federal Employee Program, as well as by the New Jersey State and school employees health plan. At the same time, our newer offerings are gaining traction.

We finished the year with over 48,000 members for our other offerings in hypertension and pre-diabetes weight management. Specifically in Livongo for Hypertension, we increased the number of potential recruitable members on our platform by 370%, evidence that we believe indicates that our whole person strategy is working. Finally, we expanded our strategic agreements with key channel partners to drive continued sales velocity across multiple conditions. Both CVS and Express Scripts now include our solutions for hypertension and pre-diabetes weight management, in addition to diabetes, positioning us better to serve their health plan and self-insured employer clients.

At Express Scripts, Livongo is the only preferred provider for its digital health formulary, a formulary where Express Scripts is taking risk which speaks to the financial ROI we drive. Livongo also received preferred status within Express Scripts' new Health Connect 360 solution, which is the industry's first outcomes-based model that centers on engaging people in their care. Our progress on all these fronts gives us confidence in our 2020 plan. Moreover, with more than 147 million Americans living with a chronic condition and 40% living with more than one, we have plenty of room to grow our addressable market.

Our strategy is to deliver a whole person platform that addresses multiple conditions in one integrated platform that is powered by our AI+AI data engine to achieve personalized outcomes. Through our proprietary engine, we are processing more than two transactions per second. This demonstrates both our scale and our advantage in being able to use personalization and information to drive the business and further inform our platform. Dr.

Schneider will talk more about this in a minute. As we fulfill our mission, we know we are not only changing lives but building a great business, as evidenced by a 94% retention rate for clients who have been with us for at least one year at the end of 2019 and our rapidly improving margins. This performance speaks to the strong unit economics of our business. In 2020, we plan to further invest in the business to capture more of the market, including sales and marketing and research and development.

These investments include new markets, such as government and labor, as well as new solutions, which we will announce at a later date. With that, I'll turn the call over to Jenny.

Jennifer Schneider -- President

Thank you, Zane. Good afternoon, everyone. We believe Livongo's whole person platform powered by our AI+AI engine positions us uniquely in the market. We are able to serve members better with our data advantage and do so in an integrated experience on one platform.

This is also an advantage for clients because they don't want to manage multiple vendors in silos across their enterprise. As Zane mentioned, powering our whole person platform is the data that members and clients permit us to gather both from the devices they use, such as the Livongo Meter; and from medical and pharmacy claims; social determinants of health; lab data; or the Apple HealthKit. Our AI+AI data engine gathers all of this data and turns it into valuable health signals that enable us to deliver highly personalized and actual information unique to each member. This data is helping us drive member recruitment, where we see 10 times the rate of what telehealth providers are able to achieve in the self-insured market.

Member activation, where we have shown over 45% of our members, are benefiting from personalized insights. We call them nudging to help drive behavior change and member retention, where we are able to continuously personalize our platform for each unique member, keeping them engaged and active. We are adding to this advantage by continuing to partner with leaders throughout the value chain to augment their data flow and inform our data engine further. We recently announced our partnership with leading CDM maker, Dexcom, where we will, at the request of our members, stream data from their Dexcom G6 to our data engine to better inform Livongo's full 24/7 member support.

This is just the first step in what we see as an expanding relationship with more data, better insights through our AI+AI engine and strong support. We have also partnered with Higi in the retail health channel which has a nationwide network of health stations. Consumers will be able to utilize Higi's smart health station to measure vital health information, better understand the risks of common product conditions and determine if they are eligible for Livongo's chronic condition management solution. Higi allows us to meet members where the members are.

As we continue to build out our whole person platform, we remain committed to our three critical pillars of success: one, producing a consumer experience that our members love; two, driving real and scalable clinical outcomes; and three, demonstrating a financial return on investment for clients. We think of all three of these as connected so that when members love our platform, they use it often. When they use it often, they achieve better clinical outcomes. And when they achieve better clinical outcomes, we can demonstrate a financial return on investment for our clients.

We enter 2020 having made great progress in each of these areas. In the area of member experience, we achieved a 2019 Net Promoter Score of positive 64, on par with some of the best in technology and significantly higher than what is typically seen in healthcare. We also continue to round out our whole person platform with additional capabilities. In addition to integrating behavioral health into the Livongo platform, we have partnered with telehealth providers, MDLIVE and Doctors on Demand, so members can address medication changes, acute care or behavioral health needs with a medical professional through our platform, if they choose.

In the area of delivering clinical outcomes, we continue to demonstrate strong results. Ending 2019, we published 34 abstracts and peer-reviewed articles to date across our various chronic condition programs and have 16 papers and abstracts in the pipeline. During the fourth quarter, we issued a study of findings at the American Heart Association scientific session that showed members using the Livongo for Hypertension solution and the Livongo for Diabetes solution, and our integrated platform saw a clinically significant blood pressure reduction after only four weeks and experienced further improvements after using the program for 12 weeks. This study shows that by providing people with connected technologies, insights, access to coaching and the ability to manage their conditions outside of the four walls of the doctor's office, we can drive sustained outcomes, but even more impressive is that we can document outcomes through our integrated platform across conditions.

At Livongo, we have one of the largest blood pressure data sets in consumer digital health industry, and this study demonstrates our results at scale. And finally, we continue to demonstrate real financial return on investment for clients. For the past three years, we have completed numerous ROI studies for certain participating diabetes clients, where 99% of the studies conducted for clients on our platform after year one demonstrated a positive financial ROI, and 100% of studies for clients after years two and year three demonstrated positive financial ROI. This gives us tremendous confidence in the value we are delivering to both members and clients.

With that, I'll turn it over to Lee.

Lee Shapiro -- Chief Financial Officer

Thank you, Dr. Schneider, and good afternoon, everyone. I am so very proud of the team at Livongo Health and what we've achieved in our short history. To provide some context, our compounded annual growth rate for revenue since 2017 is 135%.

This is a testament to our recurring revenue model and we believe places us among the fastest-growing SaaS companies. Compounded member growth in our diabetes offering alone over that same period was 103%, and we've been expanding our client wallet share with 14% of our clients having more than one Livongo offering at the end of 2019, compared to 4% at the end of 2018. Moreover, 35% of our estimated fourth-quarter estimated value of agreements, or EVA, came from solutions other than our flagship Livongo for Diabetes. We believe this accelerating product density is evidence that our whole person platform, powered by our AI+AI engine, is gaining broader acceptance, and we continue to demonstrate solid operating leverage in our business.

Turning to revenue for the fourth quarter and the full year, we had very strong results. I will be referencing our 2019 financial results under ASC 605. Revenue for the fourth quarter increased 137% year over year from $21.2 million to $50.2 million. For the full year, revenue was $169.9 million, an increase of 148% over $68.4 million in 2018.

This strong performance was primarily driven by growth in our core Livongo for Diabetes solution and with meaningful contributions to revenues from our hypertension, weight management and behavioral health offerings. For the year, our enrollment rate in Livongo for Diabetes was up slightly across the base to 35%, a reflection of the many new clients we started in the year. Average monthly member attrition remains between 2% and 3%. On the flip side, this means that retention is quite high.

Most member departures continue to be due to members losing eligibility, which primarily occurs when a member leaves their current employer. Livongo for Diabetes members increased 96% year over year to 222,700. This was an increase of 109,000 members from the fourth quarter of 2018. Strength from our other conditions, as Zane noted, was evident with over 48,000 members enrolled at year end in either Livongo for Hypertension, Pre-diabetes and/or Weight Management.

Note that some members may have more than one solution, and we grew enrollments in behavioral health from approximately 200,000 in 2018 to approximately 300,000 in 2019. Estimated value of agreements, or EVA, in the fourth quarter was $76.7 million, compared to $56.1 million in the fourth quarter of last year. For the full year, EVA was $285 million, up 84% year over year, and we feel great about our sales pipeline entering 2020 with a number of very significant agreements in the queue. I also feel confident reaffirming our commitment to profitability in 2021 on an adjusted EBITDA basis.

Simply stated, this business continues to perform ahead of my expectations. Turning to gross margins, we continue to benefit from better economies of scale and use of technology to serve our members as exemplified by leverage of our AI+AI engine in recruitment, retention and use of digital coaching. And we have started to defer costs for our hypertension, blood pressure cuffs and weight scales, which includes a onetime adjustment in the fourth quarter that positively impacted the quarter's results and which will be amortized in future period. Even excluding that adjustment, we would have had an improvement in our gross margin as compared to the third quarter of 2019.

Gross margin in the fourth quarter was 78.2% on a GAAP basis and 79.2% on a non-GAAP basis as we continued to gain leverage in our coaching model and experienced higher incremental margins from members who continue to stay on our platform. Over 3 points of this improvement came from the adjustment I previously noted of approximately $1.9 million. For the full year, gross margin was 72.8% on a GAAP basis, up 2.4 points from 2018 and 73.8% on a non-GAAP basis, up 2.9 points over the same period. The amortization of our device costs for the full year was approximately $1.7 million.

As we look to 2020, we expect gross margin to be in line with the full-year gross margins we achieved in 2019. Turning now to operating margins, for the fourth quarter, operating margin was minus 15.3% on a GAAP basis but a positive 1.2% on a non-GAAP basis, compared to negative 61.9% on a GAAP basis and minus 50.1% on a non-GAAP basis, respectively, in the same period last year. The improved operating margins resulted from higher gross margins achieved, as I've said earlier; synergies from the retrofit and myStrength acquisitions; and capitalization of internally developed software and also of a portion of sales commissions, all of which will be amortized to future periods. The onetime adjustment in Q4 for the sales commissions was approximately $1.2 million, which positively impacted the quarter's results.

And for the full year, the impact was approximately $1.7 million for this item. For the full year, operating margins were minus 35.3% on a GAAP basis and minus 13.5% on a non-GAAP basis, compared to minus 51.1% and minus 42.3% on a non-GAAP basis, respectively, last year. In the fourth quarter, we experienced a net loss on a GAAP basis of $6 million or minus $0.06 per diluted share while attaining net income of $2.3 million on a non-GAAP basis or $0.02 per diluted share. For the full year, net loss was $54.9 million on a GAAP basis or minus $1.08 per diluted share and $19.2 million negative on a non-GAAP basis or minus $0.38 per diluted share.

We finished the year with approximately 94.5 million diluted shares outstanding. Adjusted EBITDA for the fourth quarter was $1.6 million, compared to a loss of $10.2 million in the same period last year, which reflects the improvements I've been discussing that we've made in our business. It also reflects the deferral of device cost for blood pressure cuffs and weight scales and capitalization of a portion of our sales commission, those being the aforesaid onetime adjustments. For the full year, adjusted EBITDA was negative $19.6 million, compared to negative $27.7 million in 2018.

I want to stress that even after adjusting for the accounting-related items outlined earlier, we have been able to drive meaningful margin improvements throughout this year as we have scaled the business. We expect to drive further margin improvements in 2020, along with rapid revenue growth and invest -- continue to invest in the business, as Zane noted earlier, in light of the massive market opportunity in front of us. Turning to the balance sheet, we finished the fourth quarter with approximately $392 million in cash, cash equivalents and short-term investments. Let me spend a minute giving you an update on our lockup.

In December, we conducted a secondary offering that resulted in the orderly sale of 2.8 million shares ahead of the IPO lockup release and also resulted in the extending the lockup of a number of our largest shareholders into March. After the secondary, effectively 32 million shares came off the IPO lockup on January 21, and another 45 million shares will come off on March 11. Please note that our largest holders are very supportive of the company and has been previously disclosed were buyers in the IPO. As it relates to members of our executive leadership team, we expect a small percentage of holdings to come to market for personal or tax reasons through standard 10b5-1 plans.

We do limit annual sales by our executive leadership team. With that, let me turn to providing our full-year and first-quarter outlook for 2020. I'd first like to offer some context. As a reminder, Livongo's business model is highly predictable based on a per-participant, per-month subscription.

We bill clients on a monthly basis only for each participant for which they are obligated to pay. At the signing of a client contract, it becomes recorded in EVA. Thereafter, we launch member recruiting with the support of our client and enroll members continuously thereafter. This is when we begin to generate revenue.

Please remember that EVA is recorded at the time of the client signing and only includes new signings in the quarter or existing client expansions. It does not include renewals. Finally, on a more administrative note, our outlook reflects the new revenue recognition accounting standard, ASC 606. You can find a reconciliation of ASC 605 and ASC 606 for both 2019 and our 2020 outlook in our slide deck on our investor relations website.

Overall, the impact is insignificant to revenue and expense. Turning now to outlook. Of the $76.7 million in fourth-quarter EVA, we expect approximately 50% to convert to revenue in 2020. In addition, we feel very good about our sales pipeline and have a number of significant agreements in their final stages.

For 2020, we expect revenue in the range of $280 million to $290 million, representing growth of 65% to 71% over 2019. We have visibility to approximately 90% of such guidance due to Livongo's recurring subscription revenue model. There are a few businesses that I have experienced that can grow at this rate and have this level of predictability. Adjusted EBITDA loss for 2020 will be in the range of negative $22 million to negative $20 million.

This implies adjusted EBITDA margins of negative 8% to negative 7% or an improvement of between 3.5 to 4.5 points over 2019. We plan to continue to invest in the business in 2020 while simultaneously marching toward our goal of sustained adjusted EBITDA profitability in 2021. These investments will manifest themselves as expensive, more so in the second half of 2020 than in the first half. For the first quarter of 2020, revenue is expected to be in the range of $60 million to $62 million, representing growth of 90% to 93% year over year.

Adjusted EBITDA loss is expected to be in the range of minus $5.5 million to minus $4.5 million. This implies first-quarter adjusted EBITDA margins in the range of minus 9% to minus 7%. With that, I am going to turn it over to the operator to take your questions. Operator?

Questions & Answers:

Operator

[Operator instructions] Our first question comes from the line of Richard Close from Canaccord Genuity. Your line is now open.

Richard Close -- Canaccord Genuity -- Analyst

Great. Thanks. Congratulations on finishing the year off strong. Zane, I was wondering if you could maybe go into a little bit more detail.

You highlighted government and labor obviously had some success in some health plans and then New Jersey, which you called out. Can you talk a little bit about those markets, government and labor, maybe the opportunities, composition of the pipeline or magnitude in the pipeline? And then also talk about health plans.

Zane Burke -- Chief Executive Officer

Thanks, Richard, for your question. And so, obviously, we made some great progress in the government space last year with our FEP agreement with our state of New Jersey agreement, and we see continued pipeline build in that space, both at the state level and at the federal and quasi-federal areas. And so we've continued to invest in the sales and marketing for that area. As we continue to ramp up, there are a number of significant opportunities in both those areas, both state and federal.

And then longer term, we can think about outside the U.S. But right now, we're seeing that kind of an outsize growth in pipeline in that space, and we're going to continue to invest in that area as we move forward.

Richard Close -- Canaccord Genuity -- Analyst

And then health plans, can you talk about your efforts there?

Zane Burke -- Chief Executive Officer

Thanks, Richard, for the second part of that question. So on the health plan side, we added nine health plans in the -- last year and -- which is significant. Overall, we had a number of additions on the fully insured side and so some really, really good progress on that, in addition to really working with our current partners on how do we expand into the whole person or the other solutions that we have and really making traction in that space. So -- and remember, as a reminder, when we start, typically we start with the ASO or self-insured side of the business, and they sell back into their clients, and then we make a progression where we move more into the fully insured side of the business.

And we're really the only ones that can do that because of the ROI piece that we have, and that's what's evidenced as those fully insured health plans as well as what you're seeing with our a couple of our large partners in ESI and CVS.

Richard Close -- Canaccord Genuity -- Analyst

OK. And, Lee, a follow-up would be on the EVA. Can you talk a little bit about the cadence on a quarterly basis with EVA that -- sequentially, it declined from the third quarter. You did say you had record level in the fourth quarter.

But just talk about how it progresses quarter to quarter and maybe that step-down isn't negative necessarily.

Lee Shapiro -- Chief Financial Officer

No. It's down slightly quarter over quarter, similar to what occurred in 2018. But frankly, we feel really great about having $285 million in EVA for the year. Great growth year over year from 2019 over 2018 and also feel great about the pipeline going into the year.

Zane, do you want to add something, please?

Zane Burke -- Chief Executive Officer

Yes. I would just say, Richard, all the leading indicators we have for our sales pipeline, the number of opportunities we have, both in terms of numbers and sizes, are all at the top of our expectations as we move forward. So we're feeling really good about 2020 and really the confidence we have in our ability to deliver on our guidance.

Lee Shapiro -- Chief Financial Officer

OK. Great. Thanks. I will jump in the queue.

Operator

Thank you. Our next question comes from the line of Robert Jones from Goldman Sachs. Your line is now open.

Robert Jones -- Goldman Sachs -- Analyst

Hi. Great. Thanks for the questions. I guess I wanted to go back to the visibility into 2020.

I know you guys were saying 50% of the EVA from this quarter is expected to convert in the next 12 months. You had shared 40% from the 3Q EVA expected to convert. I guess, really, the essence of the question -- and, Lee, I think at the end of your comments, you might have made a reference to 90% visibility. I guess if we think about the guidance you just gave for 2020, how much of it is dependent on winning and converting revenue in 2020 versus kind of what you're sitting on today from where EVA stands?

Lee Shapiro -- Chief Financial Officer

So thank you for the question. And when you think about this visibility, because of our subscription-based recurring revenue model, we have tremendous visibility. This 90% number gives us great confidence in terms of where we are. And as shown in the slides that we have submitted in our investor relations site, as well as I think attached to the press release, it shows that based on our run rate exiting last year and then the amount that we see converting from Q3 and Q4, there's frankly great visibility to that, plus what we already view as being in place for Q1 of this year.

Recognize that what we sell later in the year provides very little lift to 2020. Many of the clients that we'll sell in Q3 and Q4 will start to convert in 2021, and so we've done a tremendous amount of work to set up the year already. And this also has a lot to do with the net dollar-based expansion rate of our clients because we're continuing to find ways to enroll more members in our diabetes solution, and that gives us the opportunity to continue to expand revenue.

Zane Burke -- Chief Executive Officer

And if I may just add one other part. The really key to the confidence we have is really that we've already launched over 400 clients quarter to date, and all of last Q1 and 2019 was 231. So it just gives you the flavor of how much visibility we have and ramp of that as we move forward.

Robert Jones -- Goldman Sachs -- Analyst

Understood. No, that's helpful. I guess just a quick follow-up because we've been getting these questions. I'm sure others have as well.

Anything we should be concerned or thinking about around the coronavirus impact on potentially supplies of strips, cuffs or devices?

Zane Burke -- Chief Executive Officer

No. We have a varied supply chain across the world, and we're prepared -- you may see in our balance sheet, overall, we had invested in inventory at the end of the year. And frankly, that was more of a hedge against the trade challenges that may -- that some of those that may be disrupted there. But we don't have -- we don't expect any challenges around that, and we've got quite a nice stock to prepare for both our large number of launches, as well as protect against any kind of issues from a trade perspective.

Robert Jones -- Goldman Sachs -- Analyst

OK, great. Thanks.

Operator

Thank you. Our next question comes from the line of Sean Wieland from Piper Sandler. Your line is now open.

Sean Wieland -- Piper Sandler -- Analyst

Hi. Thanks very much. So on the Dexcom partnership, could you maybe share what kind of assumptions you have on utilization there and how many CGM users you have in total on the platform now? And also, just help us better understand, for a CGM user, how that better informs. Or does that better inform the algorithm and improve the value proposition?

Jennifer Schneider -- President

Sean, this is Jenny. Thanks for the question. So again, we're really excited to be partnering with the leading CGM provider, Dexcom. We believe that, in conjunction with what we offer, it really allows us to get more data points in so we can drive an incredible member experience.

So we have a consistent stream of blood glucose data for those members who opt in to share that data, and that allows our AI+AI engine to deliver continuous ongoing insights on top of the collection of data that Dexcom is able to provide. We're really excited. You'll hear some future announcements as we continue to invest and to grow in this partnership. Today, our baseline of CGM users reflects the general population of CGM users, and that is -- it's reflective of both people type one and with people type two.

Sean Wieland -- Piper Sandler -- Analyst

OK. Thanks for that. And of the growth that you're talking about in new business, what percent of this is coming in versus direct versus channel relationships?

Lee Shapiro -- Chief Financial Officer

So when we sell, Sean, it really is all direct. We have some wonderful partnerships. But frankly, we have to get out. We have to close the business.

We work with those clients. We enroll their members, and so it is somewhat challenging to go ahead and distinguish it. We use them as a contracting vehicle. It eases the path, but we do a lot of the work.

And I don't want to, by any means, suggest that they aren't important to us. They're great partnerships, but we still do a lot of that work directly.

Sean Wieland -- Piper Sandler -- Analyst

OK. Thank you. And then just one more quick one. So the 424 launches that you mentioned year to date, how does that compare to last quarter? You said that there was 150 scheduled launches.

Is that an apples and oranges? How do I compare those two numbers?

Zane Burke -- Chief Executive Officer

It just gives you a sense of the ramp rate that we had from Q4 as we looked at Q1, the significant acceleration in those launches. And really, where we look at is quarter over quarter, you look at that 400 plus versus the 231 in the Q1 of 2019. So we think about it in the sense of that quarter-over-quarter growth. And we're obviously only in two months into the quarter, so we'll have additional launches as we move through the rest of this quarter.

Sean Wieland -- Piper Sandler -- Analyst

OK. Thanks very much.

Operator

Thank you. Our next question comes from the line of Ricky Goldwasser from Morgan Stanley. Your line is now open.

Ricky Goldwasser -- Morgan Stanley -- Analyst

Yes. Hi. Good afternoon, and congrats on a good quarter. So first, I wanted just to get to better understand the density -- of the client density.

Obviously, you were seeing some nice ramp, and clients are buying more than one offering. Can you just give us a little bit more color on what type of customer -- where that type of sale resonates? Is this a function of the fact that you're starting to see increased penetration of Fortune 500? Or are we seeing it also with the health plan business?

Zane Burke -- Chief Executive Officer

This is Zane. Thanks for the question, Ricky. It's actually across our business. So when you look at it, you start for that Fortune 500 piece, and we are disclosing here that we've moved from 20% of the Fortune 500 into 30% of the Fortune 500.

So the growth in 2019 in that Fortune 500 was very significant for Livongo. We are seeing where those additional solutions are being picked up, first, in the commercial side. And so those clients that have been with us the longest, and that marketplace is where the growth is, but then we also added to our significant partnerships to ESI and CVS, where we added our additional solution sets. And that piece won't really kick in until 2020 because you go through a -- they go through their account planning and selling seasons, and so you don't really see that affect our EVA until this upcoming next year.

I think what's really encouraging for me is the new business side and our new footprints. More and more of our new footprints are having the -- are having more than just diabetes management. And so as evidenced by the 35% of our bookings coming from outside of -- the EVA coming from outside of diabetes management is proof that our whole person model is working in that regard. And so we've continued to drive at that side.

And as you think about -- just one more thing around the ESI side. Being the only preferred supplier on the formulary, again that hasn't kicked in at this point. That will hit us in 2020. So those are big net positives for 2020 as you look forward.

And if that -- if the history holds true in terms of being the preferred on the formulary, we should expect an outsize share of the solution on -- or the solutions that we have under contract, which is basically everything. So I'm really excited about how we're seeing it across our entire client base. The health system side -- the health plan side is beginning to buy increasingly on those other solutions as well, but it's a little bit behind where the commercial and the partner side is at this point.

Ricky Goldwasser -- Morgan Stanley -- Analyst

OK. And when we think about that ESI just kind of opportunity kicking in, in 2020, should we think about that as upside to 2021 revenues? Or can we see that benefiting revenues already in 2020 but not including your EVA?

Zane Burke -- Chief Executive Officer

Yes. Most of that will be 2021 because they'll go through the account planning season. They'll do the buying, which typically will happen in the Q3 and Q4 of next year, and then that's typically to benefit 2021. So it gives us -- I love this business because it truly has a very visible future, both from what we do from an enrollment perspective and from a bookings perspective.

And so it's really all the work that you do shows up in periods looking forward, and we're able to -- because we have such a predictable model, it allows us to look forward and invest in the future pieces. And this is one of those evidences of those -- the investments we made in 2019 will actually benefit us in 2021.

Ricky Goldwasser -- Morgan Stanley -- Analyst

And when we think about the gross margin, I mean, obviously, you exceeded our expectations meaningfully. There are some moving pieces in that gross margin figure. Can you give us a sense of what gross margins would have been, excluding these onetimers, and how it compares to your long-term goals? And given what you're seeing now, are you looking at it kind of upping the guidance for long-term profitability?

Lee Shapiro -- Chief Financial Officer

So thank you for the question. We expect that our margins will be in the same range that we spoke to previously in our long-term operating model in kind of that low to kind of 72%, 73% range, and that would be consistent with what we achieved in 2019 from a gross margin standpoint. The gross margin in the fourth quarter, being as high as it was on a GAAP basis, around 78.2%, as I mentioned, benefited from some onetime adjustments. About 3 points of that margin came from those adjustments of $1.9 million, but we would have been somewhere in the range of 73%, 74% without it.

Ricky Goldwasser -- Morgan Stanley -- Analyst

OK. Thank you.

Operator

Thank you. Our next question comes from the line of Anne Samuel from JP Morgan. Your line is now open.

Anne Samuel -- J.P. Morgan -- Analyst

Hi guys. Thanks for taking the question. I was maybe hoping to piggyback on Ricky's question on the margins. I believe you spoke to some investments more back-half weighted.

I was just hoping to -- maybe you could explain a little bit about what's driving the seasonality. And will that carry into the first half of 2021?

Lee Shapiro -- Chief Financial Officer

So the investments that we're making are in people, for the most part, we're going to be hiring additional sales and marketing folks to help drive our expansion into new markets. In addition, we'll be hiring individuals on our R&D team, as well as data scientists. And so those costs -- we're in the process of hiring now. You won't see kind of the full impact of those salaries into later quarters, and so that's why it will manifest more later in this year, and that will become part of our run rate in terms of some of those areas as we go into 2021.

The great thing is, is that revenue is going to accelerate much faster than those expenses, and so we will see operating margin improvement throughout the year, and that will continue in 2021. Profitability is still what we've said is adjusted EBITDA profitable on a sustained basis for 2021.

Anne Samuel -- J.P. Morgan -- Analyst

Very helpful. Thanks, guys.

Operator

Thank you. Our next question comes from the line of Scott Berg from Needham. Your line is now open.

Scott Berg -- Needham and Company -- Analyst

Hi, everyone. Congrats on a great quarter. I have one and a follow-up. I guess on the first one, I don't know if Zane or Jennifer wants to take this.

But the platform, the AI+AI platform has obviously grown a lot in terms of the amount of data that you've been able to bring on board the last two years given the growth of the company. But as you look at the information or the nudges that come out of that today, can you help us understand maybe how that's changed over the last two years outside of just more data, maybe more individual nudges? But is the type of information coming out of different at all?

Jennifer Schneider -- President

Yes. It's a great question. Thanks, Scott. So just to recap, the amount of data that we're ingesting that was shared earlier in the earnings report, about two transactions per second.

So we're up over 500 million data points that are ingested into our AI+AI engine. The output, the nudges, etc., consists of two things. They consist of information regarding the person's health status and a series of words that allow them to change their behavior. So we built the nudge system on a reinforcement learning platform, whereby every time a member interacts with us, they're getting a message directly back to our two-way cellular connectivity.

And we can quickly understand whether or not the member takes the action and then adjusts both the words and/or the recommendations. So it's on an ongoing process. And so our ability to demonstrate and document behavior change, and we've done some publications there, as well as to continue to drive clinical outcomes and cost savings, is truly a result of our AI+AI platform.

Scott Berg -- Needham and Company -- Analyst

Got it. Helpful. And then for my follow-up, we -- when you have members that work with some of the CGM monitors we will take the Dexcom partnership here is, do those members or the revenues from those members, are they more profitable? Or do they differ at all from a traditional member today? And I ask the question given that probably from the supply side, they're using less supplies. Didn't know if that needle moves significantly as maybe some of those members shift to those devices over time.

Thank you.

Lee Shapiro -- Chief Financial Officer

Let me start, and I'll ask Dr. Schneider to comment. Today, there is no difference. Those members who happen to have a continuous glucose monitor also receive a device from us, and they're using our device, as well as their continuous glucose monitor.

In many cases, they're sharing their CGM data with us. but we don't see a difference in profitability today. Longer term, I think that, that is something that we'll see as they come to rely more on the partnerships and the connectivity that we have with the CGM partners that we work with. Dr.

Schneider?

Jennifer Schneider -- President

No. I think that's right. And I would just underscore and echo that most people who use the CGM use a finger-stick intermittent as well. If you've ever worn one, they sometimes fall off, and so it's really this compatibility between offering both to an individual member.

But even more so, the value that the member gets is directly proportionate to our ability to understand the data and to the earlier point around really nudge and drive behavior change and the recommendations from the words that we're using.

Scott Berg -- Needham and Company -- Analyst

Great. Super helpful. Thanks again.

Operator

Thank you. Our next question comes from the line of Donald Hooker from KeyBanc. Your line is now open.

Donald Hooker -- KeyBanc Capital Markets -- Analyst

Hi. Great. Good afternoon. I just wanted to check in with you in terms of -- since we're we've gone through enrollment season here in terms of where you're at in terms of pricing, I guess, for your services, I guess, mainly, the diabetes service, I mean, can we assume sort of similar pricing that we've seen as we go into 2020 and '21, as we've seen in the past? Or are you sort of -- are there -- is there some movement there for whatever reason, whether it's competitive pressures or whether it's bundling or anything else, that we should think about?

Zane Burke -- Chief Executive Officer

It's a great question. This is Zane. We're continuing to see our pricing hold stable. And in fact, because of the -- our return on investment continues to grow, we believe that we can use that to sell our additional solutions and gives us the ability to come back in more easily with those other solutions.

And the client gives us credit for that ROI as we look toward those other solutions. So if anything, we're seeing a continued -- a willingness and acceptance to bet on the future side here, and we've not seen any changes in the pricing model overall to date.

Donald Hooker -- KeyBanc Capital Markets -- Analyst

OK, super. And then you -- I think, Zane, you threw out the interesting factoid that, I think, over 48,000 members are using services other than diabetes. Maybe just as a sense, is -- are most of those numbers kind of cross-sales to existing diabetes, if you could ballpark for us? Or are you kind of seeing -- are those services sort of separately going into market and seeing traction with separate clients, I guess, would be my question.

Zane Burke -- Chief Executive Officer

What you're seeing today is mostly a lead with our whole person strategy. So it's actually -- where newer footprints, where we're adding those additional solutions, and our whole person strategy is resonating, and then selling back into our base, those clients that have had great experience with diabetes management and are now wanting to try some of those solutions as we move forward. We have not yet aggressively pursued a stand-alone sell related to the solution sets, although weight management has been one of those areas that has had some success on its own on a lead with basis. So I appreciate the question.

Operator, if we can, we will take one more question?

Operator

Thank you. Our next question comes from the line of Richard Close from Canaccord Genuity. Your line is now open.

Richard Close -- Canaccord Genuity -- Analyst

All right. Thank you for the follow-up. Just quickly on enrollment rates, I don't think there was any update there. Can you provide us any more information on where enrollment rates are trending?

Jennifer Schneider -- President

Yes, Richard. This is Jenny. So we've seen an uptick in our overall enrollment across the book of business by 1 percentage point. And what we've been able to see is by market-market comparison and even higher amount in improvement in enrollment, given our ability to penetrate into the vasts market of the government and into the payer market, we see that those enrollment rates come a little bit slower.

And so they pan out a little bit slower over time. But across the book of business, we have been able to see improvements, even more so as you compare market by market.

Richard Close -- Canaccord Genuity -- Analyst

OK. And then for EVA, do you guys still sort of factor in roughly a 25% enrollment rate?

Zane Burke -- Chief Executive Officer

That's correct. And just to expound on Jenny's comments a little bit, what's really great is we're actually able to get to some of these bigger populations that other companies can't scale to. They may have some lower enrollment upfront initially, but it allows us to get in those big population, and then you can think about growth overall. Great question.

Thank you very much.

Richard Close -- Canaccord Genuity -- Analyst

Thank you very much. Have a good day.

Operator

Thank you. At this time, I'm showing no further questions. I would like to turn the call back over to Zane Burke, CEO, for closing remarks.

Zane Burke -- Chief Executive Officer

Thanks, Gigi. I want to thank you all for your interest in Livongo. We are very pleased with the results and our momentum as we empower our members to live better and healthier lives. We entered the year incredibly well-positioned to continue driving rapid growth against this massive opportunity.

Thanks, all, and look forward to seeing you.

Operator

[Operator signoff]

Duration: 53 minutes

Call participants:

Alex Hughes -- Vice President of Investor Relations

Zane Burke -- Chief Executive Officer

Jennifer Schneider -- President

Lee Shapiro -- Chief Financial Officer

Richard Close -- Canaccord Genuity -- Analyst

Robert Jones -- Goldman Sachs -- Analyst

Sean Wieland -- Piper Sandler -- Analyst

Ricky Goldwasser -- Morgan Stanley -- Analyst

Anne Samuel -- J.P. Morgan -- Analyst

Scott Berg -- Needham and Company -- Analyst

Donald Hooker -- KeyBanc Capital Markets -- Analyst

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