Livongo Health (NASDAQ:LVGO) is on a mission to make it easier for people with chronic diseases to take better care of themselves. By using technology to provide its users with real-time feedback, the company is keeping its members healthy and saving them a boatload of money in the process.

In this episode of The Motley Fool's Industry Focus: Healthcare, host Shannon Jones and Fool.com contributor Brian Feroldi talk about Livongo Health's business model, its recent performance, and the massive opportunity ahead.

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This video was recorded on Sept. 25, 2019.

Shannon Jones: Let's talk about our next company, next stock. This is a digital health player, none other than Livongo Health, ticker LVGO. Also a recent IPO. It hit the market back in July. Brian, a lot of eyes on Livongo, especially as I think investors have had somewhat of a tepid response to digital health. Hello, Fitbit! But Livongo was among a pack of companies hoping to go public, test the waters, see if investor appetite was improving. A lot of eyes have been on this particular stock.

Before we get into that, though, can you just explain exactly what Livongo Health does?

Brian Feroldi: Yes. Livongo provides a connected health platform helping people with chronic diseases to better manage their disease. An example of a chronic disease would be diabetes, hypertension, depression, obesity. The number of Americans with chronic diseases is huge. One hundred forty-seven million Americans have at least one chronic disease. What Livongo does is, it provides a platform that enables real-time coaching and feedback to patients that encourages them to live a healthier life when they are in the moment.

Their flagship product is called Livongo for Diabetes. A Livongo member gets an internet-connected blood glucose meter. Whenever they take a blood glucose reading, that number is sent off to Livongo, and Livongo contacts the member immediately after the reading and makes suggestions for what they can do based on the reading. If they get a high number, they can get a suggestion to take some medication or talk to their doctor about increasing their dosage. If they get a low number, they can get advice about how to raise their blood sugar to a healthier level. The important thing here is that these messages are given to the patient when they need it most, when they are actively doing something to manage their disease.

Livongo calls these mini-interventions health nudges. They actually have the data to show that these little interventions on a constant basis actually lead to significantly better health outcomes and cost savings. The average Livongo for Diabetes user lowers their A1C by 0.8 points, which is a meaningful difference. That leads to cost savings of about $1,908 per member per year. These little health nudges really add up.

Jones: Exactly. And it's not just diabetes they're going after either. Granted, that's where they've really made a name for themselves. They've even actually rolled out an Amazon Alexa-enabled skill. Members literally can go up to Alexa, ask about their blood glucose readings, and then get tips on how to manage diabetes, which I think is really cool. I think they're even integrated with Apple Watch, Samsung, even Fitbit. Certainly becoming more a part of the lifestyle. But diabetes is not where they're stopping, Brian, because they're also looking at some other chronic diseases to help manage that, too.

Feroldi: Yes. They've already launched Livongo for Hypertension, Livongo for Weight Management and Prediabetes, Livongo for Behavioral Health, which includes depression. In the case of weight management, for example, they have the data to show that the average Livongo for Weight Management user loses 7% of their body weight after one year. The average of Livongo for Behavioral Health member with depression has much better management of their depression over time. All of these changes actually lead to meaningful clinical outcomes for patients. That does, in the long term, drive long-term cost savings.

Livongo's sales pitch to insurers or employers or health plans is basically, "Allow us to manage your members in real time. We will save them more money in the long run through healthcare savings than we charge you up front for our subscription services." That's a message that is really resonating with employers right now. These guys just crossed 192,000 Livongo for Diabetes members, which is the only number that they report. That's a lot of patients. The good news for investors is that's still very tiny when compared to the 30 million Americans alone that have diabetes. They've come a long way, but wow, do they have a long way to go.

Jones: They have a very long way to go. I think all in all, they've got a business model that has a recurring revenue stream, which we like. I mentioned, of course, with any IPO, you're always looking at financials. They actually just posted some pretty impressive top-line results, right, Brian?

Feroldi: Yes. Their revenue just grew 156% year over year to $41 million. The nice thing is, this is actually a relatively high-margin business. Their gross margin is about 68%. When you combine triple-digit growth with a strong gross margin, their gross profit is expanding rapidly, which gives them many options to continue to reinvest heavily, and the business to continue to grow and scale. The early numbers that we've seen from this company thus far, very impressive.

Jones: Exactly. I just read a report by Healthcare Growth Partners. They evaluated Livongo plus a few other peers within this digital health space. Basically, the conclusion was, Livongo has the highest share of recurring revenue, the highest growth rate, and the highest gross margin, and, of course, the highest valuation among the group. That also includes Health Catalyst.

With that being said, certainly a company to keep an eye on. Anything that can not only drive clinical outcomes but really drive and reinforce better habits for the long term is only going to save the patient and the healthcare system long term.

Feroldi: Yeah, totally. Encouraging people to live healthier lives just leads to enormous benefits down the road. If you can keep just one member out of the hospital, that leads to thousands of dollars of cost savings.