Livongo Health, Inc. (NASDAQ:LVGO) Q1 2020 Earnings Conference Call May 6, 2020 4:30 PM ET
John Hallock - VP, Corporate Communications
Zane Burke - CEO & Director
Jennifer Schneider - President
Lee Shapiro - CFO
Glen Tullman - Founder & Executive Chairman
Conference Call Participants
Stephanie Davis Demko - SVB Leerink
Richard Close - Canaccord Genuity
Sean Wieland - Piper Sandler & Co.
Rivka Goldwasser - Morgan Stanley
Robert Jones - Goldman Sachs Group
Anne Samuel - JPMorgan Chase & Co.
Donald Hooker - KeyBanc Capital Markets
Ladies and gentlemen, thank you for standing by, and welcome to the Livongo Health First Quarter 2020 Earnings Conference Call. [Operator Instructions].
I would now like to hand the conference over to Mr. John Hallock, Vice President, Corporate Communications.
[Technical Difficulty] First Quarter 2020 Earnings Call. This call is being broadcast live over the web and will be accessible on the Investor Relations section of Livongo's website, www.livongo.com.
Joining me this afternoon 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. Please note that given recent macro events, we are all participating from different locations.
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, including our outlook for the second quarter and full year 2020, our assumptions underlying that outlook and our expectations regarding achieving profitability in 2021 on an adjusted EBITDA basis.
We wish to caution you that such statements are simply predictions based on internal assumptions and are subject to risks and uncertainties that may cause actual events to differ materially. In particular, we are currently in the midst of the COVID-19 pandemic. The extent of its continued impact on our business will depend on several factors, including the severity, duration and extent of the pandemic as well as actions taken by governments, businesses and individuals, including our clients and members in response to the pandemic, all of which continue to evolve and remain uncertain at this time.
A discussion of these and additional risks and uncertainties can be found in the earnings press release that we issued today under the section captioned Forward-Looking Statements as well as in documents that we file from time to time with the Securities and Exchange Commission, specifically the Risk Factors sections of our most recent filing, Form 10-K and our upcoming filing on Form 10-Q.
These documents identify important factors that could cause the actual results to differ materially from those contained in our projections or forward-looking statements. We assume no obligation nor do we intend to update any forward-looking statements made during this call as a result of new information or for future events.
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 comparable GAAP results. In addition, to assist with the financial portion of this earnings call, you will find supplemental slides on our Investor Relations site.
I'd like to now turn the call over to our Chief Executive Officer, Zane Burke.
Thanks, John. And thank you, everyone, for joining us this afternoon. We hope you're all staying healthy. Our thoughts are with those people affected by the COVID-19 virus. And our support and admiration goes to the frontline doctors, nurses and other health care professionals, as well as all other essential workers who are keeping us fed and cared for. It's a team effort, and we'll get through this working together.
We entered 2020 with significant momentum. We outlined our strategy to deliver on our whole person approach by addressing multiple conditions through our core diabetes solution and growing hypertension, weight management, diabetes prevention and behavioral health offerings on one integrated Applied Health Signals platform. And we are delivering.
While it's challenging for many, our business model and the steps we have taken have positioned us to help those in need. In particular, we believe remote monitoring is rapidly becoming the new standard in health and care. Livongo's connected technology allows our members to track vital signs of interest in maintaining health. We expect that the ability for both personalized care as well as broad population surveillance will become critical going forward as an early warning and monitoring system for the health care system at large and a way to efficiently deliver care to those who need it most exactly when and where they need it.
There is no question in our mind that this pandemic has accelerated a more extensive virtual care delivery model. Remote monitoring is here to stay, and we expect it to become the standard of care for the most vulnerable and expensive populations.
We've also been receiving feedback from highly-respected and innovative HR and benefits professionals who believe that Livongo is key to keeping their people healthy, while also saving money. And Livongo is unique in that we have detailed studies to prove that Livongo improves care, saves money and provides a great member experience.
As we have stated on past calls, with more than 147 million Americans living with a chronic condition and 40% living with more than one, Livongo has a significant opportunity to continue growing our member base. Because of our virtuous business model, we believe the COVID-19 pandemic has only reinforced the value of the service we provide our members and clients.
In the first quarter, we added a record 380 new clients, which takes us to 1,252 overall clients, which is up approximately 44% quarter-over-quarter. Member enrollment was ahead of expectations with over 328,000 Livongo for Diabetes members as of the end of the quarter. Further, we continue to see strong demand in our pipeline.
We work closely with regulators and legislators in Washington to reduce barriers for the use of remote monitoring, which resulted in inpatient access to Livongo and Medicare approvals for remote patient monitoring, which we anticipate remaining both on a temporary and longer-term basis.
Congress has acted to deliver the emergency aid and economic relief Americans and businesses need to get through this phase of the COVID-19 pandemic. While that is a great first step, we anticipate the government will take further actions to expand the use of remote monitoring, managing and testing to better protect our most vulnerable populations with diabetes, hypertension, keeping them at home, healthy and out of harm's way.
Livongo also has an important role to play in the COVID-19 pandemic solution given that our members represent some of the most vulnerable populations with diabetes and hypertension. As the CDC recently reported, 78% of the COVID-19-related ICU admissions were where people with preexisting or chronic conditions.
In order to serve our members, we've been actively ensuring the health and safety of our own team. Livongo is well positioned given that over 1/3 of our people, including all of our health coaches and certified diabetes educators, already work remotely. And we were well equipped for remote operations long before the pandemic. We were also already ahead on limiting disruption of our supply chain, including multi-sourcing production locations for our connected devices.
Having our own team well cared for has allowed us to focus on our members and clients. We have taken a number of actions, including offering a COVID-19 specific behavioral health module nationwide to our members, clients and prospects at no cost through the end of June, to get them over the hump while we flatten the curve. More importantly, we're being asked to accelerate launches to deliver services to clients who wanted their most vulnerable populations protected sooner and taken steps to position Livongo well pass COVID-19.
As you know, we provide our members with real-time blood glucose and blood pressure data. This allows us to offer general supportive care recommendations like rest and fluids as well as personalized specific recommendations like medication adherence so our members avoid exposure to more risk by entering overwhelmed health care settings.
We have been proactively in sharing information with our members on how best to handle any potential illness and manage their condition. Dr. Schneider will talk about this more in a bit.
Two other important headlines for the quarter. First, as the number of employee health management programs continue to grow, large employers are increasingly challenged to organize and manage these programs for their employees. They want one partner to work with. This trend was already underway before COVID-19, but the pandemic accelerates it. We expect that larger, multiproduct, well-capitalized organizations will have an increased advantage.
In March, we announced the Health Transformation Alliance, or HTA and Welltok. Its consumer engagement platform created a new curated marketplace focused on digital health to help make it easier for their membership, which includes over 50 large employers serving 7 million employees independents, to select and contract with digital health providers. I'm excited to again share that Livongo was selected as the first partner for this new program, and we see this as a promising new channel for the company. We're already meeting with many of the HTA members to identify and serve their eligible populations.
Second, after a highly competitive process during most of 2019, I am proud to announce Livongo was selected by the Government Employee Health Association, known as GEHA, a not-for-profit provider of medical and dental plans for federal employees covering more than 2 million federal employees, retirees and their dependents.
Recognizing the importance of helping at-risk populations to stay healthy, eligible GEHA members will now receive our diabetes, hypertension and diabetes prevention programs as a covered benefit. GEHA represents one of the largest contracts in our history and is our second major government contract signing in a year and the first of its size to validate our whole person approach.
This contract signing demonstrates Livongo's growing presence and success in the government and labor markets and the importance of our solutions. This is a very significant deal and checks all the boxes validating our strategy, scale, multiproduct, new sector expansion and a competitive win based on our years of experience, which we believe that no other consumer digital health company has.
We begin 2020 well positioned to pursue our mission of empowering people with chronic conditions to live better and healthier lives. Today, Livongo is even more strongly positioned. Increasingly, everyone is realizing that our remote monitoring solutions and our focus on the most critical, vulnerable populations are necessary to support our members through this pandemic in the near term and longer term as the market continues to shift to a virtual care model. And we're proud to be there to support our members during this challenging time as a part of the future of our new health and care system going forward.
I will now turn the call over to Dr. Schneider to discuss the progress we are making with our whole person approach.
Thank you, Zane. Good afternoon, everyone. Last year, we doubled down on our whole person approach, investing heavily in an integrated product experience, expanding to behavioral health and enabling our sales and client teams to share the importance of offering one platform with solutions to manage multiple chronic conditions to the market. In fact, we believe that today, we're the only company that can prove that we are changing the behavior of people living with multiple chronic conditions and have the broad-based data and outcomes to support this at scale.
The GEHA contract, which covers multiple conditions, is evidence this approach is working. We are proud to be delivering proven clinical results across our product suite at scale for all our clients. In addition, my team has delivered more than 100 analyses that demonstrates year 1 financial return on investment. That's driving continued demand for our platform. And it all works because our members love us and look to us to continue finding new ways to make it easier for them to live healthier at home.
Particularly in this current environment, we are hearing just how important the cost savings associated with the use of Livongo are for our clients, along with the health of their employees and members. Our ability to prove our financial return for clients at scale prior to COVID-19 was critical, and this crisis has reaffirmed the value and positive impact of Livongo to clients. We're also partnering with leaders throughout the value chain to add to our already substantial real-time member data to better inform our AI+AI data engine.
Early in 2020, we announced our partnership with leading CGM makers, Dexcom, where at the request of our members, we can now stream data from their Dexcom G6 to our data engine. The combination of Dexcom's leading CGM technology and Livongo's Applied Health Signals platform will further fine-tune our continuous learning and AI+AI engine, providing new insights to deliver personalized information empowering our members to effectively manage their diabetes and many aspects of their health. As an innovative leader in the CGM market, we are very excited to partner with Dexcom.
Last month, we also partnered with Prognos Health to aggregate clinical laboratory data. Livongo members can now share their test results from leading laboratories with Livongo on an opt-in basis. Prognos Health has the largest source of clinical diagnostics information across over 50 conditions, with billions of medical records for hundreds of millions of people. Clinical laboratory tests, including blood glucose levels, hemoglobin A1c, lipids and creatinine are important health markers and risk indicators for people with chronic conditions.
Due to fragmented data-sharing practices, it is challenging for people to access a comprehensive view of their personal labs data. By partnering with Prognos, Livongo members with eligible lab results are automatically notified within the Livongo platform, enabling them to opt in to aggregate these results using Livongo, a unique opportunity to see their labs data and health data on one platform. In addition, Livongo's AI+AI engine is now powered by lab test values, delivering members more personalized telehealth coaching interactions and health nudges.
As Zane mentioned, the COVID-19 pandemic impacts nearly all aspects of our lives, and Livongo is in the position of providing services to populations at the greatest risk of COVID-19 complication, those living with chronic conditions like diabetes and hypertension. Our solutions and remote monitoring capabilities add the extra layer of care our members need by providing 24/7/365 support through digital and remote coaching at the exact moment they need it.
To address heightened behavioral health needs, Livongo for behavioral health powered by myStrength is now offering specific COVID-19 and social isolation modules to manage stress and anxiety to all people nationwide. COVID-19 modules make up 3% of the content within the platform but are still driving over 25% of member views. This shows that users are not only interested in, but actually need our content and continually use it. In just the past month, we've seen increased utilization of the Livongo program with recent cohorts showing a 10% increase across our devices and mobile apps.
In addition, the number of members who have tagged stressed while checking their blood glucose has nearly doubled, which is especially important in light of our recent peer-reviewed findings demonstrating the clearer correlations between stress and glycemic control. This shows the importance of our platform during these challenging times.
Another piece of evidence supporting that view came in April when we announced that after an extensive evaluation process, Kaiser Permanente, one of the largest integrated care delivery networks in the country, selected Livongo for Behavioral Health for their entire population, which we just launched. This is the largest behavioral health contract in our history, which will roll out over the next 5 years, and we feel it serves as a major validator for our behavioral health offering in the marketplace.
Further demonstration of Livongo's unique offering and capabilities, we are excited to announce that the FDA, at the request of a number of health systems, has granted an emergency period waiver to allow any inpatient facility in the country to use Livongo's cellular-enabled diabetes meter, allowing people with COVID-19 to use our remote blood glucose meter within the hospital setting.
Originally, FDA-cleared for at-home use in 2014, our meter uses cellular technology to upload blood glucose readings to the cloud, where they are then processed through Livongo's AI+AI engine to offer real-time personalized clinical insights and health nudges.
Livongo's technology in the inpatient setting can now help providers better manage people with diabetes who are being treated for COVID-19. This also helps hospitals running out of personal protective equipment and facing staffing shortages, so we can better help protect those who are in the direct lines of fire. And while we do not currently plan to sell the Livongo for Diabetes solution to the specific inpatient market long term, this capability demonstrates the flexibility of our solutions to meet member and client needs during this time.
These noteworthy additions and enhancements to the Livongo platform are making a tangible difference in the lives of our members, especially during the current world health crisis. To show our impact, I want to share a quick story. Recently, a Livongo member with type 1 diabetes contracted COVID-19. As we shared earlier, people with chronic conditions are at a higher risk of complications due to COVID-19. So this diagnosis was especially concerning to the individual.
She informed her endocrinologist of her illness, but due to physical distancing and other constraints, she did not receive much support or feedback in return. The member immediately scheduled weekly calls with her Livongo coach and used our Behavioral Health Solution to manage her mental wellness. I'm happy to report that the member and her family are healthy and well. She thanks the entire Livongo team and appreciates the additional support Livongo provides during this challenging time.
The growing number of stories like this inspire our team every day and solidify the importance of caring for the whole person in all aspects of their health. When you deliver a valuable service that makes a difference in people's lives, they love it and they stay with you. That drives strong recurring revenues and financial results.
Our CFO, Lee Shapiro, will now share our financial results with you.
Thank you, Jenny, and good afternoon, everyone. We had very strong results in our first quarter driven by a record number of 380 client launches. We define clients as business entities that have at least one active paid contract with us at the end of a quarter. Historically, we have included as individual clients, entities that access our platform through our channel partners, pharmacy benefit managers and resellers. And we do not count our channel partners, PBMs or resellers as clients unless they also separately have active paid contracts for our solutions.
We had also treated our partnerships with health plans as a single client, though multiple employers contracted for our services through a given health plan. In evaluating our first quarter client launches and the increase in the number of employers who are enrolling through health plans, we believe that it is more appropriate to treat health plans in the same manner that we treat our channel partners, PBMs and resellers.
The first quarter client number includes approximately 100 employers enrolled under health plans. Going forward, we will include employers who enroll in our platform through a health plan as separate clients. Had we done so in 2019, the client number as of December 31, 2019, would have been higher by 68 clients or 872 total clients.
All of this growth translate into a total of 621 new client program launches in the first quarter of 2020. That resulted in revenue for the first quarter, increasing 115% year-over-year from $32 million to $68.8 million. 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. We believe that this growth ranks Livongo as having one of the largest estimated compound revenue growth rates among publicly-traded SaaS companies as cited in a recent Morgan Stanley report.
Livongo for Diabetes members increased 100% year-over-year to over 328,000. This is an increase of over 164,000 members on a net basis from the first quarter of 2019. Strength from our other conditions was also evident with over 18% of clients now having purchased more than one solution from Livongo, a demonstration of our improving product density.
Estimated value of agreements, or EVA, in the first quarter was a record $89 million compared to $48 million in the first quarter of last year, an 85% increase year-over-year as well as an increase quarter-over-quarter. Please note that our sales team was as active as our enrollment team, signing more opportunities earlier in the year. Approximately 35% of the first quarter's EVA is expected to convert into revenue over the subsequent 4 quarters. We also reaffirm our goal of profitability in 2021 on an adjusted EBITDA basis.
Turning to gross margin. We continue to benefit from better economies of scale and the competitive advantages provided by our AI+AI engine, which allows for more effective enrollment and coaching utilization. Gross margin in the first quarter was 73.7% on a GAAP basis, up 450 basis points from the first quarter in 2019 and 74.4% on a non-GAAP basis, up 410 basis points over the same period as we continue to gain leverage in our coaching model and experience higher incremental margins from members who continue to stay on the Livongo platform. As we look to the remainder of 2020, we expect full year gross margins to be slightly higher than the gross margins achieved in 2019.
Turning to operating margins. For the first quarter, operating margin was minus 10% on a GAAP basis and positive 4% on a non-GAAP basis compared to minus 51% on a GAAP basis and minus 29% on a non-GAAP basis, respectively, in the same period last year. The improved operating margins demonstrate the operating leverage we are obtaining from prior investments in people and infrastructure.
In the first quarter, we experienced a net loss on a GAAP basis of $5.6 million or minus $0.06 per diluted share, while attaining net income of $3.9 million on a non-GAAP basis or $0.03 per diluted share. Adjusted EBITDA for the first quarter was $3.8 million compared to a loss of $8.6 million in the same period last year. We plan to invest in our business in light of the massive market opportunity in front of us, with more of this investment manifesting itself as expenses in the second half of the year.
Turning to the balance sheet. We finished the first quarter with approximately $368 million in cash, cash equivalents and short-term investments. $10.6 million of cash flow was utilized in the first quarter for taxes paid related to net share settlement of equity awards.
With that, let me turn to our full year and second quarter outlook for 2020. First, we are raising revenue guidance for the year to $290 million to $303 million. This increase is based on the visibility we have from our predictable and high recurring business model, strong first quarter performance and improvements we are seeing in our overall business. This new range is also reflective of our analysis of possible impacts under a variety of scenarios that we have run internally and represents what we believe is a balanced approach to guidance in this environment.
Livongo continues to closely monitor the situation relating to the COVID-19 pandemic for impacts on our business as some of our clients and members are experiencing economic challenges. While there is uncertainty regarding the overall impact on member enrollment and our sales efforts given these unique market dynamics, we are well positioned due to our recurring revenue model, and we have taken all of these factors into account in providing this increased guidance today.
For 2020, we now expect, as I just stated, revenue in the range of $290 million to $303 million, which represents growth of 78% for the year. In that, we had significant member adds in the first quarter. Please note that we anticipate quarter-over-quarter member increases will not be as dramatic as we demonstrated from the fourth quarter 2019 to this first quarter of 2020.
For the year, we expect adjusted EBITDA loss in the range of minus $14 million to minus $10 million. This implies adjusted EBITDA margins of negative 4.8% to negative 3.3% or an improvement of between 7 points to 8.5 points over 2019. We plan to continue to invest in the business in 2020 while simultaneously marching towards our stated goal of sustained adjusted EBITDA profitability in 2021. Again, we expect these investments will manifest themselves as expenses more so in the second half of 2020 than in the first half.
Now to the second quarter of 2020 guidance. We expect revenue in the range of $73 million to $75 million and adjusted EBITDA in the range of 0 to minus $2 million.
With that, I'll turn it back over to Zane for closing comments before we take your questions.
In closing, I want to thank our amazing Livongo team for their continued hard work during these challenging times and unwavering support of our members and clients. As the shift to virtual care accelerates and the adoption of remote monitoring technologies becomes the new standard of care, Livongo continues to cement its market leadership position.
Our differentiated solutions, demonstrated ROI and the growing scale of the business have allowed us to meet the challenges of the moment, and our near- and long-term outlook is very strong.
With that, I hope you all stay safe and healthy. We will all get through this time together and come out stronger. We will now look forward to your questions.
[Operator Instructions]. Our first question or comment comes from the line of Stephanie Davis Demko from SVB Leerink.
Stephanie Davis Demko
Congratulations, guys, on the great quarter. I was just wondering, advance of this, you've only raised your guidance a relatively conservative amount. I think it implies only a $4 million incremental revenue benefit in second quarter versus around $8 million this past quarter. What are the puts and takes? Is there conservatism? Is there unemployment? How should we think about this guidance?
Stephanie, it's great to hear from you, and thank you for your kind words. This is Lee. And with regard to our guidance, please note that at the midpoint, we're growing year-over-year by 74% to 75% over last year. And we feel very good about our prospects as a business for the long term but also recognize some of the near-term headwinds that might come to our clients and some of our members with regard to the COVID-19 pandemic.
We ran a number of scenarios internally and factored in some of the challenges that might face us in future quarters and tried to build in some conservatism into that model in light of the things that are unknown. I think what you'll see from Livongo is both visibility due to our recurring revenue model as well as transparency. And what we're sharing with you is that we don't have full line of sight to what some of those challenges might be in the future. And our guidance reflects that, and we believe is still very strong guidance for the balance of the year.
Stephanie Davis Demko
Understood and agreed on that because you guys are baking a little bit of cushion there. Now moving a little bit for my follow-up to parts of your platform, I've noticed you guys have been kind of integrating more within the CGM. Could you just talk a little bit about your strategy there? And I know you could see that developing.
Yes. Thanks so much. This is Jenny. I'll take that question. We're really excited to be partnered both with Dexcom and with Abbott. And we're hyper-focused, again, on the member experience and driving home what is an incredible member experience. And so we have the ability to integrate that data to look at and analyze the data and drive insights back to the individual person.
We're delighted that CGMs continued to increase their presence and prevalence within the marketplace. We really believe that with the addition of Livongo, and we can have some incredibly added benefits. And we're starting to see that and hear that back from our members.
Our next question or comment comes from the line of Richard Close from Canaccord Genuity.
Great. Congratulations. Thanks for everything you guys are doing right now.
On the government employees contract, Lee, maybe - can you help us in terms of how we should think about that? Is that going to be similar to FEP from the standpoint of you've baked in a lower enrollment rate there in terms of how you factor that into the EVA?
Richard, nice to hear your voice, and hope all is well. Thank you for your question. With regard to the GEHA contract in giving our guidance for the year, we have factored that in. And in terms of how we think about enrollment for GEHA, we have planned on the number of members that we believe will be able to add with that program when it starts to launch. It has not yet launched, and we will see kind of pick up from that in the back half of the year, but that is factored into our guidance.
Just to be clear, though, on FEP, I think you factored in maybe a sub-20% enrollment rate. Is that something similar for this contract?
It's a similar population, and we expect that we'll see similar types of demographics coming forward. And so you can think about it that way for modeling purposes.
Okay. And then with respect to Kaiser, Jenny, I think you said a 5-year rollout on Kaiser. Can you clarify that a little bit? I thought, for some reason, Kaiser wanted to get the mental health app in the hands quickly given the current COVID situation.
Yes. Thanks, Richard. So we're really excited that we have a validation from Kaiser, which, as you know, is one of the leading integrated health providers. It was a fierce battle to be fought for our digital health care offering around behavioral health. And the five years actually relates to the contract length that we have with Kaiser. And they are aggressively pushing this out, particularly in the study into COVID-19.
Our next question or comment comes from the line of Sean Wieland from Piper Sandler.
So you said, Zane, remote monitoring is becoming the new standard of care. And what I'd like to better understand is what needs to happen in coming out of this crisis, this pandemic to kind of reengineer what primary care looks like? And what needs to make - what needs to happen to make remote monitoring more integral to overall primary care workflow? And maybe as a tagline on that, an update on what's going on at Blue KC?
Thanks, Sean. And great to hear your voice as well, and I appreciate the question. So there's a couple of things that actually have already occurred from a government perspective. So we've seen some regulatory changes from CMS, particularly during this emergency time period that's allowing that remote patient monitoring with pre-existing relationships - that may not have a pre-existing relationship to get reimbursed for those fees. That's really significant. So that's an important change that we're seeing from a DC perspective.
We've seen a number of other changes with - in terms of what we've seen from the cost sharing in that space as well as a number of items. So this is really about the reimbursement aspects. The fee-for-service Medicare space is another area where there's been significant change in the reimbursement side.
So as you know, in health care, there's been so many perversities on the reimbursement aspects of what happens and what the pandemic has done is really accelerated that rate of change dramatically on the reimbursement side and the acceptance and really the requirement for both telehealth service and remote patient monitoring.
And as people look at the future of this, they're really going to say, "How do I actually stay out of that health care system? How do I keep people healthy and out of the system? Those people that have the highest risk - or actually, overall, even those with chronic conditions, how do we keep them out of the health system?"
And that's where remote patient monitoring, and specifically, Livongo has a truly unique opportunity to thrive. And so what I would say is you're seeing the sea change from a reimbursement perspective. We need to codify. Some of those pieces became permanent changes. Some of those are temporary changes. So when we get past the emergency time period, we'll need to see those get fully into it. But I think the genie is out of the bottle in terms of remote patient monitoring. And - that that's going to be part of the future health care system as it moves forward. Glen, do you have anything you'd like to add to that?
Thanks, Zane. Sean, I would only add that there are a number of government programs now that are actually providing funding for our clients, particularly health systems, and we're working collaboratively with them. A number of those organizations have been selected. So we don't know the impact of that yet, but we expect that will also start to drive some of the reengineering of the system.
But Zane said it perfectly, and that is that it has become overnight both telehealth. And if you like telehealth, you'll love remote monitoring because telehealth is after there's a problem. Remote monitoring is preventing the problem in the first place, keeping people out of environments that might be dangerous.
And if you remember back in Italy, literally the doctors were begging people, "Don't come to our offices. Don't show up in ERs and don't go to the hospital." And that has sunk in. And I think one of the indications is a lot of the hospitals are actually saying now, "People are scared to go to the hospital."
Now I'm not sure that's wonderful. But in fact, there is a new realization that these are places where the germs are, where the viruses are. And if you can care for people remote, that's best.
I hear that. That's for sure. So maybe one follow-up. Lee, you mentioned investments that are manifesting themselves as expenses in the second half 2020.
Can you be a little bit more specific on what areas of investments? And maybe an understanding of is that meant to drive growth? Or what other aspect of your business?
Thanks, Sean. The investments will be in areas like sales and marketing. As we lean into market opportunity ahead of us, we see that there's a number of clients that we can still pursue and be aggressive with in terms of going after. In addition, we think about our R&D efforts and working on additional solutions that we can continue to enhance in our current portfolio as well as bringing new solutions to market. And so we're also actively hiring engineers in our R&D group.
And we're doing that in a way that we think will position us very well going into 2021 for both new market expansion, continued efforts in our existing markets, and then new products that we can bring to market.
Our next question or comment comes from the line of Ricky Goldwasser from Morgan Stanley.
Congrats on the results and the traction in the marketplace. So my question is around - I mean, obviously, you've - your results are better than the pre-announcement in April. You talk about faster enrollment in client starts. But can you give us some more color? Where is that upside coming from? Is it clients that were in the pipeline and opted to launch earlier because of the COVID-19 environment? Is it that it's clients that were signed, but you're seeing a faster ramp rate for members? And how should we think about the ramp rates? Are we seeing a shift in that curve so you can reach that peak earlier? I know that we talked about the peak in the mid-30s. What type of ramp are you seeing now versus what you've seen last year?
Ricky, this is Zane. Thanks for the good question, and good to hear your voice use as well. The launches really are always stronger in the first half of the year. So just as a reminder, you see stronger launches in the first half of the year, particularly in the first quarter. So that part is part of what we expected as part of our results. And then you see - typically, we talk about higher bookings in the second half of the year, the - and the higher launches in the first part.
But what we saw in the first quarter was an acceleration in those launches because of the COVID-19 impacts because of our - the ROI that we drive. And so the value that you see as part of that, we saw those launches accelerate as part of that. And then the enrollment in some of those earlier launches, the uptick was a bit higher in terms of - versus our expectations as we move forward.
So it's a combination of both the little acceleration in the launches and then acceleration - a bit of acceleration in the enrollment ramp. That obviously will benefit us throughout the year, but with a pull-forward of a handful of those launches that made a difference in the quarter.
But again, always in the first half is our heavier enrollment and launch time period. And then you see the sales in the back half of the year are typically higher as we move forward.
Understood. And then my follow-up is around behavioral health and mental health. I mean, obviously, myStrength is gaining traction very quickly. We're hearing some good feedback from employers on that. So how does - so first of all, how does that revenue model look like? Is it still a PMPM? And how do you think about - like the diabetes product, how do you think about the evolution of that revenue model? And then, what percent of your clients buy more than one offering from you right now?
Jenny, do you want to start?
Lee, do you want to...
So I can jump in. And so starting with the last question first with regard to the number of clients that are buying more than one solution. What's interesting is that we're starting to see clients that are signing contracts for multiple solutions. As Zane mentioned earlier with regard to the GEHA contract, that covers multiple solutions and so they're signed at the inception.
And we're seeing that across many of our new contract signings. We've also been going back in to our existing client base and selling through more solutions. So we're probably somewhere just under 20% of our overall client base now that has purchased multiple solutions from us. Your first question was around behavioral health?
Yes. Around behavioral health and kind of like, obviously, you're getting traction there. So how should we think about the revenue model? Is it PMPM in the evolution there? And how should we think about the cost structure and the margin in comparison to diabetes?
So we have very strong margins in that offering. It is a per member, per month. And for employers, we sell to per employee, per month. There is some level of market traction that we have in a hybrid model. That includes some per participant, per month associated with the coaching that we provide. But we're really now working closely as we've been rolling out. Dr. Schneider has mentioned in the past, we have updating the offerings, putting it on to our current platform, looking at pricing models that will be attractive to our clients. And we're still learning, but we're growing. Most of what you see in the base today is a PEPM or PMPM model.
Our next question and comment comes from the line of Robert Jones from Goldman Sachs.
I know, Lee, you mentioned a range of assumptions, considerations, obviously, underlying the guidance. Given all that's going on and the unpredictability of everything, I was wondering maybe just to focus on churn and how you're thinking about that. And I know you guys service clients across many industries. But as you think about those clearly hardest hit like airlines, hospitality, what are you anticipating from a churn perspective from those clients?
And I guess just as it relates to that, any observations you'd be willing to share as you think about the trend of churn? I know things are moving quickly, but what you saw kind of throughout the quarter and then into April?
Sure. Thanks for the question. It's been a very interesting situation with many of our clients. You mentioned some of the industries that have been harder hit, and we certainly took that into consideration as we formulated our views on the balance of the year. What we're finding is that a number of the employers that we work with when they've been furloughing team members, they've been continuing to pay benefits. And for some other employers that have laid off employees in light of the pandemic, they didn't feel it was responsible of them as employers to take those benefits away. And so they structured ongoing benefit payments for some of those members to continue for a period of time. And that period of time has varied. But we believe that in terms of how this environment is playing itself out, we're hopeful that as we see a rebound and folks come back to work, some of the furloughs end that, that period now that they were still with us and then they continue with us, we'll be there.
Two other comments just quickly. We have some clients where we are structured inside their benefit program. And so as the employee continues on the insurance plan, because we're baked into the insurance plan, they're still getting the benefit of Livongo. And then there's a very small percentage of our client base that buys from us direct in a direct-to-consumer model, and we do provide a way for members who might lose their benefit to buy direct from Livongo. We provide a discounted rate in light of the environment we're in, so they can continue with the benefit.
So long-winded answer to your question. But hopefully, you can see that there's a number of ways that they can continue to work with Livongo. And Zane, did you have something you wanted to add? Just quickly, Zane?
Yes. Thanks, Lee. So the other piece I would add just a little bit more color, and I agree with what Lee said. The other color I would add is just, obviously, the longer the negative impact on the economy, and it'll have an impact - it can have an impact on Livongo. And so - but our business model is very sound, but we've thought about that in our guidance, in terms of how we thought about the range of scenarios there that as - if things turn - stayed poor for a longer term, and as Lee emphasized the part where the furloughs are continuing on with benefits if people - if the layoffs become permanent, the benefits are dropped. That would have some impact. And so we factored that into a little bit of an increase in terms of the retention - the client retention and the member churn.
The great part about the client retention side is our value statement. So the fact that we have such great value means that we are not - we have not seen an issue around client retention overall, and we haven't seen it really around the member churn at this point. But our guidance factors in some of those thought process as we move through the year.
That's super helpful. And then just a quick follow-up, sorry if I missed it. I know you guys have given EVA, the breakdown on diabetes versus non-diabetes. I was wondering if you'd be willing to share that again.
Yes. And we did not share the breakdown. And part of that is because it's really hard now is we're starting to sell multiple contracts that are focused, as Dr. Schneider had mentioned, on the whole person. To start to think about breaking that out separately is a challenge and might actually be looked at in a way that we don't break it down that way internally. So we're just providing kind of the overall EVA guidance as well as how quickly we think that will convert into revenue over the next four quarters, but not breaking it out by condition. And Glen, did you want to add something there? No? All good?
No, I think I'm good.
Our next question or comment comes from the line of Anne Samuel from JPMorgan.
You touched a little bit on how scale is an advantage right now. And was just wondering if you've seen any changes in the competitive landscape, maybe any opportunities for M&A as some of the smaller players in the marketplace start to face liquidity issues.
Well, I think it's a great question. That, obviously, our scale allows us to sell to clients like GEHA. So first off, in the marketplace, I think people are going to have a flight to safety. And we're viewed as a safe choice. And because of our virtuous business model, our clients don't just like us, they love us. We deliver strong clinical outcomes and a hard financial ROI. And that's exactly what the market is looking for, but they're looking for a safe choice.
And I was on the phone with one HR Benefits Director recently, and they said, "You don't get fired for buying Livongo." And that was just here recently. And I think that's part of where, I think, you're going to see the difference here. And obviously, we have great scale across the ecosystem that's different than others. And that allows us to weather storms in some of these different markets that may be a little bit choppier than others in terms of the short term. But in the long run, this really gives us the opportunity, both from our capital position, our market position, the value that we provide to really accelerate on the backside. And so obviously, there's nothing to talk - we can't comment on any M&A activities, but we are uniquely positioned in this marketplace to consider those strategies, inclusive of our continued investment in the back half of the year in our internal investments. And so that just means that we're uniquely positioned.
And where you see some competitors who are laying people off, we're going to invest in more and more people because the opportunity, the total addressable market share is massive and the need is so great and the future is so bright.
That's really helpful. And then maybe given your value in being able to monitor high-risk patients remotely in this time, are you getting any requests from your clients to add incremental conditions? And what would a time line look like for adding something new?
Thanks, Anne, for the question. We are - we're always looking and have a number of inbound requests from our clients. And a lot of those are driven from the 3 value propositions. One is, that members love the experience. The second is, sustained demonstrated published clinical outcomes. And the third is, cost savings. And so a little bit around no commentary exactly what or where we may go next, but we are - we do have a number of inbound requests for us to continue to look more broadly because we've been able to demonstrate at scale those 3 value propositions that are current.
We're, again, hyper-focused on maintaining cardiometabolic to date and ensuring that we drive that member experience and reach the millions of people that live in those conditions to date.
Our next question or comment comes from the line of Donald Hooker from KeyBanc.
I wanted to sort of dive a little bit more into this big government employees health association contract. To be clear, is this exclusive? And I guess we're all trying to sort of think about sizing the deals. Is there anything about that population there that's sort of notable in terms of incidence rates or as we start thinking about how big of an opportunity this could be for you?
Well, Lee mentioned that kind of is similar to previously announced the FEP agreement that the populations are very similar. And so that's how to think about some of that opportunity. It is a - it's not a designated exclusive, but it's across their population, for those that are eligible.
The really important note here is this is a full buy-in to our whole person platform, and so buying the multi solutions and that represents a significant difference from what we saw in the FEP agreement. And so that's a unique element of this. And this is a longer-term commitment. So it's a multiyear commitment overall.
So I think it's, again, back to scale of a company. Only Livongo, at the end of the day, provides that kind of safe choice that you feel comfortable signing multiple years. And given the virtuous business model on the return on investment, great experience and clinical outcomes, that has allowed us to do that.
So what I would say is from a - Lee's already commented on the - how - it plays out similarly from a population perspective. My comments are, this is really a great validation of the work that we were doing in the government space as well as the whole person platform, and that's significant and unique and really represents great opportunity for us in other situations as we move forward.
Great. And just my quick follow-up on that would be, any - given the size of the deal, any unique upfront costs or whatnot that - Lee referenced sort of an uptick in expenses in the second half of the year. I guess this would be contemplated in that, but are there unique costs to a deal of this magnitude?
No, Don. No unique costs. And again, we did factor it into our guidance.
I'm afraid we've reached the end of the time allotted for the question-and-answer session. At this time, I would like to turn the conference back over to management for any closing remarks.
Appreciate everybody's interest in Livongo and in terms of what we're doing in remote patient monitoring for our members. And I want to thank all of you for your - for what you're doing and stay safe and healthy out there. And look forward to connecting with you in the future and keeping you updated on what's going on at Livongo. Have a great day.
Ladies and gentlemen, this concludes today's presentation. Thank you for participating. You may now disconnect. Everyone, have a wonderful day.