Q4 2019 Earnings Call
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At this time all participant lines are in listen only mode. After the speakers presentation. There will be a question and answer session to ask a question. During the session. You want me to press Star one on your telephone please be advised that today's conference is being recorded.
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Thanks, Judy Thank you for joining us this afternoon on our fourth quarter and year end 2019 earnings call. This caused me broadcast live over the web and can be accessed until we hold or next quarter's earnings call any investor Relations section of relevant goes website www dot longer dot com.
Joining me today to discuss our results are Xen Burke, our Chief Executive Officer, Dr., Jennifer Snyder, our President, we Shapiro, our Chief Financial Officer, and Glenn Coleman, our founder and executive Chairman our prepared remarks, we followed by acuity session.
We would like to remind you that during the course of this call. The longest management team will make projections and other forward looking statements regarding future events or 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 did the documents we file from time to time with the Securities Exchange Commission, specifically, our most recent.
Finally 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 relation site.
I also want or former listeners the 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 non-GAAP measures to the gap comparable results.
Finally, we have adopted a new revenue standard assay six to six using the modified retrospective transition that the effective December 30, Onest 2019 in the script. We will report our 2000 financial performance under the old revenue Saturday I see sexual FID and walk for our financial outlook for 2020 under the new method see six six.
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.
Full year earnings press release.
With that I would now like to turn the call over to our Chief Executive Officer Zane Burke.
Thanks, Alex and thank you everyone for joining us this afternoon.
We finished 2019 with excellent momentum and enter 2020 is well positioned to pursue our mission of apart people with chronic conditions to look better and healthier lives.
Before I turn the call over a doctor cider to discuss the progress were making with our whole person platform and to lead to review our financials and 2020 outlook, Let me highlight our momentum and as a 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 the boundary for diabetes members by 96% for the year.
Adding 109000 members and finish Amir with 222700 members.
And we continue to drive greater leverage in the business, which Lee will talk about more in a minute.
We also continue to experience robust new client signings, we had a record Q4 <unk> $76.7 million and finished the year with 804 clients.
Perhaps the most important statistic ball, we had experience a record number of client launches so far in the first quarter with 424 already launched compared to 231 launches and all of Q1 last year.
This is a significant statistic for us because early launches in a monthly recurring revenue business gives us more amounts of revenue into year.
We're also seeing great adoption of both our core diabetes offering as well as our other offerings.
In addition to accelerating the adoption of a longer for diabetes and the self insured market.
Where we now reach over 30% the fortune 500 companies were successfully extending into a fully insured and government markets. This was evidence in 2019 by agreements with Blue Cross Blue Shield, the Kansas City, and the federal employee program as well as by the New Jersey State and school employers Health plan.
At the same time, our newer offerings are gaining traction.
We finished the year with over 48000 members for our other offerings and hypertension and pre diabetes weight management, specifically in Lubanga 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 cells velocity across multiple conditions.
C D S. An express scripts now include our solutions for hypertension.
Pre diabetes weight management in addition to diabetes positioning us better to serve their health plan and self insured employer clients.
At Express scripts Lavaca is the only preferred provider for its digital health formulary, Hey, formulary, where express scripts because now it's taking risk which speaks to the financial ROI We drive.
Bango also received preferred status within express scripts, new help connect Threesixty solution, which is the industry's first outcomes based model that centers on engaging people in their care.
Our progress on all these brands gives us confidence in our 2020 plan.
Moreover, with more than 147 million Americans living with chronic condition and 40% living with more than one.
We have plenty of room to grow our addressable market.
Strategy, it's a deliberate whole person platform that addresses multiple conditions and one integrated platform that is powered by <unk> data engine twitchy personalize outcomes.
Through our proprietary engine, we're processing more than two transactions per second.
This demonstrates both our scale and our advantage and being able to use personalization and information to drive the business and further and former platform.
Dr side, I will talk more about this in a minute.
As we fulfill our mission, we know where not only changing lives, but building a great business as evidenced by 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 and best in the business to capture more 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 Johnny.
Hey, Usain good afternoon, everyone.
We believe lavante whole person platform powered by or <unk>.
Positions us uniquely in the market, we are able to serve members better with our Datadvantage and do so any integrated experience on one platform.
This is also an advantage for clients because they don't want to manage multiple vendors and silo across their enterprise.
As Dean Manson, how are you know christened platform is the data that members and clients permit us together both from the devices. They use such as the Leviathan theater and for medical and Pharmacy claims social determinants of health labs, where the animal health.
Our <unk> data engine gathered all of this data interspinous valuable help signals that enable us to deliver highly personalized and actionable information unique each member.
This data is helping us drive member recruitment, where we can act the rate of what tele health 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 insight we call them not to.
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 disadvantaged by continuing to partner with metered 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 if I remember stream data from their Dexcom G. Six Tory data engine, the better inform avago full 24 by seven members support.
This is just the first step in what we see as an expanding relationships with more data better insights for E engine and strong support.
We have also partnered with TV in the retail health channel, which has a nationwide network of health station.
Consumers will be able to utilize piggy smart health station to measure vital health information better understand the risks a common chronic condition and determine if they are eligible for lavante those chronic condition management solution.
He allows us to meet members where the members are.
As we continue to build out or whole person platform, we remain committed two or three critical pillars of success.
One for you seem to consumer experience that our members love.
To driving real and scalable clinical outcome and three demonstrating a financial return on investment for client.
We think of all three of these are connected so that when members mother 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 entered 2020, having made great progress in each of these area.
In the area member experience, we achieved the 2019 net promoter score of positive 64 on par with them at the back in technology and significantly higher than what is typically seen in health care.
We also continue to round out our whole person platform with additional capabilities.
In addition to integrating behavioral health into the Lovano platform, we have partnered with tele health providers and be lie and doctors on demand. So numbers can address medication changes acute care or behavioral health needs within medical professional through our platform if they choose.
In the areas the living clinical outcomes, we continue to demonstrate strong result.
Ending 2019, we publish 34 abstracts and peer reviewed articles to date across our various chronic condition program and have 16 papers an abstract in the pipeline.
During the fourth quarter, we issued a study findings at the American Heart Association scientific session that showed members using the lovano for hypertension solution and a little longer for diabetes solution on an integrated platform. So I clinically significant blood pressure reduction after only four weeks and experienced further.
Her improvements after using the program for 12.
This study shows that by providing people with connected technology insight access to coaching and the ability to manage their condition outside of the four walls of the Doctor's office, we can drive sustained outside.
But even more impressive is that we can document outcomes through integrated platform across condition.
At the bomb, though we have one of the largest blood pressure datasets and consumer digital health industry and this study demonstrates their results at scale.
And finally, we continue to demonstrate real financial return on investment for clients.
For the past three years means completed numerous ROI studies for certain participating diabetes clients, where 99% of the study conducted for clients on our platform after year, one demonstrated a positive financial ROI.
100% studies for clients after your Q and here three demonstrated positive financial ROI.
This gives us tremendous confidence in the value we are delivering to both members and client.
With that I'll turn it over to me.
Thank you Dr. Schneider and good afternoon, everyone.
I am so very proud of the team at Lovano 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 amongst 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 lavaca 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 for EPA came from solutions other than our flagship lubanga for diabetes.
We believe this accelerating product density is evidence that our whole person platform powered by our eight I 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 S. C. Six so five.
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 and.
Thousand 18.
This strong performance was primarily driven by growth in our core live on go for diabetes solution and with meaningful contributions to revenues from our hypertension weight management and behavioral health offerings.
For the year, our enrollment rate and love Bango for diabetes was up slightly across the base to 35%.
Reflection of the many new clients, we started in the year.
Average monthly member attrition remains between two and 3%.
On the flip side. This means that retention is quite high.
Most member departures continued to be due to members, losing eligibility, which primarily occurs when a member leaves their current employer.
Lavaca go for diabetes members increased 96% year over year to 222700.
This was an increase of 109000 members from the fourth quarter of 2018.
Strength from our other conditions as I noted was evident with over 48000 members enrolled at year end it either lubanga for hypertension pre diabetes indoor weight management no debt. Some members may have more than one solution.
And we grew enrollments and behavioral health from approximately 200000 in 2018 to approximately 300000 in 2019.
Estimated value of agreements for EPA in the fourth quarter was 76.7 million compared to 56.1 million in the fourth quarter of last year.
For the full year, EPA 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 Q.
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 service members as exemplified by leverage of our AI AI engine in recruitment retention and use of digital coaching.
And we have started to defer cost for our hypertension.
Blood pressure cops in weight scales, which includes a onetime adjustment in the fourth quarter that positively impacted the quarter's results and which will be amortized from future period.
Even excluding that adjustment, we would've 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 our country model it experienced higher incremental margins from members who continue to stand our platform.
Over three points of this improvement came from the adjustment I previously noted of approximately $1.9 million.
For the full year gross margin was 70, 872.8% on a GAAP basis.
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 cost 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 my strict acquisitions and capitalization of internally developed software and also have a portion of sales commissions, all of which will be amortized to future periods.
A onetime adjustment in Q4 for the sales commissions, which 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% of 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 six cents per diluted share while attaining net income of $2.3 million on a non-GAAP basis or two cents per diluted share for the full year net loss was $54.9 million on a GAAP basis, where my.
And as a dollar eight per diluted share and 19.2 million negative on a non-GAAP basis minus 38 cents per diluted share.
We finished the year with approximately 94 and a half million diluted shares outstanding.
Adjusted EBITDA for the fourth quarter was $1.6 million compared to a loss of $10.2 million into same period last year, which reflects the improvements I've been discussing that we've made in our business. It also reflects a deferral of device cost for blood pressure cuffs and wait skills and capitalist.
Nation 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 wanted to stress that even after adjusting for the accounting related items outlined earlier, we've 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 I noted earlier in light of the massive market opportunity in front of us.
Turning to balance sheet. We finished the fourth quarter was 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 lock up of a number of our largest shareholders into March.
After the secondary effectively 32 million shares came off the IPO lockup on January 21st and another 45 million shares will come off on March 11th.
Please note that our largest holders are very supportive of the company and has been previously disclose where 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 Tenbfive. One plans, we do limit annual sales 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 office offer some context.
As a reminder, lavaca its business model is highly predictable based on a per participant per month subscription.
We bill clients that he monthly basis only for each participant for which they are obligated to pay.
At the signing of a clay contract it becomes recorded in EA.
Thereafter, we launched member recruiting with the support of our client and enroll members continuously thereafter. This is when we begin to generate revenue.
Please remember that EPA is recorded as a 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 HFC six so six you can find a reconciliation they assi six so five in AOCI six so six for both 2019, and our 2020 outlook in our slide deck slide deck on.
Our Investor Relations website.
Overall, the impact is in significant revenue and expense.
Turning now to outlook.
Of the 76.7 million in fourth quarter EPA.
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 Lavaca goes recurring subscription revenue model.
There are few businesses that I've experienced decking 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 three to half to four and a half point.
So for 2019.
We plan to continue to invest in the business in 2020, while simultaneously marching towards our goal of sustained adjusted EBITDA profitability in 2021.
These investments will manifest themselves as expensive more so in the second half of 2020 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 five and a half million dollars to minus $45 million. This implies first quarter adjusted EBITDA margins in the range of minus 9% to minus 7%.
With that I'm going to turn it over to the operator to take your questions operator.
As a reminder, Tasco question you want me to press Star one on your telephone to withdraw your question press. The pound key please standby will be compiled the Q and a roster.
Our first question comes from the line of Richard close from Canaccord Genuity. Your line is now open.
Great. Thanks, Congratulations on finishing the year off strong then I was wondering if you could maybe go into a little bit more detail you you highlighted the government and labor I'm, obviously had some success a in some health plan.
Then new Jersey, which you'd called out can you talk a little bit about those markets, a government and labor maybe the opportunities.
Composition of the pipeline or or magnitude in the pipeline.
And then also talk about health plan.
Thanks for answering a question [laughter] and so you obviously, we've we've made some great progress and the government space last year with our SVP agreement with our stated in New Jersey agreement and we see continued pipeline build in that space, both at the state level and at the federal and clauses.
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 number of.
Significant opportunities.
Both us and 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 we're seeing that kind of an outsized.
Growth in pipeline in that space and so we're going to continue to invest in that area as we move forward.
And when the health plans can you talk about your efforts there.
Thanks, Richard for the second part of that questions on the help on the health plan side, we added.
Nine health plans and the in last year and that which is significant overall, we had a number of.
Additions on the fully insured side.
And so some some.
Really really good progress in 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.
As a reminder, when we start typically we start with the air So are 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 couple of our large partners and ESI.
And CBS.
Okay, and Lee of follow up would be odd that you'd be a you're not can you talk a little bit about the the cadence on a quarterly basis when he be a.
You know that yeah <unk> sequentially. It declined from the third quarter, you did say you had a record level.
In the fourth quarter, but just talk about you know how way progressive quarter to quarter, and and maybe that that step down is and negative necessarily.
No, it's not it's down slightly quarter over quarter similar to what occurred in 2018, but frankly, we feel really great about having $285 million and EPA for the year.
Great growth year over year from 29 teen over 2018, and and also feel great about the pipeline going into the year Zane do you want to add something please I would just say Richard the all the leading indicators we have for our sales pipeline.
The number of opportunities we have both in terms of numbers and sizes.
Our.
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.
Okay, great. Thanks, I'll jump in the Q.
Thank you know our next question comes from the line of Robert Jones from Goldman Sachs. Your line is now open.
Hey, great. Thanks for the question I just wanted to go back to the visibility into 2020.
I know you guys are saying, 50% of deviate from this quarter is expected to convert in the next 12 months.
You know yet you're at 40% from from the Threeq V. I expect it to convert I guess really the essence of the question in the I think it into your comments you might have made 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 you know from where he VA stance.
So thank you for the question and when you think about this visibility because of our subscription base recurring revenue model, we have tremendous visibility this 90% number.
Gives us great confidence in terms of where we are in 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 in Q4.
There's frankly, great visibility to the that plus what we are ready view is being in place for Q1 of this year recognize that what we sell later in the year provides very little lift to 2020 on many of the clients that will sell in Q3 in Q4 will start to convert in 2021, and so we've done a tremendous.
This amount of work to set up the you're 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.
If I may just add one other part they really key to that.
Confidence we have is really that we've already launched over 400 clients.
Quarter to date and all of last Q1 and 2019. It was 231. So just gives you the flavor of how much visibility we have in the ramp up of that as we move forward.
Understood No. That's helpful. I guess, just a quick follow up because yeah. We've been getting this question as I'm sure others have as well.
Anything we should be concerned or thinking about around the corona virus impact on potentially supplies, a strips cuffs or devices.
No we have a varied supply chain across the world and we're prepared we are you may see in our.
Balance sheet overall, we had investing in inventory at the ended the year and frankly that was more of a hedge against the trade challenges that made that some of those that may be just 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.
A large number of launches as well as protect against any kind of issues from a trade perspective.
Okay, great. Thanks.
Thank you Sir our next question comes from the line of Sean Wieland from Piper Sandler. Your line is now open.
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 in forms or does that better inform the algorithm and improve the value proposition.
Sean This is Jerry thanks for the question second we're really excited to be partnering with the leading CDN provider desktop we believe that in conjunction with what we offer it really allows us to get more data points and so we can drive an incredible member experience.
So we have a consistent stream of blood glucose data or those members to opt into share that data and that allows our AI engine. So the liver continuous ongoing insight on top of that the collection of data that exact time is able to provide we're really excited nearly here since your announcement as we continue to invest in should grow in this part and said.
Today, our baseline of end users that reflects the general population a CPM users and that is it reflective of both people type one and with people with type two.
Okay, Thanks for that and.
The growth that you're talking about a new business what percent of this is coming in versus direct versus channel relationships.
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 all a lot of the work.
And I don't want to in by any means suggest that they are an important to us they're great partnerships, but we still do a lot of that worked directly.
Okay. Thank you and then just one 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 launch is that an apples and oranges, how do I compare those two numbers.
It just gives you a sense of the the ramp rate that we had from.
Q4 inches, we looked at Q1 day significant acceleration in those launches and really where we look at as quarter over quarter, you look at that that.
400, plus versus the 231 in Q1 of 2019, So we think about it in a 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.
Okay. Thanks very much.
Thank you. Our next question comes from the line of Ricky Goldwasser from Morgan Stanley. Your line is now open.
Yeah, Hi, good afternoon, and congrats and again, a good quarter. So first when it just to get better understand it see density off the client density. Obviously, you you were seeing some nice ramp in class or buying more than one offering can you give us a little bit more color on what type.
Oh customer.
We're worried that type of so resonates, it's a function of the fact that you're starting to see increased penetration of fortune 500 or are we seeing it also with with Delphi business.
This is zane thanks for the question Ricky it's actually across our business. So when you look at it you you start first with 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 and 2019 in that Fortune 500.
I was very significant for a long ago, 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 in that marketplace is the is where the growth does.
But then we also added to our significant partnerships that 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 won't really see that affect our EBITDA.
Until this.
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 front feet 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.
Are the EPA coming from outside of diabetes management is proof that our whole person model.
As is working in that regard.
And so we continue to drive like that side and as you think about just one more thing around the.
Yes, I 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 there if that if the history holds true in terms of being the preferred on the formula.
Right, we should expect an outsized.
Share of the solution on art the solutions that we have under contract which is.
Basically everything so.
I'm really excited about how we're seeing across.
Our.
Entire client base the health system side, the health plan side is beginning to buy.
Increasingly on the on those other solutions as well, but it's a little bit behind where the commercial and the partner side as at this point.
Okay, and when we think about that it is side its going to.
Opportunity kicking in in 2020 should we think about that is upside to 2021 revenues or can we see that benefiting revenues already in 2020.
But not to most of that will be the eight.
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 in Q4 of next year.
And 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 can do shows up in periods looking forward and where we're able to it because we have such a predictable model.
It allows us to look forward to 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.
And when we think about see gross margin I mean, obviously you exceeded our expectations meaningfully you do it there's some moving pieces in any of that gross margin figure can you give us a sense of what gross margins would've been excluding these days one timers.
And how compares to your long term goals and given what you're seeing now are you looking at it kinda like <unk> upping the guidance for for a long term profitability.
Oh. Thank you for the question, we expect that our margins will be in the same range that we spoke to previously in our our long term operating model in kind of that low to kind of 70% to 73% range.
And that would be consistent with what we achieved in 2019 from from a gross margin standpoint are 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 three points of that margin came from those adjustments of.
$1.9 million, but we would have been somewhere in the range of.
You know 70, 374% without it.
Thank you.
Thank you. Our next question comes from the line of and Samuel from JP Morgan. Your line is now Ben.
Hi, guys. Thanks for taking the question I was maybe just hoping to piggyback on Rockies question on the margins I believe you spoke to some investments more back half weighted I was just hoping to me maybe you could explain a little bit about what's driving the seasonality and well that carry into the first half of 2021. Thanks.
So the investments that we're making our 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 in our another 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.
Very helpful. Thanks, guys.
Thank you. Our next question comes from the line of Scott Berg from need him. Your line is now open.
Hi, everyone. Congrats on great quarter than thanks for taking my questions have one that will follow up I guess on the first one I don't know, it's dean or Jennifer wants to take this but.
The platform. The AI platform is obviously grown a lot in terms of the amount of data that you've been able to bring onboard the last two years given the growth of the company, but as you look the information or the nudges that come out of that they can you help us understand maybe how that's changed over the last few years outside of just more data maybe the awards individual nudges, but as I.
The information coming out at a different at all.
Yeah, It's a great question and think that they just have recap the amount of data that were ingesting have a shared earlier in the earnings report about Q2 transactions per second so were up over 500 million data points that are in just again, sorry, I mentioned the output the nudges et cetera consistency.
Things they consist of information regarding the person health status.
And a series of words that allow them to change their behavior. So we've built the Dutch system I know reinforcement burning platform, whereby every part of member interact 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 take the accent and then adjust those so words and are they recommend.
Jason So on an ongoing process and so our ability to demonstrate in document behavior change and we've done some publications there as well it's continued to drive clinical outcomes in cost savings is truly and results of our Iot platform.
Got it helpful. And then a follow up we when you have members that work with some of that CGM auditors, we'll take the Dexcom partnership here is to those members are the revenues from those members are they more profitable or do they differ at all from a traditional member today and I.
The question given that probably from the supply side. They are using less supplies didnt know that needle move significantly as maybe some of those membership to those device overtime. If you let me start and I'll ask Dr. Schneider to comment.
Today, there is no difference those those members who happen to have a continuous glucose monitoring I'm also receive a device from us and they're using our device as well as their continuous glucose monitoring in many cases, they're sharing their CGM data with us.
But we don't see a difference in profitability to date longer term.
I think that that is something that we'll see as they come to rely more on the partnerships in the kind of activity that we have with the CGM partners that we work with Dr. Schneider.
Yeah, I think that's right and I wasn't underscoring echo that most people who use the CGM and use a finger stick intermittently well if you've ever wise when they sometimes fall off and Thats really that's compatibility between offering both to an individual member, but even more so the value that a member gets is directly proportionate to our ability to understand the data.
And for the earlier, playing around really nuts, and dried behavior teams and their recommendation nowhere three.
Okay, Great Super helpful. Thanks again.
Thank you. Our next question comes from the line of Donald Hooker from Keybanc. Your line is now open.
Hey, Great Oh, that's I mean, I just want to the second with you in terms of since we're we've gone through enrollment season here in terms of where you out in terms of pricing I guess for four years surfaces, I guess, mainly Oh I mean, the diabetes service I mean can we assume sort of similar pricing that we've seen.
As we go into 2000 2021, as we've seen in the past or use or.
Are there is there some movement there for whatever reason, whether its competitive pressures or whether its bundling or anything else that we should think about.
Great question. This is and we're continuing to see our and our pricing.
Called stable and in fact because of their our return on investment continues to grow.
We believe that we can use that to sell or 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 towards those other solutions. So.
If anything we're seeing continued x. I, you know a willingness an acceptance to bet on the future side here and we've not seen any changes in the in the pricing model overall today.
Okay Super and then you think Zane you threw out be interesting factoid that.
Over 40000 members are using.
Services other than diabetes.
Maybe just as a sensors that are most those numbers kind of cross sales to existing diabetes. If you could ballpark for US are you kind of seeing are those services sort of separately going into market and seeing traction with separate clients I guess.
It would be my question.
What you're seeing today is is mostly a a lead with our whole person strategy. So it's actually yeah were 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 the other solutions as we move forward, we have not yet aggressively pursued a stand alone so related to.
To the solution sets, although weight management.
It has been one of those areas.
It has had some some success on its own on a on a lead with basis. So I appreciate the question.
Operator, if we can we'll take one more question.
Thank you Sir our next question comes from the line of Richard close from Canaccord Genuity. Your line is now open.
Thank you for the follow up just quickly on enrollment rate I don't think there was any update there can you provide us any more information on where enrollment rates are trending.
Yes missing this is John Ethan we see then an uptick in our overall enrollment across the book of business by <unk> percentage point, and what we've been able to see is by market market comparison, and even higher amounting improvement and enrollment given our ability to penetrate into the vast markets as the government and into the payer.
Markets and we see that those enrollment rates come a little bit slower and so they they pan out a little bit slower over time, but across the book of business, we have been able to see improvement even more so if you compare market by market.
Okay, and then for E.V.A. do you guys still sort of factor in roughly a 25% enrollment right.
That's correct and just to expound on Ginnies comments, a little bit what's really.
<unk> is where it actually able to get to the some of these bigger populations that other companies can't scale to they may have some lower enrollment.
Front 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 better.
Thank you so.
Great. Thank you so sorry go ahead.
Thank you at this time showing no further questions I would like to turn the call back over to the same Burke CEO for closing remarks.
Thanks, JJ I want to thank you all for your interest in Avago, we're very pleased with results in 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.
Ladies and gentlemen, this concludes today's conference call. They try dissipating you may now disconnect.
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