LVGO question for Saul or anyone else

Hi Saul, want to say thanks for everything. I’ve learned a lot and really appreciate your work and sharing of knowledge. And same to everyone else too

I had a question about adj numbers. The question I guess is … do you ever compare Adj to GAAP numbers to see the discrepancy? Like if there is a huge difference in adj vs GAAP, does that affect your thoughts? Or do you only look at adj?

Maybe that’s too vague but hope it makes sense. Any thoughts from anyone are appreciated

To illustrate, I’m looking at LVGO. I’ve read the posts here + Bert and a few other places. So to describe my question here are some numbers I pulled from their last report, which was Q3 2019

For Q3 2019 the GAAP vs Adj margins are:


GM:         73.85%   vs 74.96%

Op Margin:  (45.25%) vs (10.23%)

Net margin: (42.25%) vs (7.22%)

This is a huge jump for Op and Net margins in GAAP vs Adj

But the reason I’m compelled to ask is because the adj numbers improved dramatically yoy. Here’s what they look like

Adjusted margins from Q3 2018 to Q3 2019:

Adj GM improved from 70.97% to 74.96%

Adj Op margin improved from (50.78%) to (10.23%)!

Adj Net margin improved from (48.13%) to (7.22%)!

Just for reference here’s how those Op and Net incomes were calculated:

ADJ OP INCOME

(21,115) - GAAP Op income
15,580 - Stock based comp
696 - Amortization intangibles
11 - Acquistion related
55 - Change in fair value of contingent consideration

(4,773) - Adj op income

ADJ NET INCOME

(19,712) - GAAP net income
15,580 - Stock based comp
696 - Amortization intangibles
11 - Acquistion related
55 - Change in fair value of contingent consideration

(3,370) - Adj net income

So I guess to reframe my question, given that the adj op and net margins improved so dramatically yoy, does it trouble you that there is a huge discrepancy in adj vs GAAP in the last quarter?

AND SOME OTHER NOTES FOR FUN:

  • Revenue growth from Q3 18 to Q3 19 was 18,782 to 46,658. An increase of 148%
  • 2.5 bil market cap company
  • P/S is approx 18
  • didn’t see in their report, but Bert in his SA article said they have a DBE of 114%
  • Looks like only about avg 930 shares traded daily
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Hi gmcnatt,

I don’t follow LVGO but I can take a stab at answering your questions.

First, I usually don’t actually even look at the GAAP figures. They are for required for the company’s filing with the SEC, but I don’t consider them as being of use for investors.

Second, you refer to the:

Adj Op margin improved from (50.78%) to (10.23%) yoy!
Adj Net margin improved from (48.13%) to (7.22%) yoy!

I would suspect that another figure you gave explains those pretty well: Revenue growth from Q3 18 to Q3 19 was $18.8 million to $46.7. An increase of 148%!. (Increasing your revenue from $19 million to $47 million in a year will do a lot for margins!)

As far as the adjustments they used, they were primarily due to stock based comp which GAAP takes as an expense even though there is no expense to the company, so adjusted backs that out. This is absolutely standard procedure for almost all tech companies. If you read the recent conference call transcripts for Alteryx and Datadog, you’ll see that in both cases, after giving revenue numbers the CFO says “From now on I’ll be referring to only adjusted values (unless specifically stated).” I suspect the stock based comp reflects grants given in connection with the IPO in July, which is also pretty standard. Removing amortization of intangibles (which GAAP also takes as an expense although no cash is involved) is also absolutely standard.

I hope that this helps.

Saul

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