I dont have much to add in terms of analysis, but given the upcoming lockout expiry (on Jan 21), I may add to my meager holdings. Its up about 20% since I added a small position to my portfolio on Dec 31.
Its also worth noting that some insiders agreed to hold off another 90 days beyond the lockout.
The market may be reacting favorably to LVGO’s recent partnership with DXCM:
January 13, 2020
Livongo and Dexcom Partner to Integrate Dexcom’s G6 Continuous Glucose Monitoring System into Livongo’s Applied Health Signals Platform https://ir.livongo.com/news-releases/news-release-details/li…
No financial details were disclosed. (BTW, DXCM shares have gone from $60 to $240 over the past two years.)
I like LVGO for everything that they are doing…I have a small position…
I am constraining myself to jump in big time by looking at their cash burn… its very high… to achieve a revenue of ~$120M for first 3 quarters of 2019, they burned $55M in operations…
I agree that of the $55M burn, they have $24M added in accounts receivables (i/e/ expect customers to pay) AND they added $12M in inventory… I worry about the business model that forces such large investment in working capital and inventory…
And ofcoure after those two items, they still have $20M burn on $120M revenue…
So I am being cautious… will be happy to hear any argument to reduce this concerns…
This morning I rewrote your cash flow question, sent it to LVGO, and promptly received a response.
Re: Cash burn/Cash flow
My question: The presentation at the J.P. Morgan conference didn’t provide much discussion of your financials. I am somewhat concerned about your cash burn/cash flow situation. I understand that more financial insight into 2020 will be provided with the Q4 earnings release. What is management telling investors about your cash flow now?
LVGO’s response:
Thanks for your email. Appreciate the feedback and will consider this when we deliver future presentations at other conferences.
As for your question, we finished last quarter with roughly $400m in cash. While Cash Flow from Operations ran negative $55m through the first three quarters of the year due to operating losses as we invest in the business to capture more of the market and build out more of our whole person platform, management has stated it anticipates Livongo will turn positive on a non-GAAP operating margin basis in 2021 (Not for the full year but we anticipate we’ll get to it during the year).
One other thing to keep in mind about our business is the retention rates are quite high so once we get a client there is significant lifetime value. This makes for a good long-term model. For example, client retention is 96% and while individual member retention is lower, the reality is that three quarters of the members who do churn off our platform are doing so because of a change in employment rather than a dropping of the service. This is significant because it means as that job is refilled by the employer it is filled with a population with the same propensity for a chronic condition so we can replace the lost member. When you adjust for this, Member retention runs about 93% per year.
Hope this helps.
My comment: Unfortunately, this response doesn’t tell us much beyond what we already know. But it’s all management is prepared to say now…”we invest in the business to capture more of the market”…Where have I heard that before?
Nevertheless, I recommend you take a look at the business model near the end of the J.P. Morgan presentation; it seems sound to me and early progress toward their goals is good. (I would post the model here but my computer is not cooperating!)