LVGO Prelim Q2 Update

Livongo updates with preliminary numbers for Q2.

Now guiding $86-87M vs previous guidance of $73-75M.

2019 Q2 was $40.9M. New guide at top end is 113% growth vs prior top end guide of 83% growth.

“Livongo’s momentum coming into the second quarter has continued, and we believe is attributed to our unique ability to deliver measurable and proven clinical and financial results at scale. The COVID-19 pandemic has only magnified the need for Livongo’s solutions, which goes well beyond remote monitoring and video visits to generate consumer directed virtual care,” said Zane Burke, Chief Executive Officer of Livongo.

https://ir.livongo.com/news-releases/news-release-details/li…

Darth

Long

50 Likes

That is a HUGE beat and it is worth remembering when they announced their actual Q1 results they beat their pre announced guidance. I would expect that to happen again and am looking for $90M+ revenue for Q2. If I am correct then it will result in an acceleration in their revenue growth from 115% in Q1. Excluding ZM this is best in glass growth. Really exceptional.

13 Likes

Need to add that 2 to 3 million of the raise is non reoccurring.

Well after a 250% gain I had to jump off this rocket this morning. I certainly wasn’t expecting this sort of return over the next three years, much less three months. I’ll jump off most likely early at 92, which is above most analysts price targets already, conceding that the momentum in this name could bring it to 100 by days end and 120 in a week. I just don’t know, but I’m comfortable moving out at this time and into a couple of other names I want to be in.

TMB

1 Like

Hi TMB,

Can you provide more detail around your reason for selling at this point? For example, do you feel that LVGO’s growth rate will not continue to accelerate as it has over the next few years? Or was it just profit-taking? Or a combination of something? What would you consider to be your higher conviction companies vs. Livongo?

Thanks,
Rita

13 Likes

my 2 cents - This is exactly as expected. They will also easily achieve 100%+ YoY revenue growth for Q3 and Q4 IMO. I expect them to be at a $100M+ quarterly revenue run rate by the end of 2020. If I am calculating correctly, I think that puts their forward EV/S around 18. Starting in Q1 next year I think it is going to be harder for them to achieve the 100% threshold, but we will have to see how things develop over the next 6 months.

You never know when they are going to announce another big new client signed up for next year, and you never know when they might announce international expansion or expansion into other chronic conditions. Any of those news items could drop on any given day (or not for months).

I believe they have preannounced like this for the last three quarters at least - I was not following them last year so I’m not sure if they have always done this. I’m curious if anyone has any theories on why they preannounced? Last time I thought it might be because we were in the middle of the Covid issues flaring up and they wanted to reassure investors. The quarter before that they did it around the time of a medical investors conference and several other companies also preannounced before that conference. This time I have no idea why.

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Amazing numbers. Long LVGO. Telehealth is so relevant during these times. monitoring health remotely is just in its infancy and I don’t think it will disappear after Covid subsides. I’ve been researching more telehealth companies and stumbled upon OTRK. Anyone heard of it? They were formally CATS. Curious to learn more

I’ve been researching more telehealth companies and stumbled upon OTRK. Anyone heard of it? They were formally CATS. Curious to learn more

Hey rocio,

I found OTRK/CATS a couple months ago and have researched it alot. They’re definitely a telehealth play in that they deal with mental health and addiction by setting up communications between therapists and patients via phones calls and text messages (basically like TDOC, but simpler forms of communication). Their Ontrack program is a way for patients to receive mental care help from the comforts of their own home, which the company says is better because it flows itself into patient’s day-to-day lives, allowing them more comfort, less hassle, and less embarrassment from the negative societal stigma of mental health treatment.

Their business model revolves around working with insurance companies to offer their telehealth services. The insurance companies gives OTRK a list of all its members, Ontrack uses a proprietary algorithm to select which members are likely to need addiction health, but won’t seek it for a variety of reasons (embarrassment, busy schedule, etc). OTRK cold calls these members and offers them the service. OTRK has been reasonably successful converting cold calls to Ontrack patients, achieving a 20% conversion rate. OTRK gets paid $6,500 for each member that graduates its Ontrack program (which involves something like 9-12 months of treatment). Its a win-win-win in that it costs insurance companies waaaaay more than $6,500 to treat members who could’ve been helped, but didn’t seek it and are now in the hospital or expensive rehab centers. It helps OTRK because they get paid obviously, and it helps the patient because they get the help they need in a more comfortable and time-friendly way.

With all that, I’m actually on the fence about the company for a couple reasons. I’m not a huge fan of companies that have to cold call to get clients. OTRK themselves says there are a few problems with this method, including not having the right contact information for members (I think they said the contact list from insurance companies is something like 57% accurate). It worries me that they rely so much on another party to sell their product. Another thing is the gross margin. At 40%, its definitely one of the lowest GM of any company I follow. Lastly, I’m not convinced that their program actually works, since they haven’t treated many people, but insurance companies seem to think it does, as they’re signing up with OTRK at an incredible rate.

On the plus side, their past revenue is great (150%+ in FY19 I think) AND future revenue growth is basically lock-in at 100%+ for the next two years, thanks to contracts that went into affect at the beginning of July. Because they get paid AFTER a patient graduates the program, alot of their new revenue won’t show up until mid next year.

In short, I’m not about the business model or the product, but the company definitely has potential.

CloudAtlas
Long LVGO, (was coincidentally long OTRK call options until this morning)

5 Likes

Oh, just to correct my comment about OTRK’s 40% gross margins. They’ve been spending alot of money hiring people for that big contract that went into effect this month, so that’s been dragging on margins a bit. I wouldn’t be surprised if they get some economies of scale and it increases a bit over the next year. I don’t expect it to go past 50% though.

CloudAtlas

AnalogKid70,

Original Q2 guidance implied 83% growth on the top-end and now it has been revised to 113% growth. Last quarter they also pre-announced revenues and ended up beating those numbers again by 3.5%. Applying that to this pre-announcement would result in 120% growth, a re-acceleration from 115% growth in Q1 which is incredible. Given such a big discrepancy between guidance and the actual numbers they were going to announce, I think it’s good practice to pre-announce. It should also be noted that $2-3M of the raise or ~25% of it was a one-time boost that was probably not factored in originally. Either way, it looks like they were going to see re-acceleration in revenues which clearly shows that COVID-19 has impacted their business in a very positive way.

6 Likes

I suspect one big reason companies pre announce is because the stock action shows that news of the report is leaking out. There are lots of vulnerabilities in the preparation of the report , lots of people are involved. The SEC only seems to go after people who buy a bunch of options . I would not be surprised if news of early release also leaks out to institutions.
IMHO it is unfair to small investors to release early, we can not hear the conspiratorial whispers but can watch the stock price. Even if we do not know who is buying.

5 Likes

“ Hi TMB,

Can you provide more detail around your reason for selling at this point? For example, do you feel that LVGO’s growth rate will not continue to accelerate as it has over the next few years? Or was it just profit-taking? Or a combination of something? What would you consider to be your higher conviction companies vs. Livongo?

Thanks,
Rita“

Rita, I think the price has gotten ahead of itself and I wanted to lock in pure profit in a tax deferred account and move the money into a couple of other names I like after reading Beth Kindig’s analysis of could names for the second half of 2020.

Really just that simple. Reallocate funds from a 250% gain to stocks I think have more long term potential price appreciation then LVGO has over then next few years.

I cannot unfortunately say the names of the stocks because I need to honor the privacy of that information from Beths paid service.

If LVGO were to correct back down to the lows 70s I’d very much consider buying back shares.

TMB

2 Likes

Found a video interview with the CFO from Livongo, Lee Shapiro discussing the updated Q2 guidance from this week. Should be a public video without the need for an account with the site. I found it compelling and helped confirmed my conviction in the company. The other article I sent out this weekend from their website triggered me to add on to my position on Monday which paid off quicker than I expected. It has now organically grown for a tie as the largest full position in my portfolio - alongside CRWD FSLY and ZM. I’m still learning how to review and evaluate financials like some the experts on here so I look forward to your analysis when Q2 results officially comes out.

https://tdameritradenetwork.com/video/rB4AoXMqGJ-Bcy7zqSABGQ…

Items that I found interesting:

  • Livongo expects to be profitable in 2021
  • They’ve built specific modules to help provide more tools to users who are having additional health related challenges, such as stress/anxiety during Covid 19
  • Confirmed that Covid has magnified the need for their solutions (if that wasn’t already apparent)
  • Two major drivers; enterprises continue to choose Livongo due to hard return on investment and financial results of scale. Data science capabilities are paying off higher than expected - Member enrollment and retention is up.
  • They’ll aggressively invest in the market opportunity (with the additional revenue) Getting prepared for market expansion (no specifics on that)
  • “Massive” TAM opportunity for them. 34M US people with Diabetes. They manage around 300K. And there are around 500K new diagnoses per year. Expand to international down the line as well.

There was also a recent article on SA with a pretty (Perhaps very) bold statement in the title if anyone is interested. https://seekingalpha.com/article/4357565-livongo-amazon-of-h…

Long LVGO
Eliasbeta

31 Likes

Thanks for sharing the video link Eliasbeta. It is always very informative to listen to Glen or Lee, two truly brilliant executives.

Thanks cloudatlas! OTRK sounds like an interesting company. But agree with you and think LVGO’s biz and product is better. I’m happy to be invested in LVGO but wish I had bought allot more back in March. Can’t complain to much as I’m up big In LVGO- 338% in one account and 275% in another. Im looking forward to adding more to the position. Best, rocio

seekingalpha.com posted an article yesterday entitled “Livongo: Not As Expensive As You Think”.

link here: https://seekingalpha.com/article/4357679-livongo-not-expensi…

Note the author states they’re long LVGO, so filter the data in the article through that lens. I found the article interesting and wanted to see if the findings were reasonable. The article asserts that, on the surface, while Livongo looks very expensive with a P/S of 45, (as of yesterday), looking forward it’s not as expensive.

Please follow my analysis (I invite feedback)…

Q1’20 LVGO revenue = $68.8M

LVGO revised their Q2’20 revenue forecast to $86M to $87M. If we take the lower end of the range we get 1H20 revenue = $154.8M: (= 68.8 + 86)

So to hit the analyst’s estimate of $313.1M would require LVGO’s 2H’20 number to be ~$158.3M or just ~$79.2M per quarter, which represents a sequential ~9% decline in revenue, from Q2 revised numbers…

So given LVGO guided Q2’20 to ~$86M to $87M suggests the $313M ’20 revenue forecast is very conservative, likely an easy beat.

So let’s do some modeling to estimate what the actual '20 revenue might be:
Assuming 20% sequential growth for Q3’20 and Q4’20, (down from the 26% Q1’20 to Q2’20 sequential growth), results in an annual revenue in the neighborhood of $384M, which would represent a 23% beat to current analysts recommendations of $313M for '20.

The article makes some price to sales comparisons which you can read. I’ll make some different assessments, modelling a growing share price, starting with forecast of $384M for '20 revenue. See table below


Year	YoY Growth   Sales($M)	%change in YoY growth from previous year  Price per share	P/S
2020	108%	     $384 	             baseline 	                       $106 	       26.8 
2021	86%	     $715 	              -20%	                       $200 	       27.1 
2022	69%	     $1,209 	              -20%	                       $300 	       24.1 
2023	55%	     $1,877 	              -20%	                       $400 	       20.7 
2024	44%	     $2,707 	              -20%	                       $500 	       17.9 

Now this data assumes a constant share count but it also assumes a modest YoY growth rate decline of 20% per year. So while the annual revenue is growing, the rate of growth is declining by 20% per year, if that makes sense. The data suggests that LVGO share price could approach $500 per share and achieve a Price to Sales ratio of about 18, given the assumptions of the analysis above. Note this is a “back of the envelope” analysis for entertainment purposes and not comprehensive of all the dynamics of the company or external factors. You are welcome to prepare your own analyses to quantify the attractiveness of LVGO.

I hope you find this data useful.
Gary
Long LVGO

36 Likes

The article makes some price to sales comparisons which you can read. I’ll make some different assessments, modelling a growing share price, starting with forecast of $384M for '20 revenue. See table below

Gary, those are great what ifs, but the truth is we have absolutely no way of knowing what LVGO will be doing in 2024. To me it’s 1 quarter at a time. Is there any way to predict LVGO will be growing at 44$ at over $2 billion revenue, let alone what the P/S ratio is? No. There is not. So I just track what is happening rather than what I think/hope happens. I mean this is the whole point of growth investing, buying stocks of companies that are growing where future growth is not baked in the price yet, but we have no idea what future growth will be.

Long LVGO as well.

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Hi 12x - I agree with you 100%. No one has a crystal ball, even in the most stable of environments, let alone the current state of affairs. I guess I just wanted to see if the analysis was even in the universe of being possible. And I don’t love the Price to Sales ratio as tool to inform valuation. I just went with it because the author used it. I prefer Ron and Saul’s EVOS/Oomph factor as a simple, relative comparison, but even that calculation is dubious for valuation assessments.
Thanks for the feedback!
Gary

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Thanks Gary for sharing,

As to forecasting the shareprice agree that it has entertainment value but forecasting revenues is very meaningful.

I believe that a player emerging from the pack, Livongo seems to be such a player, will have powerful and lasting network effects:

  1. Bringing in Livongo to a greenfield healthplan is quite challenging but easy in comparisson to ripping it out and replacing it. The cost, hassle factor of retraining doctors and patients would be tremendous.
  2. Adding new conditions for a trained user base is much easier and will increase the client ROI and as well as user value.
  3. Once you have the data and you got more of it than any other, you then have an edge, think how the FANGs are using their data to innovate and/or buy competitors.

Nik

4 Likes