LVGO question

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I received this question off-board and thought it was worth responding here. I’m also curious to see if any other LVGO holders care to chime in.

I have a question about Livongo and wanted to get your thoughts. From your monthly report Livongo is a high confidence holding and I can see why based on their metrics from last quarter. However, I’ve been thinking about the recession and how it could affect livongo for this coming quarter and through the current recession (my personal guess is it’s gonna last at least a year and likely longer). If we’re seeing record job losses and consequently people losing their health insurance, would it be fair to reason that livongo’s business could experience a significant slowdown starting next quarter? Their last quarter ended at the end of March so their numbers probably didn’t reflect much if any of the recession at that point. Livongo used to be a high conviction stock for me but my concern for people losing their jobs/health insurance has me thinking if i should take some of my money in livongo and diversify into a stock that might have a better chance of thriving during the recession such as Fastly.

What are your thoughts on how livongo might do during the recession. Do you think my reasoning makes sense or is there a part that i failed to consider. Any insights you could provided is really appreciated.

That’s a valid risk. The counterpoint is LVGO could possibly see even higher adoption from eligible users who ARE still employed since the benefits of remote monitoring and potentially improved health are clearly magnified by COVID. Those with chronic conditions are almost certainly hyper-aware of their options for staying safe right now.

Stepping back, I wouldn’t necessarily anticipate a lot of churn in the number of companies using LVGO. Unless they go bankrupt, they are already committed to offering the service for 2020. To your point however, the number of eligible employees could very well decrease due to layoffs and/or downsizing. I’ll be watching next quarter’s numbers and call comments closely to see if churn is a potential issue. Until then, I don’t believe there’s enough information to make an actionable call.

Please don’t take that as any advice on what you should do with any LVGO shares or whether to switch to FSLY. That is entirely your call. The above is simply my opinion of LVGO’s churn risk at the present moment.

Thanks for asking.

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It is a good question… and does apply to many of companies discussed here… e.g. if large # of employees are laid off, there will be fewer end devices to protect for CRWD and fewer employee sign-ins to provide by OKTA…

Having said that - devil is in the details… and you must look at one or two layer deeper facts.

  1. These companies (including LVGO)have reported increased business activities in 1Q and forecasted so for 2Q when they all reported at-least at the end of April or later.
  2. Why this is happening - because if you look at the layoffs, a large portion of that ended up being low end / low paid jobs in restaurants and entertainment industries… they were mostly jobs that required to be on-site AND customers also be there physically… this is why I believe in the month of May, average US wage (or a metric representing such) had gone up despite massive layoffs… or say because of massive layoffs at lower end of wage spectrum…
  3. And this is a guess but reasonable one - that those lower end of wage spectrum had less health coverage to relevant to LVGO(and fewer end devices to protect to be relevant to CRWD… and so on)
  4. And last but probably most important in case of LVGO - its is widespread understanding that “underlying condition” can make a difference on covid infection from being a minor to a life threatening situation… in other words, Covid infection could be a bigger problem for someone age 75 vs 45 all else being equal… but it is as big a problem for someone age 45 with “underlying condition”…
    And guess what are most common underlying conditions to worry about? thats right - diabetes and also obesity (and they are correlated in many cases) are there on top of the list.

So this is why I believe LVGO has acceleration of business due to covid and any drop off due to layoffs is more than overcome with covid driven need to use LVGO services…

I could be wrong… been proven wrong many times… but this is my current view / understanding

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Agree with Nilvest. Adding one other thing: For those who do have health insurance, the rather high expense of Livongo program is borne by the insurance company, who sees a huge savings over the option of a diabetic not following the program. They see Livongo as spending a little to save a ton.

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Lee Shapiro, their CFO, addressed this specific question in the last conference call:

www.fool.com/amp/earnings/call-transcripts/2020/05/07/livong…

“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.”

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I would echo management’s statement posted by HeardItBothWays. To add, on the call they mentioned they were incorporating some aspects of churn into guidance. Q2 guidance was quite conservative and this was picked up on by analysts who called out the 9% sequential bump.

Livongo charges $68/member/month for their diabetes solution and incorporating a 2% monthly churn nets out at $64.3M secured. They need an additional $10.7M to meet their $75M top-end guidance but this does not take into account their other 3 solutions nor member additions this quarter.

Last year in Q2, Livongo reported a 27.8% sequential revenue increase, in Q3 it was 14%, and in Q4 it was 7%. As we know, Livongo has a seasonal business model where member additions tend to be higher near the start of the year coinciding with new contract launches and client adds tend to be higher near the end of the year as they hash out their benefit plans. So putting this into context, a 9% bump seems very conservative considering their business momentum coming out of the last quarter. I think this provides some cushion against member churn being higher than the 2% historical rate. Let me know if my math is off anywhere.

The other aspect of this is the fact that from a regulatory and social standpoint, the pandemic has greatly accelerated Livongo’s long-term prospects and expanded the immediate addressable market in a fashion similar to what we saw for Teladoc, CrowdStrike, or Zoom, and I think any dip based on unemployment would be a great buying opportunity.

A McKinsey study found that 1 in 10 patients used telehealth services in 2019. Now, 76% are interested in and even demanding access going forward. Providers saw 50-175x the number of telehealth visits pre-COVID and 57% now view it more favourably. Recently, CMS announced that they are going to make some of the recent expansions in telehealth regulation permanent. Telehealth is here to stay, and I believe its future is going to be built on optimizing patient outcomes. Delivering personalized care to those who need it, when and where they need it.

A telemedicine provider like Teladoc makes medical resources available to patients when and where they need them but lacks the real-time data needed to produce the best outcomes. Livongo is revolutionary because it combines real-time data with actionable insights to inspire behaviour change. This leads me to believe that remote monitoring paves the way for a sustainable healthcare system that can not only withstand these challenging times but thrive in them.

Richard

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Many great points been brought up on this conversation.

One that has not yet is that LVGO was just selected by the Government Employee Health Association (GEHA). One of the largest contract in LVGO history. GEHA has not yet launched but LVGO factored in to back half of years guidance. Probably will bump up revenue greater than stated (my thoughts).

Management said on last c.c. that they continue to see strong demand in their pipeline and expect the government to take further actions to expand use of remote monitoring.

One thing I could see potentially slowing stock price appreciation is expenses increasing on back end of year because hiring more R&D and S&M. Capturing the opprotunities.

Anne Samuel – J.P. Morgan – Analyst
Hi, guys. Thanks for taking the question. 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.

Zane Burke – Chief Executive Officer
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.

Obviously management is bullish on the future.

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Let me add to the comments made here. Livongo is a high confidence position for me. The company has members in medicare, government retirement plans, state gov. retirement plans that are immune to these job losses. At the same time, they have clients like Amazon who are hiring a lot and offering medical coverage to a wider set of their employees. They continue to sign up new clients through multiple ways - health plans, PBMs, direct employers etc., partnering with HTA and Well Tok. Glen Tullman and Zane Burke used to run All Scripts and Cerner, both large companies. Their knowledge of this highly regulated complex business and the ability to develop partnerships is a moat.

Another mistake people are making is seeing Livongo as a small diabetes device company which is like seeing Roku as a hw device play. Livongo tracks data from diabetes, weight management, hypertension, and mental health. They plan to add many more like cholesterol in the future. I see them as a remote monitoring platform. Members can give access to all other types of health data through their tieup with Prognos health. They have hired a number of data analysts to make sense of all of the big data they get and offer actionable suggestions to members. This has translated to high NPS, positive clinical outcomes and cost savings for clients, 35% member enrollment as opposed to 5% for typical company wellness plans.

Covid-19 has also accelerated some changes. Medicare fee for service codes are now permanent. Company thought this would take years but Covid has accelerated this. FDA speed tracked approval of diabetes meter inside hospitals for covid-19 patients. Company management says telehealth is great. But remote monitoring is even better - one doctor can now track 100s of patients. This can help cut costs. All in all, I feel very comfortable with this company’s prospects to make it my #1 position.

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I have been really wondering about what percent of health insurance plans cover Livongo. Is this public knowledge?

As a personal experience, I have a very stubborn brother in law with diabetes who will never initiate anything himself and who has been admitted multiple times to the hospital for not managing his diabetes properly. Wanting to know whether he is eligible before pushing him into it, I called Livongo a couple weeks ago, after visiting their website where it said to call them if you have any questions about eligibility…

Even armed with all of his health insurance info they were not willing to tell me about eligibility citing HIPAA rules… which made no sense to me as my question was a generic one… Is there any reason why you shouldn’t be able to simply get that eligibility question easily answered online?

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Agree with the LVGO bullish sentiment on this thread and would add that when a growing company is led by a very big time CEO/thinker/visionary like Glen Tullman, he has unlimited opportunities to expand business into new chronic conditions, new related products, new markets, etc. MOst importantly, he has the capability and the drive to do so.

All the great ones do just that and it explains in part why leadership matters so much and why one might decide to invest in a young leader like Jeff Bezos running a growing online bookstore business over a promising looking startup like Overstock.

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I said this last week, but I’ll say it again here - there has been VERY LITTLE insider selling in the last 3 months - even though the stock has gone from $25 to $75 during that time. The IPO lockup period only recently ended, and the stock has gone up significantly, but insiders are holding their shares.

As far as I know, there are only a couple possible reasons for this

  1. They know the business results are going to be killer and they believe the stock is going significantly higher.
  2. There might be some big news about to drop and they may be legally prevented from selling. In this case, it would be likely that the stock price is also going to appreciate.

I would not make my investing decision on this alone, but when you combine this with all the other inputs already mentioned, it’s just one more “clue” (as someone on the board recently called it) to solving the puzzle.

Potential catalysts:

  • TAM is HUGE, so there are many years of high organic growth ahead
  • It saves companies money when their employees use LVGO - so companies love it.
  • LVGO is currently only operating in the US - so there is HUGE potential in the rest of the world
  • Optionality with adding more services / treatments for other conditions
  • ability to ultimately integrate all health information for individuals to track the whole person (this is my speculation - not based on anything the company has said)

LVGO is my largest holding ~17%

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As a personal experience, I have a very stubborn brother in law with diabetes who will never initiate anything himself and who has been admitted multiple times to the hospital for not managing his diabetes properly.

Listen up folks. This is a major issue with diabetics. Improper management wreaks havoc on the body. Presently upwards of 30 percent of COVID deaths involve these patients. If LVGO compliance offers what they say, this product can save lives now, as well as extend longevity.

Long LVGO.

🆁🅶🅱
post tenebras lux
For not in my bow do I trust, nor can my sword save me.

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Listen up folks. This is a major issue with diabetics. Improper management wreaks havoc on the body. Presently upwards of 30 percent of COVID deaths involve these patients. If LVGO compliance offers what they say, this product can save lives now, as well as extend longevity.

Agree 100%. Recently happened to my dad. He had been handling his own diabetes management and doing ok with it. He started having cognitive decline and my mom had to take over management for him. Long story short - she was not well educated on diabetes management but the Drs assumed she knew what to do - she did not. My dad’s blood sugar got so low he passed out and had to be hospitalized. Some LVGO “health nudges” might have prevented that.

If you have never had diabetes you don’t really understand - I had no idea what the risks were before this happened to my dad.

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The other aspect of this is the fact that from a regulatory and social standpoint, the pandemic has greatly accelerated Livongo’s long-term prospects and expanded the immediate addressable market in a fashion similar to what we saw for Teladoc, CrowdStrike, or Zoom, and I think any dip based on unemployment would be a great buying opportunity.

A McKinsey study found that 1 in 10 patients used telehealth services in 2019. Now, 76% are interested in and even demanding access going forward. Providers saw 50-175x the number of telehealth visits pre-COVID and 57% now view it more favourably. Recently, CMS announced that they are going to make some of the recent expansions in telehealth regulation permanent. Telehealth is here to stay, and I believe its future is going to be built on optimizing patient outcomes. Delivering personalized care to those who need it, when and where they need it.

This is important to remember when assessing LVGO. It’s a longer term story with a massive shift in medicine in its favor. It was already performing spectacularly before Covid! And now Covid has added momentum in LVGO’s favor! The other point made here is its theoretically massive TAM. It’s managing many health conditions and this could expand even further.

It’s best not to worry about any short term economic concerns. These might give additional opportunities to buy LVGO at better prices on dips - that’s what I’ve done so far. My only regret so far has been buying too little.

I’m a physician who’s been bullish on LVGO since last year and my biggest concern was the novelty of its business model. This risk is receding while benefits are increasing. There are still risks so I’m not putting all my eggs in LVGO’s basket but I don’t plan on selling for a long time.

Dave

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Some additional thoughts on Livongo after jumping onboard and working in healthcare to help with diabetes outcomes.

  1. Regarding patient coverage, I think it’s also important to look into how many individuals out there who may be covered under Medicare/Medicaid, as of today there are about 44 million beneficiaries out there, 25% of which may have diabetes. Which means we have an estimated 11 million beneficiaries with diabetes compared to Livongo’s most recent report of 328k customers, that in and of itself is a huge opportunity just within subset of the population who will have ongoing coverage regardless of the ongoing COVID situation. These insurance groups have a long term responsibility to help their beneficiaries stay healthy, so may be more incentivized to keep their people healthy as opposed to developing adverse effects of long term diabetes management.

  2. The second thought, Livongo is addressing a long term need in individual, day-to-day management. The traditional approach of medicine, where a person goes into their doctor once a month for a lab plus any adjustment of medication obviously isn’t working. To help people live happier and healthier lives we really need to be able to help nudge them in the right direction day-to-day when it comes to managing their own health, and all these day-to-day decisions compound over a long time for better or worse health. The hope here is that insurance companies would be able to spend a little bit more now, than having to spend A LOT more sometime down the line when someone starts dealing with significant issues. Insurance companies, like Medicare, who have this long term ownership in the patient should all be hopping on a treatment approach like this.

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This sort of touches on Saul’s most recent post about fireside chats as well. I really do agree that you can gain some valuable knowledge from listening to Executives speak in a more candid and open format. However, this response mostly applies to Livongo directly. I would encourage anyone interested in the stock to read the Q/A session with Livongo CEO Zane Burke and Seagrove Partners. Looks like it was posted on their website on 7/1. It wasn’t on video for some reason - just a transcript. A quick search for the video on YouTube ended unsuccessfully. If the link doesn’t work, you should find the article very easily on their webpage.

https://www2.livongo.com/news/seagrove-partners-qa-with-livo…

One of the most interesting excerpts I read, which discusses the initial topic of this thread, was about Zane explaining virtual care and the impact of Covid. He himself says that they are seeing “huge accelerants during this time period”. He later goes on to say, “I’m super excited because I think it’s a realization that the power should be in the hands of consumers and that’s really where things will live in the future. So, just from a Livongo perspective, the number of Members who have tagged that they are stressed in this time period has doubled and we have higher utilization in terms of uses of devices that are mobile application. I’m obviously very pleased about some of those trends. Those are just good for all of us that have said healthcare needs to change. I actually think we’re on that path. I really do. So, in the last 60 days we’ve seen massive, massive change. Just astounding change. And unfortunately, as you know persons with chronic conditions are 12 times more likely to have a higher mortality rate with COVID. So, it’s created some accelerants that we couldn’t have had otherwise as part of that. So, I do think there’s some real positives on the backside of this.”

Me again: Adjectives like massive(Said twice in a row), Super excited, accelerant, astounding, positive, and obviously pleased all sound pretty bullish to me.

Later Zane talks about how their young technology can easily handle the lift during this time. Again, implying accelerated usage. Aggregating data from wearable devices is another area of focus to help Members on an individual level. There’s many other really helpful tidbits besides what I copied which can help illustrate where this business is focused.

I’ve been a lurker for the last couple months and have gained tremendous investing knowledge from this board. I thank everyone for that. I just hope I can provide some sort of value here and there.

As of today, I have an 11% position after their most recent growth over the last few months. Articles like this makes me more comfortable adding on at the right opportunity in the future.

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