Why I took a position in Livingo
I became after Tchalla’s excellent introduction of the company to the board in September, and I looked through some back earnings reports, and may even have taken a tiny look-see position for a few days, but I was concerned about buying a medical device company, even if you were actually buying it for the SaaS component. So much depends on reimbursement and any changes to the medical system in the US could also change everything. So why did I take a position on Monday?
Well all it took was one thing: the March Quarter Earnings Report and Conference Call. You’ll find my very shortened and paraphrased version below, with my comments mixed in. That earnings report and conference call was all it took for me to take a position. Granted, it was just a 4.8% position at yesterday’s close, but that’s pretty big for a starter position for me.
May 2020 – March Quarter results
Livongo for Diabetes Members, over 328,000 enrolled, up 100%
We can provide assistance to some of the most vulnerable populations during the pandemic - people with chronic conditions - and our remote monitoring, digitally powered and real-time personal coaching capabilities, and access to telehealth services, are well suited maintain the health of our members. The pandemic has accelerated the need for our virtual care delivery model.
We are pleased to announce our relationship with the Government Employees Health Association (GEHA) , to provide the our Diabetes, Hypertension, and Diabetes Prevention solutions for federal employees, retirees, and their dependents that receive GEHA medical coverage.
Revenue of $69 million, up 115%
Adj Gross Margin of 74.4% (up from 69.2%, but down from 79.2% sequentially). (We expect 2020 full year gross margins to be slightly higher than our 2019 gross margins).
Adj Op Margins of 4%, up from a LOSS of 29% a year ago.
Adj net income of $3.9 million, and EPS of 3 cents, up from a LOSS of 24 cents a year ago, but only up 1 cent sequentially.
Adj EBITDA of $3.8 million, up from a LOSS of $9.2 million. We expect 2021 profitability on an Adj EBITDA basis.
Livongo Clients: 1,252 Clients, up 44% sequentially [but the first quarter is when they start enrolling newly signed clients].
Cash - $368 million
Estimated Value of Agreements (EVA) : $89 million, up from $48 a year ago.
EVA is the estimated value of agreements signed in the quarter with new clients or expansions entered into with existing clients. About 35% of the first quarter’s EVA is expected to convert into revenue over the next 4 quarters.
To support the needs due to the increased stress on our members during this time of crisis, we quickly launched new COVID-19 modules within the Behavioral Health solution and made them available to all clients and members to support their needs. In the past month, we’ve seen increased utilization of all of our Livongo programs.
Caution and conservatism: We started strong in 2020, with results driven by a record number of client and program launches. We continue to closely monitor the situation due to the pandemic for impacts on our business, as many of our clients and members have undergone economic challenges. We are well positioned to deliver remote care at a time when our clients need to ensure the health of their team members.
This pandemic has accelerated a more extensive virtual care delivery model. Remote monitoring is here to stay, and we expect it to become the standard of care for the most vulnerable and expensive populations. Livongo improves care, saves money and provides a great member experience. What the pandemic has done is really accelerated that rate of change dramatically on the reimbursement side and the acceptance, and really the requirement, for both telehealth service and remote patient monitoring.
We have gotten approval for inpatient use of Livongo [so that staff can have fewer exposures to contagious patients, and less demand on their time in general.]
We have also gotten approval for Medicare.
Over 1/3 of our people, including all of our health coaches and diabetes educators, already worked remotely.
We were already ahead on limiting disruption of our supply chain, with multi-sourcing production for our connected devices.
We’re being asked to accelerate launches to help clients who want their most vulnerable populations protected sooner.
After a highly competitive process lasting most of 2019, Livongo was selected by the Govt Employee Health Assn (GEHA) , a not-for-profit provider of medical and dental plans for federal employees covering over 2 million employees, retirees and their families. GEHA was one of the largest contracts in our history and is our second major government contract signing in a year. This is a very big deal for us.
We are hearing just how important the cost savings associated with the use of Livongo are for our clients.
We partnered with with a leading Continuous Glucose Monitoring (CGM) maker, Dexcom, where at the request of our members, we can now stream data from their monitor to our data engine. We had previously partnered with Abbott.
We also partnered with Prognos Health to aggregate clinical laboratory data. Our members can now share their test results from leading laboratories with Livongo on an opt-in basis. Prognos has the largest source of clinical diagnostics information for over 50 conditions, with billions of medical records for hundreds of millions of people.
in April, after an extensive evaluation process, Kaiser Permanente, one of the largest integrated care delivery networks in the country, selected Livongo for Behavioral Health for their entire population, which we just launched. This is the largest behavioral health contract in our history, which will roll out over the next 5 years, of our contract with them. Only Livongo provides that kind of safe choice that you feel comfortable signing multiple years with.
The FDA, at the request of a number of health systems, granted an emergency period waiver to allow any inpatient facility in the country to use our diabetes meter, for people with COVID-19.
Going forward, we will include employers who enroll in our platform through a health plan as separate clients.
With regard to our guidance, at the midpoint, we’re growing 75% over 2019. And we feel very good about our prospects for the long term, but we also are being conservative, recognizing some of the near-term headwinds that might come to our clients and some of our members due to the pandemic.
We will invest in areas like S&M. In addition, we think about our R&D efforts, and working on additional solutions that we can continue to enhance in our current portfolio, as well as bringing new solutions to market. And so we’re also actively hiring engineers in our R&D group.
Typically, we talk about higher launches in the first part of the year and higher bookings in the second half.
Competition? I was talking with one HR Benefits Director, and he said, “You don’t get fired for buying Livongo.” We are the dominant player, and where some competitors are laying people off, we’re going to invest in more and more people because the opportunity, the total addressable market, is massive, the need is so great, and the future is so bright.