Livongo Health LVGO went public in July 2019, pricing its shares at $28.00 and raising $358 million in gross proceeds.
The firm has developed a healthcare information system that assists patients in obtaining better outcomes in dealing with their chronic conditions.
LVGO looks well positioned to benefit from a more virtual / remote healthcare delivery model, so I’m Bullish on the stock over the medium term.
Mountain View, California-based Livongo Health was founded in 2008 as EosHealth and provides an AI technology platform that empowers patients with chronic conditions to healthier outcomes through real-time personalized monitoring and coaching as well as medication access, with an initial focus on diabetes.
Management is led by CEO and Director Zane Burke, who has been with the firm since 2019 and has previously served in various executive roles at Cerner Corporation, including President and Executive Vice President, Client Relations.
The firm has developed Livongo for Diabetes that provides patients with a smart, cellular-connected blood sugar meter, automatically-delivered testing resources, real-time personalized guidance, access to medication, and non-stop monitoring.
Management believes the firm will transform chronic illness healthcare management through ‘Applied Health Signals’, a term the company uses for real-time personalized health advice that could range from a doctor's visit to a recommendation for outdoor sports.
Applied Health Signals are crafted based on current and historical data, collected from various sources, such as blood pressure measurements, doctor’s visits, and healthcare exams, as well as weather and location data among others.
Below is a brief overview video of the benefits of Applied Health Signals:
When a diabetes patient checks their blood sugar levels, the Livongo for Diabetes platform provides them with real-time personalized coaching on what to do at that exact situation - something the company refers to as a ‘Health Nudge.’
Management claims that as of March 31st, 2019, the company had 679 clients as well as a growing number of enrolled members for the company’s recently-introduced Livongo for Hypertension, Livongo for Prediabetes and Weight Management, and Livongo for Behavioral Health by myStrength.
According to a 2018 market research report by Grand View Research, the global patient care management market was valued at $7.5 billion in 2017 and is projected to reach $25.9 billion by 2025, growing at a CAGR of 17.0% between 2018 and 2025.
The main factors driving market growth are the increasing emphasis on patient-centric and more efficient care management, the growing burden of healthcare expenditure as well as rapid adoption of technological advancements among others.
Other factors fuelling market growth include growing geriatric population and a growing incidence of chronic illnesses.
The North American region held the largest market share in 2017 due to advancements in the IT solutions sector as well as an increase in demand for affordable and salable products to reduce healthcare costs.
The European region is projected to grow at the fastest rate due to increasing adoption of advanced health informatics due to a growing emphasis on patient-centric care.
Major competitors that provide or are developing chronic condition healthcare management solutions include:
- Virta Health
- Omada Health
- Hello Heart
- Lyra Health
- Allscripts Healthcare Solutions
- Epic Systems
LVGO’s topline revenue by quarter has grown sharply over the past five quarters, as the chart shows below:
Gross profit by quarter has grown according to a similar trajectory:
Operating losses by quarter have been reduced as management makes a path to operating breakeven:
Earnings per share (Diluted) have also sought to achieve breakeven:
Since its July 2019 IPO, LVGO’s stock price has risen 127 percent vs. the U.S. Healthcare Services index’ growth of 25.9 percent and the overall U.S. market’s rise of 2.5 percent in the past 12 months, as the chart below indicates:
In its last earnings call, management highlighted its belief that remote monitoring ‘is rapidly becoming the new standard in health and care.’
The firm’s technology offerings in this regard have placed it quite favorably within the context of the current Covid19 pandemic and its expected after-effects pushing more healthcare services to a remote / virtual delivery model wherever possible.
LVGO added 380 new clients for a total of 1,252 clients by the end of its Q1 2020 period. Notably, the firm achieved a big win with the Government Employee Health Association, a group serving more than 2 million federal employees and retirees.
As to its financial results, Q1 2020 saw a 115% revenue growth over the same period in 2019, driven by its Livongo for Diabetes solution, which increased its membership by over 100% year-over-year.
Gross margin continues to improve markedly as do operating margins, although operating margins are still negative.
To that end, management doubled down on investing ‘in our business in light of the massive market opportunity,’ so it appears the second half of 2020 will see higher expenses likely resulting in continuing losses unless revenue can grow even faster.
The firm raised revenue guidance to an expected growth rate of 78% for 2020. That is lower than 2019’s revenue growth rate, but still quite high.
Management expects adjusted EBITDA profitability by 2021.
Investors have appreciated Livongo’s results and are looking beyond its continued losses toward revenue growth amid raised guidance.
Given the firm’s excellent positioning toward a more virtual & remote healthcare delivery model, I’m Bullish on LVGO for the medium-term and assuming it can continue to progress to adjusted EBITDA profitability by 2021.
(I have no positions in any stocks mentioned as of the article date, no plans to initiate any positions within the next 48 hours, and no business relationship with any company whose stock is mentioned in this article. Information provided is for educational purposes only, may be incomplete or out of date, and does not constitute financial, legal, or investment advice.)