Livongo increases full-year revenue guidance following strong Q3 financial performance

Financial earnings increase
Livongo Health is seeing strong growth in memberships for its disease management solutions for hypertension, weight management, and prediabetes. (Getty/FroYo_92)

In its second-quarter as a public company, Livongo Health reported strong financial and operational performance that surged past sales and profit expectations.

The digital health company reported third-quarter 2019 revenue rose 148% year over year to $46.7 million, beating Wall Street estimates of $42.6 million.

The strong third-quarter performance was driven primarily by growth in the company's core Livongo for Diabetes solution. Membership increased 118% over the prior year to 207,000 members, said Lee Shapiro, Livongo chief financial officer, during the company's earnings call on Wednesday.

The Mountain View, California-based company previously projected it would have $42 million in third-quarter revenue, beating its own expectations by 10%. 

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Livongo reported a loss of $19.7 million in its third quarter, or $0.27 on a per-share basis. Losses, adjusted for stock option expense and amortization costs, were $0.05 per share. The results topped Wall Street expectations. The average estimate of four analysts surveyed by Zacks Investment Research was for a loss of $0.14 per share.

"In addition to our strong revenue and year-to-date member growth, we are pleased with our traction in important new markets, including fully insured and government as well as our whole person strategy," Livongo chief executive officer Zane Burke said during the earnings call. "With 255 new contracts signed and 150 scheduled launches, we feel good about the business as we approach 2020."

"The improvement in operating margin and adjusted EBITDA resulted from higher gross margin in the quarter, as noted earlier; more efficient customer acquisition costs as deal sizes were larger; and lower-than-expected hiring, which will filter into future quarters. We also expect fourth-quarter sales commissions to increase," Shapiro said.

The company expects to be profitable by 2021, Shapiro said.

RELATED: Livongo reports 156% revenue growth in Q2, but stock falls as earnings miss Wall Street estimates

In the near term, Livongo executives are confident the company can live up to expectations and raised its revenue guidance for the year from a range of $159 million and $162 million to full-year 2019 revenue between $168.5 million and $169.0 million. Livongo expects adjusted EBITDA in the range of a loss between $26.7 million and $26.1 million.

For the fourth quarter, the expects revenue in the range of $49 million and $49.5 million, and adjusted EBITDA in the range of a loss between $5.5 million and $5 million.

The company sells subscription models to employers, health plans, and government agencies to help patients manage their diabetes conditions. Livongo is expanding into other conditions, including hypertension, prediabetes, weight management, and behavioral health. The addressable market is massive with 30 million Americans living with diabetes, but Livongo has several competitors.

Livongo's estimated value from new agreements in the third quarter rose to a record $85.5 million, up from $62.3 million in the third quarter of 2018, Shapiro said, with more than 20% from solutions other than diabetes.

"We see this as an important validation of our whole person strategy. Our clients and their members tell us they want one integrated experience to address their chronic conditions, and we're the only solution in the market who can deliver that at scale today," he said.

Following the Q3 report, Livongo shares jumped 14%. Analysts reacted positively to Livongo's third-quarter performance and expect the company to outperform Street forecasts.

"The whole person focus associated with non-diabetes offerings is bearing fruit faster than originally anticipated as exemplified by 20%+ of estimated value of agreements signed attributed to hypertension, weight management, and behavioral health," Canaccord Genuity healthcare IT analyst Richard Close said. "The company appears well-positioned to outperform our increased estimates and early 2021 break-even assumption given the momentum of new business and operating leverage in the model."