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

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Diabetes management company Livongo Health saw its revenue surge 156% year over year to $40.9 million in the second quarter of 2019. (Getty/monsitj)

Digital health company Livongo Health saw its revenue surge 156% year over year to $40.9 million in the second quarter of 2019, beating Wall Street estimates of $39.74 million.

In its first earnings call since going public July 25, company executives reported that members using the company's diabetes program totaled 192,934, up 140% year over year, with 38,170 new Livongo for Diabetes members in the second quarter.

But Mountain View, California-based Livongo, a chronic disease management company, also reported a second-quarter loss wider than analysts' expectations. GAAP earnings per share were a loss of 76 cents, 16 cents lower than analysts' expectations. Non-GAAP earnings per share were a loss of 46 cents, and analysts expected a loss of 41 cents.

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"We are pleased with our second-quarter performance,” Lee Shapiro, Livongo’s chief financial officer, said during the earnings call. “Our rapid growth in sales, which includes impressive acceptance of our hypertension offering, along with our per participant per month subscription model and improving margins gives us strong confidence in our future.”

RELATED: A month after going public, Health Catalyst reports 60% revenue growth in Q2

For the third quarter, the company expects revenue in the range of $42 million to $43 million and adjusted EBITDA in the range of a loss between $13 million and $12 million. For full-year 2019, the company expects revenue in the range of $159 million and $162 million and adjusted EBITDA at a loss between $41 million and $39 million.

Livongo shares fell 14% to $26.59 in trading Thursday.

Shares of Livongo jumped 58% in its trading debut July 25 after the company priced its initial public offering (IPO) at $28 a share, above the pricing range it had previously given of between $24 and $26. The company sold around 12.7 million shares of its common stock to raise $355.2 million.

Livongo brought in $68.4 million in revenue last year, more than double its revenue in 2017, according to its S-1 filing with the U.S. Securities and Exchange Commission. 

Livongo started with a focus on diabetes management in 2014 and has since expanded to other health conditions such as hypertension, weight management and behavioral health. The company uses technology like glucose meters and wearables to monitor individuals' health conditions and also leverages artificial intelligence to provide personalized messages and coaching, what it calls "nudges," to keep people on track.

Livongo currently has 720 clients, up 92% year over year organically and an increase from the 679 clients the company reported in its S-1 filing. Its total contract value is worth $74.2 million, up from $24.8 million in the second quarter of 2018, the company reported.

While the company is seeing increased adoption of its hypertension, pre-diabetes and weight management platforms, the company's revenue is predominantly coming from its diabetes offering, and that service is expected to continue to be a revenue driver, Livongo Executive Chairman Glen Tullman said during the earnings call.

RELATED: Livongo, Health Catalyst shares surge on first day of trading

"We have barely scratched the surface of our addressable market," said CEO Zane Burke. The company has less than 1% penetration in the U.S. market, according to executives.

Burke said Livongo's diabetes management platform delivers clinical outcomes for members, lower costs for clients and a compelling return on investment, all key differentiators from other disease management solutions.

A study funded by an Eli Lilly-Livongo research collaboration and published in the Journal of Medical Economics found access to Livongo's diabetes management program saved $88 per diabetes member per month.

Another study published in the Journal of Diabetes Research discovered researchers found the use of Livongo for Diabetes improved the health of people with Type 2 diabetes. Use of the platform improved blood glucose control for people with Type 2 diabetes with a decrease in mean estimated HbA1c from 8.5% to 7.5%. 

Investment bank advisory firm Healthcare Growth Partners recently evaluated the three health IT IPOs this year—Phreesia, Health Catalyst and Livongo—and reported that Livongo has the highest share of recurring revenue, the highest growth rate, the highest gross margin and the highest valuation.

As of Aug. 26, the company traded at an enterprise value of approximately $3.19 billion, Healthcare Growth Partners said in a report.

"The company’s valuation will be highly sensitive to growth and expectations for growth—analysts project a three-year CAGR of approximately 95% through 2020, which includes expectations for revenue diversification beyond diabetes into other clinical indications, such as hypertension and behavioral health management," the firm said in its report.

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