After stumble, diabetes drives Livongo to top Q3 estimates

Dive Brief:

A triple-digit jump in diabetes members has driven Livongo Health to third quarter results that beat sales and profit expectations.
On Wednesday, digital heath player Livongo posted third quarter sales of $46.7 million, almost $4 million above the top end of its outlook. Shares were up 20% in morning trading.
A 118% increase in Livongo for Diabetes members fueled the increase, although the digital health company also provided evidence it can expand into other disease areas.

Dive Insight:

Livongo has struggled to live up to expectations since going public earlier this year. In its first set of quarterly results as a public company, a missed earnings target caused investors to drive down the price of Livongo’s stock, adding to the 30% decline it suffered in the weeks after its post-IPO peak.

The third quarter results posted Wednesday paint Livongo in a better light, sending its stock up 15% after the market closed. The stock price rise followed the delivery of results that beat expectations and suggested Livongo will continue to grow.

In addition to the aforementioned revenue beat, adjusted earnings before interest, tax, depreciation and amortization also exceeded expectations. Livongo had braced investors to expect an EBITDA loss of as much as $13 million. In the end, adjusted EBITDA came in at negative $3.9 million.

"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," Livongo CFO Lee Shapiro said on a conference call with investors.

Livongo expects EBITDA to worsen somewhat sequentially in the fourth quarter but Shapiro said the current performance is consistent with the company’s objective of being profitable by 2021.

In the nearer term, Livongo expects to at least live up to expectations. Livongo raised the midpoint of its full-year revenue outlook by 5% and said it is comfortable with analyst predictions that sales will total $276 million next year. The analyst consensus for 2020 implies Livongo will grow by more than 60% next year.

The addition of almost 15,000 more diabetes members in the third quarter cemented the indication as the focal point of Livongo’s growth plans. Livongo’s push into other indications is also starting to pay off, too, resulting in 20% of the value of new agreements covering diseases other than diabetes.