Before we begin our analysis of the Livongo results which were released this morning we’d like to thank the company for doing their call this morning and not after the market closed. As everyone knows the NFL opens their season tonight with our beloved Chicago Bears taking on their rivals from cheese land the Green Bay Packers. Thanks to Livongo their call won’t interfere with another NFL tradition TAILGATING. So kudos to Livongo for thinking of NFL fans. Now onto the results and corresponding call.
As we expected with this being the first earnings announcement in the company’s history the results would be less important than where the company is going. Also as expected the analysts on the call would offer a series of easy questions as they like everyone else are more enamored with way cool whiz bang rather than mundane things like making money, something the company hasn’t done yet.
We also should give the company credit for coming up with some really cool terminology to explain simple old concepts. Yep nothing like cool acronyms like AiAi and TCV to take attention away from the fact the company isn’t making any money and will have a difficult time making money in the future. Therefore we feel it’s our civic duty to dumb things down a little as frankly this business really isn’t anything new and the business model isn’t all that unique.
First it should be noted that the company makes NO money when they sign up a new client, this is just the first step. Once they capture a client the burden falls on Livongo to ENROLL patients. Keep in mind the company is paid only for enrolled patients NOT on eligible patients. To keep things simple let’s say Livongo signs a client that has 100 ELIGIBLE patients. Livongo then must enroll patients it is these ENROLLED patients that the client pays for. The company noted that current enrollment rates are approximately 34%, which using our simple example means they only get paid for 34 patients NOT the 100 that are eligible.
Here is where the fuzzy math comes in and some of the company’s fancy terminology. The company talked about TCV which stands for Total Contract Value. Using their way cool AiAi technology the company can then ESTIMATE how many of the ELIGIBLE patients will actually become ENROLLED patients therefore allowing them to ESTIMATE the total value of the contract. We know this sounds way cool but it’s more like a WAG which stands for one big Wild Ass Guess.
Barely touched on during the call was another critical stat, dropout or attrition rates. The company noted that around 2% of enrolled patients fall out of the program. That does sound impressive until you consider this is also a WAG and will dramatically change over time. Given the company’s very short history there is no way to properly estimate attrition rates there simply isn’t enough data.
Just by way of example this reminds us of the early days at Insulet. Way back then Insulet with their pay as you go model was and still is highly dependent not just getting patients to use the OmniPod but to keep using it. In the early days Insulet was basically guessing on what the attrition rates would be.
Listen even a Packers fan understands that yes, it’s nice to sign up 34 patients but to win the game they must not just keep those 34 enrolled patients but add new ones as well. It does no good to turn the ball over or fail to score, to win they must score more points and yes, it is that simple. Just as the burden falls on the Packers to score against the Bears ferocious defense the burden is on Livongo not just to enroll patients but keep them plus add new ones. This is the only way Livongo can make money.
Frankly we could care less how many clients the company signs up. What we care about is how many patients they ENROLL and how many of these ENROLLED patients stay ENROLLED. All this other stuff is just pure bullshit.
Livongo is doing their best to paint a picture that their system is somehow unique and immune from competitive pressures. That they have not just taught the pig to fly but have turned this pig into something other than bacon. Well we hate to break the news to them but there is nothing to prevent a competitor from going into a client and offering their services for FREE and only get paid for actual verifiable results.
Anyone who thinks that Livongo has develop some sort of magic potion, that they and only they can help patients achieve better outcomes we’d recommend starting your tailgating immediately. As we keep saying all Livongo has done is applying new technology to the old concept of disease management. There is nothing new here no matter how many way cool whiz bang toys the patient plays with or how much data analytics is applied.
Yes, we know this all sounds so cool and yes when you believe Livongo’s fuzzy math it looks different but as Momma Kliff says if it walks like a duck, squawks like a duck IT’S A DAMN DUCK.