As we noted this morning the results from Livongo would likely step away from the pattern we’ve seen from everyone else and provide so much needed relief from the redundancy. Also as expected the company is taking full advantage of the mistaken belief that this crisis and its aftermath will benefit the company and not adversely impact future results. Check out this from the earnings release;
“Livongo is well positioned to provide assistance to some of the most vulnerable populations during the COVID-19 pandemic – people with chronic conditions – and our remote monitoring, digitally powered and real-time personal coaching capabilities, and access to telehealth services are well suited to track vital signs of interest in maintaining the health of our Members,” said Zane Burke, Chief Executive Officer of Livongo. “The COVID-19 pandemic has accelerated the need for new virtual care delivery models like Livongo. We are pleased to announce our relationship with the Government Employees Health Association, Inc. (GEHA), to provide the Livongo for Diabetes, Hypertension, and Diabetes Prevention solutions for federal employees, retirees, and their dependents that receive GEHA medical coverage.”
We just knew this was going to happen and would like to thank the folks at Livongo living up to our expectations. Even better this dose of chutzpah extends to their full year guidance which not only wasn’t cancelled but raised. Again from the release;
“For 2020, the company now expects revenue to grow between 70% and 78% to the range of $290.0 million to $303.0 million, ahead of our previous guidance of approximately $280.0 million to $290.0 million.”
As we turn our attention to the call, and we know we’ll get in trouble for saying this but what the heck we’ve been in trouble before and likely will be in the future too but listening to this call was like listening to a White House COVID briefing. The big difference being that unlike the COVID briefings which include a great deal of hype there is no Dr. Fauci to provide a more realistic assessment of what is and what is not real. Yep we know this paragraph won’t go over well but honestly, we really could care less.
During the prepared remarks the company noted they are changing the way they count clients and heavens to Betsy this change will result in the company having more clients. Frankly this shouldn’t surprise anyone as it fits perfectly into the convoluted way, they calculate revenues. It also shouldn’t surprise anyone that the company made a big deal of events that really aren’t a big deal. A great example of this is the FDA clearing the use of the Livongo meter in a hospital something not unique and also given to Dexcom and Abbott.
The area where a conflict seemed to exist was how COVID will impact results going forward. In the prepared remarks the company seemed to imply that results may be hurt by COVID. Yet they went out of their way to mention they have raised full year guidance, mentioning this several times. Yet during the Q&A when asked about this very issue they seemed to straddle the fence stating the increased guidance takes into account conservative assumptions. The reality here is no one really knows how COVID will impact results as there are just too many unknowns. Now for most company’s they would err on the side of caution but not Livongo who demonstrated once again the art of chutzpah. Listen when your stock is on a roll better to go big.
The real takeaway here is rather simple, with the stock powering to new heights (currently up almost 5% in after-hours trading) this is setting up as one the greatest shorts of all time or this move upward will force the hand of a potential suitor. As we have said from the beginning Livongo is playing a game of chicken hoping to get acquired before reality sets in and this house of cards collapses.
We agree that telemedicine and remote monitoring are here to stay. Where we disagree is the long-term viability of their way cool whiz bang platform no matter how many chronic diseases programs they have. The company has gone way out on a limb with the increased full year guidance which we believe was done to throw more gas on an already hot fire. However given the number of variables with when and how we come out of this crisis we believe a more cautious approach would have been more prudent.
The fact is the Livongo team has some major cahonas for the stance they are taking. If their assumptions are correct, they will look like hero’s. However if not those cahonas will shrink like violets. They have everything going their way right now and quite frankly they didn’t need to make such a risky move. Why take the risk when the upside is likely to be short lived and the downside is killer?
Maybe this fits into their belief that it won’t matter as a greater fool will come along before time comes to deliver. For the sake of Livongo stakeholders we hope we are wrong but if we’re right, they won’t have the cover management does as they will have bailed before the shit hits the fan.