Document
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549 
FORM 8-K 
CURRENT REPORT
Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): March 2, 2020  
Livongo Health, Inc.
(Exact name of registrant as specified in its charter) 
 
 
 
 
 
Delaware
 
001-38983
 
26-3542036
(State or other jurisdiction of
incorporation)
 
(Commission File Number)
 
(I.R.S. Employer
Identification Number)
150 West Evelyn Avenue, Suite 150
Mountain View, California 94041
(Address of principal executive offices) (Zip Code)
Registrant’s telephone number, including area code: (866) 435-5643
Not Applicable
(Former name or former address, if changed since last report)
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below):
Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))
Securities registered pursuant to Section 12(b) of the Act:
 
Title of each class
 
        Trading Symbol(s)
 
Name of each exchange on which registered
Common Stock, $0.001 par value
 
LVGO
 
The Nasdaq Global Select Market
Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§ 230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§ 240.12b-2 of this chapter).
Emerging growth company  
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  




Item 2.02. Results of Operations and Financial Condition.
On March 2, 2020, Livongo Health, Inc. issued a press release announcing its financial results for its fourth quarter and full year ended December 31, 2019. A copy of the press release is furnished herewith as Exhibit 99.1 and incorporated herein by reference.
The information contained in this Current Report on Form 8-K and in the accompanying exhibit are “furnished” and shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), or otherwise subject to the liabilities of that section, and shall not be incorporated by reference in any filing under the Securities Act of 1933, as amended, or the Exchange Act regardless of any general incorporation language in such filing, unless expressly incorporated by specific reference in such filing.
Item 9.01. Financial Statements and Exhibits.
(d) Exhibits
Exhibit
  
Description
99.1
 
 
 
 


2


SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
Dated: March 2, 2020
 
Livongo Health, Inc.
 
 
By:
 
/s/ Lee Shapiro
Name:
 
Lee Shapiro
Title:
 
Chief Financial Officer
 
 
 


Exhibit


Exhibit 99.1 
 
Livongo Reports Fourth Quarter and Full Year Financial Results

Strong Full Year Revenue of $170.2 million, up 149% from 2018
Ends year with 222,700 enrolled Livongo for Diabetes Members, up 96% year-over-year
2020 revenue guidance range of $280 million to $290 million

Mountain View, CA - March 2, 2020 - Livongo Health, Inc. (NASDAQ: LVGO), the leading Applied Health Signals company empowering people with chronic conditions to live better and healthier lives, today announced financial results for its fourth quarter and full year ended December 31, 2019.

“Livongo finished the year with excellent momentum, exceeding all of our guidance metrics, achieving record signings in the fourth quarter, and expanding our reach to over 30% of Fortune 500 companies,” said Zane Burke, Chief Executive Officer of Livongo. “We enter the year well positioned to continue driving rapid growth with our extension into the fully insured health plan market and expanded our strategic partnerships with CVS Health and Express Scripts, positioning us to better serve their health plan and self-insured employer Clients.”

Fourth Quarter 2019 Highlights:
ASC 606:
Revenue: Total revenue for the quarter was $50.4 million, up 137% year-over-year.

Gross Margin: GAAP gross margin of 78.3% and non-GAAP gross margin of 79.2%, which reflects continued scaling in the delivery of our offerings and includes an adjustment related to capitalization of device costs for certain solutions.

Net Loss: GAAP net loss of $6.0 million, and net loss per share attributable to common stockholders of ($0.06) on a diluted basis, which includes an adjustment related to capitalization of a portion of sales commissions; and non-GAAP net income of $2.3 million, and non-GAAP net income per share attributable to common stockholders of $0.02 on a diluted basis.

Adjusted EBITDA: $1.6 million in the fourth quarter of 2019 compared to ($10.2) million in the fourth quarter of 2018.

Livongo for Diabetes Members: 222,700 Members as of December 31, 2019, up 96% year-over-year.

Livongo Clients: 804 Clients as of December 31, 2019, up 95% year-over-year.

Estimated Value of Agreements (EVA): $76.7 million, up from $56.1 million in the fourth quarter of 2018. It consists of the estimated value of agreements signed in the quarter with new Clients or expansions entered into with existing Clients.
ASC 605:
Revenue: Total revenue for the quarter was $50.2 million, exceeding our guidance range of $49.0 million to $49.5 million, and up 137% year-over-year. This was driven by the continued adoption of our Applied Health Signals platform.

Gross Margin: GAAP gross margin of 78.2% and non-GAAP gross margin of 79.2%.


1



Net Loss: GAAP net loss of $6.0 million, and net loss per share attributable to common stockholders of ($0.06) on a diluted basis; and non-GAAP net income of $2.3 million, and non-GAAP net income per share attributable to common stockholders of $0.02 on a diluted basis.

Adjusted EBITDA: $1.6 million in the fourth quarter of 2019 compared to ($10.2) million in the fourth quarter of 2018, and exceeding our guidance range of ($5.5) million to ($5.0) million.

Full Year 2019 Highlights:
ASC 606:
Revenue: Total revenue for the year was $170.2 million, up 149% year-over-year, and exceeding our guidance range of $168.5 million to $169.0 million. This was driven by the continued adoption of our Applied Health Signals platform.

Gross Margin: GAAP gross margin of 72.9% and non-GAAP gross margin of 73.9%.

Net Loss: GAAP net loss of $55.3 million, and net loss per share attributable to common stockholders of ($1.09) on a diluted basis; and non-GAAP net loss of $19.7 million, and non-GAAP net loss per share attributable to common stockholders of ($0.39) on a diluted basis.

Adjusted EBITDA: ($20.1) million in 2019 compared to ($27.7) million in 2018, and exceeding our guidance range of between ($26.7) million to ($26.1) million.

EVA: $284.5 million, up 84% from $154.5 million in 2018.
ASC 605:
Revenue: Total revenue for the year was $169.9 million, up 148% year-over-year, and exceeding our guidance range of $168.5 million to $169.0 million. This was driven by the continued adoption of our Applied Health Signals platform.

Gross Margin: GAAP gross margin of 72.8% and non-GAAP gross margin of 73.8%.

Net Loss: GAAP net loss of $54.9 million, and net loss per share attributable to common stockholders of ($1.08) on a diluted basis; and non-GAAP net loss of $19.2 million, and non-GAAP net loss per share attributable to common stockholders of ($0.38) on a diluted basis.

Adjusted EBITDA: ($19.6) million in 2019 compared to ($27.7) million in 2018, and exceeding our guidance range of between ($26.7) million to ($26.1) million.

“While only recently introduced, we’ve seen strong interest in our whole person solution, which supports multiple chronic conditions in one seamless Member experience, all personalized by our AI+AI data engine,” said Livongo President Dr. Jennifer Schneider, MD., M.S. “In addition to integrating new products, such as behavioral health, we’re adding partners across the healthcare ecosystem to drive greater data insights. Our recently announced agreement with Dexcom is an example of how we will now integrate continuous blood glucose readings into our platform to deliver more targeted and personalized Member insights along with our 24/7 support.”


2



First Quarter and Fiscal 2020 Outlook

For the year 2020, the company expects revenue to grow between 65% and 71% to the range of $280.0 million to $290.0 million, ahead of our preliminary guidance of approximately $276.0 million. Adjusted EBITDA is expected to be in the range of ($22.0) million to ($20.0) million.
For the first quarter of 2020, the company expects revenue in the range of $60.0 million to $62.0 million, and adjusted EBITDA in the range of ($5.5) million to ($4.5) million.

“2019 was a banner year for Livongo, with a noteworthy expansion of Members using our Livongo for Diabetes solution, meaningful contribution from our newer solutions, and sustained margin improvement,” said Lee Shapiro, Livongo Chief Financial Officer. “As we turn to 2020, we are focused on driving rapid growth in our solutions to address the needs of Clients and Members, while we continue to grow our investments to address this massive market opportunity.”

The revenue and adjusted EBITDA outlook provided above is based on revenue and results recognized under the new accounting guidance under ASC 606, Revenue from Contracts with Customers ("ASC 606"). Please refer to the tables attached to this press release for a reconciliation of ASC 605, Revenue Recognition ("ASC 605"), to ASC 606 for our 2019 financial result.

Additional information on Livongo's reported results, including a reconciliation of the non-GAAP results to their most comparable GAAP measures, is included in the financial tables below.

The forward-looking Adjusted EBITDA contained in the section titled "First Quarter and Fiscal 2020 Outlook" excludes (i) depreciation and amortization, (ii) amortization of intangible assets, (iii) stock-based compensation expense, (iv) acquisition-related expenses, (v) change in fair value of contingent consideration, (vi) other income, net, and (vii) provision for (benefit from) income taxes. We have not reconciled adjusted EBITDA guidance to GAAP net income (loss) because we do not provide guidance on GAAP net income (loss) or the reconciling items between adjusted EBITDA and GAAP net income (loss) as a result of the uncertainty regarding, and the potential variability of, certain of these items, the effect of which may be significant. Accordingly, a reconciliation of the non-GAAP financial measure guidance to the corresponding GAAP measure is not available without unreasonable effort.

Non-GAAP Financial Measures

Reconciliations of non-GAAP financial measures to the most directly comparable financial results as determined in accordance with GAAP are included at the end of this press release following the accompanying financial data. We believe that these non-GAAP financial measures, when taken together with the corresponding GAAP financial measures, provide meaningful supplemental information regarding our performance by excluding certain items that may not be indicative of our business, results of operations, or outlook. However, non-GAAP financial information is presented for supplemental informational purposes only, has limitations as an analytical tool and should not be considered in isolation or as a substitute for financial information presented in accordance with GAAP. In addition, other companies, including companies in our industry, may calculate similarly-titled non-GAAP measures differently or may use other measures to evaluate their performance, all of which could reduce the usefulness of our non-GAAP financial measures as tools for comparison. We compensate for these limitations by analyzing current and future results on a GAAP basis as well as a non-GAAP basis and by providing specific information regarding the GAAP items excluded from these non-GAAP financial measures. For a description of these non-GAAP financial measures, including the reasons management uses each measure, please see the section of the tables titled "About Non-GAAP Financial Measures."


3




Quarterly Conference Call

The fourth quarter and full year 2019 earnings conference call and webcast will be held Monday, March 2, 2020, at 4:30 p.m. Eastern Time. Livongo management will host the call, followed by a question and answer session. All interested parties may dial 270-215-9499 and reference “Livongo” to listen to the quarterly conference call. Participants may join the webcast here. A replay of the call will be available via webcast for on-demand listening shortly after completion of the call on the Investor Relations section of the company’s website, www.livongo.com, and will remain available for approximately 90 days. To assist with the financial portion of this earnings call supplemental slides can be found on our investor relations website here.

About Livongo

Livongo empowers people with chronic conditions to live better and healthier lives, beginning with diabetes and now including hypertension, weight management, diabetes prevention, and behavioral health. Livongo pioneered the category of Applied Health Signals to offer Members clinically-based insights that focus on the whole person and make it easier to stay healthy. Using its AI+AI engine, Livongo’s team of data scientists aggregate and interpret substantial amounts of health data and information to create actionable, personalized, and timely health signals delivered to Livongo Members exactly when and where they need them. The Livongo approach delivers better clinical and financial outcomes while creating a different and better experience for people with chronic conditions. For more information, visit: www.livongo.com or engage with Livongo on LinkedIn or Twitter.




4



Forward-Looking Statements

This press release contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Forward-looking statements generally relate to future events or Livongo’s future financial or operating performance. In some cases, you can identify forward looking statements because they contain words such as “may,” “will,” “should,” “expects,” “plans,” “anticipates,” “going to,” “could,” “intends,” “target,” “projects,” “contemplates,” “believes,” “estimates,” “predicts,” “potential” or “continue” or the negative of these words or other similar terms or expressions that concern Livongo’s expectations, strategy, priorities, plans or intentions. Forward-looking statements in this release include, but are not limited to, statements regarding Livongo’s ability to grow and expand its platform, including into the fully insured and government market, number of clients and number of members, anticipated enrollment rates, the success of Livongo’s new partnerships and integrations and the expansion of Livongo's existing relationships, the adoption of Livongo’s solutions and the expansion of multi-product adoption, planned investments and efforts to capture more market opportunity, anticipated growth in revenue, and Livongo’s future financial and operating performance, including its outlook and guidance for the first quarter and full year 2020. Livongo’s expectations and beliefs regarding these matters may not materialize, and actual results in future periods are subject to risks and uncertainties that could cause actual results to differ materially from those projected, including risks regarding Livongo’s ability to retain clients and sell additional solutions to new and existing clients, Livongo’s ability to attract and enroll new members, the growth and success of Livongo’s partners and reseller relationships, Livongo’s ability to estimate the size of its target market, uncertainty in the healthcare regulatory environment, and Livongo’s future financial performance, including trends in revenue, costs of revenue, gross profit or gross margin, operating expenses, paying clients, and free cash flow. The forward-looking statements contained in this release are also subject to other risks and uncertainties, including those more fully described in Livongo’s filings with the Securities and Exchange Commission, including Livongo’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2019 and Livongo’s Annual Report on Form 10-K that will be filed following this earnings release. Livongo’s SEC filings are available on the Investor Relations section of Livongo’s website at ir.livongo.com and on the SEC’s website at www.sec.gov. The forward-looking statements in this release are based on information available to Livongo as of the date hereof, and Livongo disclaims any obligation to update any forward-looking statements, except as required by law.




Investor Contact:

Alex Hughes, CFA
Investor-relations@livongo.com
650-413-9528

Media Contact:
 
John Hallock
press@livongo.com
617-615-7712


5



LIVONGO HEALTH, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except per share data)
(unaudited)
 
December 31, 2019
 
December 31, 2018
ASSETS
 
 
 
Current assets:
 
 
 
Cash and cash equivalents
$
241,738

 
$
108,928

Short-term investment
150,000

 

Accounts receivable, net of allowance for doubtful accounts of $1,245 and $575 as of December 31, 2019 and 2018, respectively
40,875

 
16,623

Inventories
28,983

 
8,934

Deferred costs, current(1)
16,051

 
6,022

Prepaid expenses and other current assets
9,860

 
4,935

Total current assets
487,507

 
145,442

Property and equipment, net
10,354

 
5,837

Restricted cash, noncurrent
1,270

 
179

Goodwill
35,801

 
15,709

Intangible assets, net
16,469

 
5,154

Deferred costs, noncurrent(1)
5,700

 
2,447

Other noncurrent assets
3,460

 
5,485

TOTAL ASSETS
$
560,561

 
$
180,253

LIABILITIES, REDEEMABLE CONVERTIBLE PREFERRED STOCK, AND STOCKHOLDERS’ EQUITY (DEFICIT)
 
 
 
Current liabilities:
 
 
 
Accounts payable
$
8,362

 
$
6,377

Accrued expenses and other current liabilities(1)
27,801

 
16,152

Deferred revenue, current
3,945

 
1,614

Advance payments from partner, current
1,767

 
293

Total current liabilities
41,875

 
24,436

Deferred revenue, noncurrent
654

 
437

Advance payment from partner, noncurrent
7,754

 
6,432

Other noncurrent liabilities
2,914

 
3,825

TOTAL LIABILITIES
53,197

 
35,130

Commitments and contingencies
 
 
 
Redeemable convertible preferred stock, par value of $0.001 per share

 
236,929

Stockholders’ equity (deficit):
 
 
 
Preferred stock, par value of $0.001 per share

 

Common stock, par value of $0.001 per share
95

 
18

Additional paid-in capital
671,467

 
21,789

Accumulated deficit(1)
(164,198
)
 
(113,613
)
TOTAL STOCKHOLDERS’ EQUITY (DEFICIT)
507,364

 
(91,806
)
TOTAL LIABILITIES, REDEEMABLE CONVERTIBLE PREFERRED STOCK, AND STOCKHOLDERS’ EQUITY (DEFICIT)
$
560,561

 
$
180,253




6



LIVONGO HEALTH, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
(unaudited)
 
Three Months Ended December 31,
 
Year Ended
December 31,
 
2019
 
2018
 
2019
 
2018
 
 
 
 
 
 
Revenue(1)
$
50,356

 
$
21,206

 
$
170,198

 
$
68,431

Cost of revenue(2)(3)(8)
10,936

 
6,898

 
46,158

 
20,269

Gross profit
39,420

 
14,308

 
124,040

 
48,162

Operating expenses:
 
 
 
 
 
 
 
Research and development(2)(6)
12,763

 
8,376

 
49,842

 
24,861

Sales and marketing(1)(2)(3)(6)(9)
20,868

 
12,041

 
78,060

 
36,433

General and administrative(2)(4)(5)(6)
13,678

 
8,215

 
55,676

 
23,063

Change in fair value of contingent consideration
(168
)
 
(1,200
)
 
843

 
(1,200
)
Total operating expenses
47,141

 
27,432

 
184,421

 
83,157

Loss from operations
(7,721
)
 
(13,124
)
 
(60,381
)
 
(34,995
)
Other income, net
1,686

 
671

 
3,742

 
1,641

Loss before provision for income taxes
(6,035
)
 
(12,453
)
 
(56,639
)
 
(33,354
)
Provision for (benefit from) income taxes
8

 
7

 
(1,369
)
 
28

Net loss
$
(6,043
)
 
$
(12,460
)
 
$
(55,270
)
 
$
(33,382
)
Accretion of redeemable convertible preferred stock

 
(42
)
 
(96
)
 
(162
)
Net loss attributable to common stockholders
$
(6,043
)
 
$
(12,502
)
 
$
(55,366
)
 
$
(33,544
)
Net loss per share attributable to common stockholders, basic and diluted
$
(0.06
)
 
$
(0.72
)
 
$
(1.09
)
 
$
(2.02
)
Weighted-average shares used in computing net loss per share attributable to common stockholders, basic and diluted(7)
94,347

 
17,300

 
50,930

 
16,573



______________
(1)
We adopted Accounting Standards Update (“ASU”) No. 2014-09, Revenue from Contracts with Customers (Topic 606) (“ASC 606”) for the year ended December 31, 2019 using modified retrospective method to client contracts that were not completed as of January 1, 2019 and recorded an opening balance adjustment to reduce our accumulated deficit by $4.7 million. See impact of ASC 606 on our results of operations under "ASC 606 Adoption Impact on Results of Operations" below.

______________
(2)
Includes stock-based compensation expense as follows:

 
Three Months Ended December 31,
 
Year Ended
December 31,
 
2019
 
2018
 
2019
 
2018
 
 
 
 
 
 
 
 
Cost of revenue
$
45

 
$
8

 
$
151

 
$
18

Research and development
1,870

 
1,217

 
8,182

 
2,188

Sales and marketing
2,265

 
227

 
7,659

 
916

General and administrative
2,947

 
1,908

 
16,640

 
3,210

Total stock-based compensation expense
$
7,127

 
$
3,360

 
$
32,632

 
$
6,332




7



______________
(3)
Includes amortization of intangible assets as follows:

 
Three Months Ended December 31,
 
Year Ended
December 31,
 
2019
 
2018
 
2019
 
2018
 
 
 
 
 
 
 
 
Cost of revenue
$
420

 
$
128

 
$
1,520

 
$
320

Sales and marketing
276

 
96

 
1,065

 
272

Total amortization of intangible assets
$
696

 
$
224

 
$
2,585

 
$
592




______________
(4)
Includes acquisition-related expenses as follows:

 
Three Months Ended December 31,
 
Year Ended
December 31,
 
2019
 
2018
 
2019
 
2018
 
 
General and administrative
$

 
$
113

 
$
236

 
$
354

Total acquisition-related expenses
$

 
$
113

 
$
236

 
$
354



______________
(5)
Includes secondary offering costs as follows:

 
Three Months Ended December 31,
 
Year Ended
December 31,
 
2019
 
2018
 
2019
 
2018
 
 
Secondary offering costs
$
348

 
$

 
$
348

 
$

Total secondary offering costs
$
348

 
$

 
$
348

 
$



______________
(6)
Includes secondary offering related payroll taxes as follows:

 
Three Months Ended December 31,
 
Year Ended
December 31,
 
2019
 
2018
 
2019
 
2018
 
 
 
 
 
 
 
 
Research and development
$
30

 
$

 
$
30

 
$

Sales and marketing
87

 

 
87

 

General and administrative
175

 

 
175

 

Total secondary offering related payroll taxes
$
292

 
$

 
$
292

 
$


______________
(7)
For the 2019 periods, the weighted-average shares used in computing net loss per share attributable to common stockholders, basic and diluted, include the weighted-average outstanding shares for the following common stock issued in connection with our IPO in July 2019: (i) all shares of redeemable convertible preferred stock then outstanding, totaling 58,615 shares, were automatically converted into an equivalent number of shares of common stock on a one-to-one basis and (ii) we sold 14,590 shares of our common stock at an offering price of $28.00 per share, including 1,903 shares of common stock pursuant to the exercise in full of the underwriters' option to purchase additional shares.

______________
(8)
Includes a one-time adjustment for the deferral of device costs for Livongo for Hypertension and Livongo for Prediabetes and Weight Management which will be amortized in future periods.

______________
(9)
Includes a one-time adjustment for the capitalization of a portion of sales commissions which will be amortized in future periods.






8



LIVONGO HEALTH, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
 
Year Ended December 31,
 
2019
 
2018
CASH FLOWS FROM OPERATING ACTIVITIES
 
 
 
Net loss
$
(55,270
)
 
$
(33,382
)
Adjustments to reconcile net loss to net cash used in operating activities:
 
 
 
Depreciation and amortization expense
3,326

 
1,263

Amortization of intangible assets
2,585

 
592

Change in fair value of contingent consideration
843

 
(1,200
)
Allowance for doubtful accounts
854

 
476

Stock-based compensation expense
32,632

 
6,332

Loss on disposal of property and equipment

 
3

Deferred income taxes
(1,396
)
 

Changes in operating assets and liabilities, net of impact of acquisitions:
 
 
 
Accounts receivable, net
(23,769
)
 
(9,174
)
Inventories
(20,049
)
 
(5,963
)
Deferred costs
(8,611
)
 
(4,475
)
Prepaid expenses and other assets
(4,476
)
 
(1,911
)
Accounts payable
1,986

 
2,562

Accrued expenses and other liabilities
8,011

 
8,286

Deferred revenue
1,142

 
595

Advance payments from partner
2,796

 
2,956

Net cash used in operating activities
(59,396
)
 
(33,040
)
CASH FLOWS FROM INVESTING ACTIVITIES
 
 
 
Purchases of property and equipment
(1,995
)
 
(954
)
Capitalized internal-use software costs
(5,199
)
 
(3,562
)
Purchase of short-term investments
(150,000
)
 

Acquisitions, net of cash acquired
(27,435
)
 
(12,268
)
Change in escrow deposit
434

 
(7,000
)
Net cash used in investing activities
(184,195
)
 
(23,784
)
CASH FLOWS FROM FINANCING ACTIVITIES
 
 
 
Proceeds from issuance of common stock upon initial public offering, net of issuance costs
377,787

 

Proceeds from exercise of stock options, net of repurchases
3,096

 
1,658

Proceeds from exercise of common stock warrants
60

 

Proceeds from issuance of redeemable convertible preferred stock, net of issuance costs

 
104,750

Taxes paid related to net share settlement of equity awards
(1,035
)
 

Payment of deferred purchase consideration

 
(2,000
)
Payment of contingent consideration
(2,416
)
 

Net cash provided by financing activities
377,492

 
104,408

Net increase in cash, cash equivalents, and restricted cash
133,901

 
47,584

Cash, cash equivalents, and restricted cash, beginning of period
109,107

 
61,523

Cash, cash equivalents, and restricted cash, end of period
$
243,008

 
$
109,107

Reconciliation of cash, cash equivalents, and restricted cash:
 
 
 
Cash and cash equivalents
$
241,738

 
$
108,928

Restricted cash
1,270

 
179

Total cash, cash equivalents, and restricted cash, end of period
$
243,008

 
$
109,107


9




ASC 606 Adoption Impact on Results of Operations

We adopted ASC 606 for the year ended December 31, 2019 using the modified retrospective method to customer contracts that were not completed as of January 1, 2019. Results of operations for the interim periods during 2019 have been adjusted to reflect the adoption of ASC 606. ASC 606 impact on revenue was immaterial; sales and marketing expense increased due to the difference in the timing of the recognition of incremental costs to obtain client contracts. Prior year results of operations are not affected by the adoption of ASC 606. The adoption of ASC 606 does not impact our net operating cash flows, investing cash flows, or financing cash flows.

The following table presents the ASC 606 impact on our results of operations:
 
Three Months Ended December 31,
 
Year Ended December 31,
 
2019
 
2019
 
2019
 
2018
 
2019
 
2019
 
2019
 
2018
 
ASC 606
 
606 Impact
 
ASC 605
 
ASC 605
 
ASC 606
 
606 Impact
 
ASC 605
 
ASC 605
 
(in thousands except per share amounts)
Revenue
$
50,356

 
$
(108
)
 
$
50,248

 
$
21,206

 
$
170,198

 
$
(345
)
 
$
169,853

 
$
68,431

Cost of revenue
10,936

 

 
10,936

 
6,898

 
46,158

 

 
46,158

 
20,269

Gross profit
39,420

 
(108
)
 
39,312

 
14,308

 
124,040

 
(345
)
 
123,695

 
48,162

Gross margin
78.3
%
 
%
 
78.2
%
 
67.5
%
 
72.9
%
 
(0.1
)%
 
72.8
%
 
70.4
%
Operating expenses:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Research and development
12,763

 

 
12,763

 
8,376

 
49,842

 

 
49,842

 
24,861

Sales and marketing
20,868

 
(155
)
 
20,713

 
12,041

 
78,060

 
(703
)
 
77,357

 
36,433

General and administrative
13,678

 

 
13,678

 
8,215

 
55,676

 

 
55,676

 
23,063

Change in fair value of contingent consideration
(168
)
 

 
(168
)
 
(1,200
)
 
843

 

 
843

 
(1,200
)
Total operating expenses
47,141

 
(155
)
 
46,986

 
27,432

 
184,421

 
(703
)
 
183,718

 
83,157

Loss from operations
(7,721
)
 
47

 
(7,674
)
 
(13,124
)
 
(60,381
)
 
358

 
(60,023
)
 
(34,995
)
Other income, net
1,686

 

 
1,686

 
671

 
3,742

 

 
3,742

 
1,641

Loss before provision for income taxes
(6,035
)
 
47

 
(5,988
)
 
(12,453
)
 
(56,639
)
 
358

 
(56,281
)
 
(33,354
)
Provision for (benefit from) income taxes
8

 

 
8

 
7

 
(1,369
)
 

 
(1,369
)
 
28

Net loss
$
(6,043
)
 
$
47

 
$
(5,996
)
 
$
(12,460
)
 
$
(55,270
)
 
$
358

 
$
(54,912
)
 
$
(33,382
)
Accretion of redeemable convertible preferred stock

 

 

 
(42
)
 
(96
)
 

 
(96
)
 
(162
)
Net loss attributable to common stockholders
$
(6,043
)
 
$
47

 
$
(5,996
)
 
$
(12,502
)
 
$
(55,366
)
 
$
358

 
$
(55,008
)
 
$
(33,544
)
Net loss per share attributable to common stockholders, basic and diluted
$
(0.06
)
 
$

 
$
(0.06
)
 
$
(0.72
)
 
$
(1.09
)
 
$
0.01

 
$
(1.08
)
 
$
(2.02
)
Weighted-average shares used in computing net loss per share attributable to common stockholders, basic and diluted
94,347

 
 
 
94,347

 
17,300

 
50,930

 
 
 
50,930

 
16,573




10



About Non-GAAP Financial Measures

In addition to our financial results determined in accordance with GAAP, we believe non-GAAP measures are useful in evaluating our operating performance. In particular, we believe that the use of adjusted gross profit, adjusted gross margin, non-GAAP net loss and adjusted EBITDA is helpful to our investors as they are metrics used by management in assessing the health of our business and our operating performance. We use these non-GAAP financial measures to evaluate our ongoing operations and for internal planning and forecasting purposes. A reconciliation is provided below for each non-GAAP financial measure to the most directly comparable financial measure stated in accordance with GAAP. Investors are encouraged to review the related GAAP financial measures and the reconciliation of these non-GAAP financial measures to their most directly comparable GAAP financial measures, and not to rely on any single financial measure to evaluate our business.


Non-GAAP Net Loss

We define non-GAAP net loss as net loss less (i) stock-based compensation expense, (ii) amortization of intangible assets, (iii) acquisition related expenses, (iv) secondary offering costs, (v) secondary offering related payroll taxes, (vi) change in fair value of contingent consideration, and (vii) tax impact. Non-GAAP net loss is used by our management to understand and evaluate our operating performance and trends. We believe that non-GAAP net loss is helpful in providing useful information about our operating results because it eliminates the effect of items that are unrelated to overall performance, but non-GAAP net loss is not meant to be considered in isolation or as a substitute for comparable GAAP measures and should be read only in conjunction with our consolidated financial statements prepared in accordance with GAAP.

We adopted ASC 606 for year ended December 31, 2019 using the modified retrospective method. Interim periods for 2019 have been adjusted to reflect the adoption of ASC 606. Impact of the ASC 606 adoption on non-GAAP results may vary from our GAAP results due to the capitalization and amortization of stock-based compensation expenses related to incremental costs of obtaining contracts with clients. Results of operations for the prior year periods are not affected by the adoption of ASC 606. Reconciliation of non-GAAP results from the most comparable GAAP measures are provided below.




11



LIVONGO HEALTH, INC.
RECONCILIATION OF GAAP TO NON-GAAP MEASURES
(in thousands, except percentages)
(unaudited)
 
Three Months Ended December 31, 2019
 
 
 
 
 
GAAP (ASC 606)
 
Stock-Based Compensation Expense
 
Amortization of Intangible Assets
 
Acquisition Related Expenses
 
Secondary Offering Costs
 
Secondary Offering Related Payroll Taxes
 
Change in Fair Value of Contingent Consideration
 
Tax Impact
 
Non-GAAP (ASC 606)
 
ASC 606 Impact
 
Non-GAAP (ASC 605)
Revenue
$
50,356

 
$

 
$

 
$

 
$

 
$

 
$

 
$

 
$
50,356

 
$
(108
)
 
$
50,248

Cost of revenue
$
10,936

 
$
(45
)
 
$
(420
)
 
$

 
$

 
$

 
$

 
$

 
$
10,471

 
$

 
$
10,471

Gross profit
$
39,420

 
$
45

 
$
420

 
$

 
$

 
$

 
$

 
$

 
$
39,885

 
$
(108
)
 
$
39,777

Gross margin
78.3
%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
79.2
%
 
 
 
79.2
%
Research and development
$
12,763

 
$
(1,870
)
 
$

 
$

 
$

 
$
(30
)
 
$

 
$

 
$
10,863

 
$

 
$
10,863

Sales and marketing
$
20,868

 
$
(2,265
)
 
$
(276
)
 
$

 
$

 
$
(87
)
 
$

 
$

 
$
18,240

 
$
(140
)
 
$
18,100

General and administrative
$
13,678

 
$
(2,947
)
 
$

 
$

 
$
(348
)
 
$
(175
)
 
$

 
$

 
$
10,208

 
$

 
$
10,208

Change in fair value of contingent consideration
$
(168
)
 
$

 
$

 
$

 
$

 
$

 
$
168

 
$

 
$

 
$

 
$

Total operating expenses
$
47,141

 
$
(7,082
)
 
$
(276
)
 
$

 
$
(348
)
 
$
(292
)
 
$
168

 
$

 
$
39,311

 
$
(140
)
 
$
39,171

Loss from operations
$
(7,721
)
 
$
7,127

 
$
696

 
$

 
$
348

 
$
292

 
$
(168
)
 
$

 
$
574

 
$
32

 
$
606

Loss before provision for income taxes
$
(6,035
)
 
$
7,127

 
$
696

 
$

 
$
348

 
$
292

 
$
(168
)
 
$

 
$
2,260

 
$
32

 
$
2,292

Net (loss) income
$
(6,043
)
 
$
7,127

 
$
696

 
$

 
$
348

 
$
292

 
$
(168
)
 
$

 
$
2,252

 
$
32

 
$
2,284

Net (loss) income attributable to common stockholders
$
(6,043
)
 
$
7,127

 
$
696

 
$

 
$
348

 
$
292

 
$
(168
)
 
$

 
$
2,252

 
$
32

 
$
2,284

Net (loss) income per share attributable to common stockholders, diluted
$
(0.06
)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
$
0.02

 
$

 
$
0.02

Weighted-average shares used in computing net (loss) income per share attributable to common stockholders, diluted
94,347

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
112,143

 
 
 
112,143



12



LIVONGO HEALTH, INC.
RECONCILIATION OF GAAP TO NON-GAAP MEASURES
(in thousands, except percentages)
(unaudited)
 
Three Months Ended December 31, 2018
 
GAAP (ASC 605)
 
Stock-Based Compensation Expense
 
Amortization of Intangible Assets
 
Acquisition Related Expenses
 
Secondary Offering Costs
 
Secondary Offering Related Payroll Taxes
 
Change in Fair Value of Contingent Consideration
 
Tax Impact
 
Non-GAAP (ASC 605)
Cost of revenue
$
6,898

 
$
(8
)
 
$
(128
)
 
$

 
$

 
$

 
$

 
$

 
$
6,762

Gross profit
$
14,308

 
$
8

 
$
128

 
$

 
$

 
$

 
$

 
$

 
$
14,444

Gross margin
67.5
%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
68.1
%
Research and development
$
8,376

 
$
(1,217
)
 
$

 
$

 
$

 
$

 
$

 
$

 
$
7,159

Sales and marketing
$
12,041

 
$
(227
)
 
$
(96
)
 
$

 
$

 
$

 
$

 
$

 
$
11,718

General and administrative
$
8,215

 
$
(1,908
)
 
$

 
$
(113
)
 
$

 
$

 
$

 
$

 
$
6,194

Change in fair value of contingent consideration
$
(1,200
)
 
$

 
$

 
$

 
$

 
$

 
$
1,200

 
$

 
$

Total operating expenses
$
27,432

 
$
(3,352
)
 
$
(96
)
 
$
(113
)
 
$

 
$

 
$
1,200

 
$

 
$
25,071

Loss from operations
$
(13,124
)
 
$
3,360

 
$
224

 
$
113

 
$

 
$

 
$
(1,200
)
 
$

 
$
(10,627
)
Loss before provision for income taxes
$
(12,453
)
 
$
3,360

 
$
224

 
$
113

 
$

 
$

 
$
(1,200
)
 
$

 
$
(9,956
)
Net loss
$
(12,460
)
 
$
3,360

 
$
224

 
$
113

 
$

 
$

 
$
(1,200
)
 
$

 
$
(9,963
)
Net loss attributable to common stockholders
$
(12,502
)
 
$
3,360

 
$
224

 
$
113

 
$

 
$

 
$
(1,200
)
 
$

 
$
(10,005
)
Net loss per share attributable to common stockholders, diluted
$
(0.72
)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
$
(0.58
)
Weighted-average shares used in computing net loss per share attributable to common stockholders, diluted
17,300

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
17,300





13




LIVONGO HEALTH, INC.
RECONCILIATION OF GAAP TO NON-GAAP MEASURES
(in thousands, except percentages)
(unaudited)
 
Year Ended December 31, 2019
 
 
 
 
 
GAAP (ASC 606)
 
Stock-Based Compensation Expense
 
Amortization of Intangible Assets
 
Acquisition Related Expenses
 
Secondary Offering Costs
 
Secondary Offering Related Payroll Taxes
 
Change in Fair Value of Contingent Consideration
 
Tax Impact
 
Non-GAAP (ASC 606)
 
ASC 606 Impact
 
Non-GAAP (ASC 605)
Revenue
$
170,198

 
$

 
$

 
$

 
$

 
$

 
$

 
$

 
$
170,198

 
$
(345
)
 
$
169,853

Cost of revenue
$
46,158

 
$
(151
)
 
$
(1,520
)
 
$

 
$

 
$

 
$

 
$

 
$
44,487

 
$

 
$
44,487

Gross profit
$
124,040

 
$
151

 
$
1,520

 
$

 
$

 
$

 
$

 
$

 
$
125,711

 
$
(345
)
 
$
125,366

Gross margin
72.9
%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
73.9
%
 
 
 
73.8
%
Research and development
$
49,842

 
$
(8,182
)
 
$

 
$

 
$

 
$
(30
)
 
$

 
$

 
$
41,630

 
$

 
$
41,630

Sales and marketing
$
78,060

 
$
(7,659
)
 
$
(1,065
)
 
$

 
$

 
$
(87
)
 
$

 
$

 
$
69,249

 
$
(910
)
 
$
68,339

General and administrative
$
55,676

 
$
(16,640
)
 
$

 
$
(236
)
 
$
(348
)
 
$
(175
)
 
$

 
$

 
$
38,277

 
$

 
$
38,277

Change in fair value of contingent consideration
$
843

 
$

 
$

 
$

 
$

 
$

 
$
(843
)
 
$

 
$

 
$

 
$

Total operating expenses
$
184,421

 
$
(32,481
)
 
$
(1,065
)
 
$
(236
)
 
$
(348
)
 
$
(292
)
 
$
(843
)
 
$

 
$
149,156

 
$
(910
)
 
$
148,246

Loss from operations
$
(60,381
)
 
$
32,632

 
$
2,585

 
$
236

 
$
348

 
$
292

 
$
843

 
$

 
$
(23,445
)
 
$
565

 
$
(22,880
)
Loss before provision for income taxes
$
(56,639
)
 
$
32,632

 
$
2,585

 
$
236

 
$
348

 
$
292

 
$
843

 
$

 
$
(19,703
)
 
$
565

 
$
(19,138
)
Provision for (benefit from) income taxes
$
(1,369
)
 
$

 
$

 
$

 
$

 
$

 
$

 
$
1,396

 
$
27

 
$

 
$
27

Net loss
$
(55,270
)
 
$
32,632

 
$
2,585

 
$
236

 
$
348

 
$
292

 
$
843

 
$
(1,396
)
 
$
(19,730
)
 
$
565

 
$
(19,165
)
Net loss attributable to common stockholders
$
(55,366
)
 
$
32,632

 
$
2,585

 
$
236

 
$
348

 
$
292

 
$
843

 
$
(1,396
)
 
$
(19,826
)
 
$
565

 
$
(19,261
)
Net loss per share attributable to common stockholders, diluted
$
(1.09
)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
$
(0.39
)
 
$
0.01

 
(0.38
)
Weighted-average shares used in computing net loss per share attributable to common stockholders, diluted
50,930

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
50,930

 
 
 
50,930




14



LIVONGO HEALTH, INC.
RECONCILIATION OF GAAP TO NON-GAAP MEASURES
(in thousands, except percentages)
(unaudited)
 
Year Ended December 31, 2018
 
GAAP (ASC 605)
 
Stock-Based Compensation Expense
 
Amortization of Intangible Assets
 
Acquisition Related Expenses
 
Secondary Offering Costs
 
Secondary Offering Related Payroll Taxes
 
Change in Fair Value of Contingent Consideration
 
Tax Impact
 
Non-GAAP (ASC 605)
Cost of revenue
$
20,269

 
$
(18
)
 
$
(320
)
 
$

 
$

 
$

 
$

 
$

 
$
19,931

Gross profit
$
48,162

 
$
18

 
$
320

 
$

 
$

 
$

 
$

 
$

 
$
48,500

Gross margin
70.4
%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
70.9
%
Research and development
$
24,861

 
$
(2,188
)
 
$

 
$

 
$

 
$

 
$

 
$

 
$
22,673

Sales and marketing
$
36,433

 
$
(916
)
 
$
(272
)
 
$

 
$

 
$

 
$

 
$

 
$
35,245

General and administrative
$
23,063

 
$
(3,210
)
 
$

 
$
(354
)
 
$

 
$

 
$

 
$

 
$
19,499

Change in fair value of contingent consideration
$
(1,200
)
 
$

 
$

 
$

 
$

 
$

 
$
1,200

 
$

 
$

Total operating expenses
$
83,157

 
$
(6,314
)
 
$
(272
)
 
$
(354
)
 
$

 
$

 
$
1,200

 
$

 
$
77,417

Loss from operations
$
(34,995
)
 
$
6,332

 
$
592

 
$
354

 
$

 
$

 
$
(1,200
)
 
$

 
$
(28,917
)
Loss before provision for income taxes
$
(33,354
)
 
$
6,332

 
$
592

 
$
354

 
$

 
$

 
$
(1,200
)
 
$

 
$
(27,276
)
Net loss
$
(33,382
)
 
$
6,332

 
$
592

 
$
354

 
$

 
$

 
$
(1,200
)
 
$

 
$
(27,304
)
Net loss attributable to common stockholders
$
(33,544
)
 
$
6,332

 
$
592

 
$
354

 
$

 
$

 
$
(1,200
)
 
$

 
$
(27,466
)
Net loss per share attributable to common stockholders, diluted
$
(2.02
)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
$
(1.66
)
Weighted-average shares used in computing net loss per share attributable to common stockholders, diluted
16,573

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
16,573

















15



Adjusted Gross Profit and Adjusted Gross Margin
Adjusted gross profit and adjusted gross margin are key performance measures that our management uses to assess our overall performance. We define adjusted gross profit as GAAP gross profit, excluding stock-based compensation expense and amortization of intangible assets. We define adjusted gross margin as our adjusted gross profit divided by our revenue. We believe adjusted gross profit and adjusted gross margin provide our management and investors consistency and comparability with our past financial performance and facilitate period-to-period comparisons of operations, as these metrics eliminate the effects of stock-based compensation and amortization of intangible assets from period-to-period as factors unrelated to overall operating performance.
We adopted ASC 606 for year ended December 31, 2019 using the modified retrospective method. Interim periods for 2019 have been adjusted to reflect the adoption of ASC 606. Results of operations for the prior year are not affected by the adoption of ASC 606.
The following table presents a reconciliation of adjusted gross profit from the most comparable GAAP measure, gross profit:
 
Three Months Ended December 31,
 
Year Ended December 31,
 
2019
 
2019
 
2019
 
2018
 
2019
 
2019
 
2019
 
2018
 
ASC 606
 
606 Impact
 
ASC 605
 
ASC 605
 
ASC 606
 
606 Impact
 
ASC 605
 
ASC 605
 
(dollars in thousands)
Gross profit
$
39,420

 
$
(108
)
 
$
39,312

 
$
14,308

 
$
124,040

 
$
(345
)
 
$
123,695

 
$
48,162

Add:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Stock-based compensation expense
45

 

 
45

 
8

 
151

 

 
151

 
18

Amortization of intangible assets
420

 

 
420

 
128

 
1,520

 

 
1,520

 
320

Adjusted gross profit
$
39,885

 
$
(108
)
 
$
39,777

 
$
14,444

 
$
125,711

 
$
(345
)
 
$
125,366

 
$
48,500

Adjusted gross margin (as a percentage of revenue)
79.2
%
 
 
 
79.2
%
 
68.1
%
 
73.9
%
 
 
 
73.8
%
 
70.9
%
Adjusted EBITDA
Adjusted EBITDA is a key performance measure that our management uses to assess our operating performance. Because adjusted EBITDA facilitates internal comparisons of our historical operating performance on a more consistent basis, we use this measure for business planning purposes and in evaluating acquisition opportunities.
We calculate adjusted EBITDA as net loss adjusted to exclude (i) depreciation and amortization, (ii) amortization of intangible assets, (iii) stock-based compensation expense, (iv) acquisition-related expenses, (v) secondary offering costs, (vi) secondary offering related payroll taxes, (vii) change in fair value of contingent consideration, (viii) other income, net, and (ix) provision for (benefit from) income taxes.
We adopted ASC 606 for year ended December 31, 2019 using the modified retrospective method. Interim periods for 2019 have been adjusted to reflect the adoption of ASC 606. Impact of the ASC 606 adoption on non-GAAP adjusted EBITDA results may vary from our GAAP results due to the capitalization and amortization of stock-based compensation expenses related to incremental costs of obtaining contracts with clients. Results of operations for the prior year are not affected by the adoption of ASC 606.


16



The following table presents a reconciliation of adjusted EBITDA from the most comparable GAAP measure, net loss:
 
Three Months Ended December 31,
 
Year Ended December 31,
 
2019
 
2019
 
2019
 
2018
 
2019
 
2019
 
2019
 
2018
 
ASC 606
 
606 Impact
 
ASC 605
 
ASC 605
 
ASC 606
 
606 Impact
 
ASC 605
 
ASC 605
 
(in thousands)
Net loss
$
(6,043
)
 
$
47

 
$
(5,996
)
 
$
(12,460
)
 
$
(55,270
)
 
$
358