Company Overview: LiveTiles Limited is an Australia-based company, which offers digital workplace platforms, including user experience-focused solutions to the enterprise, education and small and midsized business (SMB) markets. The Company is engaged in the development and sale of digital workplace software. The Company's product suite includes LiveTiles SharePoint, LiveTiles Cloud and LiveTiles Mosaic for K-12 schools. LiveTiles SharePoint organizes scattered business applications and designs dashboards and sites on Microsoft SharePoint and Office 365. LiveTiles Cloud organizes scattered business applications and designs dashboards and sites without needing to install software. LiveTiles Mosaic is a virtual classroom where teachers and students connect. The Company's customers represent a diverse range of sectors and are spread throughout North America, the United Kingdom, Europe, the Middle East and Asia-Pacific.

LVT Details
 
Record Q1 Cash Receipts: LiveTiles Limited (ASX: LVT) is engaged in the development and sale of digital workplace software via subscription agreements. The customers of LiveTiles are spread all over North America, United Kingdom, Europe, the Middle East and Asia-Pacific and showcase a diverse array of sectors. As on 7^th February 2020, the market capitalisation of LVT stood at ~$275.33 million. In the recently held Annual General Meeting, the top management stated that the company had maintained a number 1 global market position with an increase in ARR (Annual Recurring Revenue) by 10x in 2 years. In addition to an ARR of $40.1 million, the number of paying customers grew to 919, a 71% increase on the previous year. In the same time span, total revenue and other income stood at $22.5 million, representing an increase of 249% from $6.43 million in the prior year. The company is expanding its intranet platform, which includes integrations to 3^rd party applications, analytics and AI-powered employee profiles and chatbots. During FY19, the company witnessed substantial improvement in cash flows and strong growth in customer cash receipts, which rose to $19.1 million, reflecting a growth of 184% on FY18. FY19 also saw a network of alliance partnerships, which supported the company’s vision to redefine the intranet, bringing in the innovative technology to its customers and employees. Continued growth in the customer base of the company, cross-selling of products and increased penetration of existing customers resulted in an increase of 56% in average ARR per customer.

For the quarter ended 30^th September 2019, ARR reached $42.9 million representing year on year growth of 131%, and up 8.6 times over a period of 2 years. LVT witnessed the fourth consecutive record quarter for cash receipts and generated $8.5 million in Q1 FY20, up by 252% on the prior corresponding quarter. In the same time span, customers witnessed a substantial increase, and the company extended its global base of enterprise customers, propelled by the company’s portfolio of products, its ongoing sales and marketing investments, and co-marketing programs with Microsoft and other partners. In addition to major customer wins, the company has established a partnership with UiPath, the world leader in robotic process automation, and has been chosen by Microsoft to present at their largest annual partner event. Underlying expenses for the quarter were $16.4 million, slightly above the estimate provided. The additional operating expenses were incurred to support the company’s growth strategy.

The management and the Board of LVT expect to deliver another year of strong customer growth in FY20 because of investment in products, partners, sales and marketing channels. The company is focused on direct sales & marketing plan and is aiming for larger enterprises.  


Annualised Recurring Revenue (Source: Company Reports)

Details of Top 10 Shareholders: The following table provides an overview of the top 10 shareholders of LiveTiles Limited. Redenbach (Karl) is the largest shareholder in the company, with a percentage holding of 13.53%.


Top 10 Shareholders (Source: Thomson Reuters)

Cost Cutting and Capability of Converting Revenue into Profits: During FY19, EBITDA margin witnessed a substantial improvement over the past year. This indicates that the company is effective in its cost-cutting measures. Over the span of 4 years from FY15 to FY19, net margin of the company saw a significant improvement, implying that the company is increasing its efficiency and is capable to convert its revenue into profits. During FY19, Return on Equity also witnessed an improvement over the past year, indicating that the company is well deploying the capital of its shareholders and can generate profits internally. In the same time span, the company reported a financially stable balance sheet with Debt/Equity ratio of ‘Zero’. 


Key Metrics (Source: Thomson Reuters)

LiveTiles Limited sells directly and also through a growing network of partners. LiveTiles technology uses Microsoft technology foundations, implemented to customers via Office 365 or Azure. The company has raised $5 million under the Share Purchase Plan from its existing shareholders. This will result in the issue and allotment of 14,285,422 shares at an issue price of $0.35 per share. The company has also entered into a strategic partnership with GO1.com, which will offer learning solutions based on an employee’s profile. The company has also announced that 49,715,598 ordinary shares will be released from voluntary ASX escrow on 14 February 2020.

LiveTiles Approved for Microsoft co-sell into US Government: The company has recently announced that it has received the approval of the US Federal Government General Services Administration (GSA) to accelerate purchasing processes for approved technology vendors across all the US Federal agencies, State and Local governments. This will reduce the procurement duration from an average of over ten months to under 30 days. The US federal government is expected to spend over $127 billion in 2020 on IT. The approval will result in new customer growth in a key industry vertical and will pave the way for the company to pursue joint opportunities with Microsoft. The company was also approved for the UK Government’s G-cloud which will help LVT to ease procurement of IT services by public-sector bodies within departments of the UK Government.

Completion of CYCL Acquisition: The company has recently announced that it has acquired CYCL and has issued 42,605,922 shares as part of the upfront consideration. The acquisition will extend LVT’s global market leadership and will help the company in geographic expansion in Switzerland and Germany. It will also offer LVT the opportunity to leverage the condense technology to speed up the sales process. The acquisition will also offer financial synergies to the company and will result in an attractive acquisition multiple of 1.3x total revenue and generation of cash flows.

Q2 ARR grows to $52.7 million: The company has recently released its quarterly report for December 2019 wherein it stated that ARR has reached $52.7 million. This was mainly due to the acquisition of CYCL. In the same time span, total customer cash receipts rose by 162% on the prior corresponding period to $10.4 million, and underlying expenses were below the guidance for $16.2 million. Q2 FY20 also witnessed strong organic ARR growth of $5.1 million from 30^th September 2019 coming from the acquisition of CYCL.


Annualised Recurring Revenue (Source: Company Reports)

Growth Opportunities and Future Expectations: The company has a large and rapidly growing addressable market with 300,000 potential customers and has a clear roadmap to drive operational execution in support of its growth strategy. The company is prioritising on capacity and ability of internal and partner services. LVT has also placed a strong focus on an increasing partner reseller and services network, which is backed by direct sales and account management channels in each region. It is also prioritising on realizing bundling benefits in all regions, after the integration of Wizdom and Hyperfish. The company expects substantial opportunities to drive differentiation in the product portfolio, enhancing the user experience. LiveTiles Limited has clear plans to realise efficiency benefits and more effective customer, people and partner outcomes with the integration of the three businesses projected by the end of FY20.

The company expects to deliver another year of solid customer and revenue growth because of the growing addressable market and growth in demand for Artificial Intelligence products. The company has openly stated to organically grow ARR to at least $100 million by FY21. 

Valuation Methodology: EV/Sales Multiple Approach

EV/Sales Based Valuation (Source: Thomson Reuters)

Note: All the forecasted figures have been taken from Thomson Reuters, NTM: Next Twelve Months

Key Valuation Metrics (Source: Thomson Reuters)

Stock Recommendation: As per ASX, the stock of LVT gave a return of 10.34% on YTD basis and a return of 14.29% in the past one month. The stock is also inclined towards its 52-week low level of $0.235, proffering a decent opportunity for accumulation. Over the span of 4 years, the company witnessed a CAGR of over 400% in revenue. The company has a record base of annualised recurring revenue, and the acquisition of CYCL has placed the company as the global market leader in intranet software. The company is expanding its footprint globally and expects significant opportunities to drive intranet software adoption. Considering the decent financial performance, improvement in EBITDA margin, CAGR in revenue and significant growth opportunities, we have valued the stock using EV/Sales based relative valuation method and have arrived at a target upside of lower double-digit (in percentage terms). For the said purposes, we have considered rhipe Ltd (ASX: RHP), Class Ltd (ASX: CL1) and few in the same space  as a peer group. Hence, we recommend a “Speculative Buy” rating on the stock at the current market price of $0.340, up by 6.25% on 7^th February 2020. 

 
LVT Daily Technical Chart (Source: Thomson Reuters)

Disclaimer
 
The advice given by Kalkine Pty Ltd and provided on this website is general information only and it does not take into account your investment objectives, financial situation or needs. You should therefore consider whether the advice is appropriate to your investment objectives, financial situation and needs before acting upon it. You should seek advice from a financial adviser, stockbroker or other professional (including taxation and legal advice) as necessary before acting on any advice. Not all investments are appropriate for all people. Kalkine.com.au and associated pages are published by Kalkine Pty Ltd ABN 34 154 808 312 (Australian Financial Services License Number 425376). The information on this website has been prepared from a wide variety of sources, which Kalkine Pty Ltd, to the best of its knowledge and belief, considers accurate. You should make your own enquiries about any investments and we strongly suggest you seek advice before acting upon any recommendation. Kalkine Pty Ltd has made every effort to ensure the reliability of information contained in its newsletters and websites. All information represents our views at the date of publication and may change without notice. To the extent permitted by law, Kalkine Pty Ltd excludes all liability for any loss or damage arising from the use of this website and any information published (including any indirect or consequential loss, any data loss or data corruption). If the law prohibits this exclusion, Kalkine Pty Ltd hereby limits its liability, to the extent permitted by law to the resupply of services. There may be a product disclosure statement or other offer document for the securities and financial products we write about in Kalkine Reports. You should obtain a copy of the product disclosure statement or offer document before making any decision about whether to acquire the security or product. The link to our Terms & Conditions has been provided please go through them and also have a read of the Financial Services Guide. On the date of publishing this report (mentioned on the website), employees and/or associates of Kalkine Pty Ltd do not hold positions in any of the stocks covered on the website. These stocks can change any time and readers of the reports should not consider these stocks as personalised advice.