Company Overview: LiveTiles Limited (ASX: LVT) is engaged in the development and sale of business software via subscription agreement. It provides intelligent workplace cloud software to the commercial, government and education markets with the explicit purpose of making people more efficient, productive and happier in the workplace. The customers of  LVT has a distinct range of sectors and are spread all over North America, United Kingdom, Europe, the Middle East and Asia-Pacific. The company was listed on Australian Securities Exchange in September 2015 and Annualized recurring revenue reached $40.1 million as at June 2019.


LVT Details

 
Significant Growth in ARR and Strong Emphasis on Product Development: LiveTiles Limited (ASX: LVT) is engaged in the development and sale of business software via subscription agreement. The customers of  LVT have a distinct range of sectors and are spread all over North America, the United Kingdom, Europe, the Middle East and Asia-Pacific. As on 27 March 2020, the market capitalization of the company stood at $135.33 million. During FY19, the company has extended its global market leadership in intranet software and has placed a strong emphasis on product innovation and artificial intelligence. FY19 has been a significant year for the company with growth in revenue and customers which led annualized recurring revenue (ARR) to reach $40.1 million, a 167% increase on the prior corresponding period. This growth was mainly driven by its internal sales and marketing channels, development of partner channel, strategic partnerships, ongoing product innovation, and strengthening brand awareness. LiveTiles’ portfolio of products, its ongoing sales and marketing investments and co-marketing initiatives with Microsoft and other partners resulted in an increase in number of paying customers to 919, reflecting a growth of 71% on the previous year. In addition to the strong growth in customer numbers, the company broadened its network of alliance partnerships, which is another evidence of the company’s potential for growth. For the year ended 30 June 2019, LVT recorded total revenue and other income of $22.48 million and Average ARR per customer continued to trend higher, up by 56% on pcp. Over the span of 4 years from FY15 to FY19, the company reported a CAGR of over 400% in revenue, reflecting an increased focus on software product development, as well as sales and marketing initiatives.

The company has also released its interim results for the period ended 31 December 2019 wherein it reported significant market and growth potential. LVT’s customer pipeline continued to rise during the half and is well-positioned to grow its pipeline of partners.

The group expects to deliver another year of strong growth in customer and revenue in FY20, propelled by the continued investment into products, partners and sales and marketing channels. LVT is focusing on delivering strong growth in FY20 and building long term value for the shareholders. 


FY19 Financial Highlights (Source: Company Reports)

Details of Top 10 Shareholders: The following table provides an overview of the top 10 shareholders of LiveTiles Limited. Redenbach (Karl) Ltd is the largest shareholder in the company, with a percentage holding of 12.29%.  


Top 10 Shareholders (Source: Thomson Reuters)

Decent Liquidity Levels and Stable Balance Sheet: During 1H20, EBITDA margin and net margin of the company witnessed a substantial improvement over the previous half, indicating that the company is managing its costs well and is capable of converting its revenue into net profit. In the same time span, ROE of the company improved over the previous half, implying that the company is well deploying the capital of its shareholders for generating profits internally. During 1H20, current ratio of the company witnessed an increase over the previous half to 1.62x, up from 0.94x. This indicates that the company is liquid enough to pay off its current liabilities using its current assets. In the same time span, Assets/Equity ratio of the company went down to 1.68x from 1.82x in 2H19. This indicates that the business is financed with a significant proportion of investor funding and a small amount of debt, resulting in a financially stable balance sheet.


Key Margin (Source: Thomson Reuters)

Significant Growth in Service and Subscription Revenue: The company has recently released its half-year results for the period ended 31 December 2019, wherein it reported strong growth of 216% in subscription and service revenue to $17.9 million. In the same time span, annualized recurring revenue reached $52.7 million up from $40.1 million. ARR has grown 130% in the last year and is up by 7.6x in 2 years. This increase in revenue along with slower growth in cash operating expenses resulted in the loss before income tax and non-cash items to decline by 24% to $15.4 million. During 1H20, the number of paying customers increased to 1,031, and total cash receipts rose 195% on the prior corresponding period to $18.9 million. At the end of the period, the company had a cash balance of $46.6 million, reflecting equity capital raised during the period offset by its operating cash deficit to execute its growth strategy. During 1H20, average ARR per customer rose to over $51,000, representing growth of 33% over the prior year and reflecting the increasing presence of the company in the enterprise market. In addition to its direct sales channel, LiveTiles Limited sells its software through partners to help scale and broaden the company’s reach, and thus, the number of transacting partners grew to 199 in the half-year.


Average ARR Per Customer (Source: Company Reports)

Wizdom Achieves Earn-Out and LiveTiles partners with Canva: The company has recently announced that Wizdom has met its earn-out conditions successfully after strong growth in annualized recurring revenue and positive EBITDA. The earn-out consideration is $16 million. The acquisition of Wizdom along with CYCL acquisition expanded the company’s global leadership in the emerging intranet software market. The company, in another announcement, has announced that it has partnered with Canva, which will further result in revenue and user growth.

LiveTiles approved for Microsoft co-sell into U.S. Government: The company has announced that it has been granted General Services Administration (GSA) approval from the U.S. Federal Government and is now an approved GSA Vendor. This will allow LiveTiles to both expand on current implementations within agencies and will also create new prospects with other agencies through co-selling partners, including Microsoft. It has also paved the way for the company and its partners to engage in joint opportunities with Microsoft under its $14.6 billion JEDI cloud contract with the U.S. Department of Defense.

Future Expectations and Growth Opportunities: LiveTiles Limited continues to anticipate another year of strong growth in customers and revenue in FY20. The company is targeting $100 million in ARR in the short-term and foresees significant growth potential in the coming years. The company is well-positioned to leverage the market opportunities and is focusing on bundled and integrated offerings to enterprise customers across its portfolio.

The customers of the company grew strongly, and LVT continued to broaden its global base of enterprise customers, penetrating deeper into the market. The company has been approved for the U.S. and UK government creating and accelerating opportunities to push new customer growth in its key industry vertical. LVT is also attracting and retaining skilled executives and is structuring short and long-term incentives which are linked to the creation of sustainable shareholder returns. 


Key Valuation Metrics (Source: Thomson Reuters)

Valuation Methodology: EV/Sales Multiple Based Relative Valuation Approach

EV/Sales Multiple Based Relative Valuation Approach (Source: Thomson Reuters)

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

Stock Recommendation: As per ASX, the stock of LVT is trading very close to its 52-weeks low level of $0.110, proffering a decent opportunity for accumulation. The company has a large and growing addressable market and is emphasizing on product innovation and artificial intelligence. It has a close alignment and relationship with Microsoft and is also bringing innovative technology to improve engagement and understanding of its customers. Considering the trading levels, growing opportunities and significant improvement in margins, we have valued the stock using EV/Sales multiple based relative valuation approach and have arrived at a target price offering an upside of lower double-digit (in percentage terms). Hence, we recommend a ‘Speculative Buy’ rating on the stock at the current market price of $0.140, down by 6.667% on 27 March 2020.
 
 
LVT Daily Technical Chart (Source: Thomson Reuters)

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