Company Overview: LiveTiles Limited (ASX: LVT) is an intranet and workplace technology company, which is engaged in creating and delivering solutions that drive digital transformation, productivity, and employee communications in the modern workplace. The company operates its business in multiple locations such as North America, Europe, Asia, and Australia. LVT provides services to more than 1,000 Enterprise customers in over 30 countries.
LVT Details
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Rising Cash Position to Support Business Growth Perspective: LiveTiles Limited (ASX: LVT) is involved in the development and sale of business software in Australia and overseas. The market capitalisation of the company stood at ~$221.04 million as on 18th December 2020. The company is focused on developing a decent global presence and rich set of digital employee experience tools via its services know-how and strategic acquisitions. The product portfolio of the company includes LiveTiles Intranet, LiveTiles Reach, LiveTiles Everywhere and LiveTiles Quantum. The company stated that COVID-19 is playing a global role to accelerate digital workplace software adoption, which may create decent business opportunities in the upcoming period.
The growth opportunities of the company revolve around expanding the number of licenses into existing clients via selling more licenses to a greater number of employees within the existing customer. In addition, upselling of products to existing clients may also support business in tapping future opportunities. Looking forward, the company anticipates strong long-term growth potential, which is likely to be supported by growth in the remote working environment as well as demand for digital workplace software to support organisations.
On the financial front, the company has recorded solid growth in Annual Recurring Revenue (ARR) at CAGR of +137% over the period of FY17 to FY20. Cash Receipts and Revenue for the same period grew at CAGR of +146% and +173%, respectively. For the quarter ended 30th September 2020 (Q1 FY21), the company reported a rise of 41% in cash receipts to $12.0 million. As a result of this, Q1 proved as a fourth consecutive quarter of strong cash receipts. In addition, the company closed Q1 with a cash position of $34.6 million, supported by rising cash receipts and LVT’s focus on its strategy to reduce cash burn. In addition, the company affirmed that it has no requirements to raise additional capital for financing its operating cash flows.
Strong Track Record of Conversion from ARR to Cash and Revenue (Source: Company Reports)
Decent Growth in ARR: During Q1 FY21, the company has witnessed growth in its sales pipeline generation. This was mainly in software relating to the quick and easy deployment of employee communications solutions. During the same quarter, the company experienced a rise of 33% in Annualised Recurring Revenue (ARR) to $57.1 million on a reported currency basis. The company recorded an improvement of 73% in the net operating cashflow burn (excl. govt. grants) to $2.5 million. As on 30th September 2020, the customer numbers of the company stood at 1,116 as compared to 1,092 as on 30th June 2020. In addition, the company’s investments in product research and development within last six months may witness the release of two new products, which has been designed to take benefits of the changes to priorities in a post-COVID environment.
Decent Performance in FY20: For the year ended 30th June 2020, the company reported annualised recurring revenue of $53.8 million, indicating a rise of 34% over the prior corresponding period. In addition, total revenue and other income for the year amounted to $44.5 million, reflecting a rise of 98% over FY19, supported by the reduction in operating expenses in Q4 FY20 and its previously announced restructuring and cost reduction program. Losses for the year improved by 26% to $31.6 million against $32.1 million in FY19. The company also recorded an improvement of 72% in net cash used from operating activities to $9.3 million. The company closed FY20 with a growth of 154% in cash balance to $37.8 million, which was fueled by the capital raising of $55 million, growth of 114% in cash receipts to $41.0 million and lower operating cash burn mainly in Q4 FY20.
Financial Summary (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 the percentage holding of 10.09%.
Top 10 Shareholders (Source: Refinitiv, Thomson Reuters)
Key Metrics: During the span of the past few years, the company experienced a decent improvement in its profitability ratios (EBITDA Margin, Operating Margin and Net Margin). On the liquidity side, current ratio of the company stood at 1.73x as compared to 0.94x in FY19. This indicates that the company has improved its capabilities to settle its short-term obligations. Cash cycle of the company stood at 100.3 days against 167.6 days in FY19. On the leverage front, asset to equity ratio of the company stood at 1.60x, which is lower than 1.82x of FY19. Debt to equity of the company experienced a marginal rise and stood at 0.05x against nil in FY19.
Key Margins (Source: Refinitiv, Thomson Reuters)
Growth in Each Busines Segment: During FY20, the company’s business segments Americas, EMEA and APAC have provided a contribution of 26%, 55% and 19% to the total ARR of the group, respectively. The EMEA segment experienced enhanced business conditions supported by greater demand for digital workplace technology and improved partner channel. With respect to the Americas, the company experienced decent YoY growth of 17% and 20% in customers to 311 and 73 partners. In the same time span, APAC segment experienced notable growth in engagements throughout the public sector at the local and state level. At the end FY20, APAC segment possessed 301 customers and 56 partners, reflecting YoY growth of 20% and 14%, respectively.
ARR by Region (Source: Company Reports)
Launch of LiveTiles Employee Experience Academy On 4th December 2020, the company announced the launch of LiveTiles Employee Experience Academy with Canva in order to develop a central thought-leadership online resource, which is targeting decision-makers and influencers to learn about and act on modern employee engagement. The company added that the LiveTiles Employee Experience Academy cements its strategy to target senior business decision-makers within the market and likely to generate new revenue pipeline for the business.
Key Risks: The company is exposed to the rising market share of competitors and disruptions in the industry in which it operates. Moreover, the business is also sensitive to financial risks, such as credit risk, liquidity risk, credit risk and market risk (including foreign currency risk, price risk and interest rate risk).
What to Expect: The company is optimistic that its timely and measured cost controls, product consolidation and other responses have placed the business in a decent position to pass through the challenges and capture opportunities in a COVID-19 and post COVID-19 environment. The company’s business strategy continues to align with Microsoft, wherein, it is aiming ~400,000 organisations which use the Microsoft Office 365 platform. The company also expects significant opportunities in increasing its recurring revenue via enhancing the proportion of customer employees under subscription as well as the number of products offered to customers. The company is also positive about the strong medium & long-term business outlook.
Key Valuation Metrics (Source: Refinitiv, Thomson Reuters)
Valuation Methodology: EV/Sales Multiple Based Relative Valuation (Illustrative)
EV/Sales Multiple Based Relative Valuation (Source: Refinitiv, Thomson Reuters)
Note: All the forecasted figures are taken from Thomson Reuters, NTM: Next Twelve Months
Stock Recommendation: In the past few years, the company maintained a solid track record of conversion from ARR to cash and revenue. The company recorded compounded annual growth rate (CAGR) of 137%, 146% and 173% in ARR, cash receipts and revenue during FY17-FY20. In the last one and six months, the stock of LVT has corrected 1.99% and 7.54%, respectively. As a result, the stock is trading near to 52-week low-high average of $0.248. On the technical analysis front, the stock has a support level of ~A$0.189 and a resistance level of ~A$0.385. We have valued the stock using an EV/Sales multiple based illustrative relative valuation method and arrived at a target price, which is offering an upside of low double-digit (in percentage terms). Therefore, considering the cash-rich business, solid growth in ARR, decent segment performance, current trading level and key risks associated with the business, we give a “Speculative Buy” recommendation on the stock at the current market price of $0.240 per share, down by 2.041% on 18th December 2020.
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LVT Daily Technical Chart (Source: Refinitiv, Thomson Reuters)
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