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#UnitedHealthcare
Added a week ago

Following a speeding ticket and trading halt from the ASX yesterday, LVT have added some further details to the new record deal.

They confirm the deal was with United Healthcare ($310B market cap if you don't mind!), with a minimum contract value of $3M, with potential to grow to $12.2M over the 3 year life of the contract. 

For me this is an important reassurance that the product adds value in the COVID/post-COVID period and as a signal that growth continues. Now I just want to see continued cost control to avoid another cap raise.

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#Contract Win
Added a week ago

LVT secures record 3y multimillion dollar deal with one of the largest healthcare companies in the US and top 10 member of the Fortune 100. 

Up +18% on the news today so far to $0.295.

This was hinted at at the last investor call, of being close to annoucing some big contracts.

 

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#Newdeal
Added a week ago

17th Feb,  Livetiles record record new 3 year deal with Fortune 100 healthcare company. 

As hinted at in previous quarterly results call, the first of 2 record deals for livetiles has been closed, effective immediately to 300,000 employee workbase. Supposedly top 10 member of Fortune 100. 

 

They note the start of CY21 has had strong positive momentum, with Livetiles Reach the product sold. 

 

Disclosure: held

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#Multi $M New Deal 17/2/21
Added a week ago

Record multi-million dollar deal with US-based Fortune 100 Healthcare company

• LiveTiles signs record deal with a three year multi-million dollar agreement.

• The healthcare company employs over 300,000 employees and signals strong acceleration in digital transformation needs in the healthcare industry.

• The deal includes many of the core LiveTiles products and validates the strong growth in the Employee Experience Platform category that LiveTiles pioneered.

• This is the second record breaking deal for LiveTiles in less than four months.

Disc: I hold

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#Takeover speculation
Added 3 weeks ago

Shares in LiveTiles were earlier placed into a trading halt at the companies request, as it prepared a statement in regard to media speculation that an overseas buyout fund had approached it in regard to a control transaction.

While the company acknowledged that it does receive approaches from time to time, it was NOT in any current discussions with any parties.

Trade resumed after the announcement was issued, and shares have shot up over 14% (at time of posting) despite the company denying any talks with potential suitors. Go figure!

The article in question appears to be from the AFR (here for those with a subscription). The key part of the article in StreetTalk was:

"Street Talk understands small-cap Livetiles has called in Credit Suisse’s investment bankers as defence advisers, after fielding approaches from some specialist software buyout types offshore.

While interest was said to be early-stage and there was no formal process under way, Livetiles is understood to be keen to explore its options."

Who knows what is really going on, but i wouldnt personally be buying shares on this rumour/speculation alone. 

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#Private Equity Invested
Added 3 weeks ago

3 Feb 21: Here is the AFR articles on the private equity interest in LVT. 

ASX-listed Livetiles drafts in Credit Suisse for defence
The tech rally has left ASX-listed workplace software business Livetiles Limited behind, and don’t a bunch of offshore private equity funds know it.

Street Talk understands small cap Livetiles has called in Credit Suisse’s investment bankers as defence advisers, after fielding approaches from some specialist software buyout types offshore.

While interest was said to be early stage and there was no formal process under way, Livetiles is understood to be keen to explore its options. If there’s someone who is serious about paying up for the company, then they may as well know all about it.

Sources reckon a lot of the attention on Livetiles stems from its languishing share price, which has fallen more than 16 per cent in the past 12 months to 20¢, while the ASX all tech index is up 40 per cent.

On top of that – and while it’s far from an apples for apples comparison – Aussie-founded employee management software Atlassian is trading at 25 times forward revenue, while Livetiles is sitting at 2 to 3 times.

All that spells a potential bargain price for a cashed-up suitor, and maybe a chance to realise some value by taking the company private.

Founded in 2014, the $185 million Livetiles sells a bunch of software products including Reach, its internal communications tool and workplace intranet that’s used by the likes of Tabasco hot sauce maker McIlhenny Company.

It generated $64.7 million annualised recurring revenue at December 31 from more than 1100 customers, and had $19.2 million cash on hand.

Headquartered in New York City, Livetiles listed on the ASX in 2015, via a reverse takeover of Modun Resources handled by Sydney broker Blue Ocean Equities. Its biggest shareholders are founders Karl Redenbach and Peter Nguyen-Brown, according to its most recent annual report.

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#Private Equity Interest
Added 3 weeks ago

3 Feb 21: LVT enters trading half to respond to an AFR article about private equity interest in the company. 

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#1/4ly Report 28/1/21
Added 4 weeks ago

ARR grows to $64.7m and record cash receipts of $13m

• Annualised recurring revenue (ARR) has grown to $64.7m on a Constant Currency basis; a 23% growth over the same quarter from last year and up 200% in 2 years. On a reported currency basis ARR has grown to $58.1m.

• Another record cash receipts quarter of $13m and 25% higher than prior corresponding period (Dec Qtr FY20). Net operating cash outflow (excluding grants and non-recurring items) of $2.7m; a 56% improvement on the corresponding period last year.

• LiveTiles Customer Lifetime Value reaches $403m, a 3x increase over 2 years.

• Cash on hand as at 31 December 2020 of $19.2m

• With increased pipeline growth in recent quarters and the successes of recently won customer deals, the business has strategically invested in expanding its Sales and Customer Success team capacity by 43% to capitalise on these opportunities.

DISC:I have a small holding

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#Chart
Added 3 months ago

23 Nov 20: There has been a sharp increase in share price and volumes for LVT.  It has broken above the resistance of $0.25.  The next resistance level is at $0.30.

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#Bear Case
Added 3 months ago

I don’t own LVT. It appears like it has a lot of positives going for it but I thought I’d point out what I came across regarding company culture and management. Poor company culture in particular is why I think LVT is going to have more difficulty succeeding.

 

Culture

43 Glassdoor reviews – 3.1/5

•49% would recommend to a friend

•45% approve of CEO Karl Redenbach

•Overall trend is poor (you’ll have to visit Glassdoor website to view graph)

 

Poor reviews:

30/10/20 “Started out good, now heading downhill” “…all our suggestions are ignored” “We were asked to accept a decrease in salary during coronavirus (which I thought was reasonable) but I've just seen the annual report and the CEO kept 100% of his Cost of Living Allowance.”

20/10/20 “Things at LiveTiles are not OK” “…higher-ranked staff easily get away with perpetuating toxic environments.” “Money comes from seemingly nowhere, but is generally from sales of products that don't even exist.” “You will be pushed to your breaking point and told that it's all ok because "that's just our culture"

23/04/20 “No loyalty” “One such layoff being right before Christmas - super classy” “Also a super fratty culture”

25/02/20 “Vaporware distributors. AVOID!!” “There are no real products. Terms like "AI" are used incessantly yet none exists in any product made or acquired by LiveTiles. The "leadership" team is usually in some exotic part of the world, far away from wherever actual work is being done. Various departments of the business are left selling watered down solutions (at best) because most of the VC money goes into sales and leadership "off-sites". Just look at the stock over the past 2 years. Mergers & acquisitions cover up a lack of organic revenue because no one wants LiveTiles products.”

07/02/2020 “Lay off’s right before Christmas!”

01/03/20 “If you aren’t in the circle you go nowhere” “They will always take a senior employees word over yours even if you have proof to back it up. None of the little people are listened to. You could sacrifice alot to get the job done and get not so much as a thanks.”

27/03/19 “Not as it appears to be” lack of management, “lots of acquisitions but no structure”, bonuses taken away from employees, “favoratism is ever apparent”

21/03/19 “Company needs to treat their stuff with respect and follow their own values.”

13/12/18 “It was like working for the Australian Trump Family” “Leadership. From the C-Suite to the VP level, there is no clear, consistent communication, or actual leadership. Passive-aggressive is the best way to describe the overall style. If you're not part of the small inner circle, you're screwed. Blatant lies about bonus and stock plans. Cooked books to make numbers.”

04/12/18 “No structure, and I mean absolutely none internally. The product is half baked but sold as full baked. Pricing is literally whatever the customer will pay. If you’re offered a sales position, you MUST understand you’re selling an unproven, untested, zero case study concept of possibilities, it’s a stretch to even call it a real product.”

03/12/18 “Making quarterly layoffs to boost the balance sheet and hide poor sales and business decisions cannot be the long term solution.”

24/09/18 “it's completely lost its form, rushing half baked software into the market and forcing people to sell it to unhappy and frustrated customers”

27/10/17 “Avoid at all costs” “People get away with sitting on a couch all day with your feet up and surf insta while pretending to work since management is never around and no one seems to be running the company!”

 

Reviews also mention a fully stocked bar in the office. https://www.youtube.com/watch?v=6V_sHlVQkbs

 

LiveTiles sued for $33m by employee alleging he was sacked for being old, having cancer

"which in reality was a culture of discrimination against individuals who were older, disabled, and United States citizens…prevented him from participating in the culture, marked by excessive drinking and raucous public behaviour.”

“building a fully stocked bar with hard liquor and two [tapped] kegs in the lunch area which was ‘always open’”

 

https://www.glassdoor.com.au/Reviews/LiveTiles-Reviews-E1390234.htm

https://www.afr.com/technology/livetiles-sued-for-33m-by-employee-alleging-he-was-sacked-for-being-old-having-cancer-20171121-gzphad

https://www.arnnet.com.au/article/630285/aussie-software-vendor-faces-down-legal-challenge-us/

https://www.crn.com.au/news/founders-of-melbourne-sharepoint-reseller-nsynergy-settle-lawsuit-over-assets-554999

 

 

Management

Karl Redenbach CEO (Co-founder) $853,199 + STI cash bonus $298,860 = $1,169,011

Peter Nguyen-Brown (Co-founder) $77,652 + STI cash bonus $220,000 = $773,141

These salaries seem high considering the company had a net loss of $31M for FY20 and a cash outflow of $26.7M (ignoring proceeds from issuance of shares) for FY20. Cash outflow is even worse if you remove $11.5M in government grants received.

 

 

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#Business Model/Strategy
Last edited 4 months ago

(Updated with N3 churn to discuss organic growth)

This straw is in reply to INTJ a month ago regarding organic growth. 

In the Q4FY20 conference call (at either 40 or 50mins in), Karl said the impact of classifying ARR to include recurring service revenue was "a few million". This is a bit ominous given growth for the quarter was only $3M.

On an annual basis though, ARR went from 40.1M in FY19 to 53.8M at end of FY20 (4.7M of this was through the CYCL acquisition of the 13.7M growth). Thus, there was 9M annual growth excluding acquisions (your 22% figure). However, I do note there was also one off churn of 4.4M ARR when N3 partnership terminated (excl this would have been 33% organic growth).

Regardless, the question is how much of that 9M was due to the services definition. 

Given ARR customers increased from 1068 to 1092 over the quarter (circa $1.2M in ARR using average ARR per customer of 53.3k although this average is skewed lower than what recent customers are adding given it has consistently increased over time), this impact in my opinion was only $1-1.5M. Doesn't quite line up with Karl saying a few though so let's go 2-3M in new ARR due to services definition. 

One, that implies poor (but positive) growth last quarter, although given COVID and the focus on giving free trials this isn't unexpected. 

Second, this means annual organic growth was in the range of 15-20%, which although much lower than the 111% organic growth from FY18 to FY19 is still good considering:

1. the focus on re-branding and consolidating product offering after 3 acquisitions while

2. reaching (potentially temporary) cash flow break-even. 

3. large N3 ARR churn which I argue wasn't "organic"

It is my opinion that organic growth will improve going forwards now that the integration of product offering is complete. It is also my opinion that the company will remain at or above break-even on an operating basis to avoid capraise but to also continue to invest in growth. I am planning on adding to my (non Strawman) position tomorrow as in the long run I think this company is comfortably worth more than 3x EV/ARR, with asymmetric downside and an inflection point as cost controls and organic growth continue to drive operating cash flow improvements

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#Industry/competitors
Last edited 4 months ago

23 Oct 2020 LVT strengthens partnership with Microsoft and secures largest ever deal

Microsoft is now trained to cosell the Reach and Directory products, targeting businesses with over 1k employees. (note the risk / strength that over 50% of contracts are sourced through Microsoft) 

Largest ever Intranet deal secured in Q1, representing multi-year multi-million with US based apparel retailer with 40k employees and 15k seasonal workers, utilising Reach and Intranet products.

Note that in recent investor presentation, both Reach and Intranet products were said to have $3-4/m average cost. Given the scale of the deal, use $1-2/m. Assuming one of the two products is sold to each employee on average, and at 50% penetration and assuming seasonal workers pay for 2 mths, this is a 500-750k ARR deal. Just speculation of course, with penetration the most important variable

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#Legal proceedings
Added 4 months ago

I must admit even as a long term holder I wasn't aware of this ongoing case involving Karl's brother Keith claiming he was unfairly put out of his ownership share in pre Livetiles company nSynergy (https://www.crn.com.au/news/founders-of-melbourne-microsoft-reseller-nsynergy-sued-in-battle-over-assets-490799)

I also don't understand why Livetiles as a company had to foot a portion of the bill, but am glad at least that the equivalent of half of the bill was footed by Karl and Peter through their substantial equity holdings (16 out of the 90 mill shares between them as plaintiff). 

Going forward, and given the EV of a company largely consists of the PV of future cash flows, this 8.4m decrease in cash for a 194m EV company all else equal would result in a 185.6m valuation (circa -4.5%). We will see what the market thinks ahead of next weeks quarterly update

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#Legal proceedings
Added 4 months ago

21 Oct 20: 

Legal proceeding announced on 2 May 18 (shareholder dispute in respect of an unrelated company, involving LiveTiles CEO) and 1 Jun 18 (4 subsidiaries of the company have been added to proceedings in respect of companies unrelated to LiveTiles and involving the co-founders of LiveTiles) have been settled. 

LiveTiles will pay $8.445m to the plaintiffs, and LiveTile Co-Founders Karl Redenbach and Peter Nguyen-Brown will transfer a total of 16.28m shares (of which 11.93m shares will be subject to voluntary escrow conditions).

I don't understand if the companies were "unrelated" to LiveTiles, why does LiveTiles then have to pay out $8.445m. It seems that the shareholders are footing the bill for the co-founder's dispute.

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#Business Model/Strategy
Last edited 5 months ago

Doing some comparables:

ARR Multiple / Organic Growth Rate

DTC 10 / 45%
BTH 14 / 30%
WSP 9 / 34%
LVT 3 / 22%
ELO 8 / 19%
SKO 14 / 16%

LVT is the clear outlier in valuation.

Consider LVT was previously valued at 12x ARR and lost -60% in share price since 2019.

So something has gone wrong despite 22% Organic Growth and 12x ARR.

I did some research and found that this year LVT had a change of ARR definition which now includes services revenue when it previously didn't.

Doing the sums from the accounts, my theory is if we took that away LVT may look more like:

4x / 0% Organic.

Which would make the table and share returns make a lot more sense.

Further information or discussion most welcome on this. 

 

 

 

 

 

 

 

 

 

 

 

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