What’s Going On With LiveTiles?

I’ve had a bit of a job catching up with the state of play for LiveTiles (LVT); since exiting my position last year there has been a lot to read and a fair bit gone on. It’s taken me about a day’s worth of reading all the reports and announcements for the past few years, and checking financials where necessary. Honestly, I’m still at a loss to be sure of the future of LVT.

Historically the stock looked very promising with significant growth and reported outlook of reaching $100m ARR within a few years. This was not delivered, and capital raises were used to grow the company inorganically at the additional cost to the shareholders. Shareholders were not happy. It was at this point that I sold my position at a loss (albeit mainly as part of a portfolio restructure to make my tax returns simpler).

Since then COVID happened and has been (rightly or wrongly) used as an excuse for underperformance. Significant cost cutting has happened in the company and customer numbers have gone from 1092 in July 2020 to 1114 in March 2021. Since average customer value per year is about $53k, that growth is arguably worth $1.17m. That’s about 2% growth attributable to new customers over the year, and the remainder due to increasing fees. LVT reported 7% growth (by usual measures, disregarding currency fluctuations) since last year.

Personally, I’m not sure how I feel about those numbers. On one hand, the aim of a software (SaaS) company is grow by investing in developers to improve the product, add new features and charge their customers more as well as acquire new customers. 7% growth in this respect is pretty good given the COVID situation in (especially in America). That said, 7% growth is too little to justify anything more than a 4.3x multiple of ARR.

On the other hand, there are a number of people on internet forums stating that the company has harped on about what a big pipeline of sales they have in the works, which just isn’t materializing. People seem to not trust the forecasts that LVT management are putting out there and are jaded from historic issue of mistrust in forecasts due to lack of organic growth, and this is heavily reflected in the share price.

Regarding the share price, there is also a possibility that there could be another capital raise in the coming year, since cash on hand has gone from $37.8m in June 2020 to $16.8m in March 2021, which is a difference of $17.8m. If things keep at this rate, they’ll have no money within a year. It’s difficult to be sure if they’ve cut costs enough since July 2020 to avoid another capital raise. I think another capital raise could smash the share price, and given the low interest rates at the moment, the company would be better off issuing bonds if possible.

If I still owned LVT shares, would I sell them now?

Well, that’s a difficult question to answer because investors have different requirements for their investments (different investment timeframes, dividend requirements, growth requirements, risk levels, etc.). Also there’s a matter of opinion involved here, and this stock could (rightly in my opinion) be considered a gamble. The gamble is: whether you believe that COVID is responsible for the lack of growth.

There has been talk of LVT failing to perform when other software companies have enjoyed massive growth from Work From Home (WFH) initiatives due to COVID19. In LiveTiles’ defence, an intranet (which is essentially what LiveTiles is) is not a WFH solution, despite LVT touting it as an employee collaboration tool (which it is). Additionally, I imagine that due to the layoffs and uncertainty in America, companies would have reduced spending on IT projects, and had less IT staff to implement such projects. Also a new way of working (through LiveTiles intranet) would require a lot of staff retraining and would present significant staff performance risks.

People do not like change (especially in their IT systems) and will often use IT as an excuse not to do their jobs. Years ago I worked at a place where the developer changed the background colour of some software. This was the only change. When the software was deployed, the staff using the software refused to work because they didn’t know how to use the software because it had “completely changed”. They needed “retraining” to show them that nothing had changed, and all the buttons they couldn’t find were still in exactly the same location.

People are extremely resistant to change, and I have many stories like this, with many different people in different companies.

Lewis Hurst

I think if I still owned LVT shares, I would probably keep holding to see how they performed in a post COVID world, then consider my position after 6 – 12 months of performance. However I would be deeply concerned about the prospect of a future Capital Raise (CR) because the share price is already very low – the CR would likely mean raising money at a very low share price to undercut the already very low market rate. This means accepting a lot of dilution or forking up more money to invest in a company that I wasn’t happy with. Not a great situation.

On the other hand, I would have significant concerns that the share price could half again, then fall further if the company fails to grow or fails to cut costs enough to turn a profit (so even if growth is immaterial, there is a way to garner return on the investment) and continues year on year to go back to its shareholders for more money through capital raises.

Any investors’ decision to sell might be based on their belief in whether COVID19 is the real reason for lack of growth in customer numbers, but also their willingness to risk losing half the money they currently have invested. Nonetheless, selling at such a low price (2.56x ARR [$150.54m / $58.9m]) is quite punishing.

Such a low price is almost worth waiting for a further drop to buy in again as a gamble. I don’t think LVT will ever get back to it’s lofty heights of 8x ARR, but good performance post COVID19 should see this stock nearly double it’s value and go back to 4.3x ARR (future share value being less 20% for a CR, plus a little for the increased value of future ARR).

Good luck to anyone who decides to hold. You stand alongside shareholders of a2 Milk (myself included) who are in a similar situation with COVID sales stats and a falling share price.


One reply on “What’s Going On With LiveTiles?”

It’s worth noting that the presentation of numbers in some reports can be a little “flowery”.

For example, inorganic growth can sometimes be hidden among growth numbers, and ARR reported in differing metrics can make past comparisons of questionable value (such as reporting ARR in “Constant Currency” terms).

There’s nothing “wrong” about the reporting, but it feels deceptive to me because it sells bad news as good news. This makes the reports harder to read because you have to do more research, and adds to the feeling of distrust of the forecasting.

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