LiveTiles posts maiden positive operating cash flow for June quarter

Workplace software technology company LiveTiles (ASX: LVT) has posted a $1.2 million maiden operating cash flow for the June quarter, underpinned by growth in annualised recurring revenue and customer cash receipts.

Normalised operating cash flow – excluding government research and development grants, tax incentives and non-recurring expenses – improved by $10 million during the quarter, from a deficit of $8.8 million at end March to a positive $1.2 million.

After including the quarter’s non-recurring expenses of $2.3 million, operating cash flow improved by 88% from a loss of $8.8 million at end March to a loss of just $1.1 million for June.

LiveTiles’ ARR as at 30 June was $58.2 million – representing a $3 million increase on figures achieved for the previous quarter and a year-on-year growth of 45%.

On a reported currency basis, ARR reached $53.8 million at 30 June, representing year-on-year growth of 34% and a multiple of 3.6 when compared to 2018 figures.

The company’s cash at hand now sits at $37.8 million, up $4 million (or 12%) on the previous quarter.

Step-change

Chief executive officer Karl Redenbach told Small Caps he was pleased with the “significant step-change” in overall results despite the economic climate.

“Reaching the operating cash flow milestone is a big one for us – we know that is one of the markers that growth investors have their eye on,” he said.

“The key is to maintain the momentum through this economic uncertainty … when I look at our robust sales pipeline and refreshed product portfolio, it is clear we are in a good position to do just that.”

Cost reductions

Mr Redenbach attributed LiveTiles’ strengthened financial position to cost reduction initiatives brought in during COVID-19 business disruptions.

The company lowered its cash burn (notwithstanding the impact of one-off redundancy payments) and focused on growing its cash receipts to complement government research and development funds.

It said it would continue to review additional options to reduce cash burn, including short-term revenue and cost initiatives, in order to achieve cashflow breakeven by year end.

New customers

LiveTiles added a string of new customers to its books during the quarter, boosting numbers from 1,068 at end March to 1,092 at 30 June, while the average ARR per customer for the quarter was $53,317 – representing a 3% increase.

On a reported currency basis, average ARR per customer was $49,248, reflecting a 13% growth on the previous corresponding period.

New customers include a US major league professional sports team, a US financial institution, an insurance provider in Denmark, a UK-based not-for-profit healthcare provider, and a natural resources company in Switzerland.

In Australia, the company signed up a property and infrastructure development company, a state government agency and a government-owned manufacturer.

During the quarter, analyst firm Forrester ranked LiveTiles as one of the strongest intranet platform performers for the second quarter of 2020, in addition to having the strongest market presence alongside technology giants Atlassian and Microsoft.

LiveTiles said it continues to build a “valuable long-term set of cash flows” in its recurring revenue business model, and is currently trading at a 47% discount to the estimated lifetime value of recurring customer contracts.

Staff cuts

The global pandemic saw LiveTiles review its staffing requirements to reduce cash burn during business disruptions.

During the quarter, the company cut its headcount by over 50 with remaining staff including management and board retained on 80% pay and hours.

All staff have since been returned to full hours and pay and the company has commenced limited hiring for priority talents.

Pivotal period

Mr Redenbach said the COVID-19 period was pivotal for the company.

“We have had to make some very difficult, deliberate decisions this quarter to balance our growth with sensible cost controls and expenditure,” he said.

“Although we are pleased with the growing book of recurring revenue, the prudent step was to ensure we maintained a strong balance sheet to see the pandemic through successfully.”

“The board ultimately concluded that we had to prioritise lowering cash burn and do so in a way that established a firm operating platform for the future.

He said there had been no change in long-term strategy or market opportunity and that the company was focused on establishing a “firm operating platform” for the future.

“Our team is hugely energised with the opportunity to help customers supporting their employees to communicate and collaborate in this new world of remote and work from home,” he said.