Ann: Appendix 4C- strong ARR growth, cash receipts & cost control, page-84

I confess I am confused by this comment from ValueSearch

"Cash collection now trails ARR by more than 1 year. This was not the case last Q. I can't figure out why there is such a lag especially when LVT keep saying that Livetiles doesn't require much deployment. The lag should only be 6 months at best per other posters. I have some ideas though will not share."

One year ago (Dec 2018) the ARR of LVT was $22.9 million which would equate to quarterly revenue of $5.75 million (23/4 = 5.75) The quarterly cash collection of revenue in Dec 2019 was $10.4 million. Assuming that $2 million came from acquisition (Wizdom) the net cash revenue from LVT was $8.4 million. Cash collection clearly does NOT lag by a year.

$8.4 million of cash revenue (ex Wizdom) per quarter equates to ARR (ex Wizdom) of $33.6 million = $41.6 million (including Wizdom)
ARR at end June was $40.1 million and at end September was $42.9 million. Thus the lag between cash collection revenue and ARR is somewhere between 6 months and 3 months

As we (and other experienced tech investors) have mentioned elsewhere the lag between signing a contract and receiving first payment can range from 3 months to 5 months. Thus the lag in growth in ARR should be around 2 Qs.

I think VS's error was looking at trailing 12 month revenues compared to 12 month ARR. Mathematically, the faster you are growing, the larger that gap is. We look at the quarterly revenue (and annualized quarterly revenue) compared to ARR 6 months ago and 12 months ago to deduce things like churn, lag etc. A more detail model looks at quarterly revenue a year ago and adds revenue gains subsequent to that date, with an estimate of which gains were annual subs and which were quarterly subs.

All that I deduce from LVT's statement is that there was some churn in very small customers. I cannot deduce a decline in the number of partners. . I think VS's estimate of 50 customers is about right. From the numbers we can speculate that the average customer ARR size was about $10,000 per customer. Since all of LVT's early small customers were direct sales customers, I think we can assume they are largely direct customers rather than customers attained via a partner channel. This makes sense because we know that the direct sales force is stretched and naturally focused on larger customers + partner channels almost never quit once they have a client because they dont walk away from the annuity. As I posted after the ARR announcement I think that the partner channel contribution to sales is still very small and that the upside surprise all came from the direct sales force. It is simply too early for the investment in the partner channel to have kicked in yet. Building a partner channel requires sustained effort and investment + a lot of skill, time and resource. If they are good at this, then we may see some early signs in the March quarter (which should be easy to pick up vs March 2019) and a meaningful impact in June .

I dont think this matters to the SP at the moment. It will matter when the market can see revenues grow significantly faster than costs.

Remember also that CYCL was only acquired on Dec 3rd. March will include a full quarter of revenue from CYCL.