Mate that was the best comment u have made in 4 years. Finally. LOL
Ill just follow up with my thoughts on ur thoughts.
-LVT has done a huge amount of good work bringing down costs (cost out), but they are still not cash flow positive. There will be less low hanging fruit to further reduce costs from here. Yes there is less but its not everything. Their new Portugal hub will help reduce costs and im also hoping they will expand the team in Portugal to include account managers and more. Portuguese youth speak fluent English and some French, Spanish and German. Spain border is only about 100km away from Porto so they could also employee some Spanish speakers which will help them to expand into south america or any Portuguese and spanish speaking countries.
-LVTs has drawn down high yield debt, and they don’t have an abundance of cash reserves or high expected profit or free cash flow currently. Its very small but yes debt is never good.
-Should LVT see a decline in ARR, which each person here can ascribe their own likelihood this occurs, then they will see a corresponding fall in trailing cash receipts. With their new Phillipines marketing hub i am hoping sales will increase and thus ARR. World economies going to shit might put a damper on this. More cost cuts can happen such as personel if indeed sales slow down.
-This would necessitate even further cost out, and they will have less wiggle room to do so given the work already done.
-A capital raise could mitigate any cash flow concerns should ARR fall, but it would be incredibly difficult and dilutive in current market conditions. Assume they could get this done at 4 cents, they would need to issue 500m new shares to raise $20mn. The current shs on issue is circa 923mn. Can adjust metrics accordingly on size/price depending on the amount you think they might want to raise if they had to and the price they’d see demand at. Hard to say if there will be a need but yeah wont be good if it happens but i think its unlikely.
-LVT’s decline in ARR growth rate has come whilst they cut marketing spend. Any increase in marketing spend would take them further away from cash flow positive. Phillipines low wages should help to keep costs down while increase marketing and advertising and thus sales. WOnt affect costs much in my opinion.
-To grow more rapidly, they likely need to increase marketing spend. With low cash reserves and not stellar market appreciation of LVT, it puts them in a conundrum. Again phillipines
-LVT’s margins have likely been compressed. You noted it yourself a few posts ago. This means they don’t have the pricing power they would like. This is likely the result of either competitive products in the space, or luke-warm demand from prospective clients. This means they will need to sell more product to maintain margins. Even though margins have been compressed at same time the Implementation costs and maintenance of products have also reduced due to Reach product, streamlined intranet and bigger clients.
-Once again, this points to key risks if historically won more profitable/higher margin clients cease using LVTs products.
-LVTs churn rate has improved, but it continues to be far higher than ideal for a SaaS business. The co has put that down to COVID factors. This very well may be the case and things further improve, but it also may not improve, and we can’t be certain that LVT management has been 100% honest about the drivers of churn. They have been fast and loose with truth historically. So far i have faith in what they say and historically ive only seen a few promises that have been missed but nothing else. Can you point to examples where they have not been truthful? .
-Once again, any steady churn coupled with margin compression needs higher sales to maintain the status quo, and LVT don’t have a huge warchest for a sales offensive.
-LVTs marquee client wins of UHG and Nestle didn’t seem to move the needle much with respect to ARR. Yes agree but it was during a time where they let go of clients due to being too small or covid related so seems they balanced it out.
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-We have seen no concrete news or announcements to indicate LVT have secured any recent marquee signings. Dec qtr they did show a signing of some swiss company with almost 100k licences. Apart from that its been smaller ones. Hoping nex few qtrs we see likes of BHP, Coombank etc coming onboard if we go by their last 4C call. They mentioned BHP and Commbank various times with the human link connection. But no certanty ofcourse .
-LVT had talked about new strategies and transitionary periods.
-LVT has talked with confidence about the confidence that their acquisitions will help improve the overall company (be it new or better products, streamlined or broader offerings, or brining in new clients).
-Go back through the last 3 or 4 years, and this has been a constant story and game plan for them. While will it be successful now when it wasn’t historically? I think Reach product will disagree with that. Its clearly been a great acquisition. I feel bindtuning will be similar.
I have no economic interest in LVT. I hope for everyone here that it turns out to be a great investment. What I have detailed above are just risks, they are by no means certainties. Not a single one of the risks may play out. But at the same time, some of them may. So anyone looking at LVT should ascribe a level of probability and risk weight their assessment of LVT. I haven’t listed any of the positive possibilities. There are many. But my point is…The point should always be about comparing the positives with the negatives. In my opinion when u compare both then its clearly a great buy at anything below 15c. Again its only my opinion based on positives an negatives.
LVT is by no means a home run. It could turn out to be one. Nobody really knows. You don’t, I don’t.
I wish for good fortunes for all holders, either current or future. Appreciate the post. I really enjoy proper analyses and not just trolling or down ramping.
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