So I feel free to give a bit of an update on my prior remarks.I...

So I feel free to give a bit of an update on my prior remarks.
I originally posted on these forums when LVT was in the 30s, described the business and explained an investment thesis that underlined the reasons why we owned shares and had a positive outlook. I explained that we owned a partial position, looking to add to the position when we saw confirmation that operating cash burn had reached an inflection point and was declining in consistent fashion (ie revenues increasing faster than costs).
We obtained that confirmation from the last set of results and then by sheer happenstance, we got lucky and were blessed with a 3 week sell off in the shares instigated by a misunderstood change in CFO and an institutional position being liquidated with little regard to price. We own a significant position.

There are two very brief comments I want to share with my fellow travelers.

1. The cash burn numbers were in line with what we wanted to see, but upon investigation they turn out to much better than they first appear for 2 reasons.
(i) Firstly due to the transition effect of the Wizdom. The acquisition was closed in the middle of February and our model assumed that LVT would receive a 1/2 quarter of revenue from Wizdom and incur 1/2 quarter costs from Wizdom. That is not how it worked. The biggest costs for Wizdom are salaries which are paid at month end, so for a cash flow/accounting perspective LVT's C4 incurred all of February's salaries. This is most easily seen on the R&D line of the C4. Compare December R&D with March R&D. When we asked about this, we discovered that LVT incurred 2/3 of Wizdoms quarterly salary costs (All of Feb and all of march) and less than 1/2 of Wizdoms revenues. This is purely an accounting distortion (all of the cash revenue stayed with Wizdom and belongs to LVT but it was accounted for in the acquisition line, not the operational line) BOTTOM LINE; THE CORE OPERATING CASH FLOW WAS BETTER THAN WE REALIZED. If LVT do absolutely nothing, this effect will reverse next quarter to benefit cash flow.
(ii) Secondly ,our cash flow model assumed the receipt of government grants (notably from New York) in the March quarter. The grants did not appear, so although the cash flow was as good as we expected, it all came from operations so again operational cash flow exceeded expectations.
We have not asked management when the grants will appear but operational cash flow was surprisingly good in the March quarter and we are now confident that it will continue to strengthen in successive quarters.

2. We have read a lot of commentary about the relationship with MSFT. In our minds, LVT's deep understanding of the MSFT ecosystem is a key competitive advantage. They have personal networking relationships with the most senior level of management at MSFT and they are way ahead of their competition in terms of knowing about MSFT's research and product pipeline. MSFT is by far the most important enterprise software platform in the world. MSFT's whole business model (and by the way the reason they purchased Github) is to encourage software developers to build and sell enterprise software on the MSFT platform. Of course, LVT will offer products on other platforms but their relationship with MSFT for such a young company is amazing, and is the envy of $1billion market cap software companies who would give their right arm to be endorsed by MSFT to the same level as LVT. If you are one of MSFT's top 100 corporate customers world wide, you will likely be recommended by the MSFT account executive to take a look at the LVT product. At its most simple, that is what yesterdays announcement was really about. Novartis is just one in a stream of mega-customers that are being approached jointly by MSFT and LVT. With all due respect to Karl, LVT is a small Australian company that five years ago, nobody had heard of, but MSFT can open the doors to any corporation, anywhere in the world.

In all honesty, while yesterdays news highlighting the relationship between MSFT and LVT was important good news. In the eyes of this investor, the insights into the cash burn are equally , if not more compelling.

Cheers

VMK Research