I think in this current environment the biggest threat to LVT is its cash burn. A capital raise would be difficult and extremely dilutive given where the share price would be if it came to that. Management have said as much with their comments ( eg re stakeholder feedback, reduced cash runway, strong balance sheet and see the pandemic through successfully).
So as an existing shareholder (and a potential shareholder) you want to see them closer to cash neutral in an uncertain operating environment.
I wanted to stress test management forecast of breakeven by end of calendar year.
Table below is based on OPEX from March quarterly ($70.2m annualised), and the reductions they have in place $9m for headcount (ongoing) , $2m for 20% salary cut (6 months) , and $7m in reduced non-employment expenses such as travel (ongoing). As per their shareholder update - An underlying reduction in cash burn will commence in the current (June) quarter, with the quarter’ssavings offset by one-off redundancy payments. "The full benefit of the cost reduction initiatives willbe realised during the September quarter. Therefore i have assumed OPEX remains at current levels for June, with a reduction in September onwards.
The only other note is in regards to ARR and trailing cash receipts. For ARR i have assumed it remains flat for the rest of the year and have not reduced it as managements comments have been neutral and more along the lines of delayed decision making, uncertain growth. Additionally they said breakeven would be - "comprised of a strategy to pursue both growth in recurringrevenue (and thus cash receipts) along with lower operating expenditure" In regards to trailing cash receipts, due to the sharp increase between late 2018 and now, i have used a mixture of the previous 5 quarters to try and smooth the figure to a more reasonable and conservative one.
| Date | ARR ($m) | Cash Receipt (Trailing 12m) | OPEX | Operating CF | Cash at Bank ($m) |
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| 1 | 31/12/2018 | $22.9 | $11.4 |
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| 2 | 31/03/2019 | $34.5 | $15.1 |
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| 3 | 30/06/2019 | $40.1 | $19.6 |
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| 4 | 30/09/2019 | $42.9 | $25.6 |
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| 5 | 31/12/2019 | $52.7 | $31.9 |
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| 6 | 31/03/2020 | $55.2 | $37.7 | $19.4 | -$10.0 | $38.5 |
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| 7 | 30/06/2020 | $55.2 | $42.6 | $17.6 | -$6.9 | $31.6 |
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| 8 | 30/09/2020 | $55.2 | $47.7 | $12.6 | -$0.6 | $31.0 |
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| 9 | 31/12/2020 | $55.2 | $51.5 | $13.6 | -$0.7 | $30.3 |
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| 10 | 31/03/2021 | $55.2 | $54.6 | $13.6 | $0.1 | $30.4 |
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| 11 | 30/06/2021 | $55.2 | $55.2 | $13.6 | $0.3 | $30.6 |
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| 12 | 30/09/2021 | $55.2 | $55.2 | $13.6 | $0.3 | $30.9 |
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| 13 | 31/12/2021 | $55.2 | $55.2 | $13.6 | $0.3 | $31.1 |
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Overall management forecasts appear reasonable based on an increase in cash receipts washing through from the increase in ARR over the last 12 months.
A re-rating may occur from potential investors and (if they are even looking) instos once they can demonstrate they aren't at risk of needing to raise capital. Likely this would start to shape up post September 2020 quarterly and be clear by December 2020 quarterly.
Anyone care to rip any of the assumptions apart and provide some analysis on why etc - happy to do a calculation based on that. I feel that the major issues from the upcoming quarterlies wont be cost reductions given they have been implemented already and reiterated by management, but rather ARR trajectory (and cash receipts) will be the key "risk" one way or the other. Management havent used any language around a drop off in ARR so again ive assumed it remains flat even though in my mind i think it will continue to grow.
Rip away.
(20min delay)