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312 Posts.

48

04/07/19

20:10

Post #: 39379579
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Originally posted by Vmk Research: ↑

The amount of cash the company needs is very much at their discretion.

They have demonstrated that they can throttle back growth and dramatically reduce expenses much more nimbly than the typical software companies.

Look what happened between the December Quarter and the March quarter. In December the company announced it would be reducing operating expenses. December opex was $13.9 m. You will recall that I was skeptical (wrongly) about their stated target of reducing opex to under $12 million.

It has been my prior experience that it is very very hard for most growth companies to slow down expense growth without damaging morale.

Instead LVT reduced core opex (excluding Wizdom) to approx $10.95 million. You can calculate this by $12.95 million (declared opex in March C4) - $2 million (Wizdom opex for Feb and March) = $10.95 million. That is an astonishing 21% cost reduction achieved in one quarter.

I think they have this flexibility for two reasons:
1. They have outsourced a significant part of their sales force to N3 and can move those numbers quite quickly.
2. MANAGEMENT SKILL. This is not Karl and Peter's first rodeo and I am gradually coming round to the view that they are one of the most commercially skilled and adept management teams that I have met in the software space for a very long time.
(i) I think they hire very quickly to meet growth targets but at the same time, they believe in the 80/20 rule. 80% of your sales come from the 20% best sales people. The next 60% do a great job in supporting momentum but inevitably, if you are going to maintain an above average (low) Cost of Acquisition, you need to weed out under-performers from the bottom 20% on a periodic basis.
(ii) Peter is very analytical and Karl is highly motivational. So motivational that when the company made the cost reductions back in December everyone felt good about it. Looking at Glass Door and other employee social media, the people who stayed felt pumped and ready to strive for the next target. The people who left were treated with respect and dignity in a personal supportive manner. Successful technology companies are manned by motivated people. The atmosphere at a company is one of those indefinable ingredients that the numbers sometimes dont catch. One way to keep everyone happy is to overpay them (not so good for shareholders). The other way is by inspiring, transparent leadership. LVT appears to have the latter with one of the best glass door ratings in NYC for a tech company.

So in answer to your question......how much cash the company calls for will depend on how much cash institutional investors want to supply. If the COA continues to get better and better and the churn stays low (or even negative), then investors will want the company to grow faster and spend more on growth, so they will signal they want to fund another cap raise (usually by buying shares which raises the SP). At the end of the day, investors simply want to get rich and they will allocate capital to the highest return. If Investors want to see a couple of quarters of consolidation, steady state growth and declining cash burn then LVT has the levers that they can pull to control expenses while revenues grow. The choice is really up to the management and the investors that support them.

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Gdaymate read first paragraph and then the opening of the last paragraph

contradictories

even VMK a talent there is no denying has succumbed to what Mr Market knows is a foreigner conclusion more money but interestingly VMK specificities institutional money so maybe he's been tapped on the shoulder already

LVT Price at posting: 44.0¢ Sentiment: None Disclosure: Not Held
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