Remote work boom drives LiveTiles to cash flow positive quarter

Karl Redenbach is the CEO of LiveTiles, which is a workplace software company focused on intranet and enterprise collaboration.

It has obviously benefitted from COVID given all the companies and staff working from home and has just turned cash flow positive for the first time in the June quarter. LiveTiles’ share price is around 24 cents, which is still lower than pre-COVID, so I ask Karl what he thinks about that and what his views are on the future of flexible work post-COVID.

Here’s Karl Redenbach, the CEO of LiveTiles.

Table of contents:
Cash flow positive quarter
COVID's impact on LiveTiles
Revenue model
Partnership with Linius
Short-term plans
Share price performance
Product innovation and AI 
Relationship with Microsoft
Competition
Sales pipeline

Thanks for joining us, Karl. Some of our listeners are already aware of what you do, but for those who aren’t, could you briefly explain a bit about what LiveTiles does and the intranet workplace software it offers?

Well, we’re the global leader in, as you say, workplace technology in collaboration and communication, particularly around things like intranets and corporate communications and general information sharing in large organisations. We work with the likes of Pepsi, the US marines, Nike, some of the largest companies in the world, and really help their employees, especially in the times of COVID, communicate and collaborate using digital technologies.

LiveTiles just recently reported its first cash flow positive quarter for June. Could you expand on what you attribute that to?

Certainly, we went through what was undoubtedly the hardest quarter in my life where we had to make some very difficult decisions, where we had to make some redundancies of some really important staff members to us. However, for the sake of going through COVID and really consolidating and aggregating our team, it was really about streamlining our business, getting us to cash flow positiveness faster than we sort of anticipated to do. Essentially, we made what we believe is the right call to really strengthen LiveTiles as a business and to put us into not only one of the fastest Australian growing companies, but allow us to continue our growth, but do it in a really staged and measured way.

Would you say that’s been a contribution of both, as you said, cutting costs and as well, the increased opportunity that COVID’s provided?

Yeah, we had a record revenue quarter as well, so that was our third record cash receipts and revenues that we’ve received. Combining that with really not growing as fast as far as spending money is concerned. We’re only four and a bit years old since our first dollar of revenues and really, we’ve been focused now on how do we grow this business in a measured way. But you are right, it’s a combination of revenue growth and really, reducing the spend increase at the same rates so that we focus on really measuring our customers, really doing what I would argue as being very conservative and structured growth, and so that’s sort of been the big turning point for us and was a great milestone to hit it last Q.

Do you think you’ll be able to maintain being cash flow positive going forward? Do you think it was an anomaly with just the massive rush that COVID has provided or is this something you’re hoping to maintain?

Certainly, we look in the long-term – we’ve made some commentary to market that we expect to be cash flow neutral by the end of the year and we hold by that very firmly. I suppose we look further beyond that – we’re in a fortunate position that we believe companies and businesses and organisations are going to work from home more than they traditionally did. Therefore, having a digital hub which is the centre of every single company where they have policy procedures, where they communicate really important information to staff, is going to be more relevant post-COVID than ever.

And so what really we think we’re seeing is the start of a wave and we have no doubt in the medium and longer-term that we’re going to see bigger budgets for our type of software and actually increased revenues and further back on this COVID-19 phenomenon, which it really is, back on that sort of trend of digital workplaces and really trying to work with employees in a digital way. We think that’s going to be really great for our business going forward.

I just want to hone in a little bit more on COVID in terms of, overnight almost all these companies were forced to move everything online, meetings online etc… Did you see a massive rush in terms of demand? I just want to get a bit of an idea of how COVID restrictions have impacted LiveTiles.

Yeah, well certainly we saw a huge rush to get onto Microsoft teams, and we’re lucky, we’re been working with the team in Seattle there for about four years, even before it came out, pre-alpha and pre-beta, the software. So we’d been very early days working with Microsoft. We trained last year, 4,000 Microsoft sales reps on how to position teams to customers. We have an amazing set of products that deals with that, so we’ve seen a huge spike in the interest of that. What we’re seeing now, obviously the last quarter, if we go back April and May which seems like it was years ago – I’m in Melbourne, so I’m in lockdown right now – if we go back to April and May, what we do see there is, I would argue a lot of panic and fear going on, particularly in the US. People weren’t quite sure how this was going to pan out.

That’s definitely subsided now and we’re seeing business getting back to normal. We’re seeing companies spend more money, particularly in the digital space. They know they have to have business continuity plans, they know they have to have this type of technology. There’s no doubt that we’re seeing right now, that having a really positive impact on our business and ultimately we’re helping companies communicate and collaborate in this new world, which we think is a really important thing going forward.

And you mentioned before, your annualised recurring revenue continues to grow and hit a record in June. Could you explain how your revenue model works in terms of what proportion of your sales, if any, are one-off compared to an ongoing subscription model?

Yeah, so our revenues report are annualised recurring revenues and like companies like Atlassian, that you may have heard of, which has enterprise software as a service and licence revenues, we’re lucky in that we continue to have these big companies pay us yearly. Essentially, most of them are yearly contracts, we have many multi-year contracts that we have with big customers and that essentially means that where there is a recession or where there is a pandemic, you continue to get these revenues in the door. Unlike a lot of companies that just can’t trade in this period, we’ve still got that revenue coming in. And the great news about our revenue, because most of it’s licence fees, pure licence IP based, is that it’s really high gross margin.

Getting it on an annualised basis, getting really high gross margins is why companies like Atlassian and Microsoft are so successful and we’re really trying to follow in their footsteps. Even in the last sort of quarter, we’ve had Forrester, who’s one of the main research companies, put us in the same category as those companies and we think they have the best practice business models certainly in this type of environment.

And some of our subscribers have actually asked about the partnership you announced earlier this year with Linius in mid-April I think it was, to deliver the Intelligent Meeting Solution. How’s that progressed for you in the past few months?

The technical teams are furiously working together to get something very shortly out to market, which we think is really exciting and that’s really a way to be able to record all of those online meetings, whether it’s Teams or whether it’s Zoom. One of the issues is that it’s really hard to go on search and find if someone said something at a certain time. There’s a lot of recorded video essentially sitting on files somewhere or servers somewhere, and what this does is it really unlocks the power of those recordings, so you can search and it gives you a short little two-minute synopsis of all the recordings around a search term and you can drill into those videos. So it’s a really cool tech, we have no doubt it’s going to be really successful when we launch it and so watch this space coming out shortly.

In June you signed, I think the number was 24 new customers, which was also up. Are you seeing a lot of increased interest in your software at the moment and how much of that is just getting into talks with companies and how much of it is actually coming to fruition?

A couple of things – I suppose we’ve had some unique government organisations, particularly around COVID and Teams, approach us. Just in the last few months, we’ve probably signed our fastest ever government deal around Teams, because they needed it so desperately. It was a really unusual situation that we’re in and still in, depending on where you are. So there’s no doubt that there has been increased demand and increased interest in what we do and that’s simply because if you’re furloughed, if you’re stood down and some people are on JobKeeper, companies still need to communicate with their employees or even people that are stood down. We’re working with some of the largest airlines in the world, they still need to be able to communicate with their staff and so they’re using a tool to do that.

Essentially, there’s no doubt that this is going to be a trend that continues and we’re seeing more and more interest come in by the day, which we think is a really exciting turning point for our business. Despite the fact, all the horrors that COVID has put forward, having flexible work arrangements for employees, allowing them not just to have to work in the office we think is a good thing for employees, but ultimately, that’s a great thing for our business because that encourages the use of digital tools for communication and collaboration, which is really what we focus on.

I just want to get your opinion on whether you think this is a sustainable thing in terms of this working from home model or whether you think after COVID disappears, people are going to go back into offices and you might see a little bit of a decrease in interest, what’s your opinion on that?

I think the world is going to be changed forever from this. I don’t think people will be working from home 100 per cent, but I do think people will ask to work more flexibly and it doesn’t need to be actually at home, it could be at a café or a restaurant or somewhere that’s not actually in a cubicle in the office. We think that there’ll always be some face to face communication collaboration, but rather than someone working five days in a week, they may actually only work three days in the office in the week and the other two days they work flexibly either from somewhere, could be overseas even.

We’ve sort of practised this for a significant amount of time with our team as a business to provide that flexibility to our own employees. We use our own technology to help deliver those benefits.

You mentioned before the deal you did with the government agency and I was just looking through your customer wins in the June quarter, it seems you’ve got customers in sport, government, healthcare, property – a lot of different industries. Is that a strength of the business that the software can be used so widely in any industry around the world?

Yeah, it is. It really applies to any use cases. We’ve got the US Marines using our software for all their training of videos, to compile all the videos. We have companies like Pepsi aggregating all their reporting together and using it as a brain inside their organisation. Many different use cases, it’s essentially a digital workplace, it’s a digital desktop if you want to think about it like that, where you can access any type of application for a very specific use case or very specific purpose in a business. That’s definitely a great thing in this environment and we have over 1,000 customers that a lot of those are household names in media and banking and all different industries that really allow them to get the best out of their employees.

It’s really trying to help employees do their job better, so that they can focus on the highly productive things than the non-productive things, and that’s really what we’re doing with our software, it really is changing the way people work which we think is really exciting.

You reported by the end of the fourth quarter you had, I think it was around $38 million dollars cash on hand. Are there plans to use this to finance further growth or are you planning a more cautious approach in the near-term?

Definitely a cautious approach. Obviously, we don’t quite know the twists and turns of what’s going to happen over the next six to 12 months. As I said, we’re in a really fortunate position that our business model has this annualised recurring revenue. Big companies are paying this every quarter whether there is a pandemic or not, which is a great position to be in. We do think that especially as a software business it’s been – we’re Australia’s fastest-growing technology company according to the Australian Financial Review on our revenues for the last three years. However, there’s got to be a time where we look at the market, we assess it and we take that cautious route, which I think is the wise move to do in this space.

I looked at a graph for your share price and it seems that it’s found a bit of a range since the March crash hovering around 20-30 cents. Do you think the market has priced in the growth of LiveTiles during COVID or is there potentially some more upside that you think could come through into your share price?

Well, certainly if you look at us compared to any other SaaS company, particularly fast-growing SaaS companies, we’re very much undervalued. So there is a huge uplift, we believe if you look at say, for example, the All Tech Index and look at where our revenue growths have gone since we’ve been born as a company – we’re only four years old, yet we’ve been able to grow our revenues to $58 million in recurring revenue, from $1 million only a few years ago. We think, if you look at ours comparatively to anyone, not just in Australia but in the US, I think you’ll find we are very good value and there is plenty of upside to have, we believe in what we’re doing as far as a valuation metric is concerned and we don’t believe that the market has worked it out yet, but when they do we think that’ll have a good upside.

And I was just looking through your quarter four results presentation, you seem to have quite a strong emphasis on product innovation through artificial intelligence. I’m just wondering, could you elaborate on that? How is AI improving your product offering?

Yeah, well one of the things that we’ve focused very much on the last two or three years is being a leader in AI. We’re recognised by Microsoft as being one of the top leaders in AI as the US Modern Workplace partner for Microsoft out of the US, which out of many hundreds of thousands of partners is a pretty big achievement for us. But really, we think the whole world is about to change because of AI. Rather than people doing basic tasks, everything from submitting expense forms to completing certain Excel spreadsheets they might do, a lot of that can be automated and a lot of that can be done by a bot or without having a human data key things in or call up somebody.

So we are revolutionising that, we’ve got our bots product, we’ve got what we call our analytics product which actually sits behind a user’s desktop and understands what they’re doing and then tries to proactively help them and predict what they should do, what they can get help with, rather than just having to do it all themselves. There’s a bunch of AI solutions that we have that we think is changing the workplace. We think artificial intelligence will completely change your workplace over the next 20 years and we’re certainly at the forefront of that and that’s that real upside for us. That’s what really excites our team about where the future of what we call the intelligent workplace, where that goes. We’re very excited by how much we can grow in that area and being already recognised a leader, we think that’s a good position to be in as a company.

You mentioned Microsoft a few times recently and the presentation also mentioned a close alignment with Microsoft. How does your relationship with Microsoft work? Are you able to leverage off their customers?

Yeah, we do, in fact, we’re what’s called ‘co-sell ready’ in 39 countries. The actual Microsoft salespeople actually sell our software in combination with our partners or our sales team. Having Microsoft as our key partner has been absolutely critical to our success today. They’re obviously the world’s largest company, but they are no doubt getting bigger and stronger and I think every product they’ve brought to market has been incredible. Our solutions sit on either Azure or Office 365, which are two of the three key clouds for Microsoft, and our partners and our customers really like the fact that we leverage the Microsoft technology for our security, for the platform and that ultimately leads us to getting more customers and particularly with the Microsoft field sellers that actually go out there and promote our product, we have an amazing relationship that’s just getting stronger by the day and so we see that being a critical partner to us and our success over the next 12 to 24 months.

Geographically, where’s your biggest market?

The biggest market by size for us now is in the US. We have obviously teams from New York to Seattle and our teams work hand in hand on what are no doubt some of the biggest accounts and customers in the world in that region. Then obviously, second to that is Europe, and so we’re lucky that we’ve got a very good geographic spread across three key geographic locations. We’re transacting about 40 countries at the moment which is again, a great sort of spread as well as many different industries as you sort of noted earlier.

I believe you were based in New York, was it, for quite a bit? Have you recently moved back to Melbourne or what was behind that move?

Yeah, I brought the family back in January from New York after being there for nine years and interestingly enough, we’ve been locked here in many ways whether we like it or not. We’re working out as to what degree we will go back, but certainly from my perspective, I haven’t been travelling as much as I normally do, I normally spend 50 per cent of my time on an aeroplane, seeing customers and partners and Microsoft in different parts of the world. Have not had to do that, so that’s been quite enjoyable, being able to have some more time with the family. But yeah, certainly having that US experience, being able to call on the partners and work with particularly, New York where I was based, it’s been a critical part of the success and we sort of again see those regions and that international experience being an international company being quite a critical thing to the success of our business.

Just in that US market and globally, what does the competition look like in terms of other companies offering a similar service to you and how do you differentiate yourselves?

We are sort of the fastest growing and the largest by some way in what we would call our intelligent workplace software. In fact, the next biggest competitor is much smaller than us, probably a fifth of our size. However, most of that competition, interestingly enough, is coming out of Europe as far as we’ve been able to see to date and one of the great things that we’ve been able to do, I think, which is a key part of the strategy, work with Microsoft to make sure we’re well in front of any competitors, so we’ve always got the latest and greatest in the Microsoft tech under our platform and their sales teams. But, really differentiate ourselves particularly around our artificial intelligence which no other competitor has built anything like what we have taken to market, and we believe we’re many years in front of our competitors with what we’ve done.

That’s exciting for us because we can obviously continue to drive customers with the tech that we have and we’ll obviously continue to innovate over the next two to three years to make sure we’re well in front of anyone as they come out and continually compete against us, which we expect will happen in this very large market which we’re only scratching the surface of so far.

Do you think you’re going to concentrate more on Europe going forward? Have you kind of consolidated yourself in the US and you’re looking for other opportunities?

We’re lucky in that we’re very well geographically spread. We are at such an early stage in the US and European markets that we’re just going to really focus on those. We have quite a significant team here in Asia-Pacific as well based out of Australia. We think that ultimately there’s plenty of room for growth in those two markets and we’ll continue our growth, we’ll continue adding customers on in those regions. From my perspective, particularly in this market, the matter of how fast we grow will be really what the market does and obviously the US market, as I said, is the greatest.

So we’ve got probably a greater emphasis of chasing that market, but yeah, huge opportunities for us. We’re about 1 per cent penetrated of our overall market opportunity, so there’s plenty of opportunity to go and certainly a lot of ARR, annualised recurring revenue in those markets.

And just finally, I wanted to get an idea of your sales pipeline going forward. What should investors look for in the year to come?

Look, we’re extremely lucky in that even through COVID and the middle of a pandemic and arguably recession, is we’ve still been able to grow our sales pipeline. We’re really excited about it, we have over 200 transacting partners in our network which includes the likes of Deloitte and PWC, those types of partners, down to smaller companies. They’re investing more than ever into our business and that’s really going to give us the scale to not only accelerate and really consolidate and execute our pipeline, but also grow that pipeline even more as we go along over the next two years. So we’re very happy with how the pipeline’s growing.

As I’ve mentioned, we’re Australia’s fastest-growing tech company which means that we’re doing something right when it comes to putting on revenues and customers. From that perspective, we’re in a really good box seat to continue our hypergrowth and continue our success over the next few years and beyond. We’re really happy with the progress and our pipeline is fantastic and it’s now about executing it and making sure we perform as we expect to do.

Thanks for joining us, Karl.

Great, thank you.

That was Karl Redenbach, the CEO of LiveTiles.