Ann: 1st Half FY19 Results Announcement, page-47

Part II - ManagementWe like what we have seen so far of the management team.  They are focused, ambitious and driven.  They have highly regarded commercial skills, in an ability to bring a product to market, generate sales and service the customer.  They really understand the Microsoft ecosystem and have deep relationships within Microsoft. They have expanded the product offering from the initial core product to four products with a combination of some original R&D and one shrewd acquisition that came with a great product (Hyperfish).  The commercial side of the team is VERY strong. They have attracted some surprisingly senior talent to join the company, including at least one very senior hire from MSFT. It speaks to the credibility of the company's strategy that management talent of this stature have chosen to bet their futures on LVT ( It also seems to us that MSFT must have blessed some of the hiring before it was consummated. It does not seem likely that you hire top management from your most important partner without clearing it with them first) .   The management team is based on the foundation of two people who have been partners for 20+/- years.

On the flip side of the coin, One reservation that we think investors need to monitor closely is financial and operations management. More on that later.

The Co-FoundersCo-founders Karl Redenbach and Peter Nguyen-Brown  have worked together for a long time .  They are proven entrepreneurs who built their previous company together before eventually selling to Rhipe for $20 million +/- in order to focus on LiveTiles. They appear to complement each other and trust each other.  Karl is the CEO, sets ambitious stretch goals for the management team, has strong sales and marketing experience with the underpinning of a legal background and gives the impression of being a human dynamo.  Peter is the brilliant software engineer who is CXO and has a reputation for attention to detail and good people skills.  Delving into social networks, we observe very strong positive feedback from motivated employees. We found only one lawsuit from a former employee (there is always one) whose chief complaint seems to be that employees are expected to work long hours and then everyone went out to a bar afterwards....we dug up the law suit (I like to sweat the details) and it made us want to work for LiveTiles! 

The Value statement at the company (from the website) is:

First, we are decent human beings. We care about people and our world, and treat our colleagues, customers, and partners accordingly.

Second, we get sh!t done. Getting work out the door is more important than endless process discussions.

Finally, we create unforgettable experiences–keeping our global family inspired and motivated, and on the platform we’ve created.

Karl and Peter set stretch goals but they seem to hit them. We went back and looked at older presentations and noticed that they got to their $5 million goal ahead of time, their $10 million goal ahead of time and that they have already brought their $100 million goal forward 6 months.

Senior Management

Notably includes senior folks from Microsoft including a regional head of partnerships in the US,  and more recently David Vander the former worldwide head of services for Microsoft  whose previous roles at MSFT had included worldwide MD for services to Finance and banking etc.

The Wizdom team seem extremely experienced and , again, have deep connections with Microsoft.

Hyperfish:  Chris Johnson the CTO was formerly a group manager on Office 365 at Microsoft (noticing a trend here?) .  The CEO is Brian Cook. Brian Cook is the real thing. Brian was co-founder and CEO of Nintex a workflow software company .   Nintex was initially invested in by Boston based private equity firm TA Associates and then heavy weight PE and growth capital firm Thoma Bravo. Terms were not disclosed but indications were that Nintex was valued somewhere between US$ 600m and US$ 1 bn.
Most interesting to us is why Brian chose to sell Hyperfish to LiveTiles for an all stock deal and decline cash offers from Private Equity.  It says a lot about Brian's confidence in LiveTiles and his commitment to Hyperfish. He is clearly very content to be a large shareholder in LVT and nobody knows the enterprise software space as well as Brian.  We are curious to see how his role develops within the organization. Its not like he ever has to worry again about the paycheck, but like all young entrepreneurs he wants to see his next creation (Hyperfish) succeed.    

Passion and Expertise in User Experience Software

In addition to their commercial skills. One key feature that distinguishes the competitive advantage of LVT is that their management and software developers have strong User Experience and User Interface skills.  Karl and Peter's background was as system integrator and IT consultants, building and designing the UX and UI for large enterprises. This is a key ingredient to understanding the role of LVT Design.  Many cloud based services on MSFT Azure and other vendors (Google, AWS etc) have horrible User Interface. Historically you hired consultants who worked for Karl and Peter's old business to come in and fix this and build the customized user interface.  One of their clients was Pepsi.  The flexible, cloud based , easy-to-use and easy-to-customize software that they built for Pepsi was the forerunner of LiveTiles....and Pepsi became one of LiveTiles first customers.

Financial and Operations Control

Matt Brown the CFO is ex Macquarie and is more sophisticated and better qualified than the typical start up CFO.   He strikes us as honest, smart, thorough and understated.  He is a natural foil for Karl. Karl would rather set stretch goals and aim for optimistic, ambitious internal  targets. Matt will convert that into achievable realistic expectations for capital markets. You need both.

However Karl and Matt are unproven in terms of managing financial and operational reporting and controls for a large rapidly growing organization.  LVT is already bigger than the founders previous company.......and it is this element of the investment thesis that we think we will learn more about in the coming two quarters.  

The company has grown extremely fast.
In addition, the geographic location of employees is dispersed and fragmented. It feels like they have hired talent where they can find them,, when they can find them .  The core commercial operations are in New York and Melbourne. They have various sales offices scattered around the world (which is not unusual in software) including Brisbane, Sydney, The Netherlands, Chicago, San Francisco, North Carolina, LA etc etc.  They have software development teams in Seattle and obscure locations like East Washington State, Sligo Ireland and Hobart (no offense to Tasmania).  They have built a contracted sales team of 60+ people working with N3 in upstate New York (Rochester) and sent one of their top sales and marketing guys to Rochester to manage that. Wizdom brings them a new Copenhagen headquarters to manage.  It is a lot to manage and the CEO and CFO cannot be everywhere. 

The hiring cycle for a rapidly growing company requires two skills. Hiring and Weeding Out.  You are hiring so fast, that if you hire 10 people and 8 turn out to be just right and you have to weed out 2, then you are doing well.  A common trap for high growth companies is that they are so focused on growth that they lose sight of cost control(they dont do the weeding out, they just keep adding people)  and they dont build sufficiently strong financial control systems.

This is why we paid particularly close attention to LiveTiles press release on January 29th that accompanied their C4 filing to the ASX.  I quote:

"LiveTiles expects gross cash operating expenses for the six months to 30 June 2019 to be significantly lower than gross cash operating expense for the six months to 31 December 2018"

"cost savings from several non-customer facing staff reductions "

"normalisation of expenses relating to the sales and marketing execution services"

For the March 2019 quarter, the Company expects gross cash operating expenses will be approximately $11.7million, down from $13.7million in the December quarter"

This kind of cost control, while still remaining on track with growth forecasts, is extremely hard to deliver.   We await the March and June quarter expense numbers with bated breath.  We realize that we now have to add in  Wizdoms $3.1 million of opex so the target is $14.8m.  If they hit that target in just one quarter down from what would have been $16.8 million....we shall be impressed.  Notably they hired David Vander and he will not have been cheap.

Conclusion:  Experienced, driven management team on software development and marketing.  Lets see how they do on cost control.

Still to come: parts 3 and 4 Cash Burn forecasts and valuation