Livehire: Direct sourcing some growth
About the author:
- Author name:
- By Anthony Porto
- Job title:
- Senior Analyst
- Date posted:
- 24 January 2021, 9:00 AM
- Sectors Covered:
- Online, Emerging Tech
- Livehire's (ASX:LVH) 2Q update provided the first material evidence of the revenue potential of the North American (NA) direct sourcing product.
- With LVH having established a solid partner network (now encompassing 11 partners) in NA, attention now turns to client additions and the ramp of existing client programs, with encouraging progress to date.
- The SaaS business saw better than expected client additions in the quarter, but slightly higher churn and lower average value per client than forecast.
- Cash burn has been dramatically curtailed and we believe LVH to be funded to cash flow breakeven and beyond.
- We maintain an Add rating and slightly increase our target price by 6% (login to view target price).
Early traction in direct sourcing provides encouragement
To our mind LVH has set a solid foundation to attack the NA direct sourcing opportunity, with 11 partners enabled, thus providing a capital light client acquisition network. Despite still being in its infancy, early signs on the revenue trajectory are promising and outperforming our expectations.
At an assumed average contract value of A$325k, annual revenue from the initial 8 NA customers would equate to $2.6m, quickly gaining on the $3.92m ARR in the existing SaaS business. In this regard it is not hard to envisage the direct sourcing opportunity becoming the main play here.
Domestic business fundamentals slightly improving
Notwithstanding the commentary above, the SaaS (mainly domestic) business fundamentals continue to marginally improve. The net addition of 6 clients in the quarter (10 for the half) bettered the previous 2 quarters.
A minor disappointment was the lower value of these client additions, with some larger deals either falling away or being delayed. ARR growth of 30% on pcp (6% on previous quarter) whilst a step down from the 50-80% seen in the products early adoption phase, remains healthy.
Cash burn continues to decline, funded to break-even and beyond
Operating cost reductions implemented at the beginning of CY20 have seen free cashflow burn (@$1.7m) reduce 50% on pcp and 17.5% on the previous quarter. At current burn rates, LVH retains 2.5 years of cash backing, assuming no revenue growth.
We believe LVH to be well funded to cashflow breakeven and beyond, an important milestone for some investors.
Have the foundation, now for the growth. Add retained, target price increased (+6% on previous, 80% upside)
Our positive investment thesis is predicated on the large opportunity we see for the company in the North American direct sourcing market. We believe the company to be on the verge of producing meaningful revenue (and earnings) growth in NA, having spent the past 12 months laying the foundation of such growth.
Attention now turns to client acquisition and contract revenue ramp, with this quarter’s update providing encouraging signs of progress. We retain the Add rating and increase our target price by 6% (login to view target price).
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