LVOX - LiveVox Makes Progress Cutting Costs But Revenue Growth Sags

2023-10-27 17:02:47 ET

Summary

• LiveVox Holdings, Inc. provides cloud-based contact center software and services to companies worldwide.
• The company's revenue growth is slowing, but management is making progress in reducing costs.
• The worldwide contact center software market is forecasted to reach $156 billion by 2030, driving the growth of companies like LiveVox.
• My outlook for LiveVox Holdings, Inc. remains Hold in the near term.

A Quick Take On LiveVox

LiveVox Holdings, Inc. ( LVOX ) provides cloud-based contact center software and related services to companies worldwide.

I previously wrote about LVOX with a Hold outlook on slow revenue growth guidance.

LiveVox Holdings, Inc. management continues to make progress in reducing costs, but top line revenue growth is slowing.

I remain on Hold for LVOX in the near term.

LiveVox Overview And Market

California-based LiveVox sells cloud-based contact center software to assist companies in improving their customer service agent performance and increasing customer and prospect satisfaction.

LVOX is led by CEO John DiLullo, who has been with the firm since November 2022 and was previously Chief Revenue Officer at Forcepoint and CEO at Lastline.

The company’s main software offerings include the following:

• Contact center CRM

• Virtual agents & chatbots

• APIs

• Compliance & security suite.

LiveVox seeks new clients through its direct sales and marketing efforts, via resellers and partners and through referrals.

According to a 2023 market research report by Grand View Research, the worldwide contact center software market was estimated at $28.1 billion in 2022 and is forecasted to reach $156 billion by 2030.

This represents a very strong forecast CAGR (Compound Annual Growth Rate) of 23.9% from 2023 to 2030.

The primary reason for this forecasted growth is the increasing adoption of ‘cloud-based and virtual contact center solutions to achieve better business continuity.

The chart below illustrates the historical and projected future growth trajectory of the U.S. contact center software market by solution through 2030:

Major competitive or other industry participants include:

• 8X8

• Ameyo

• Amtelco

• Aspect Software

• Avoxi

• Cisco Systems

• Enghouse Interactive

• Five9

• Genesys

• Microsoft

• NEC

• Nice

• SAP SE

• Talkdesk

• Twilio

• UiPath

• Unify

• VCC Live.

LiveVox’s Recent Financial Trends

Total revenue by quarter has risen year-over-year; Operating income by quarter has remained negative but is making progress toward breakeven:

Gross profit margin by quarter has trended higher in recent quarters; Selling and G&A expenses as a percentage of total revenue by quarter have moved lower more recently:

Earnings per share (Diluted) have made progress toward breakeven, as the chart shows below:

(All data in the above charts is GAAP.)

In the past 12 months, LVOX’s stock price has risen 14.24% vs. that of the iShares Expanded Tech-Software Sector ETF’s ( IGV ) rise of 25.32%:

For balance sheet results, the firm ended the quarter with $61.4 million in cash and equivalents and $52.9 million in total debt, of which $1.3 million was categorized as the current portion due within 12 months.

Over the trailing twelve months, free cash used was ($13.5 million), during which capital expenditures were $0.2 million. The company paid $12.2 million in stock-based compensation in the last four quarters.

Valuation And Other Metrics For LiveVox

Below is a table of relevant capitalization and valuation figures for the company:

(Source - Seeking Alpha.)

LVOX’s most recent unadjusted Rule of 40 calculation was 3.3% as of Q2 2023’s results , so the firm has improved somewhat over Q4 2022 but is in need of further improvement, per the table below:

(Source - Seeking Alpha.)

Sentiment Analysis

The chart below counts the frequency of various keywords in management’s most recent conference call:

The chart indicates LVOX and its clients are experiencing macroeconomic uncertainties and challenges from difficulty in finding proper staffing.

Analysts asked leadership about the decline in ARR (Annual Recurring Revenue), sales cycle and macro conditions, and AI use cases and applications.

Management said that the drop in ARR was due to the impact of the SMS issue previously disclosed.

Sales cycles appear to have improved slightly, and management is seeing improvement in their pipeline and order volume.

Customer interest in AI capabilities has been high as pressures from staffing challenges are driving conversations forward.

Commentary On LiveVox

In its last earnings call (Source - Seeking Alpha ), covering Q2 2023’s results, management’s prepared remarks highlighted exceeding the high end of its guidance for revenue, gross margin and EBITDA.

Management believes the firm is on track to continue executing its ‘2023 strategic plan to accelerate growth and to reduce costs.’

The company is achieving some success in its international expansion efforts and through its recently established channel organization. It has onboarded numerous VARs, cloud service brokers and its first third-party distributor.

Total revenue for Q2 2023 rose by 7.3% year-over-year, and gross profit margin increased by 6.5%.

The net revenue retention rate was 111%, improving from 108% year-over-year.

Selling and G&A expenses as a percentage of revenue dropped by 9.7% YoY, and operating losses were lowered by an impressive 68.3%.

The company's financial position is moderate, with liquidity to cover its debt but some free cash used in the past twelve months.

LVOX’s Rule of 40 performance has improved mainly due to lower operating losses but is still in need of much further improvement.

Looking ahead, 2023 full-year consensus revenue growth is expected to be around 8.1% over 2022.

If achieved, this would represent a drop in revenue growth rate versus 2022’s growth rate of 14.2% over 2021.

In the past twelve months, the firm's EV/Sales valuation multiple has increased by approximately 16%, as the chart from Seeking Alpha shows below:

A potential upside catalyst to the stock could include the effects of improving sales cycles and pipeline velocity.

Also, the company continues to make progress on cost reductions and increasing its sales efficiencies.

However, top line revenue growth rate is dropping according to consensus estimates, so I’m cautious about LiveVox Holdings, Inc.’s prospects in the near future.

My outlook is, therefore, a Hold on LVOX in the short term.

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