LoopUp has issued a trading update, highlighting two specific challenges which impact near-term revenues. Firstly, there has been an across-the-board reduction in activity levels among clients, driven (in the Board’s view) by depressed macro activity. Secondly, levels of new business have been impacted by the diversion of senior staff onto training roles and away from business development. Both issues are disappointing, and they combine to a material reduction in near-term EBITDA (c20%), but both should also be manageable and neither diminishes the attractiveness of the LoopUp product.
LoopUp is seeing two (distinct) problems with near-term trading, and has chosen to update the market with revised guidance.
It appears that LoopUp’s existing customer base is less active…from discussions with management, we believe that this is NOT loss of customers (loss rates are in line with historic levels), but rather the customer base simply holding less frequent conference calls. This is potentially due to reduced macro and deal-related activity within customer businesses – over two thirds of the LoopUp base relates to professional services firms (solicitors, corporate finance houses, investment banks, accountants etc) with much of their activity presumably deal-related and cyclical.
LoopUp saw, in late 2018, the opportunity to accelerate the “organic” sales team (Pod) growth rate by hiring experienced employees, rather than simply adding graduates at the lower levels of the organisation. This has led to good growth in numbers, but has diverted senior sales staff more than anticipated. Further, the ramp-up of the new Pods is now expected to take twelve months (previously 8). This has led to a reduction in Pod-number expectations, although the mechanism for long-term Pod growth remains attractive and valid.
Clearly these downgrades are a disappointment, but we see both issues as, at least to a degree, transitory. Macro-economic activity will return in time, and the Pod growth “indigestion” should also work through in the medium term. We change our numbers as detailed overleaf, with our new forecasts as shown below; the 2019 EBITDA reduction is c.17% on our estimates, with slightly bigger reductions in later years based on Pod growth metrics. Our long-term belief in the group’s product and LoopUp’s innovative and nimble approach remains unaltered.