LoopUp (LOOP): Delayed-Results RNS Translated

Oh dear. LoopUp (LOOP) is having trouble preparing its accounts. The RNS says:

"The delay relates to a routine technical review by the Group’s auditor, Grant Thornton, that has not been completed in time for the preliminary release, regarding the amortisation treatment of intangible assets from the acquisition of MeetingZone in 2018.

For the avoidance of doubt, this is a non-cash, technical accounting review and the Group reconfirms in line FY2020 results: revenue of £50.2 million (FY2019: £42.5 million); EBITDA of £15.3 million (FY2019: £6.4 million); year-end gross cash of £12.1 million (FY2019: £3.0 million); and net debt of £0.7 million (FY2019: £11.5 million).

The Group is working with its auditors to complete the review and will provide clarity on a revised date for our preliminary results as soon as possible."

Some interesting language there. My translation is as follows:

"routine technical review" → a key audit matter

"has not been completed in time" → we could not agree with the auditor’s view in time.

"non-cash" → the cash was spent at the time of the acquisition (2018)

"will provide clarity on a revised date for our preliminary results as soon as possible" → negotiations with the auditor may take a while.

Note that this RNS was issued on the day LOOP had already scheduled its results for. I presume some eleventh-hour audit discussions did not work out.

I am not surprised the delay relates to "the amortisation treatment of intangible assets from the acquisition of MeetingZone in 2018"

I wrote about LOOP for SharePad earlier this year and noted:

"The “customer relationships” recognised as an intangible at the time of the MeetingZone purchase were being amortised over fifteen years.

Such a policy arguably implies the customers acquired through MeetingZone would all remain customers until 2033."

LOOP’s assumptions looked questionable to me. A 15-year projected useful life for acquired ‘customer relationships’ was much longer than that applied by other software companies. Furthermore, MeetingZone was started in 2002 and was acquired in 2018, so I doubt much evidence of 15-year customer terms existed at a business only 16 years old.

LOOP’s profit warning during November clearly indicated some customers had jumped ship and presumably this update prompted the auditor to double check LOOP’s useful-life assumptions.

The MeetingZone purchase created total goodwill and customer-relationship intangibles of £60m-plus, and any write-down will effectively confirm LOOP overpaid and (further) knock management credibility. The MeetingZone deal had already looked shaky during early 2020, when LOOP’s 2019 results did not show any obvious benefits from the 2018 acquisition (pro-rata revenue and Ebitda actually fell).

Will be fascinating to see the assumptions applied within the delayed results.

Maynard

2 Likes

well, results finally released and headline figures look fairly decent.

need to properly read it, but perhhaps improved on what was expceted. Up 12% at 8am

And here are the results: Investegate |LoopUp Group PLC Announcements | LoopUp Group PLC: Preliminary results

Looks as if LOOP has managed to avoid a write-down by negotiating with the auditor to instead ‘accelerate’ the amortisation from this year:

While the reduction in revenue is also considered an indicator of potential impairment in relation to the Group’s intangible assets balances, following detailed modelling of future cash generation, the Board is comfortable that there is no requirement to impair these assets as at 31 December 2020. However, recent increases in churn, particularly in non-PS Meetings customers, i ndicates that the useful economic life of the Customer Relationships asset acquired with MeetingZone may be lower than the 15 years originally estimated for accounting purposes, and as such, the Group proposes to accelerate the acquired amortisation charge for this asset from FY2021.

The shares at 85p support a £45m market cap, so the market clearly has a different view to LOOP’s valuation of goodwill/intangibles of £59m and net asset value of £65m.

Adjusted operating profit was £9.0m for the full year, but was £9.2m for the first half, so the business was not profitable during H2.

Free cash flow was £11.4m for the full year, and £6.3m for the first half, so H2 witnessed a £5.1m inflow. But the cash movements related mostly to outstanding debtors being collected and receiving tax refunds. LOOP can’t prosper from such movements forever; cash generation needs to be supported by the company returning to profit after the latest H2.

Maynard