Asure Software Inc (ASUR) 2006 Q2 法說會逐字稿

Welcome to the Second Quarter Forgent Networks Earnings Conference Call.

My name is Michelle, and I will be your coordinator for today.

At this time, all participants are in a listen only mode.

We will be facilitating a question and answer session towards the end of the presentation.

I would now like to turn the presentation over to Miss Alexa [Coy] of Forgent Networks.

Thank you.

Welcome, everybody, to Forgent's conference call.

Before we start, I'd like to mention that some of the statements made by management during this call might include projections, estimates and other forward-looking information.

This will include any discussion of the Company's business outlook.

These particular forward-looking statements and all of the statements that may be made on this call that are not historical facts are subject to a number of risks and uncertainties that could affect their outcome.

You are urged to consider the risk factors relating to the Company's business contained in our latest periodic reports on file with the Securities and Exchange Commission.

These risk factors are important and they could cause actual results to differ materially.

This call is also being recorded on behalf of Forgent and is copyrighted material and cannot be recorded or re broadcast without the company express permission and your participation implies consent to the call's recording.

After we completed a review of the quarter, we will open up the call for questions from the financial analyst community.

I would now like to turn the call over to Richard Snyder, Chairman and Chief Executive Officer of Forgent Networks.

Thank you, Alexa.

Good morning, and thank you for attending Forgent's 2006 fiscal second quarter conference call.

With me this morning is Jay Peterson, Vice-President and Chief Financial Officer.

As is customary on these calls, I will comment on our results, have Jay give you more detail around the numbers, and then we'll open it up for your questions.

Our focus during the second quarter continued to be on intellectual property in the program.

In the case of the '672 patent, it was to thoroughly prepare for the long await a Markman hearing, which occurred last week on March 9.

This hearing was a significant step forward, and I'll make additional comments in a minute.

Licensing activities for '672 were stronger than we have seen in recent quarters as well.

The '746 patent litigation process continued on schedule, so I'm pleased with the progress achieved in both of these patent cases.

Let me update you on the progress of each action.

On the '672 patent, the big news here is that Judge Jeremy Fogel in the Northern District of California heard our petition and those of the defendant's in a Markman hearing on March 9.

We've been waiting for this hearing for over a year, due to delays caused by reassignment of this case to the Northern California District by the multi-district litigation panel of judges.

The Markman hearing is important because the court says how the patent claims will be interpreted or how the claims will be constructed which is the central issue in most patent litigation.

We are satisfied that our legal team of Sussman Godfrey presented our claim arguments effectively, and we are pleased that Judge Fogel gave a relatively short 30 to 45 day timeframe to make a final claims construction ruling which will bring us closer to trial and a resolution to this case.

In terms of licensing, we had 8 companies settle for about 3.8 million.

These companies each had a small exposure to the patent but saw the wisdom in taking the license and being removed from the ongoing litigation.

The overall activity and interest in the quarter is the most we've seen for a year.

There are a number of factors, but keeping the date and holding the Markman hearing clearly shows the defendants that this case is moving to trial.

Late in the quarter, we were notified by the U.S.

Patent Office that they granted a request from a non-defendant third party to re-examine the '672 patent.

Requests and granting of re-exams is fairly common in significant patent suits, so we were not surprised.

We do see nothing new in the rationale for the request, and more importantly, it does not appear that the re-exam will delay the court action and the two processes can continue in parallel.

Under the '746 patent, this is our digital video recording playback patent, this case remains in the eastern district of Texas.

Judge Davis has set dates for initial mediation discussions on April 6, a Markman hearing for July 2006, and a trial date of February 7, 2007.

Here we have a clear schedule and are moving full steam ahead with this action as well.

I would encourage you to continue to visit our website for more detailed information on each case as well as links to other sites that can give you background and substance around these cases.

Changing subjects, I'd like to comment on our software business.

NetSimplicity software sales for the quarter were disappointing, after 2 years or 8 straight quarters of strong growth, we had our first negative growth quarter.

December holiday season sales were particularly slow, and we had some turnover in our sales team.

Demand however remains strong as reflected in our website activity and the increasing number of visitors requesting information and trials per our software products.

We have hired now sales reps, announced a new LCD companion product to Meeting Room Manager, and I'm pleased to report that sales look stronger this quarter today.

With that, I'd like to do a quick overview on the financial results for the quarter.

We generated about 4.4 in total revenue for the the quarter.

While we were pleased to with the overall increase from last quarter, we will aggressively seek additional licensees and software revenues to remain the strong cash balance.

We continue to lower our overhead and expense structure making it the lowest in the Company's history.

We also continue to maintain a healthy cash balance for the quarter.

Now, let me turn this over to Jay for some specific financial information.

Thank you, Dick.

This morning, I will discuss the financial highlights from this past quarter for our intellectual property business, and our NetSimplicity software business.

In addition, I will discuss our balance sheet and cash position.

My final comment will relate to guidance for the coming quarter.

First off, intellectual property.

Revenue for intellectual property licenses increased by 30% to $3.8 million this past quarter.

We signed a total of 8 intellectual property licenses, bringing the total for the program to approximately 60 licenses.

Licensees this past quarter, included among others, Yahoo, Google, O-Say, and Corel.

Program to date, we have realized approximately $110 million in total intellectual property license revenues.

I.T. margins were 45% this past quarter, up from 28% in the prior quarter.

Going forward, margins could further increase due to the residual interests to our former law firm declining from 50% to 10% mid last quarter.

Intellectual property operating expenses this last quarter were approximately $800,000.

This was up from the prior quarter's level of $750,000 due to increased litigation spending primarily for expert witnesses.

Let me turn now to NetSimplicity.

Revenue declined by 25% this past quarter, due to both seasonality, and in unanticipated turnover in our sales force.

Margins for NetSimplicity were 64%, down from the prior quarter's level at 73%.

The reduction in margins was due to the reduced revenue levels.

Operating expenses for NetSimplicity were approximately $950,000, up 5% over the prior quarter.

This increase was due to development expense relating to the flat panel display product announced in January.

In this past quarter, our software business consumed approximately $300,000 in cash.

Let me now turn to operating expense in total.

Total Op Ex for the quarter amounted to $2.7 million, down 6% from the prior quarter.

This reduction was due primarily to lower public company related expenses, for example, insurance expenses and certain statutory expenses and this performance marks our lowest spending level in the past 10 plus years.

In terms of balance sheet and liquidity, our cash balance ended at $15.6 million, down from the prior quarter's level of 17.3 million.

The largest contributor to the reduction was a decrease in our payables by $800,000 and in addition, we grew our AR balance by $350,000.

Our DSO this past quarter was a healthy 22 days, up slightly due to a small increase in IP receivables, and these receivables have since been collected.

Our current ratio improved to 3.7, and in layman's terms, Forgent has nearly $4 in current assets for every $1 in current liabilities.

Also, our working capital remained at the prior quarter's level of 12.5 million.

In summary, our financials in totality, we grew revenues by 19%, we improved margins by 10 percentage points, we reduced operating expenses while making investments in our patent program and our software business, we improved our liquidity and we decreased our net loss to $0.02 a share.

Last topic is guidance.

And I would like to provide guidance in four areas.

First off, we believe we will achieve I.T. license revenue this quarter and throughout fiscal year 2006.

And again, as in the past, predicting the exact timing and magnitude of intellectual property revenue remains a difficult task.

Number 2: We will continue to diligently manage our operating expenses and continue to reduce expenses in non-critical areas.

Also, we are planning on increasing spending in our IP program between now and the trial.

Number 3: We believe that the NetSimplicity business will grow, and will generate cash in the near future.

And the last guidance point is that we are forecasting that we will continue to maintain strong cash balances and working capital.

And in addition, we believe that we will have adequate financial resources to get our 2 patent cases in front of their respective jury.

I would now like to turn the call back over to Richard Snyder.

I think it's clear to all of us that we are engaged in a very difficult legal battle over intellectual property.

There is certainly no guarantees about the outcome.

In fact, many out there would like to see us just go away, and stop asserting our patents, but I believe that we have a duty to our shareholders to defend and assert these patents, that are the fruit of years of investment in development resources during the Company's early history, so we will defend these assets aggressively.

I'm more confident about our prospect of succeeding today than even six months ago.

We have a stronger legal team, a solid judge in an experienced court that has given us a schedule to proceed, and we have the resources to see it through.

I'm often asked about our longer term strategy.

Today, we are completely focused on the tactic of winning our cases in the coming year, and in growing a solid, profitable software business.

However, the Board continues to review a variety of options that could be considered to bring value to our shareholders, depending on the outcome of these cases.

Once again, and I'm going to turn the call over to Alexa for questions.

With that, I would like to open up the meeting for questions from the financial analyst community.

Michelle, can you please coordinate the Q&A session?

[OPERATOR INSTRUCTIONS] Our first questions comes from the line of Mike Herman of A.G. Edwards.

Please proceed.

Good morning.

Question regarding the software business.

Due to the previous problems we had with the other software businesses, at what point does the Board of Directors consider shutting down that business and selling it.

And the other concern I have is that you burned about $2 million in cash from the previous quarter.

Are you really taking major steps to really watch your expenses if this, these court cases further delayed?

That's quite concerning.

Yeah, Mike, this is Dick.

With regard to the first question, the software business is strategic.

Number one, we believe that this can provide a platform for growth for the Company.

Patents expire, you need an ongoing business.

This business has grown over 50% a quarter on average for the last eight quarters, so having one down quarter is not a large concern to us.

We think that it's a, an execution issue, which we fixed, and we're moving forward with it.

So we have no plans to change the profile of the software business.

Number 2, with regard to expenses as we mentioned, this is the lowest, we've gotten the expenses down to the lowest point, really, in the Company's history, minus depreciation, and we believe that there is still room to continue to scrutinize those expenses and get them down.

But frankly, we believe that the best opportunity is for us to continue to collect revenue through both the licensing activity on both patents, as well as the software business, so we're going to look for all ways of generating cash as well as preserving it.

Thank you.

Our next question comes from the line of Richard West of J.M.

Dutton and Associates.

Good morning.

I have a question, too, on the software, if I heard you correctly, you are at $950,000, was in your SG&A operating expenses for the NetSimplicity?

Did I hear correctly?

Yes, that's correct.

How was it in the previous quarter and also on a comparable basis last year, second quarter?

It was up from about 800, the high 800's in the prior quarter, and I believe a year ago, it was in the mid 800's.

So it's been relatively in that 850 to 950 range over the last 12 months, Richard.

Okay.

And in the IP business, you know, we've all been following it, and you seem pleased with the dates of being a 35 to 45 days.

What do you feel on the mediation for the '746?

Is that sort of a preview or possible settlements or just sitting down with all of 15 defendants?

Richard, that is mandated really by the court, and obviously, it's an opportunity to sit down and to talk to all the parties, and to see if there's room for, you know, for settlements at this point.

We are not sure really if this is the right time, but we're certainly going to do it with an open interest.

Okay.

We'll be watching carefully.

Thank you.

Our next question comes from the line of Blake Dettum of National Securities Networks.

Richard, how are you, today?

Fine, thank you, Blake.

I have a question.

Best case scenario, when do you feel that a final schedule date on the Markman hearings will come through after last week's hearing date in court?

The best that we can estimate, Blake, is Judge Fogel's comment to us in the court that he believes that he can come back with the claims construction ruling in 30 to 45 days.

So you know, that gives us, what, sometime in May?

Okay.

Thank you.

You bet.

At this time, we have no further questions.

I'd like to turn the presentation back over to Miss Coy for any closing remarks.

Ladies and gentlemen, thank you for your participation in the conference, this concludes the presentation.

Thank you, and have a great day.

Thank you for your participation, ladies and gentlemen.

You may now disconnect.