Asure Software Inc (ASUR) 2006 Q3 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the third-quarter Forgent earnings conference call.

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

At this time, all participants are in a listen-only mode, and we will conduct a question-and-answer session towards the end of this conference. (OPERATOR INSTRUCTIONS).

I'd now like to turn the call over to Ms. Alexa Coy of Forgent Networks.

Please proceed, ma'am.

Thank you, Tony.

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.

It cannot be recorded or rebroadcast without the Company's expressed permission, and your participation implies consent to the (technical difficulty) recording.

After we have completed our 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.

Dick?

Thank you, Alexa, and good morning, everyone.

Welcome to Forgent's third-quarter conference call.

Jay Peterson, Vice President and Chief Financial Officer, is also on the call this morning.

We will both give you some thoughts and information on the events of the quarter, and then we'll answer some questions as well.

During the March conference call, as you may recall, I summarized by stating that we were in a difficult legal battle to defend our intellectual property, patents that resulted from years of effort and millions of dollars of investment and research and development by our Company.

We turned to the courts to settle this matter only after exhaustive efforts to seek reasonable royalties from companies, who have significantly benefited from the use of our compression technology.

Our judicial system is fair and very thorough, but it is not always a speedy process, nor is it always easy for those on the outside to understand the details of the case and particularly to predict an outcome.

While that may be frustrating for all of us, it is a fact that we must deal with and manage accordingly.

It is however important for all of you to know that the management team and the Board remain confident and committed in returning the value to our shareholder through these actions.

We made some progress in all of our IP activities during the third quarter, but we didn't put many points on the scoreboard.

The '672 Markman hearing was held early in March, and we have since been waiting for a claims construction ruling from the court.

We have continued to hold settlement discussions with some of the defendants also.

The United States Patent and Trademark Office began to re-examine the '672 Patent, and they issued their first non-final office action last week.

This patent re-exam is indeed a process.

It is important to know that until all of the relevant analysis has been done and discussed between the USPTO and Forgent, this process will continue.

We now have the opportunity to work directly with the examiner to provide Forgent's perspective and analysis.

We are fully supported by the USPTO, are eager to begin this stage of the process, and believe that we will get a fair and impartial outcome.

On the '746, our DVR patent, the significant item this quarter was the addition of the legal horsepower with the team of Hagans Burdine, Bracewell & Giuliani.

The Markman for this case is now scheduled for November 2006 in the Eastern District of Texas under Judge Davis.

In the coming months, we will focus on the processes required to have a favorable claims construction ruling and keep the lines of communication open to the defendants in this case as well.

As you can imagine, it is certainly more complex to prosecute two patent litigation cases simultaneously.

But I'm pleased to report that we have not increased our headcount.

Then, in fact, we've kept expenses essentially flat.

I'm also pleased that our NetSimplicity software business had a very solid quarter with 18% growth quarter over quarter.

The software and services business continues to experience strong demand and attract new customers at a record rate.

While Meeting Room Manager remains the flagship of that product line, Visual Asset Manager, which enables organizations to inventory and value all hard assets, has showed tremendous growth and promise in the marketplace.

The business is close to breakeven and although it is small, provides an excellent foundation for a profitable growth business in the future.

Speaking of that future, we believe it would be premature to provide a detailed business plan, but the Board is committed to maximizing shareholder value by an honest assessment of options that will be generated by a range of possible outcomes over the next year.

Certainly among those will be dividends and stock buybacks.

Let me summarize some key points here.

There are a range of possible outcomes in litigation.

Some are good for us and some are not.

But here is how we look at it.

Our patents are valuable.

We have collected over 110 million, and some analysts have placed the remaining value well above that number.

We believe we will prevail.

The '672 is a solid patent that has withstood years of scrutiny with a successful licensing history, some of the best legal teams with track records of winning high-profile cases and a lean organization of highly-talented people with motivated and a fair and experienced court to work with.

Now, let me turn it over to Jay Peterson for some details.

Thank you, Dick.

Good morning.

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 our cash position.

My final comments will relate to guidance for the future and an overview of the remaining revenue opportunity for the '672 Patent.

First off, I will start with intellectual property.

Revenue for intellectual property licensing decreased by 50% this last quarter to $1.9 million.

This past quarter, we signed one intellectual property license, bringing the total for the program to 62 licenses.

The licensee this past quarter was Xerox.

Programs to date, we have realized over $110 million in total IP license revenue.

And again, I will speak later in this discussion on the total remaining revenue opportunity.

Intellectual property margins were 39% this past quarter, and that is down from the 45% from the prior quarter.

That reduction was due to the reduced level of revenue in the quarter.

Intellectual property operating expenses this past quarter were approximately $980,000.

This is up from the prior quarter level of $775,000 due to increased litigation activity in both the JPEG and DVR cases.

Let me turn to NetSimplicity.

Our software revenues increased this past quarter by 18% to approximately $650,000.

In addition, our bookings grew 18% over the prior quarter.

Software license count and average selling prices, ASPs, also grew.

Margins for our software business were 67%, up from the prior quarter's level of 64%.

This increase was due to the increased revenue from software.

Later this year, we expect our NetSimplicity software margins to be in the 70 to 80% gross margin range.

Operating expenses for NetSimplicity were approximately $940,000, essentially flat with the prior quarter.

This last quarter, our software business consumed approximately $200,000 in cash, down from the last quarter's level of $300,000.

And we believe we will need to invest an additional $250,000 of cash into this business before it starts generating cash.

Operating expenses in total for the quarter amounted to 2.7 million, essentially flat with the prior quarter.

Note that we had a significant increase in intellectual property expenses but were able to keep total expenses flat.

Let me turn to the balance sheet and cash.

Our cash balance ended at $14.6 million, down by approximately $1 million from the prior quarter's level of 15.6 million.

Our DSO, day sales outstanding, was 26 days, and this was up slightly from the prior quarter's level of 21 days.

Our current ratio was 3.5, which was essentially flat with the prior quarter, and our working capital was $11.2 million, down $1.3 million from the previous quarter.

Let me turn to guidance.

I would like to provide guidance in four areas.

First off, we believe we will achieve IP license revenue this current quarter and throughout fiscal year 2007, next fiscal year.

As in the past, predicting the exact timing and the magnitude of IP revenue remains a difficult task.

Number two, 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 intellectual property program between now and the open at trials.

Third, we believe that the NetSimplicity business will continue to grow and will generate cash in the near future.

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

In addition, we continue to believe that we have sufficient financial resources to get our two patent cases in front of a jury.

Now let me turn to the opportunity for additional licensing revenue from the '672 Patent.

We are oftentimes asked, what is the exact remaining opportunity for licensing revenue for this patent?

Referring to Richard West from Dutton Associates' most recent research report, if you base the past license averages -- dollars per license -- the opportunity with existing defendants -- just with the defendants is in excess of $100 million.

In addition to that litigation, we have over 900 other companies that we have identified as possible infringers.

Some of these companies are quite large companies.

So in aggregate, we believe we have a significant opportunity in front of us for remaining revenues from this patent.

I would now like to the call back over to Alexa Coy.

Thank you, gentlemen.

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

I will ask Tony to coordinate the session, please.

Tony?

(OPERATOR INSTRUCTIONS).

Richard West, Dutton Associates.

I have a question.

I want to make sure I've got the timing on the Xerox settlement license.

They settled after seeing what transpired in the Markman hearing, is that correct?

Yes, it was in fact after the Markman hearing.

Okay, the second question is -- for the '746 Patent, you talk about approximately 12 companies in the litigation.

Originally, there were 15.

What happened with the -- from 15 to 12?

Richard, this is Jay.

There were some entities from a legal perspective -- were condensed from two legal entities down to one.

So it is the same?

It is essentially the same, yes.

Carter Mansbach, Concord.

My question comes regarding the complexity of this case.

Assuming we get a Markman result over the next few weeks or months, I think that when the Markman results do come down, it seems to me that shareholders really do not have the understanding of what it means, what it will mean and really what the complexities are and how many terms there are and what it all is about.

What I'm asking is, hypothetically in the next couple of weeks we get a Markman result from Judge Fogel, would you guys consider holding a conference call to explain the results?

Because I'm sure everyone is going to be scrambling, trying to figure out what they all mean.

Yes, Carter, I think that is something that we certainly considered.

We will look at that hard as the information comes in.

(OPERATOR INSTRUCTIONS).

There are no further questions in queue.

That is all, Tony.

I think we will be ending the call now.

Thank you.

Ladies and gentlemen, thank you for your attendance in today's conference.

This concludes your presentation.

You may now disconnect.

Good day.

Thank you.