Asure Software Inc (ASUR) 2006 Q4 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the fourth-quarter Forgent earnings conference call. At this time, all participants are in listen-only mode. We will conduct a question-and-answer session towards the end of this conference. (OPERATOR INSTRUCTIONS).

I would now like to turn the call over to your host for today, Ms. Alexa Coy of Forgent Networks. Please proceed, ma'am.

Thank you, and welcome, everybody, to Forgent's conference call. Before we start, I would 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 express permission, and your participation implies consent to the call's 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 the call over to Richard Snyder, Chairman and Chief Executive Officer of Forgent Networks.

Thanks, Alexa, and good morning, and welcome to the Forgent call. I would like to mention that Jay Peterson, our Vice President and Chief Financial Officer, is also on the call this morning, and we will both be giving you some information and our analysis on the events of the quarter, and answer some of your questions as well.

As you will recall, in the June conference call, I spoke of the difficult legal battle we faced to defend our intellectual property, patents that resulted from years of effort and millions of dollars of investment in 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.

I also pointed out to you that there was a range of possible outcomes in litigation, some of those good for us and some of those not so good for us. At the time, we were waiting for the court to rule on claims construction, a critically important milestone where the disputed meaning of the patent claim terms are defined for later use with the jury at trial.

The ruling came on June 28th, and was extremely disappointing to all of us who believe in the strength of the '672 Patent. The court ruled in favor of the majority of the defendants' claims construction, including the limitation of the claims to video images. While we strongly disagree with this ruling, we are faced with several options -- one, continue with the current District Court litigation; two, follow what appeal process is available at the appropriate time; and number three, to continue to discuss settlements with the defendants.

We have explored these options, and will continue to do so until we are convinced that choosing a single course of action will bring about the best value to our shareholders. Each option carries its own set of issues. Continuing the District Court litigation under the current claims construction is very difficult. The appeals process can be very long and costly, and settlements at this stage may not reflect the full value we believe is in the patents. However, on balance, this may be one of the more prudent courses of action.

We also have been available to the defendants to discuss settlements, and we will continue to actively pursue that process now. I anticipate being able to announce a more definitive course of action by the end of the calendar year.

Also, the re-exam of the '672 Patent by the United States Post Office and Patent and Trademark Office continues. We responded to the examiner's first office action and you may check the U.S. PTO website for more details.

As most of you know, we are enforcing a second patent, the '746, relating to a computer-controlled video system that allows playback during recording. I am pleased to report that this case remains in the Eastern district of Texas, the Tyler Division, and remains on schedule for a November 9th Markman hearing and a trial date of May 2007.

We attended court-ordered mediation with the defendants in September, which was interesting but inconclusive. The U.S. PTO received and granted a request to re-examine this patent. Those of you who follow these cases know this is the drill, and has become fairly common in cases involving intellectual property disputes.

We also have over 20 patents with several pending patent applications which remain in our intellectual property portfolio. We believe that these are valuable, and continue to evaluate them as opportunities to monetize.

Let me turn to our software business. I am very pleased with the progress of our scheduling and asset management software. Revenues grew over 30%, and we generated cash for the first time, which is very significant. The release of Meeting Room Manager 7.0, which has tighter integration with Outlook, has been very well-received and is shifting demand to larger enterprise customers and is reflected in our higher ASP. Visual Asset Manager had its best quarter ever. Demand is being driven by the tough regulatory environment of Sarbanes-Oxley that requires companies to have a tighter control over their assets, and VAM provides that in a very cost-effective manner. We intend to modestly invest in this business and to find additional ways to achieve growth, so that it can become the Company's mainstream business in the future.

Now, let me turn the call over to Jay to talk about some of the financial details of our plan.

Thank you, Dick. This morning, I will discuss the financial highlights from this past fiscal quarter for our intellectual property business and our NetSimplicity software business. In addition, I will discuss the continued strength of our balance sheet and the growth of our cash position. My final comments will relate to high-level guidance for the future.

First off, let me discuss intellectual property. Revenue from IP licensing increased this past quarter by 85% to $3.5 million. This past quarter, we signed two intellectual property licenses, bringing the total for the program to 64 licenses. The licensees this past quarter included one unnamed defendant and one non-defendant. Program to date, we have realized approximately $114 million in total IP license revenues.

Intellectual property margins were 50% this past quarter, an increase over last quarter's margins of 39%.

Intellectual property operating expenses this past quarter were approximately $1.1 million, up from the prior quarter's level of $1 million, due to increased litigation expenses, primarily due to trial preparation in the DVR case.

Let me turn to NetSimplicity. Our software revenues increased this past quarter by 34% to approximately $875,000. In addition, our bookings grew 26% over the prior quarter, and both software license count and average selling price also grew. Margins for our software business were 72%, up from the prior quarter's level of 67%, and this increase was due to the increased revenue levels. Also, we are forecasting our NetSimplicity software margins to be in the 70 to 80% range later this fiscal year.

Operating expenses for NetSimplicity were approximately $950,000, a 1% increase over the prior quarter, contrasted with the 34% revenue growth for this business. Also this last quarter, our software business generated a modest amount of cash, compared to a burn of $200,000 in the prior quarter.

Let me turn to total revenue. Total revenue grew to $4.4 million, an increase of 72% over last quarter's level of $2.5 million. Operating expenses in total for the quarter amounted to $2.7 million, and this number has been essentially flat over the past three quarters.

Our earnings per share amounted to a loss of $0.01 a share, compared to a loss of $0.06 a share during the prior quarter.

In terms of our balance sheet and cash position, our cash grew to $16.2 million, an increase of $1.6 million over the prior quarter's level of $14.6 million. Our days sales outstanding, DSO, this past quarter was 14 days, and this was down 1 day from last quarter's level of 15 days. Our current ratio was 2.8 this past quarter, and our working capital was $11.1 million, essentially flat with the prior quarter.

Let me now turn to guidance. I would like to provide guidance in four areas. We believe we will achieve IP license revenue this quarter and throughout fiscal year 2007. As in the past, predicting the exact timing and magnitude of intellectual property revenue remains a difficult task.

Number two, we will continue to diligently manage our operating expenses and continue to reduce expenses in noncritical areas.

Number three, we believe the NetSimplicity software business will continue to grow in the future.

Number four, we are forecasting that we will maintain adequate cash balances and working capital. In addition, we believe that we will have more than adequate financial resources to get our patent case in front of a jury this coming May.

Now, let me make one last point, please. As you know, we received a delisting warning letter from NASDAQ in August, due to the decline in our share price. There are several ways to remedy this situation, including a reverse stock split and improved operating performance, and it is our plan to address both of these.

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

Thanks, Jay. Well, let me just summarize some points before we get to the questions, if there are any. Number one, we believe that we will generate additional cash from our IP business. The fact remains, however, that this side of the business is filled with uncertainty and volatility, as evidenced by our unfavorable claims construction ruling in the '672 case.

But we also believe we have strong patents that should be valued for their unique invention, and we will continue to enforce them to maximize that value. To offset the volatility and risk and the long-term prospect that all IP eventually expires, we will accelerate the growth of our business productivity software division to provide a profitable core that can sustain the Company in the future and deliver predictable shareholder value.

Thank you, and I will turn it back to Alexa to ask if there are any questions.

Thank you, gentlemen. And with that, I would like to open up the meeting for questions from the financial analyst community.

(OPERATOR INSTRUCTIONS). Carter Mansbach, Concord Equity.

There was an 8-K filed by Concord Camera Company, symbol LENS, that I believe is a defendant in the '672 case, that talked about negotiations between Forgent and the defendants. I want to know if there was something that we should, as shareholders, read into or if you could give us a better light on what that is all about.

It is not appropriate for me to comment on Concord Camera's releases. So I really can't comment at this point.

Fair enough. Thank you.

Richard West, J.M. Dutton Associates.

In court filings, it was I believe Apple was the unnamed defendant that was named in the court. The other is a non-defendant. Is it safe to just divide by two and figure that you are getting $1.7 million per settlement, if there is any more?

Richard, I wish I could comment on that. However, due to the settlement agreement, we are precluded from mentioning anything. Sorry.

That's all right. Going forward, one of your guidance that you did say you'd have IP license in the first quarter and the year. What is it that gives you that confidence for that guidance?

I guess it would be looking at our track record over the last 48 months, where we have had intellectual property revenue. We believe in the strength of our patent portfolio going forward.

[Blake Denham], National Securities Corporation.

I have really a couple of questions. One is the cost of the litigation going forward, and if it still would include Giuliani Partners or Giuliani and Associates, and at what cash burn rate do you anticipate that over the next couple of quarters?

Secondly, on the earnings this morning, there was a statement that said that year-over-year comparisons quarter year over year, that you did not report results for year-ago fourth quarter. If you could address that, I would appreciate it.

Yes, let me answer the last question first. We traditionally report the P&L versus the preceding quarter and not a year prior. To answer your first question, we believe between now and the trial, starting in August through May of 2007, that we will spend somewhere in the range of $2 million to maybe $2.2 million in cash preparing for the DVR trial.

Is that a total expenditure of Forgent, or are there any contingencies by the legal representation for Forgent in this?

The $2.2 million is cash expended by Forgent for things such as expert witnesses, testifying witnesses, document production, technical analysis that is being done on the various hardware devices, reverse engineering on hardware devices, etc. The actual attorneys' time that will be provided by the Hagans & Burdine law firm and Bracewell Giuliani is additive to that. However, that comes out of their pocket.

I guess it has been on my mind -- if you had to take a guess percentagewise, the possibility of an appeal for Judge Fogel's ruling? And obviously, it has weighed on everybody's mind. It came as a surprise.

Yes, and it is a question that gets asked a lot, Blake, and unfortunately I am not in a position to speculate on that. Judge Fogel -- I clearly was not able to predict his first outcome. So I would not be very good at this one either.

Larry Martin, TAG Partners.

I don't recall the exact number, but there was another talked about -- another 1,100 approximately companies that were -- I don't know if you want to call them secondary defendants or what, but what is the status of that group, or has that just been totally put on the back burner at this point?

I would say the latter is probably true, back burner. Clearly, we're trying to figure out what that next course of action should be at the front end of the case, and then we will get to those issues in a timely manner.

Have they all been put on notice, or have they all been aware of the litigation?

No, most of those have not been put on notice. Those are a part of a prospective group of folks that may be involved in the case. So it is at various levels of involvement at this point.

With the patent expiring, would that sort of step up the sense of urgency?

Well, the patent expiring obviously addresses anything going forward, but it does not address any infringement in the past.

[David Garcia], [Cantella & Company].

You said that you expect to accelerate the growth of the software division going forward. Is that going to beef up the expenses going forward in the near term?

There will be modest increases in expenses, and also we believe that business will grow, due to these increases in expenses. But it will not be anything that will dramatically impact, for example, our balance sheet and the cash position that we have.

(Multiple speakers) increased expenses, what revenues would you have to generate there to break even in that division?

Right now, we actually generated cash this past quarter, albeit a modest amount. And in order to generate cash going forward, we will need to book somewhere in the range of $1 million in quarterly bookings. Last quarter, we booked just shy of $1 million. So we are happy with the recent performance.

You said that you are looking at addressing the delisting notice with a reverse split. Can you expound on that a little more?

Yes. That is done via a proxy process. We are currently writing the proxy. We anticipate the proxy to be in the hands of all of our investors in the next 45 to 60 days, and with the shareholders willing -- it does require their approval -- we will have some sort of split in our stock to cure the $1 minimum NASDAQ required price.

With only having 25 million shares outstanding now, a reverse split will kill any liquidity that is in the stock now.

Don't know. Don't think so.

Blake Denham, National Securities Corporation.

One last question, and I really wanted to ask it -- has or would Forgent discuss any merger or acquisitions with anybody in the future? Has this been on the table at all in the past?

Yes. Those discussions have taken place, and our Board is always available to look for opportunities that come along. We evaluate any serious efforts in those areas, and we will continue to do so.

There are no further questions at this time. I would now like to turn the call back over to Ms. Coy. Please proceed.

Ladies and gentlemen, we would like to thank you for your participation in today's call. This is going to conclude today's presentation, and we look forward to speaking with you again next quarter. Thank you.

Thank you for your participation in today's conference. This concludes the presentation. You may now disconnect. Good day.