Asure Software Inc (ASUR) 2007 Q1 法說會逐字稿

Good day ladies and gentlemen and welcome to the first-quarter 2007 Forgent earnings conference call.

My name is Onika 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.

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

Thank you, Onika, and 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 be broadcast 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 turn the call over to Richard Snyder, Chairman and Chief Executive Officer of Forgent Networks.

Thank you, Alexa.

Good morning and welcome to Forgent's first-quarter conference call.

Jay Peterson, Vice President and Chief Financial Officer, is also on the call and we will both give you some information and our analysis on the events of the quarter, and then we will answer some your questions as well.

We had a strong performance in Q1 with progress in a number of key areas.

We were able to generate cash from intellectual property settlements, as well as our Software business.

We continued to reduce our expenses.

The [DVR], or '746 patent litigation, remained on track in the Eastern District of Texas with a trial set for May 2007.

NetSimplicity Software sales grew a strong 18% quarter-on-quarter.

From the Company's strategic standpoint, this solid execution to specific objectives was important because it is consistent with our mission to maximize the value of our intellectual property, while beginning the transition to a profitable and growing software company in the future.

Let me review some specifics on the intellectual property.

In the October conference call, I spoke of the options we faced in continuing to try to get value from our '672 patent following a disappointing claims construction ruling.

We carefully considered the risks and the benefits of all options and concluded that an $8 million settlement today outweighed the risk of a multi-year delay in an appeals process that could well return us to the same disappointing position we faced following the claims construction.

We have also generated about $3 million in cash from the sale of certain patents.

This event did not occur in Q1, but has since been announced and represents yet another example of our plan to maximize the value of our IT assets.

We do continue to hold a number of patents remaining in our portfolio that are focused on digital recording and playback where our current enforcement activity is focused and where we are consolidating our intellectual property efforts.

The '746 patent relating to computer-controlled video systems is a significant opportunity to obtain value from those we believe are utilizing this technology without a license from Forgent.

There are 10 to 20 million units in use today with this technology and we expect the growth to accelerate to hundreds of millions as home entertainment grows.

We are in litigation with 12 defendants in the Eastern District of Texas.

The claims construction hearing was held in November and we have a trial date set for May 2007.

We have yet to receive the court rulings on claims, but the court did rule in our favor in denying the defendants their request for a stay of the case pending a final ruling from the U.S.

Patent and Trademark Office on a re-exam of the patent.

You may recall, one of the defendants requested a re-exam from the U.S.

PTO which is not uncommon in patent cases.

The examiner rejected the claims in the initial first office action, which is also not uncommon.

We have yet to respond to this first office action and we certainly look forward in doing so.

Now let me turn to the Software business.

We are very pleased with the continued strong performance of the NetSimplicity business in quarter one.

Not only did we grow revenue 11% quarter-on-quarter, but we generated cash for the second quarter in a row.

We believe that the growth we experienced in the Software segment was due to a number of contributing factors, many of which are indicators of the solid health of the business overall.

First, we saw 23% growth quarter-on-quarter in the average selling price of Meeting Room Manager due to a tenfold increase in the number of enterprise package sales.

Previously, our enterprise package was responsible for about 3% of the new license units, whereas in Q1, the enterprise package sales represented about 30% of new licenses sold.

We attribute this to the significant feature enhancement we made in Q4 in the enterprise product, including our new enhanced outlook integration module.

Second, we are encouraged by the increase in enterprise license sales because it is an indicator of our success in penetrating larger enterprise accounts.

With the new feature set introduced in MRM 7, we have targeted and have succeeded in selling to larger accounts while simultaneously continuing to serve the small and medium business sector.

Third, we continued to see strong demand for our Visual Asset Manager products.

In fact, according to the Gartner Group, the market size for enterprise asset management is about 400 million.

When you add to that the opportunity in the small/medium business sector, we believe the market size ranges up to 0.5 billion or more.

Clearly, there is a large opportunity in the marketplace for a product like VAM, and at our price point, we believe we offer more value than other products on the market.

As such, we are expanding our asset management sales force to serve this demand.

We believe with the continued pressure of Sarbanes-Oxley compliance and potential issues with recoverability of assets due to natural disasters and such, the demand for VAM will continue to expand.

Finally, we are very pleased with customer adoption of our MRM On Demand offering.

We have more than 50 On Demand customers now, ranging from very large deployments to small deployments that needed a room scheduling application but didn't have the IT infrastructure to deploy one.

We are encouraged by this early success in the software as a service arena, and as we believe that we have penetrated new accounts with this offering and with the new software as a service subscription model, we will see significant growth in our deferred revenue stream.

Our goal in the Software segment, as we suggested on the last earnings call, is to make modest investments such that we can fuel continued growth organically.

We believe the market demand is strong for both MRM and VAM, and with the modest investments in development, marketing and sales, we will be able to capitalize on this opportunity.

Now let me turn it over to Jay for some more specifics on our financials.

Thank you, Dick, good morning.

Today I would like to 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 in our working capital.

My final comments will relate to high-level guidance for the future and a brief discussion on the delisting warning letter that we received from NASDAQ in August.

First off, let me start with intellectual property.

Revenue for IT licensing increased by 133% this past quarter to $8.1 million.

This past quarter, we settled the '672 litigation with all of the defendants for $8 million, of which $4.6 million in cash will go to Forgent.

Program to date, we have realized approximately $122 million in total IP license revenue.

Margins for our IT business this past quarter were 56%, an increase over last quarter's margins of 50%.

Also, IT operating expenses this past quarter were approximately $900,000, down from the prior quarter level of $1.1 million due to reduced spending relating to the '672 trial.

Let me turn to our Software business, NetSimplicity.

Our Software revenues increased this past quarter by 11% to approximately $1 million.

In addition, as Dick just mentioned, our bookings grew 18% over the prior quarter.

Also, Software license count and average selling price grew.

In addition, our Software backlog grew by over $100,000.

Margins for NetSimplicity were approximately 68%, essentially flat with the prior quarter.

We are forecasting NetSim margins to be in the 70% to 80% range later this fiscal year due to the complete amortization of the purchase price of this business.

This will reduce our NetSimplicity costs by approximately $135,000 a quarter, or over $500,000 a year.

Operating expenses for NetSimplicity were less than $950,000, a 1% decrease from the prior quarter, and compare that 1% spending decrease with an 18% increase in Software bookings.

This last quarter, our Software business generated approximately $100,000 in cash.

Total revenue for the Corporation grew to $9.1 million, an increase of 109% over last quarter's level of $4.4 million.

Total operating expenses for the quarter amounted to $2.6 million, a decrease of approximately $100,000 and the lowest level in over a decade.

In terms of earnings, our EPS amounted to a profit of $0.11 a share versus a loss of $0.01 a share in the prior quarter.

I would now like to briefly discuss our balance sheet and our continued liquidity.

Our cash balances declined to $15 million this quarter due to a significant increase in receivables.

Note that our working capital grew by $3 million to $14.1 million, and this is the largest working capital balance for the Corporation in almost two years.

Our DSO this past quarter was 60 days due to the $5.2 million of uncollected IT receivables.

Over half of those receivables have since been collected and the remainder are scheduled to be collected in December and January.

Our current ratio is 2.9 this past quarter, a slight improvement over prior quarter's 2.8.

Let me turn to guidance.

I would like to provide guidance in five areas.

We believe we will achieve IT license revenue this quarter and throughout fiscal year 2007.

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

Number two, we are planning to reduce overall expenses again this quarter.

This will be our fourth consecutive quarterly reduction in operating expenses.

Also, we are planning modest investments in our NetSimplicity software business this quarter.

Guidance point three, that we believe NetSimplicity 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.

Number five, we are forecasting to be profitable this quarter.

My final comment will relate to the NASDAQ situation.

The call back in August, we received a delisting warning letter due to the performance of the Company's stock price.

To afford additional time to remedy this situation, Forgent is looking at applying to trade our security on the NASDAQ Capital Market versus the current NASDAQ Global Market where we trade at present.

Our ticker symbol will remain the same, nothing really changes, and in the process, we actually will reduce our fees paid to NASDAQ slightly.

During this process, we will receive a 180-day extension while on the NASDAQ Capital Market to cure our $1.00 share price requirement.

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

Thanks, Jay.

Well let me summarize some key points about the call today.

First, in the intellectual property, we believe we have cleaned up some of the litigation and part of our patent portfolio.

We have consolidated our patent focus around digital recording.

We have an enforcement activity well underway in the Eastern district of Texas with the DVR, or '746 patent, with the trial set for May 2007, and we have generated a significant amount of cash.

We continue to lower our expenses and overhead and we will continue that process as we go along.

We have a fast-growing software business that has begun to generate cash.

We believe that this represents a platform for a profitable growth business in the future.

It will take some time and may require additions to the current lines.

In the meantime, we have a strong balance sheet, a stable company and will prudently watch as these opportunities develop.

Thank you very much.

Thank you, gentlemen.

And with that, I would like to open up the meeting for questions from the financial analyst community, and I will ask Onika to coordinate the session, please.

(OPERATOR INSTRUCTIONS).

Richard West, J.M.

Dutton Associates.

Good morning.

Nice to see that bottom line.

Thank you, we too.

Early on the conference call, you mentioned the words -- transition to a software company.

Are you implying that, after the '746, whichever way it goes, that your continued asserting your patents, whatever patents are left will be over, and you will just be a software company, say, a year from now?

We believe that is a strong possibility, Richard.

We think that, clearly at some point, the patent portfolio will be at a point where it doesn't make sense to spend additional resources on trying to develop it, and we owe it to the shareholders to have a stable, profitable business that they can evaluate.

Thank you.

At this time, there are no questions in queue.

I would now like to turn the call back over to Ms. Coy for closing remarks.

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

This is going to conclude the presentation.

Thank you and have a great day.

Ladies and gentlemen, this concludes the presentation.

You may now disconnect.

Thank you, and have a good day.