Asure Software Inc (ASUR) 2007 Q3 法說會逐字稿

Good day, ladies and gentlemen, and this welcome to the third quarter 2007 Forgent earnings conference call.

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

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

We will conduct the Question and Answer Session towards the end of this conference.

I would now like to turn the presentation over to Mrs.

Lisa [Gunter] of Forgent Networks.

Please proceed ma'am.

Thank you Annie and welcome everybody to Forgent's conference call.

Before we begin I would like to remind everyone that some of the statements made by management during this call may 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 & 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've completed our review of the quarter, we'll 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, Lisa, and good morning.

Thank you for joining us this morning.

With me is Jay Peterson, Vice President and Chief Financial Officer, and we'll both give you some analysis of our performance for the quarter, and then we'll answer some of your questions.

Well, as I am sure most of you know by now, on May 21st the jury in our DVR patent trial concluded that our '746 patent was invalid.

We respectfully disagree with this verdict and are deeply disappointed in the jury's conclusion.

We continue to believe that the patent is valid, and we are considering all of the options available to us at this time.

Having said that, let me clarify a few things.

We appreciate the court's and the jury's effort.

We also believe that our legal counsel worked very hard to win and used every resource at their disposal.

But the jury has the final call in our justice system.

I have often commented that the outcome of many of these events related to intellectual property are complex and uncertain, and sometimes beyond our control, and this event was certainly a great example.

On the other hand, I am pleased with what we've been able to achieve with our patent program overall.

It has always been our goal to defend the investment which the Company made in developing technology and to maximize its value for our shareholders.

We have been diligent in that effort for over four years and have licensed over $140 million from various patents which is an excellent return and has positioned us with a strong balance sheet.

We have some remaining patents that will remain in our portfolio, but the Board believes that it is time to shift our business model.

I have commented to you in past conference calls what a likely plan would be when the patent program had run its course and maximized its return.

We have always placed our primary business focus where we believe that we could do our best to return the most value to our shareholders.

We now believe that is our software business.

Our vision is to be a leading provider of innovative easy to use solutions in the workforce management space.

This opportunity is over $1 billion and growing over 10% per year according to the Aberdeen group in 2006.

This includes advanced workforce process automation, labor cost control, and employee self-service.

Customers are seeking solutions in both small and medium-sized businesses as well as large enterprises.

This demand is being driven by the need to be more competitive and to lower costs by replacing traditional human resource and accounting functions with automated easy to use self-service tools.

The NetSimplicity product line has been our opportunity to build a successful presence in this category.

While small and somewhat in the background to date, it has given us the opportunity to test demand for employee self-service in scheduling meeting rooms and tracking assets.

We have a stable platform built on Microsoft.net and we've built a sales and marketing model that is lightweight but very effective and an impressive customer base of over 2,000.

The next step in this strategy is to expand and grow both internally as well as through acquisition.

This will allow to us scale to a much larger size and to be profitable as quickly as possible.

We have been evaluating opportunities for six to nine months with a very clear set of criteria, and we are encouraged by the number of excellent, affordable candidates that have been identified.

This will also be an opportunity to bring in fresh management talent and ideas to help transform the Company to this important next phase.

We will manage our cash carefully through this process and continue to keep our expenses under tight control as we have in the past.

It is also our belief that the current stock price may not reflect the full value of the company, and we intend to be in the market to repurchase shares during the next quarter.

Now I will ask Jay to give you more details behind current operations.

Thank you, Dick.

Good morning.

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 increased strength in our balance sheet and working capital, and I will conclude with high level guidance for the future.

First off, intellectual property.

The significant event for the quarter was the licensing of the '746 patent to Scientific Atlanta, Motorola and Digeo for a total of $20 million.

$10 million of this cash was received in April, and the balance in early May.

In addition, in May we reached an agreement in principle to license the '746 patent to DirecTV for $8 million.

Intellectual property operating expenses for the quarter amounted to $2.2 million, a 134% increase over last quarter.

This planned increase was due primarily to spending on litigation related activities for the May jury trial.

Let me now turn to our software business.

Software bookings for NetSimplicity increased this past quarter by 10%, our best bookings performance to date to over $1.1 million where as software revenues decreased slightly by 4% due to the timing of the orders received.

Note that this revenue performance is up 51% over the corresponding period one year ago.

In addition to growing bookings, we grew both software backlog and licensed average selling price from prior quarters levels.

And also since we acquired this business, we have seen over a 300% increase in software license average selling prices.

Margins for NetSimplicity software were 80% this last quarter, essentially flat with the prior quarter.

This is our second consecutive quarter with software margins in the 80% range.

And we are forecasting NetSimplicity margins to be in this approximate range on a go-forward basis.

Operating expenses for NetSimplicity were approximately $1.3 million, a 31% increase over the prior quarter.

This planned spending increase was due to additional investments in sales and development head count and investments in both marketing programs and marketing personnel.

This last quarter we invested approximately $300,000 in cash in NetSimplicity.

We believe that this cash investment will decrease to approximately $100,000 this current quarter, and that this business will again generate cash next fiscal year.

Total operating expenses for the quarter grew by approximately 55%, and we increased our total head count by six to a total of 44.

This number of 44 is comprised of 36 people in NetSimplicity and eight people in G&A and intellectual property.

Let me turn to earnings.

We were profitable for the third consecutive quarter, and our earnings amounted to $0.23 a share versus a profit of $0.05 a share in the prior quarter.

Year-to-date our earnings have totaled $10.1 million.

Also, since the start of this fiscal year, we have doubled our shareholders equity.

Now the balance sheet and overall liquidity.

Our cash balance increased by 45% to $26.1 million, the highest cash balance in the last three years.

Also note that our working capital grew by approximately $[6] million to $21 million, and this is the largest working capital balance since second fiscal quarter '04.

Our DSO this past quarter decreased from 61 days to 45 days, and our more current ratio was 2.3 this past quarter, a decrease from last quarter's 4.9.

Also I would like to add that interest income this past quarter for the quarter was $200,000, and we are forecasting that number to increase in this current fiscal quarter.

Let me now turn to guidance.

I would like to provide guidance in five areas.

First off, overall spending will decrease due to the conclusion of the '746 trial.

Number two, we will keep spending flat in our NetSimplicity software business and believe that this business will continue to grow and generate cash in the near future.

We are forecasting that we'll maintain healthy cash balances and working capital for the foreseeable future.

We also are forecasting to be net income profitable for this current fiscal quarter, and this marks at the conclusion of this year our most profitable year ever for Forgent and our predecessor company.

The last point is that we intend to repurchase shares of our common stock this quarter as Dick mentioned previously.

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

Thank you, Jay.

I would like to reemphasize a couple of key points from today's call.

First, we've been very successful protecting and licensing our intellectual property.

We are reviewing all of our options, but we believe it is time to shift the business focus of the company.

Second, we have been successful building the software business under the NetSimplicity brand which has given us the opportunity to test an attractive market space known as workforce and work place management.

Number three, we intend to place our full attention to becoming a leader in this space by continuing to go grow internally and by adding other products and services to scale and become profitable quickly.

Thank you for being on the call.

I will now turn it back over to Lisa to arrange for your questions.

Thank you, Dick.

Thank you, everyone.

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

I will ask Annie to coordinate the session.

(OPERATOR INSTRUCTIONS) Thank you for standing by while we structure a list.

Your first question comes from the line of Richard West with J.

M.

Dutton & Associates.

Good morning.

Good morning, Richard.

You know, it is interesting.

I saw an article that this was the second time on record in the Eastern district of Texas that a jury found the patent invalid, and I am sure you'll consider that in your decision going forward for your options.

Could you give us a time frame when you will decide or not decide or will it sort of just fade away?

I think that over the next coming weeks we should have a much clearer picture about what those options are, Richard.

I am not sure that we'll make a public announcement, but it may well be the case that we'll do that.

Anyway, within the next few weeks I think we'll have a clear picture.

Thank you.

For your cash, obviously the DirecTV, is that coming in in this quarter?

Yes.

We anticipate to collect that in the next several weeks, Richard.

About the same margins as your previous collections?

Yes.

Okay.

That's it for now.

I will see if anyone else is in the queue.

Thank you, Richard.

(OPERATOR INSTRUCTIONS)

You have a question from the line of Jeff Wiegand with Robotti & Company.

Hi.

How are you.

Just a few things.

There is $8 million still to be collected, is that correct?

Yes.

The net that you will keep from that 8 million is how much?

Approximately 50%, Jeff, plus or minus.

Okay.

And the payable that you have on your balance sheet right now that relates to the legal fees that you owe?

Primarily, yes.

Okay.

When does that actually get paid?

Over the next several weeks.

Okay.

So during this coming quarter I guess what will happen is we'll add net 4 million in cash from this 8 million that you're owed and then the payables will be paid down?

The payables will be paid down, and at the end of the quarter we had just under $11 million in receivables, and those will be collected during this quarter.

Okay.

So the receivables will kind of cover, the receivable is what, sorry?

Is that part of the 20?

It is approximately 11 million in receivables, 13 million in payables, so assuming all of those get managed through the balance sheet, cash will go down by approximately $2 million, and then we'll collect the cash from the DirecTV settlement.

Okay.

And the other patents that you have, can you tell me kind of what the plan is with those patents and why not try to monetize them?

Well, Jeff, I think the patents are part of the family that grew out of the technology that the Company developed years ago.

When we went through and looked at these patents, we found in some priority, if you will, their interest level in the marketplace.

While the remaining patents do have an interest, they're not in our opinion to the scale of continuing the level of investment that we've made in the past, and we believe that at this time we have probably maximized the amount of return that we can.

We will obviously keep those and keep an eye on it, but it is our assessment that we're better off to focus on the predictability of our software business at this time rather than look to the remaining patents in the portfolio.

Right, but I am saying could you do a deal where you just sell those patents?

Why not just take in whatever cash you could generate from those patents?

It wouldn't really require any capital investment by the Company, it is just a sale, and if you're focused on the software business, those patents really aren't related to the software business, so why not do something with them?

That's a possibility.

As you know in the past we have sold a number of patents on several occasions.

Right.

That's always an option.

We do look at that.

It is just part of this kind of transition here.

We're reviewing a number of options to look at, and certainly one of them would be to sell those assets.

Okay.

So there is value in those patents, I guess that is not really reflected on the balance sheet?

Yes, I think that's true.

Okay.

And can you give us an idea of what you think you could do next fiscal year in NetSimplicity revenue?

I know you said you kind of maintained the 80% gross margin and the plan was to generate cash, but what are you thinking in terms of revenue?

I think, Jeff, I could give you a range.

Assuming that we do not do anything via inorganic growth, we would be looking at revenues in the range of 6 to $8 million for the year.

If you look at what our bookings have grown over the last year, I think that's a pretty accurate range, and we believe that growth will also be assisted by some product improvements and announcements we made recently in addition to new sales people and additional marketing programs.

Okay.

So 6 to 8, and you only did 3 million in the nine months, so if you could do 6 to 8, that's pretty good, I guess, and then you'll have an 80% gross margin on that, and the expectation in terms of profitability would be what?

Assuming we weren't to do any additional investments in that business, I think our cash burn from a steady state operation would be in the $2 million range for the entire year.

That would be the cash burn in the software business.

Yes

And the reason why it is not profitable, 6 to 8 million revenue and 80% gross margin, you're just reinvesting to try to grow that business?

Let me clarify, Jeff.

When I say cash burn, I mean for the entire company.

We believe NetSim in a stand alone P&L will be profitable and will generate cash next year.

Okay.

How profitable will it be?

We're talking maybe 2, 3, $400,000 a quarter, not significant profit in that we will also put some modest investments back into that business.

Okay.

And on the buyback, do you have an authorization currently to buy back stock?

Yes, we do.

It is approximately 1.2 million shares that were previously authorized by our Board.

And would it be your intention to fill that authorization and buy back all that stock?

Hard to say, Jeff, but our commitment is that we will be in the market this quarter.

Okay.

Thank you very much.

Thank you.

Thank you, Jeff.

(OPERATOR INSTRUCTIONS)

At this time there are no further questions in queue.

I would like to thank you for your participation in today's conference.

This concludes the presentation.

You may now disconnect and have a great day.