Asure Software Inc (ASUR) 2008 Q1 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the fourth quarter Asure Software earnings conference call.

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

(OPERATOR INSTRUCTIONS) Your host for today's call is Mr.

Richard Snyder, Chairman and Chief Executive Officer.

Any reproduction of this call in whole or in part is not permitted without prior written authorization of Asure Software.

As a reminder this conference is being recorded today, December 18, 2007.

I would like to turn the call over to [Lisa Flynn] of Asure Software, who will begin the call.

Please go ahead.

Thank you, Kenny, and welcome everyone to Asure Software's 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're 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 Asure Software 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 Asure Software.

Dick.

Thank you, Lisa, and good morning, and welcome to our first quarter fiscal year 2008 earnings call.

Joining me from the management team is Jay Peterson, Vice President and Chief Financial Officer.

We'll both give you some comments and analysis on our performance for the quarter and then we'll answer some questions.

During the first quarter we finalized the acquisition of iEmployee which was a significant milestone in the company's history.

IEmployee is pivotal for us as we move toward becoming a premier provider of innovative and easy to use software and services in the growing work force management industry.

The addition of iEmployee has added significant scale and reach to an already high-growth software business which is fundamentally repositioned the company into a pure play with excellent growth opportunities and a broader more sustainable operating business model.

We're making good progress with the integration of the two companies, the tightening of operational structure, and strengthening of our sales and marketing organization.

We reduced head count, centralized the accounting and sales and marketing operations, and achieved substantial cost synergies.

We continue to evaluate additional opportunities to gain efficiencies and to leverage our cost structure.

I'm very pleased with the quarter growth in our core software business with revenues increasing a stellar 95% to $1.9 million.

As I indicated on our last conference call about 10% of industry software sales are sold as software as a service or SAS.

This $8 billion segment has projected growth rate of 25% over the next five to ten years.

We intend to focus on this rapidly growing segment which is driven by simple, easy to use applications that can be introduced to an organization quickly without large capital expense and without requiring extensive IT involvement.

Employees feel empowered and find that they can do many functions themselves that were previously required a large administrative staff.

Not only is there a significant cost savings, but most companies also experience higher employee satisfaction and retention as well.

Strategically, our focus is to expand both in North America and in the international markets penetrating the educational, government, healthcare, and legal sectors.

We believe we have a strong position in these vertical segments, and we intend to capitalize on our market expertise as we broaden our reach.

This focus allows us to develop products that are tied to specific customer needs in the work force management market and are therefore highly differentiated.

Let me take a moment to review two of the new software solutions announced during the quarter.

The first was a mobile device to add information to our asset inventory and management solution or VAM.

We have partnered with an industry leader, ZION to provide an integrated, hand-held barcode scanner that enables a customer to scan all of an organizational-- organization's assets and then to transfer that information to the visual asset manager database.

This allows comprehensive management, tracking, and valuation of those assets with significantly less time and labor, but better accuracy.

Secondly, we announced the expansion of our interactive LCD display for our flagship room scheduling product, Meetingroom Manager, through our partnership with Tablet Kiosk, a leader in tablet PCs, this integrated display expands the options for onsite scheduling and viewing meeting room availability and room details.

This provides a cost effective, flexible solution for scheduling meeting rooms from a variety of locations which fits our theme of simple, easy to use applications that empowers employees.

In summary, we had a very good quarter with strong performance in sales, in product delivery, and in progress of integrating iEmployee into the Asure family.

Now I would like to turn the call over to Jay for the details on the financials.

Thank you, Dick.

This morning I will discuss the financial highlights from this past quarter for both NetSimplicity and iEmployee, the continued strength of our balance sheet and liquidity, and then I will then conclude with some high-level guidance for the coming quarters and the balance of the year.

First off, our software revenues increased by 46% to $1.9 million over the previous fiscal quarter.

This revenue performance was up 95% over the corresponding period one year ago.

Also note that iEmployee revenues, margins, and operating expenses do not reflect a full quarter's activity.

We also grew software bookings, software backlog, deferred revenue, and license average selling prices from prior quarter's level.

Since we acquired the NetSimplicity software business, we have seen nearly a five-fold increase in software license, ASPs, and nearly a ten-fold increase in bookings.

In addition, this past quarter our deferred revenue increased by 29% over prior quarter levels due to growth in both NetSimplicity bookings, and the inclusion of the iEmployee acquisition.

And, on a go-forward basis, for the second fiscal quarter we anticipate approximately 60% of our revenue to be recurring revenue.

Margins this past quarter were 82%, an increase of two percentage points over the prior quarter.

This was our fourth consecutive quarter with software margins in the 80% range.

We are forecasting software margins to be in this approximate range on a go-forward basis including the amortization expense for the recently acquired iEmployee business.

Operating expenses this past quarter were approximately $2.8 million.

In this past quarter we were able to grow revenue by 46% while decreasing operating expense from the prior quarter's levels.

Let me turn to head count and synergies.

Our head count ended this past quarter at 189 people due to the acquisition of iEmployee.

We are planning decreases in head count as we continue to identify synergies between NetSimplicity and iEmployee.

Our revenue per head count in this current fiscal quarter is in the 75K range, and we're forecasting that number to increase significantly in the future.

In terms of earnings, we lost $0.03 a share this past quarter, and we have line of site to EBITDA profitability this fiscal year.

Let me now turn to the balance sheet and working capital.

Our cash balance decreased to $19.5 million due to the purchase of iEmployee and to making some final payments to our law firms involved in our intellectual property lawsuits.

Our DSO this past quarter was 60 days, and we believe that number will improve in the future.

Our current ratio was 3.1 versus 2.7 in the prior quarter, and that is our third consecutive quarterly increase, and again that number represents that for every $3 in cash and AR, we have approximately $1 in short-term liabilities, therefore our liquidity continues to be very strong.

Interest income this past quarter was $340,000, and also in the last five quarters since the start of last fiscal year, we have increased our shareholders equity by 164% from $10.1 million to just under $27 million.

Let me conclude with guidance.

I would like to provide guidance in four areas.

First off, our software revenue will increase this quarter by 50% or more.

We will continue identifying synergies between iEmployee and NetSimplicity.

We believe we will generate $12 million in revenue this year, and we'll generate cash in the latter part of this fiscal year.

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

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

Thanks, Jay.

Well, as you can tell, we're excited about the future.

We're part of a very large and growing industry, and we think we can make a large impact.

We'll continue to fully integrate the iEmployee operations and evaluate potential operational synergies as Jay mentioned.

We'll be adding strategic sales and marketing resources to further bolster our efforts and driving more sales in the higher margin segments of our business, and that also means we'll be pursuing sales both domestically and internationally.

We'll also continue to focus on providing easy to use solutions for small and medium-sized customers as well as divisions of large enterprises.

Lastly, I'd just like to recognize our entire team for their commitment and effort in producing solid results for the quarter.

Again, thank you for joining Jay and I on the call today, and I would like to wish everyone a Merry Christmas and a prosperous New Year.

(OPERATOR INSTRUCTIONS) Our first question comes from Tony [Dristony] with Astro Capital

Hi.

Good morning.

A couple questions please.

The NetSimplicity business looked like it grew 23% sequentially.

I was wondering if-- what the drivers were there and was that from the new product introductions or could you -- you've had a number of quarters now of strong sequential growth in that business.

Maybe you can talk about what the drivers were there and if you expect that to continue and why?

Thank you.

I think the drivers, Tony, were several fold.

One is we made some recent product introductions.

In addition, we've had strong ASP growth.

In addition, we're also putting some investment into international, primarily the EU and Australia, and the results, although somewhat preliminary, look rather strong from those geographies.

We will continue those initiatives in the future.

In addition, we continue to spend on search engine marketing and SEO optimization to drive additional leads for our sales people.

Tony, this is Dick Snyder.

Just to amplify that, one of the things we're really seeing is that our flagship product Meetingroom Manager is in about its seventh generation now and every time we put out a new one it gets better and better and we're really hitting the sweet spot in the market, so I think a lot of the momentum was the release of our 7.5 version that impacted sales this quarter.

That looks like the core business is doing extremely well.

Turning to iEmployee, you only closed the deal on October, I guess, 11th, so the $300,000 of revenue, if I multiply that out by the number of weeks, I get about a $1.4 million a quarter run rate.

Can you talk about the growth of iEmployee, what initiatives you have and low-hanging fruit.

You've discussed in the past, maybe moving to paid search from just natural search, et cetera?

Can you talk about the revenue opportunity and growth prospects for your new acquisition, please?

Thank you.

I would be happy to.

As you mentioned, one of the initial thrusts was to apply some of the marketing model that we've developed for our core products and have shown such great growth to the iEmployee product line, so we're in the process of really moving into pay per click from-- and search optimization for iEmployee, and we're starting to see early results that look very promising there.

We're seeing good growth with their core customer base, and we think that when we're able to apply some of the synergies across our sales and marketing group, that we should see some substantial opportunities.

Uh-huh.

Okay.

Moving to the operating expenses, my last question, and I will let other people come in.

You said you had revenue of $75,000 per employee.

Obviously that seems for a software business and software to service business kind of low.

Can you talk about long-term where you would expect that to be and, last question is, I calculate a rough break even revenue level for you guys about $4 million a quarter.

Do you think that's ballpark?

Thank you.

Let me answer the break even.

That is ballpark, Tony, and like we say, we think we can get to break even or EBITDA profitability in the not too distant future this fiscal year.

In terms of revenue per employee, we acquired this business a little over two months ago, and we're still determining the synergies and the magnitude of the synergies, and until we've really gone through that exercise, that'll take another couple months, it is hard to determine where the long-term revenue employee will be for our model.

We do know that it will be significantly higher than where we're at today.

That number is exposed upward by a rather strong percentage, so.

.

Okay.

And what's your total international?

What percent of your business is international?

It seems like there's-- there seems like a pretty strong international opportunity for iEmployee, so what's the overall business and what's iEmployee's international revenue percent?

For NetSimplicity it is in the 10% range or lower.

In the iEmployee it is virtually zero, so we see significant growth opportunities.

It is not quite often you see software companies with 30 to 40% of their revenues coming from international that we see some very strong growth opportunities for both business in international.

Okay.

And as far as the legal IP business, is the-- is the-- , are your operating expenses fully-- were they fully out of that in the October

Probably 98% of them have terminated.

We still have some last rather minor vestages that we are working through, but it is somewhat inconsequential.

Okay.

All right.

Thank you very much.

Thank you, Tony.

Thanks, Tony.

Thank you.

Our next question comes from Richard West with J M Dutton Associates.

Good morning, and I ditto all your seasonal greetings.

I have a question on the margins for iEmployee compared to the NetSimplicity.

Are they comparable, the 80% range?

Yes, they are.

They're very close to NetSimplicity's margins?

And two, you've been talking about your synergy.

With so many of the iEmployees in India, do you see some of your marketing telemarketing, et cetera, being transferred over there to reduce costs?

You know, we're in the process of looking at that, Richard.

We want to make sure we can deliver not only very effective services to customers but also at low costs, and you have to find the right balance of doing that, so we're inventorying where the best skill sets are and how to deliver that at the moment.

We hope to be able to get the best of both worlds.

Good.

Thank you very much, and again congratulations on your transition to a pure software company.

Thank you and thank you for your support.

Thanks, Richard.

Thank you.

Our next question comes from [Madu Kabai] with Fertile Mind Capital.

Hi, gentlemen.

Just a quick follow-up on one of the previous questions on the guidance and OpEx going forward.

Was wondering if you had some idea as to or can you provide us some guidance as to OpEx going forward fully loaded after having a full quarter per employee?

We think it is a little preliminary to provide that guidance in that there are significant dynamics occurring with the company at present.

We're identifying head count synergies.

We are also looking at investing in additional search engine, paid search, for iEmployee.

It is just a little premature for us to have complete visibility into that to provide guidance.

Okay.

Can you head count (inaudible) between both the divisions?

We've in some respects already melded the operations of the businesses into one, so it is rather difficult to articulate head count ascribed to one business and other head count to the other.

Okay.

What are the total employees?

At the--- we believe we will end this coming quarter somewhere in the range of 170.

That's down about 20 from the start of the quarter with additional efficiencies being planned for subsequent quarters.

Okay.

And how many-- how do you split that between U.S.

and India?

Approximately a little over 100 of those are in India, and the balance are in the U.S.

Okay.

And Canada.

All right.

Good.

Thank you.

Last question on the iEmployee.

Could you give us a little bit overview of the business, what customers are buying the product and what you see as to the growth going forward, please?

Yeah.

I think the iEmployee, the reason we're so excited about that business is it focuses on a key part of the workforce management marketplace.

It provides an integrated solution for people to go in and do a number of applications such as time and attendance, vacation accruals, it does payroll and benefits, expense management, and allows all of this through a single interface, so it provides the organization, particularly small and medium-sized businesses with a way to do this very efficiently and to reduce their cost and overhead.

That's really the significant -- that along with the fact that it is a software as a service which is easy to get into.

It is not cost prohibitive on the front end.

And, it doesn't require a lot of IT expenditures, and therefore it is easy to subscribe to.

We're seeing the drivers for the growth are primarily around those segments and for those reasons.

Do you focus on any particular vertical segment-- or segments?

We're still kind of learning about that but there are some synergies between our different groups within meeting room management and iEmployee.

We have things like healthcare, the publication industry, legal is particularly one that we can share between the two.

Right.

And how many customers do you have today (inaudible) employee product (inaudible)?

We have about 3,500 customers altogether.

Thank you very much.

Thank you.

We have another question from Tony Dristony with Astro Capital.

A couple more questions.

Thank you.

Jay, can you talk about the NOLs?

Once you guys reach profitability, you did an acquisition.

Does that limit your AOLs-- NOLs, excuse me, $140 million of NOLs to shield taxes.

Can you talk about where we are?

Thank you.

We have approximately, still have $140 million in NOLs, and those are NOLs that were generated from a business that we sold many, many years ago, a hardware business, and once we achieved bottom line profitability, we believe our tax exposure will be somewhere in the range of 2% for alt men and state of Texas taxes, and that, for the foreseeable future, at least for the next six to eight years, we do not envision being-- having a federal tax liability other than the alt man.

Okay.

With the 140 you may or may not be fully available, right, there is a timeframe, in addition, the cost of the acquisition-- does that limit NOLs per year?

We are looking through that latter analysis as we speak, but, yes, there are caps in terms of how many of these NOLs you can utilize in a given calendar year.

Okay.

Okay.

It is very positive.

Even with the limitations, it is very positive, and we foresee having, if you will, gross equals net business for the foreseeable future.

Sure.

Look like a great asset that's unappreciated.

Can you talk about the next question, competition?

You've talked about point product vendors out there.

Wondering if there is larger players or who you guys go head to head with on deals, et cetera?

Tony, let me address that.

With the core products we have on the NetSimplicity side, these are small players.

They are people that we have seen over the years that are in comparable size to ourselves or much smaller, and we have really gained scale against most of those players over the last year or so.

With iEmployee there are a lot of point solutions out there from very large companies.

[Kromous, Tealeous] and others that provide vertical solutions but don't go across to provide a solution that goes across the very different applications that small and medium-sized businesses are interested in.

That's our differentiator there.

We are smaller, but we find that we can apply ourselves in a different way than some of these larger businesses.

Okay, two other questions.

I guess, one, taking the kind of growth, your 12-- rough $12 million guidance for this fiscal year.

You've talked in the past of having a goal of achieving $20 million in fiscal '09.

One, do you still see that as an opportunity, and, two, could you maybe go longer out, how much head room, how big is the space that you're going after, how big of a business would you like to grow over time with these two core assets?

Thank you.

Sure.

Obviously, Tony, these are areas of we get into vision instead of guidance, but I think your $20 million figure for 2009 is certainly one we have on the books and would like to meet or exceed that.

As we look at the dynamics of this workforce management marketplace, and the Board looks at how we can invest in this and grow, we would really like to see $100 million business within the next five to six years.

We believe that the market is there to do it.

We believe that we have the resources to go after it, and we think that that gives us the opportunity to really be a significant contributor in that area.

That's about as far as our headlights are for the moment.

We may be able to exceed that.

At the moment that looks like the kind of market and performance we would like to set for ourselves.

Last question, I guess, obviously all of us shareholders this year looking at $9 million EV is kind of-- seems kind of low here.

Would the board entertain with your strong cash position any kind of stock buyback here?

We had met as a board and do have an authorization to repurchase shares, so we're going to be continuing to look at that, Tony, and make sure it is the best use of our cash, but we agree with you that things are at a point now where stock looks to be a bargain.

Okay.

Thank you very much, guys.

I appreciate it and good luck.

Thank you very much.

Thank you.

There are no more questions in the queue at this time.

I would now turn it back to the speakers for any closing comments.

No comments at this time.

Thank you very much.

Thank you.

You may disconnect at this time.