Asure Software Inc (ASUR) 2008 Q2 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the second-quarter 2008 Asure Software earnings conference call.

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

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

We will be facilitating a question-and-answer section towards the end of this conference.

(OPERATOR INSTRUCTIONS)

I would like to turn the call over to Mr.

Paul (Cheslut).

Please proceed sir.

Thank you, Latasha and welcome everyone to Asure Software'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 the statements that may be made on this call that are not historical are subject to a number of risks and uncertainties that could effect 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 in they could cause actual results to differ materially.

This call is also being recorded on behalf of Asure Software and is copyrighted material.

It can not 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 will open up the call for questions from the financial analyst community.

I will now take -- like to turn the call over to Richard Snyder, Chairman and Chief Executive Officer of Asure Software.

Dick?

Thank you, Paul.

Good morning and welcome to the second-quarter fiscal year 2008 earnings call.

I have two members of Asure's management team with me this morning.

First I'd like to introduce Nancy Harris, who is Chief Operating Officer for Asure.

Nancy became COO in January, formally being the general manager for Net Simplicity.

Nancy is responsible for operations for both Net Simplicity, as well as our newly acquired iEmployee software business.

The other person with us this morning, whom you know quite well, is Jay Peterson, Vice President and Chief Financial Officer.

You will hear comments from all three of us this morning concerning the past quarter and then we will answer your questions.

Let me start with the second quarter.

It was characterized by continued growth and development of our software business strategy.

Our mission is to empower small and mid-sized organizations and divisions of large enterprises to operate more efficiently, increase worker productivity, and reduce costs through a suite of on-demand work force management Software and Services.

The acquisition of iEmployee five months ago has added significant strength through new products, new customers, and the financial benefits of a software, as a service business model.

iEmployee is 100% software as a service based.

This is very important.

As you may know, SASS is an $8 billion segment of the software industry that is growing at 25% over the next five years.

The growth is driven by the delivery of value to customers without large, up-front capital investment and without the costly and time-consuming I.T.

deployment.

We are fortunate to have acquired a business that has already been through the difficult early stages of developing revenue from this model.

However, it is important to note that achieving our revenue growth goals will require patience as we build new customer relationships that will add to the cumulative revenue over time.

We are fortunate in that having a combination of revenue streams, Net Simplicity brings in immediate revenue with mostly perpetual licenses, while the software as a service based revenue from iEmployee is less volatile, more predictable but grows at a slower rate.

Another focus for quarter two has been a challenge to bring Net Simplicity and iEmployee together in a way that maintains sales momentum while reforming to a single organization that is effective, streamlined, and cost efficient.

We believe that making tough choices now that may require more time is important to the ability of the company to scale in the future and to be profitable.

I am pleased with the progress we made in quarter two, but we still have work to do.

Now, Nancy Harris will give you some highlights of operations in the last quarter and what you can expect to see as we go forward.

Nancy?

Thank you, Dick.

I will first characterize iEmployee to give you a sense of the current operations with that business, and then I will provide an update on the Net Simplicity operations.

With iEmployee, we have shifted some of our budget towards search engine marketing efforts, specifically in the pay-for-click arena.

I am pleased to report that we are seeing positive early returns.

We have increased our inbound lead threefold and are encouraged by the market's response to our search campaign.

It is a clear sign that buyers are out actively shopping online for SASS based work force management solutions and specifically those with a focus on employee self-service.

In addition, we worked on building our US based sales team here in Austin to augment the existing sales organization.

We won some excellent accounts in Q2, including a division of United Way, a division of Planned Parenthood, and a leading optical technology company Agiltron.

In addition to our direct channel efforts, we continue to see good progress and continued solid sales through our relationship with Ceridian, a leading payroll provider that resells select iEmployee products.

In terms of product development, we had a theme of focus in Q2, focus on our flagship products, time and attendance and HR benefits.

Our road map priorities are customer-driven, and are geared toward delivering features that will set us apart competitively.

I will now turn to the Net Simplicity business.

We continue to see strong demand in the marketplace for both our flagship product Meeting Room Manager and Visual Asset Manager.

With MRM, we saw an increase in the average selling price again in Q2 indicative of our continuing success selling to larger accounts.

We added a number of marquee accounts, including Wyndham worldwide, Cadbury Scwepp and several global law firms.

Our enterprise package with the outlook plug-in, appears to have hit the sweet spot with these global organizations.

As with MRM, the demand for Visual Asset Manager is strong.

Our search engine marketing efforts continue to bear fruit with strong, inbound, high-quality lead flow.

The current product, with its bar code scanning capability and RFID support, has strong appeal to both facilities buyers and accounting buyers.

With the trend in the marketplace towards small, medium business adoption of these fixed asset management tools, we are optimistic about the future of VAM and its ability to contribute to our growth.

Now, I would like to turn the call over to Jay Peterson, our Vice President of Finance and Chief Financial Officer.

Jay?

Thank you, Nancy.

This morning I will discuss the financial highlights from this past fiscal quarter, including our Net Simplicity software business and our newly acquired iEmployee business.

I would also discuss the continued strength of our balance sheet and working capital, and I will then finish with high-level guidance for the future.

Let me start with revenues.

Revenues this last quarter increased by 46% to $2.7 million over the previous fiscal quarter and also this revenue performance is up 162% over the corresponding period one year ago.

We also grew our backlog, software bookings, and license averaged selling price from prior quarters' levels.

And since we acquired the Net Simplicity software business, we have seen a fivefold increase in software license, ASP's and nearly a tenfold increase in software bookings.

Recurring revenue for this last quarter is in excess of 60% of our total revenue and recurring revenue is revenue that we have under contracts.

Either monthly, quarterly or annual contracts.

Margins this past quarter were 77%, a decrease from the prior quarters' level of 82%.

And this decrease was due to some one-time costs relating to the acquisition of iEmployee.

And we are forecasting our software margins to increase to historical levels in this current quarter in Q3.

Our operating expenses grew this past quarter to approximately $3.8 million.

And this planned spending increase was due to the combination of the two businesses, and note that this increase in operating expenses comprehended the severance of those individuals who were impacted by the recent acquisition of iEmployee.

Note that while operating expense increased by 36%, our revenue growth outpaced the OPEX increase with 46% growth.

And we are forecasting expenses to remain relatively flat this current quarter.

Let me talk about headcount and some synergies that we have managed into the business.

Our headcount ended this past quarter at 149 people, and that's down 21% from the prior quarters' level.

And we are planning decreases in head count as we continue to identify synergies between iEmployee and Net Simplicity.

Our revenue-per-headcount increased this past quarter from $40,000 to approximately $75,000, and we have additional planned increases in the future.

Let me turn to earnings.

As planned, we had lost $0.05 a share this past quarter versus $0.03 the prior quarter.

And on an EBITDA basis, our loss decreased to $1 million, and we plan to cut that loss again this quarter -- the EBITDA loss.

Now, the balance sheet.

As anticipated, our cash balance decreased by $1.7 million to $17.8 million.

Our DSO this past quarter was 52 days, a decrease of eight days from prior quarter.

Our current ratio was 3.0, essentially flat with last quarters 3.1.

And interest income this past quarter was $200,000.

And let me now turn to guidance.

I would like to provide guidance in four different areas.

We will continue to grow the business this fiscal quarter.

And we are anticipating an increase in revenues.

Also, we will identify additional synergies between iEmployee and Net Simplicity.

We plan on generating cash, that is EBITDA profitability in the near future, and we are forecasting that we will maintain healthy cash balances and working capital for the foreseeable future.

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

Thanks, Jay.

Let me summarize a few key points from today's call.

Number one, the software-only business strategy is working.

We are growing and gaining new customers.

Number two, we are a part of a large and dynamic market segment.

Number three, we see strong demand for Asure products and services.

And number four, we remain financially strong giving us the opportunity to grow and to scale the business.

Thank you for your time this morning.

I will now turn the call over to Paul to begin taking your questions.

Paul?

Thank you, Dick.

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

Thank you.

(OPERATOR INSTRUCTIONS) And your first question comes from the line of Tony with Astro Capital.

Please proceed.

Hi, good morning everyone.

Thank you for taking my call.

The first question is the headcount, what was reduced by 21% sequentially and you expect to take more heads out.

Why aren't you forecasting operating expenses to come down in the current quarter?

Yes, there will be a substitution there, Tony, in aggregate, headcount will be coming down, however, we will be investing those savings in other areas of the business, primarily program spending.

Okay.

I mean like -- for example -- do you mean in research and development or lead generation, I guess, on the marketing side?

Lead generation in marketing.

Okay.

In your guidance of sequential revenue growth, I guess, in the current quarter, do you expect both the Net Sim and the iEmployee to show sequential growth?

Yes, yes we do.

Okay and gross margins snapping back to the -- where you were before I guess in the low 80s?

You mentioned, Jay, that you expect EBITDA profitability in the near term.

Can you quantify that?

Does it look like, you know, two or three quarters or -- can you kind of bound that a little bit?

Yes, I would say two or three quarters is very achievable.

And in the past, we said we would do it in the fourth quarter.

I think that will slip one quarter, Tony, to the first quarter.

Okay, sure.

And there is some real sound reasons for that.

We're convinced that we can drive this company to EBITDA profitability in the fourth quarter, but I think -- I think we would be doing some things to achieve that goal that we might regret later.

And we want to establish a stronger foundation for growth in the future.

Okay, alright, well, hank you very much.

I appreciate it.

Thanks, Tony.

Thanks, Tony.

The next question comes from Richard West of JM Dutton and Associates.

Please proceed.

Good morning.

Good morning, Richard.

Good morning, Richard.

The first question has to do with revenue for iEmployee versus expectations when you acquired it.

How does that stack up versus your expectations for this quarter?

Yes, I think -- I think we had thought we could grow this business a little faster.

What we are finding is we've done some retooling, if you will, to the sales force.

And in the past, they had an India-based sales force organization.

We have now -- we are in the process of changing that to an Austin based sales force.

The business is essentially flat today, whereas we thought we would be able to grow it out of the chute.

I think it's taking us another quarter or two to achieve the growth that we anticipated.

Thank you very much for that.

And then -- overall with this wonderful economy, general economy and the recession -- there may not be a recession, how is that affecting both the iEmployee and the Net Simplicity?

As far as your orders and backlog.

We really haven't seen an impact due to the economy and all this talk about an impending recession.

Recall that our ASP is -- is still rather small.

It is not an enterprise-type sale of several hundred thousand dollars which would be impacted I think by the economy.

So, our leads are strong.

The order rate is strong.

Bookings are strong.

So, we don't think that we've really had any negative impact from the macro events.

Thank you.

And I do want to say thank you -- I appreciate the presentation on a sequential basis.

You bet.

Thank you, Richard.

Your next question comes from the line of Tony Tristany with Astro Capital.

Please proceed -- with Astro Capital.

Please proceed.

Yes, just one question.

Jay, do you know what your G&A is going to be going forward?

Somewhere in the range of 300,000.

Okay.

Yes, thats what I was kind of ballparking.

And what about CapEx?

Rather minor.

Maybe, I don't know, 50,000, 75,000 a quarter, rather modest.

Okay, and -- .

That's (obviously) on the high side, Tony.

Okay.

So -- if I kind of rough that out towards the, you know, October quarter to get the EBITDA to break even, it looks like you've got to be in the -- sort of in the high 3's as far as revenue to kind of get there.

Am I correct on where your break even is?

Yes, somewhere in that range.

Somewhere in that range.

There is one other small event, and all these events aggravated, will help us achieve that.

We're involved in some litigation relating to two different events, and we believe both of those situations will be over in, maybe, the next five to six months.

And that will also reduce our spending posture once we're completed.

Okay.

So, including in your current run rate.

The reason your SG&A didn't go down was, kind of, some increase in legal expenses in your G&A.?

Yes.

Okay, that makes sense now that you are taking a lot of headcount out.

Okay, alright, well, thanks a lot, guys.

Look forward to you guys hitting that break even EBITDA.

That would be a big turning point.

Thank you, Tony.

Thank you.

Please stand by for your next question.

And your next question comes from the line of David Ratliff with (Dalsa) Asset Management

Good morning, gentlemen.

Good morning.

My question was -- I'm fairly new to the story, but you spoke about your backlog growing this quarter.

Can you give me any color on -- on that statement?

Or maybe a comparative, you know, related to previous quarters or previous months?

Yes, like most businesses your backlog can either increase or decrease going from quarter to quarter.

We do have a small hardware component -- rather small component of our business where we sell hardware devices that work with our software, and we did, in fact, increase that this past quarter.

So, that will help us a little bit with the revenue posture for Q3.

So, your backlog isn't orders for your software business?

No, not necessarily.

Okay.

On one of the previous calls, I believe it was last quarter's call, you -- possibly it was one of the questions from the analysts, but it is my understanding that your -- kind of your break even on earnings is about $4 million in sales.

Is that -- is that a correct assumption?

Or is that -- or has that changed?

No, it has not change.

The assumption is still consistent, and just to clarify that break even point is on an EBITDA basis.

Okay.

So not on earnings?

Correct.

Okay.

But would also, with that positive EBITDA, we would be able to grow cash.

Okay.

Well, I like what I am seeing so far with you guys and keep up the good work.

Well, thank you, David.

Appreciate it.

I show no further questions and I would like to turn the call over for any closing remarks.

No closing remarks today.

Thank you for your participation.

That concludes the presentation and you may now all disconnect.

Good day.