Asure Software Inc (ASUR) 2008 Q3 法說會逐字稿

Good day ladies and gentlemen.

Welcome to the third quarter 2008 Asure Software earnings conference call.

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

At this time, all participants are in a listen-only mode, and we will conduct a answer session towards the end of this conference.

I would now like to turn the call over to Ms.

[Lisa Flynn] from Asure Software.

Please proceed ma'am.

Thank you Dan.

Welcome everyone to Asure Software'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 this may be made on this call that are not historical, 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 our 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 of 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 like to turn the call over to Richard Snyder, Chairman and Chief Executive Officer of Asure Software.

Thank you Lisa.

Welcome to Asure Software's fiscal '08 third quarter conference call.

With me this morning is Nancy Harris, Vice President and Chief Operating Officer, who is responsible for day-to-day tactical execution of the business, and Jay Peterson, our VP and Chief Financial Officer.

I will report to you on the state and health of the overall business, and then Nancy and Jay will give you more details of the results of quarter three.

This is the second full quarter of operations as Asure Software, which is the combination of the NetSimplicity division, and the acquisition of iEmployee in October of 2007.

These transactions seemed to take more time to complete than expected, but the integration has been successful, and is essentially complete.

We now have a single lean organization that is focused on a specific mission.

That is to empower small and medium-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, focused on employee self service.

The workforce management market is a $1 billion opportunity, with an 8.5% compounded annual growth rate.

This is healthy growth, and is driven by the need of all businesses to be more competitive, by eliminating or reducing costs, by empowering their employees to perform tasks faster, more efficiently, and with a higher level of satisfaction.

To give you some examples, Asure Software allows employees under a single login to manage many HR related tasks, such as obtaining a copy of W2s, reviewing health benefits, or recording their time and attendance.

All of these functions normally require a fully-staffed high-cost HR department in a traditional organization.

And with Meeting Room Manager employees can make their own meeting arrangements, through a powerful Outlook-based scheduler.

It is no longer necessary to dedicate a person to handle this chore centrally, and employee satisfaction has been shown to increase dramatically.

The combination of all of these solutions, positions Asure to be a significant player in this attractive market segment, which will drive revenue growth and profitability.

I am pleased to report that Q3 results indicate that this new business is healthy and growing.

Sales growth for the quarter was impressive, particularly for our time and attendance software-as-a-service offering, as well as the asset management products.

We continue to add new customers in our targeted segments, including some noteworthy names such as Boeing and Honeywell, and our international reach is expanding as well.

We also have challenges, and I want to share those with you, as well as more importantly what we are doing to address them.

As I mentioned, revenue is growing, but more slowly than we planned a year ago.

The learning curve has been steep since the acquisition, including the limited amount of revenue that can be expected from in-quarter sales in the software-as-a-service model.

The length of the sales cycle required in this space, and additional product requirements that customers expect if you are going to be a leader.

We have reduced costs and achieved synergies impressively, but some of the costs associated with being a public company, remain a burden for our size at this early stage of our development.

That effect is somewhat slower progress to profitability.

It will be several quarters more than than our original plan to reach EBITDA profitability and cash generation.

Let me be clear, we are very confident in the strategy and health of the business, as evidenced by the results I have mentioned, and that Nancy and Jay will provide in more detail.

This is a question of timing, not opportunity or execution.

Our other choice would be to cut programs and people in an already thin operation, to artificially breakeven, which would place the business at significant risk of failure soon thereafter.

What are we doing to address these issues?

Here are a few examples.

We are accelerating product development to ensure competitiveness, and using customer based information to set those priorities.

We have actually increased the marketing budget to drive demand and revenues sooner.

We are also continuing our crusade to eliminate any non-essential expense, and to focus on employee productivity.

The balance sheet is strong, and we will manage it closely to remain so.

Our plan is to continue to have a healthy cash balance through this growth period, and to begin to generate and grow cash as soon as possible.

Although the stock has continued to trade below a dollar, we do not believe that the price reflects the underlying value that we see from inside the Company.

Some investors see an essentially new company without much history.

The facts however, show a successful track record in software development, marketing and sales with NetSimplicity, a significant expansion with potential with the addition of software-as-a-service based model in the fast growth workforce management market segment, strong financial resources, and an experienced management team.

We believe, as many of you have told us, that the best way to change the stock price is solid execution on a quarterly basis.

That is our plan, and will continue to be management's focus.

Let me turn the call over to Nancy, for more detailed analysis on operations in Q3.

Nancy?

Thank you, Dick.

First, I will talk about some highlights of the NetSimplicity business, and then I will comment on the highlights from the iEmployee business.

We had another good quarter with NetSimplicity.

While the economy did appear to have a bit of an affect on the business with regard to delayed decisions on some of our larger deals, we accommodated for that factor, and sold a record number of transactions in Q3.

In fact, new license transactions increased by 20% over our prior quarter's run rate, a reflection of the continued strong demand for the Net Send product.

One of the contributing factors to the success of the quarter was Visual Asset Manager, our product that enables organizations to inventory and manage their fixed, mobile, and IT assets.

We had record bookings for that product line, which we believe was a reflection of the increased regulatory requirements, for organizations to be able to inventory and evaluate all assets.

School districts are an example where such compliance has become mandatory.

As such, we have had an increased number of transactions with school districts, including Arvin Union, Delaware Valley, [Wakotahatchee], and a host of others.

We also had a number of large band transactions, such as our sale to [HPS] Honeywell, that included our bar code scanners, and the enterprise version of VAM.

Our flagship product Meeting Room Manager also had a good quarter with a record number of transactions.

Demand continued to be strong for MRM, particularly for the enterprise product with the Outlook plug-in.

In April, we announced the milestone of obtaining our 500th educational customer, expanding on the developments in January, when we entered the integration to the SunGard Higher Education Banner utility, which is the world's most widely-used college course scheduling solution.

Although we saw some large transactions pushed beyond the quarter, still we had our fair share of sizable deals with marquee accounts.

In particular, we added Ernest and Julio Gallo winery, Boeing, McCann Erickson, and a host of other named accounts to our technical roster.

I would like to turn briefly to the Q3 highlights for iEmployee.

First off, we had a very strong direct bookings quarter, with 88% growth quarter-over-quarter.

We believe the strong direct bookings growth is a reflection of the investment we have made, in building a solid direct inside sales team here in Austin, and similarly reflects the investment we have made in our web-based investment model, which is driving a strong flow of leads into the funnel.

We continue to see strong demand for SaaS based workforce management solutions, and specifically those with a focus on employee self service.

In addition to the search engine marketing model beginning to bear fruit, we launched a new iEmployee website in April.

The goal was to create a site that would be more user friendly, have good visitor traffic capture through rich content, and ultimately funnel more leads to our direct team, and to our partners.

In terms of partnerships, we hired a full-time dedicated channel manager to work with Ceridian, our largest indirect distribution partner.

Spearheaded by our new channel manager, we recently relaunched the iEmployee time and attendance products into the Ceridian channel, with a renewed focus on providing their field with top quality support throughout the sales cycle.

In terms of product and product road map, we continue to focus our resources on our flagship product time and attendance, driven by customer demand, we launched a new advanced iClock companion piece for our time and attendance product, which is a web-based time clock, that offers users more flexibility around defining paid and unpaid breaks, and other time off rules.

You will see a continued theme of focusing our resources on our key products, and releasing market-driven features in a timely manner, such that through our products, pricing and packaging, we remain competitive with the field.

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

Jay?

This morning I will discuss the financial highlights from this past quarter for our software business, and the strength of our balance sheet and working capital.

I will then finish with high level guidance for the future, and then turn the call over for questions from the investment community.

First off, our software revenues increased this past quarter by 177% to $2.7 million over the three months ended April 2007.

In addition, we grew our deferred revenue by over $150,000, from 1.35 million to $1.5 million, and that is the highest level our deferred revenue has ever been.

Revenue versus the prior quarter was essentially flat.

However, we did see a 66% increase in our backlog for unfulfilled orders.

That is, orders we received that did not go to either in-quarter revenue or deferred revenue.

This backlog grew by approximately 300K to 500K.

Our software license ASPs declined this past quarter to $7,400.

However, we did see a significant increase in software license unit sales.

Recurring revenue for the third fiscal quarter was in excess of 60% of our revenue, and that is revenue that is under contract.

Margins this past quarter were 76%, a 1% decrease from the prior quarter's level of 77%.

Had we not grown our backlog this past quarter and converted more of those unfulfilled orders to revenue, our margins would have, in fact, increased this quarter.

Our operating expenses were relatively flat this past quarter at $3.7 million, and note that there is approximately 300K in this $3.7 million number, that is related to non-software operations, and operations as to being part of a public company.

Namely this 300K is litigation from our past Intellectual Property license business, and expenses relating to a building that we are trying to sell our interest in, that we are carrying at a cost of approximately $250,000 a quarter.

Once we revolve these two situations, our quarterly spending will decrease by about $300,000.

For the current fiscal quarter, we are forecasting our overall expenses to remain relatively flat with the past quarter.

Let me turn to head count and synergies.

Our head count ended this past quarter at 146 people, and that is down 23% since October.

Earlier this quarter in May, we identified additional synergies across the business, and that resulted in a reduction to 105 full-time head count in the Company.

That is a reduction of 44% since October from 189 to 105 head count.

Our revenue per head count is planned to increase this current quarter to approximately $100,000, versus $40,000 in Q2, and approximately $75,000 in Q3.

Let me turn to earnings.

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

It is essentially flat.

On a EBITDA basis, our loss increased slightly to $1.1 million, versus last quarter's $1 million.

In terms of our balance sheet, our cash balance decreased as anticipated by $1.7 million to 16.2 million, and our DSO this past quarter was 52 days, and that was flat with the prior quarter.

Our current ratio was 2.8 versus last quarter's 3.0, and interest income this past quarter was approximately $150,000.

Let me now turn to guidance, and I would like to provide guidance in four different areas.

First is that we will grow this business in this fiscal quarter, and throughout next fiscal year.

Two, we will continue to analyze our operating expenses to identify spending that is not tied to revenue, and then we will reduce those expenses.

Number three, we plan on generating cash, that is EBITDA profitability in fiscal year 2009.

And the last point I would like to make in our planning process, we have analyzed many different financial scenarios, and under all of those different scenarios, we maintain healthy cash balances and liquidity.

I would now like to turn the call over to questions from the financial analyst community.

(OPERATING INSTRUCTIONS) Your first question comes from the line of Richard West, J.M.

Dutton & Associates.

Good morning.

As you indicated the revenue growth was slower than expected.

Can you sort of pinpoint it?

It sounds like your NetSimplicity is strong.

Is it the iEmployee or is it the economy?

Or just that orders are coming in slower than expected, as far as being recognized revenue wise?

Why don't I answer part of that question, and then Nancy can answer or offer her insight into that.

One dynamic that occurred this quarter that we need to manage better in future quarters, and that is the backlog growth phenomenon that I talked about.

We typically have, let's say $250,000 in backlog.

That is orders that typically come in at the last minute that we are not able to fulfill, and those orders carry both revenue and margin.

That number almost doubled this quarter to $500,000, and had we kept our backlog flat, we would have actually grown the business this last quarter by about 7 percentage points.

Not an insignificant amount, and also had added a couple of points to our margin performance.

So we have got to get better at anticipating what we need to do to deliver revenue from those orders that might come in at the last minute, and we have identified a process, and we are working that diligently as we speak.

Nancy?

Hi Richard.

I would just say that you are correct in terms of the demand for both product lines is very strong, and we did have very solid numbers of transactions, including with iEmployee business, and the direct growth and bookings that we saw there.

As Jay mentioned, with that business as Dick alluded to, those bookings in a specific quarter do not necessarily become revenue in-quarter.

They become part of the backlog that upon implementation become revenue.

It is a slower to recognize revenue model than the up-front perpetual business.

Thanks.

One more, pricing-wise, are you sort of stuck at the current prices, or are you getting under, pressure or is there a possibility of increasing prices?

This is Nancy again, Richard, we believe we have now, we have been adjusting, if you will, the iEmployee prices to make sure that we are competitive with the market.

We believe we have established now a price point similar to our strategy with NetSimplicity, where we would like to be the value play in the market.

In other words, the buyer's get equal or better functionality in the products for a slightly less price than our competitors.

So we are now at the point with iEmployee that we believe we have attained that level of pricing, and we are moving forward.

Thank you.

(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.

Good day.

Thank you.