Asure Software Inc (ASUR) 2008 Q4 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the Asure Software Q4 2008 conference call.

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

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

We will be conducting a question-and-answer session towards the end of this conference.

(Operator Instructions).

I would now like to turn the presentation over to your host for today's call, Mr.

Sean Collins, Senior Partner, CCG Investor Relations.

Please proceed.

Thank you, Operator, and welcome, everyone, to Asure Software's fiscal year 2008 fourth quarter 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 statements.

This would include any discussions pertaining to the Company's business outlook.

These forward-looking statements, as well as all statements that may be made on this call, that are not historical, are subject to a number of risks and uncertainties that could affect their outcome.

Please also consider the risk factors relating to the Company's business that are contained in Asure Software's latest 10-K on file with the SEC.

These risk factors are important and they could cause actual results to differ materially from forward-looking statements made today.

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

It may not be recorded, rebroadcasted or redistributed in any way without the Company's express written permission.

Your participation in this call implies your consent to the call being recorded as well as your agreement to the terms regarding recording.

Joining me on the call today is Mr.

Richard Snyder, Chairman and CEO of Asure Software; Ms.

Nancy Harris, Vice President and Chief Operating Officer; and Mr.

Jay Peterson, Vice President and Chief Financial Officer.

I am now pleased to turn the call over to Richard Snyder, Chairman and CEO of Asure Software.

Richard?

Thank you, Sean, and good morning.

And thanks again for everyone for joining us on this call today.

In recent months, we've seen carnage in the stock market, real estate values crushed, and venerable financial institutions destroyed or displaced.

Companies are worried about their ability to compete in a more austere economic environment.

All of them are looking for new and improved avenues toward operating efficiency.

Through both organic and inorganic growth, Asure Software has managed to show growth precisely because we offer solutions towards greater efficiencies and productivity in the workforce effectiveness.

That is especially true in a challenging business and economic environment.

This is an unprecedented period in our nation's history and at minimum, very difficult.

However, think of our accomplishments.

We have fully integrated two acquisitions.

We grew software and service revenues approximately 140% in FY 2008 compared with FY 2007 to $10.2 million.

We reduced our EBITDA loss by 30% last quarter.

We celebrated our 200th health care customer.

At NetSimplicity, we acquired 135 new licensed customers in the fourth quarter 2008.

In fact, since bringing NetSimplicity into our corporate fold, we have acquired 2,235 new licensed customers.

In the fourth quarter alone, we added some significant brand name customers in the corporate sector, such as Geico Insurance and Quarles & Brady in the legal arena.

As Nancy will detail for you later, we introduced to the marketplace several new products for enhancements.

Our R&D efforts are helping to secure our leadership position in the workforce management software and ensuring our growth and profitability well into the future.

I'm very pleased to be leading such a talented team of business and technology professionals here at Asure Software.

Together, we are exploiting the value proposition that is inherent to automation in workforce management.

In addition, we are being productive in communicating that value proposition.

This week, for example, we are an exhibitor at the HR Technology Conference and Exhibition in Chicago, showcasing our iEmployee HR Management and Benefit Enrollment solution.

Before I turn the call over to Nancy for an operational review, I want to address the question of our NASDAQ listing.

As many of you realize, change creates uncertainty.

One of the casualties of transforming our business model from intellectual property to software has been a decline in our stock price.

New investors are cautious while we establish ourselves, and this caution is compounded because of the harsh price corrections occurring throughout the financial markets from real estate to stocks and commodities to bonds.

Last February, we received a notice from NASDAQ that our shares did not need a minimum bid requirement for continued trading on the NASDAQ global market.

Trading was recently transferred to a NASDAQ capital market listing, and we have been given until February 2 of 2009 to regain compliance with NASDAQ's listing requirements.

We understand that it may take time for the stock market to comprehend the considerable progress that we are making toward a sharp, competitive focus, internal right-sizing, and above all, growth and profitability.

With continued growth and bottom-line improvements, we believe there are good reasons for the market for our shares to reflect management's confidence that we're on the right development course.

Over the next four months, we will be evaluating all strategic options that will maximize shareholder value.

We think that our value proposition as an operating company may be severely discounted by investors.

We believe they want to see crisp execution of our business fundamentals and we intend to deliver that.

You know, there's so much in business that is beyond our control; external factors, such as global recession, could influence our financial success in the near-term.

But we will stay focused on the things we can control; stay flexible, and make required changes that dictate by our circumstances.

With that, I want to turn the call over first to Nancy, who is the Senior Vice President and Chief Operating Officer and in charge of our day-to-day operations, and then to Jay Peterson, Vice President and Chief Financial Officer.

Nancy?

Thank you, Dick.

My comments today are going to be focused on the execution of our plan in these challenging times.

Since we reinvented our business model and began the transition from Forgent Networks to Asure Software, we have enhanced our NetSimplicity offerings, acquired a leading product line in iEmployee, and unearthed important synergies to make our Company more productive, more efficient, and more profitable.

We now have a single lean organization that is focused on a specific mission -- to empower small and medium-size companies and organizations and divisions of large enterprises to operate more efficiently, increase worker productivity, and reduce costs through the use of our on-demand workforce management software.

In our last conference call, Jay Peterson provided high level guidance in four specific areas.

First, he said we would growth the business in the fourth quarter and over the course of the next fiscal year.

Second, he stated that we would continue to analyze our operating expenses to identify spending not tied to revenue creation.

Where found, he promised that we would act to reduce those expenses.

Third, he stated that our plan is to generate cash in our operations, which is manifested in a positive EBITDA during fiscal year 2009.

And fourth, he stated that we had analyzed many different financial scenarios and believe that under all scenarios, we had the resources to maintain healthy cash balances and liquidity.

My remarks today are intended as a progress report on the guidance provided last quarter.

Without question, we are demonstrating our ability to grow a workforce management software and services business.

While growth comparisons benefit from small numbers in a development stage, nonetheless, we saw 140% growth in our fully integrated software and services business in fiscal 2008 versus fiscal 2007.

We grew from $4.2 million in revenue to almost $10.2 million in revenue.

More importantly, we saw sequential quarterly growth of approximately 6% in the fourth quarter ending July 31, 2008 when compared to the third quarter ending April 30, 2008.

That is an annualized growth rate of almost 24%.

From our perspective, that is evidence that the marketplace is embracing our solution.

Yes, the nation and the world are facing some tough macroeconomic challenges, but the solutions we offer help our customers compete in any environment, including the tough times.

Second, while we grew revenue significantly in fiscal 2008 versus fiscal 2007, we were able to identify and pare operating expenses.

We found, for example, that there were synergies that existed among and between our business units, and we were able to reduce or eliminate overlap.

We reduced headcount in the fourth quarter from 146 employees to a more efficient 105 employees by quarter's end.

Third, with our emphasis on efficiency and productivity, we are making solid progress toward achieving positive EBITDA by the end of 2009 -- fiscal 2009.

However, achieving our goals also depends upon our customers' ability to purchase our solutions at a rate consistent with our growth plans.

In terms of our customers, I want to spend just a few more minutes discussing revenue generation.

Ultimately, our business model, which is aimed at generating significant and growing levels of operating profit, is dependent on generating an ever-increasing top line.

It is also important that our revenue growth be with above-average gross margins.

To achieve these two revenue objectives, we must maintain a leadership position in the features and functions of our products and service offerings, and we must continue to drive the appropriate level of demand to fuel our sales.

In terms of product development, we met several R&D goals during fiscal year 2008, including delivering new products and significant upgrades to existing products.

In NetSimplicity, we introduced Mobile Workforce Manager, a new module that enables mobile employees to reserve workspaces and other company resources when telecommuting or traveling between facilities.

In addition, we continued to enhance key features of Meeting Room Manager, including the Outlook plug-in and Active Directory support, both of which are capabilities in high demand by large corporate accounts.

79% of our $1.5 million increase in R&D spending this year resulted from the addition of iEmployee development operations.

That group continues to make important product development contributions, including a number of enhancements in the Time and Attendance module, to give users greater visibility and control over their time-off programs.

The iEmployee development team also added EasyTouch Time Clocks and an enhanced version of its HR Benefits product.

In terms of driving demand to fuel our sales funnel, we continue to invest in the pay-per-click and search engine optimization initiatives for both of our product lines.

With the marketing program's investment in iEmployee, we saw a threefold increase in leads since acquisition.

In addition, as we learn more about our HR buyer, we continue to evolve the marketing mix to reflect a solution sale approach and messaging for the iEmployee line.

In summary, I'm proud of the work being accomplished by our talented and dedicated team of professionals in all areas of the Company and at all levels.

Our aim is to be a leader in the Workforce Management Software and Services arena.

We are making good progress against our goals, but again, our ability to reach our goals in the timeframe outlined will also depend upon our customers' purchase behavior during these challenging economic times.

With that, I will turn the call over to Jay Peterson to provide additional texture for the financial performance during fiscal 2008 and the fourth quarter.

Jay?

Thank you, Nancy.

This morning, I will comment on the financial highlights of the fourth quarter, and then I will discuss some high level guidance for the future.

I'll turn then the call over to Dick for some final comments, and then we will take some calls from the investment community.

First off, I want to point out that sequentially, our software and services revenue increased 6% in Q4 to $2.9 million, and that's up from $2.7 million in the third quarter.

Recurring revenues -- that is, revenue under either a SAS or a maintenance contract -- were in excess of 60% of our total revenue this last quarter.

In our deferred revenue -- that is, revenue we put on the balance sheet -- grew this past quarter from $1.5 million to $1.9 million; a quarterly growth of 25%.

In dollars, our gross margins increased almost 8 percentage points sequentially, and that's from $2.2 million in Q4 versus $2.1 million in the third quarter of 2008.

And overall, our gross margins increased from 76% to 78% this past quarter.

And as revenue increases in the future, those gross margins will increase also.

We saw a sequential decline of more than 2% in operating expenses in Q4 versus Q3, bringing total operating expenses down to $3.6 million in Q4 compared to $3.7 million in Q3.

In addition, we spent in excess of $100,000 this past quarter on litigation unrelated to our core operating software business.

We reduced our EBITDA loss in Q4 to less than $900,000 compared to $1.25 million in Q3, and that's a quarterly reduction of 30%.

I will comment more on the EBITDA performance later in my remarks.

Our annualized revenue per employee for the fourth quarter was $109,000, and this compares to $40,000 in Q2 and $75,000 in Q3.

And as revenue grows, we believe that $109,000 is exposed upward.

Looking at our balance sheet and liquidity, we had working capital of $10.1 million, and cash and cash equivalents of $14.7 million as of July 31.

Our day sales outstanding for the quarter ended at 54 days, essentially flat with the 52 days in the prior quarter.

And just to remind you, the Company has no long-term debt.

In July 31 of 2008, Asure Software had federal net operating carryforwards of $156 million, R&D credit carryforwards of approximately $5 million, and alternative minimum tax carryforwards of approximately $0.5 million.

And as we do become bottom line profitable in the future, our tax liability will be negligible for the foreseeable future.

In this past quarter, we took a $7.4 million non-cash charge to write down goodwill and intangible associated with the acquisition of our iEmployee business.

This charge was due expressly due to our depressed market capitalization, and did not have anything to do with our belief in the viability of our software business going forward.

Let me turn to guidance.

Our most important financial objective for our Company is to achieve EBITDA profitability.

In this last quarter, we lost less than $900,000, and that loss included in excess of $300,000 in expenses unrelated to our core software business.

The majority of those expenses relate to a building lease that we have been trying to assign to a third party investor.

On September 25, we reached a settlement with Wild Basin 1 and 2, our current landlord, resulting in their granting approval of the assignment of our building lease to a third party.

While there is a one-time charge of $75,000 associated with this assignment, we will realize in excess of a $200,000 reduction per quarter in operating expenses, plus forego all the associated legal expenses incurred in the past relating to this assignment.

We expect this assignment to close in the near future.

And just to give you a feel for the financial impact of us being able to assign our lease, on a pro forma basis, our EBITDA loss this past quarter would be reduced to less than $600,000 had we been able to execute the assignment before the start of the fourth quarter.

So, it is a significant pro forma improvement in our financial performance.

I think the final question is, does Asure have the adequate financial resources to execute its financial and business plan?

And we continue to believe that the answer is yes, in every one of our many financial scenarios we have considered and analyzed.

And with almost $15 million in cash and investments, and a current ratio of just under 3.0, we believe we have the financial wherewithal and the strong balance sheet to execute that business plan.

And in summary, going over the quarter results, this past quarter, we accomplished six things.

One, we grew revenue.

Two, we grew our backlog for our software business.

Three, we significantly grew deferred revenues.

Number four, we increased our gross margins by 2% to just under 80%.

Number five, we reduced operating expenses and headcount this past quarter.

And six, most important, we reduced our EBITDA loss by 30%.

With that, I would like to turn the call back over to Dick Snyder, who will have some closing remarks before opening it up for questions.

Thank you, Jay.

Well, just a few closing thoughts.

I believe we're standing at the intersection of technology, need, and opportunity.

At no time in history has there been a greater need for software and services that bring together efficiencies to the management of the enterprise workforce.

Macroeconomic challenges are driving companies and organizations toward solutions that increase their operating margins while creating higher levels of employee satisfaction.

Asure Software's operational imperative is to assist companies in a broad range of industry verticals to increase their profitability, while competing in their respective marketplaces more effectively.

We have made good progress since last quarter in growing revenue and reducing costs, and moving toward profitability.

And I assure you that that focus will continue.

Again, thank you for joining us today to hear this progress report on our very exciting story.

And we will now open this up for your questions.

(Operator Instructions) Richard West.

It was a good report.

I'll take responsibility for my aggressive stance on the revenue.

I was trying to lead you, but you have done very well.

The expense control, your explanation today on the conference call was very complete, and I agree with you that you are progressing very nicely.

And I'll watch my estimates in the future to be more realistic.

Will you ever be breaking down the breakdown of NetSimplicity's and iEmployee revenue?

No, Richard, I don't think we will be doing that.

And there's several reasons for that.

One is we do have a lot of resources that carry dual hats and they work on both product lines, especially in the marketing area and the distribution area.

So, we don't really view that as the appropriate way to measure the business.

Okay, thank you.

And the $100,000 legal -- was that more just for the lease assignment?

Yes, it was, primarily the lease assignment.

And we also have another issue, a legacy issue, relating back to our intellectual property days.

Okay, fine.

And you know your market price vis-a-vis the cash per share is just compelling, as far as I can see, on a buy basis.

But thank you for the explanations.

Thank you for your very kind comments, Richard.

We'll look forward to working with you.

Thank you.

Tony Tristani.

Good morning, everyone.

Thanks for having this call this morning.

It looks like to me you guys are obviously making a lot of progress and pretty close to only $0.5 million cash loss per quarter.

The only thing I want to add is I guess when you guys get to the point that it's very clear that you're very close to cash flow breakeven and still growing the business, that I guess most shareholders would like to see a stock buyback at that point.

I mean, because you could take out 20% of your Company for $1 million right now.

And that would be very compelling for us shareholders -- you know, at the right time.

So, I'm just lobbying for buying a little bit of stock back -- you know, a little dollar amount, but a lot of shares at the right time.

Because obviously, it looks like you have a negative value for the business built in here, even after a little bit of cash burn before you get to breakeven.

So, my only question here is -- it's not really a question, just a statement -- just please entertain that for us shareholders as we're going through this pain right now, it would be nice to come out the other side with less shares at the right time.

Yes, Tony, we agree with you 100%, and a share repurchase program becomes much more viable as our EBITDA profitability becomes closer to the horizon.

We definitely agree with you, and recall that we do, in fact, have a share purchase program that's already been authorized by the Board.

And it has a little over 1 million shares.

But we'll be looking at that very closely as we continue to make improvements on our EBITDA performance.

Okay, thank you, Jay.

Thank you, Tony.

You have no question at this time, sir.

Well, thank you.

Thank you for participation in today's conference.

This concludes the presentation.

You may now disconnect.