Asure Software Inc (ASUR) 2009 Q1 法說會逐字稿

Good day ladies and gentlemen and welcome to the first quarter 2009 Asure Software earnings conference call.

My name is Kenosha and I will be your operator for today.

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

We will be facilitating 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 from CCG.

Please proceed, sir.

Thank you, operator.

Good morning everyone and welcome to Asure Software's first quarter 2009 conference call.

Before we begin, I would like to mention that some of the statements made by management during this call may include projections, estimates and other forward-looking statements, this would include any discussion pertaining to the Company's business outlook.

These forward-looking statements as well as statements made on this call that are not historical are subject to a number of risks and uncertainties that could materially 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.

EBITDA, as it may be cited in this conference call is a measure not in accordance with Generally Accepted Accounting Principles or GAAP.

EBITDA is defined as net income or loss excluding the effects of interest, income taxes, depreciation and amortization expenses.

EBITDA may not be similar to non-GAAP income measures used by other companies.

This Company beliefs that EBITDA provides useful information to investors about the Company's performance because it eliminates the effects of period to period changes in costs that management does not believe are reflective of the underlying performance of the Company's businesses operations.

Management uses EBITDA in evaluating the Company's overall operating performance and beliefs that EBITDA provides investors with tools that are valuable when used in addition to GAAP metrics for evaluating the Company's core performance.

While the GAAP results are more complete, the Company provides investors with the supplemental metrics since with the reconciliation to GAAP, this may allow for greater incite into the Company's financial results.

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

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

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

Joining me on the call today are Mr.

Richard Snyder, Chairman and Chief Executive Officer of Asure Software, Ms.

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

Jay Peterson, Vice President and Chief Financial Officer.

With those formalities out of the way I'm now pleased to turn the call over to Richard Snyder, Chairman and CEO of Asure Software.

Dick?

Thank you, Sean; for that very complete Safe Harbor Statement and good morning everybody and thanks, again, to you all for joining us on this call today.

When we last spoke with you in connection with our fourth quarter and fiscal year 2008 results, the current economic downturn was gaining momentum.

Now it's become a recession and has spread globally.

We are not immune to this downturn and we saw some of effect to our sales during the first quarter; however, the softening has been moderate and we consider to see a good pipeline for our products.

In fact, I believe that Asure Software may be better positioned than many other companies in the face of this macro economic adversity.

That's because our customers whether they are businesses, government agencies or nonprofit organizations are looking for new and improved ways to achieve operating efficiencies.

Cost-effective workforce management can no longer be seen as discretionary but a key to remaining competitive.

In a difficult economy such as today's, the very survival of an enterprise may depend on the urgency with which they operate more efficiently.

Our products and services are simple, easy to use and are designed to boost efficiency and productivity in any organization.

Our leadership with NetSimplicity's meeting room manager was further enhanced when we acquired iEmployee four quarters ago.

We have transitioned to a full-service provider of on-demand workforce management software solutions under the brand Asure Software.

During the last year we have dramatically increased software revenue, reduced costs, released many exciting new products and created a highly effective organization.

As we look to do future, we are well-positioned to partner with our customers in achieving workforce management efficiencies and we are succeeding customer by customer.

It is a timely and exciting mission with significant upside potential.

Industry research suggests that people related costs account for between 40 and 60% of corporate overhead.

No other area of corporate expense is as vital to today's enterprise particularly in a service oriented economy than workforce management.

No where else must the goal of cost savings be so care fully balanced with flexibility, turnkey ease-of-use and reliability.

Our systems also bring higher employee satisfaction to an enterprise because they empower people to make their own decisions or find the information without waiting for some central organization that will tell them the answer.

Our customers tell us they want to have fewer people making better decisions and that's what Asure Software is all about.

What also excites us is the size of the global market we are targeting.

The estimated growth trajectory is from $5.5 billion in 2005 to $8.7 billion in 2010.

We are focused on two of the fastest growing segments within that.

Number one, small to medium-size enterprises which number over 600,000 in the United States alone.

And, number two, software as a service which has a lower purchasing threshold for customers and a more predictable financial model for us.

As we grow from our current customer base of more than 3,000 enterprises in a wide array of industries, we see opportunity for growth ahead in spite of the current economic conditions.

We do not see recession as a barrier to our growth but rather as an opportunity that we must and will make the most of.

Now I'd like to give you a brief update on our NASDAQ listing.

As many of your aware the transition of our business model last year caused significant changes and has required us to use some of our cash while we build the software business.

The market is slowly embracing this new direction but it has driven a decline in our stock price.

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

We were transferred to the capital market, which had little impact on our overall trading and we were given initially February 2, 2009, to gain compliance with our listing requirements.

The update is this - - That the deadline for regaining compliance based on our stock price has been extended to May, 2009.

This gives us an extra bit of time to gain traction under the new business model and to explore various strategic options.

Rest assured, that we will use the extra time provided by the extension to diligently explore and evaluate all possible options.

With that, I'd like to turn the call over to my colleagues, first to Nancy Harris, as Senior Vice President and Chief Operating Officer.

Nancy heads our day-to-day operations.

And then we'll hear from Jay Peterson, Vice President and Chief Financial Officer.

Nancy?

Thank you, Dick.

For those of you who are new to the Asure Software story, I'd like to provide you a bit of context and background.

Since we reinvented our business model and began the transition from Forgent Networks to Asure Software in early fiscal '08 we've 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.

Our acquisition of iEmployee and the continued growth of our MRM On-Demand software both of which are delivered under a software as a service, or a SAS model led to a $4 million increase in our software subscription revenue for the year ended July 31, 2008.

Today we are a leaner organization focused on empowering small and medium sized organizations and divisions of enterprises to operate more efficiently, increase worker productivity and reduce costs.

But as Dick mentioned there is no way to ignore the effects of the economic crisis that continues to unfold and it did impede our progress slightly in the quarter ended October 31; even under our new more recession resistant business model.

Let me turn now to give you an update on progress against key objectives we outlined on our last call.

First, we said that we will grow the business over the course of the next fiscal year.

We remain confident of achieving this longer-term goal; however, we did record a slight decline in revenue in the first quarter.

In light of what some other companies are facing and reporting these days, a 3% revenue decline can be seen as relatively good news.

But it is still a setback to us.

A silver lining on this for us is that our growth margins increased from 77.7% in the fourth quarter to 79.8% in the quarter ended October 31.

In addition, we had a number of large deals in our pipeline for Q1 that did not close in the quarter but have since closed in our fiscal Q2.

Second, we planned to generate cash in our operations.

That is, to record positive EBITDA as soon as possible.

Our ability to achieve that goal is dependent upon achieving strong revenue growth in a challenging economic environment and managing our expenses prudently.

We have demonstrated our ability to do so in the past and we remain focused on these priorities going forward.

Third, we remain confident that we have the resources to maintain healthy cash balances and liquidity.

In addition, we are pleased with the results in the past fiscal year and the first quarter to right size our operations.

As of April 2008, we had 146 employees but found sufficient synergies to reduce our headcount to 105 by the ends of the 2008 fiscal year.

During the first quarter of '09 our headcount declined slight to the 99 employees.

We are also pleased that our new business model continues to bring us new customers even during and because of pervasive economic challenges.

In the first quarter, for example, we added Advanced Micro Devices, Steelcase in the University of Oklahoma among other NetSimplicity SAS deals.

In the category of perpetual license deals some Marque names we added to our roster include KPMG, The Ford Foundation, Tennessee Valley Authority and HealthSouth.

And within the legal industry, which is a major segment for us we added Lathrop & Gage and Gray, Plant, Mooty among others.

We also continued to actively market our products through pay-per-click advertising and search engine operations as well as through our new Lunch and Learn Seminar format.

We had our inaugural and Lunch and Learn Seminar at the Hyatt Regency in Chicago on October 29.

At these seminars we showcase how meeting room manager can help companies streamline day to day meeting and conference room, scheduling operations while saving time and money.

We also showcased Mobile Workforce Manager.

We plan to use these forms as a prospect friendly, face to face marketing vehicle going forward.

All in all, considering what has happened in the economy outside of our Company since mid-October, I would call this a solid quarter.

With that I will turn the call over to CFO Jay Peterson, to provide additional texture to our financial performance during the 2009 first quarter.

Jay?

Thank you, Nancy.

This morning I will comment on the financial highlights of the first fiscal quarter and then I will provide some high level guidance for our future reporting periods and I will then turn the call back over to Dick Snyder.

First off, I would like to point out that, sequentially, our software and services revenue decreased slightly by 3% to $2.8 million versus $2.9 million in the fourth quarter.

Recurring revenues, that is revenue under either a SAS or a maintenance contract improved to 65% of our total revenue this past quarter.

In addition, our deferred revenue grew slightly this past quarter by 2% to $1.9 million.

Our overall gross margins grew to 80% this past quarter versus 78% in the prior quarter and 76% two quarters ago.

This growth in gross margin percentage was due to a favorable mix of software and a decline in lower margin hardware business that we sell on a pass through basis.

And I would also like to add that this 80% gross margin performance was our highest margin performance in the last four fiscal quarters.

We saw a sequential increase in our operating expenses of approximately $275,000 in the quarter due to litigation with our landlord.

Excluding the expenses relating to this litigation, our spending would have actually declined by over $100,000 in Q1.

Our EBITDA loss in Q1 increased from last quarters loss of $900,000 to approximately $1.15 million.

And again excluding the spending relating to litigation our EBITDA loss would have declined significantly this past quarter to approximately $550,000 versus the prior quarter.

Once this lease assignment is finalized, we expect to save approximately $200,000 a quarter in reduced lease payments plus forego the spending related to this litigation.

Our annualized revenue per employee for the first quarter improved to $113,000.

This compares to $40,000 in Q2, $75,000 in Q3, and $109,000 in Q4.

Looking at our balance sheet and other liquidity measures, we had working capital of $8.6 million cash and cash equivalents of $13.8 million as of October 31.

And I would like to note that $1.9 million of our liabilities on our balance sheet relates to deferred revenue and that liability is not a pure cash liability.

In addition, we had $800,000 on our liabilities that relate to also non-cash liabilities relating to go our leased facilities.

Our trade DSO, day sales outstanding for the quarter, ended at 35 days versus 36 days in the prior quarter.

And I'd also like to mention that the Company has no long-term debt and as of October 31, we had Federal net operating carry forwards in excess of $150 million.

R&D credit carry forwards of approximately $5 million.

Let me now turn to guidance.

Our most important objective for the Company is to achieve EBITDA profitability as fast as we possibly can.

This last quarter we took a small step backward and increased our EBITDA loss to approximately $1.15 million.

And I would like to call out that one half of our EBITDA loss this last quarter related to expenses unrelated to our core software business.

On a pro forma basis our EBITDA loss would have been approximately $550,000 had we, one, been able to execute the assignment at the start of the quarter and, number two, had we been able to forego the expenses relating to go this trial.

Regarding our assignment of our building lease, we anticipate that barring any unforeseen difficulties this lease assignment transaction will close in January.

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

Thanks, Jay.

Well I guess what I'd like to do is just summarize a few key points for the call.

These may be difficult economic times but we are confident that our solutions offer our customers real opportunities to save money and that, we feel, will drive demand.

Number two, we are already lean as an organization on our expenses but we are confident that our existing or exiting our building lease as Jay has pointed out will be another breakthrough towards generating cash.

So that will be significant.

We also have a strong balance sheet, as Jay points out, which positions us well and may be significantly better than most competitors.

With that I would like to thank you again for joining the call.

I wish you all a Merry Christmas and Happy New Year and I will turn it over for questions.

(Operator Instructions).

Your first question comes from the line of Richard West from Dutton Associates.

Please proceed.

Good morning.

Good morning, Richard.

I know I should have been an attorney.

I wonder if you could just help me and summarize the expenses in your SG&A were approximately $500,000 because of litigation expenses and beginning in January you will start saving 200,000 a quarter because of that lawsuit; am I correct?

Close.

The savings, the savings will in fact amount to $200,000 a quarter once we assign this lease.

And as I said we anticipate that to occur in the month of January.

Okay.

In terms of the spending, there is approximately $400,000 in the quarter that related to trial and litigation expenses.

Okay.

So those two, in aggregate, will total approximately $600,000, Richard.

Okay.

Thank you.

Because then that explains to me at least why your SG&A was $33.1 million plus.

Thank you very much.

Happy New Year and good holidays to everyone.

Thank you.

Your next question comes from the line of Tony Tristani from Astral Capital.

Hi, thank you.

Again I understand the expenses so probably in the April quarter at the current revenue level we will see that EBITDA number 550,000 loss all things kind of equal.

I guess my question is on the growth for Nancy, the current issue is your churn picking up, can you talk about what your churn number is or is it your gross adds, new business that you're adding, is that blow plan?

And if you talk about sales force productivity and how much that can improve, et cetera, I guess what I'm trying to figure out is when you guys think you are going to start growing again and how do you get there, is the reduction of churn, is it improved productivity, et cetera?

Thank you.

Hi, Tony, yes, let me just take that a couple of the points at a time.

The first one being, is it relate to do churn.

And the answer to that is no, actually it's not an attrition issue.

It is a softness in the market that we are seeing relative to new transaction being slightly slower if will you than what the plan was.

Now that being said, the demand still continues to be quite healthy and we are optimistic that we will be able to see growth as I mentioned.

We are continuing to use our traditional marketing methods, which is paper click and search engine but we are also mixing in some new marketing elements to drive demand and reach the corporate segment, which is our highest growth segment for the business.

And so we believe from that perspective focusing on corporate and our traditional segments that we will begin to see an increase in rep productivity through garnering these bigger accounts in addition to our traditional mix and that's where we are going to focus a lot of our marketing attention and our sales attention.

If you look at lead generation is that up significantly, is the issue with the current economy, is it your closing rate is kind of a lot lower because of hesitation on purchasing agents, et cetera, to close that if we do, if we do get a turn in confidence in the economy maybe over the next six months, that your business should ramp up, can you kind of talk about those dynamics.

Absolutely.

Both are accurate as stated.

One is that our traditional PPC marketing effort is producing slightly softer results.

And I think that's a factor of the economy.

There are fewer people out, if you will, shopping on the Internet.

And that's why we are mixing in some additional elements in the marketing mix to try to reach incremental prospects.

Second, we are seeing a push or a softness in people making decisions either budget freezes out right or a push relative indecisiveness if you will and they aren't definitely lost but people are not making and champing new purchases as they once were.

Therefore, as the confidence in the economy and confidence in companies comes back we believe we will be able to ride that wave and see a resurgence, if you will.

But we've seen all those symptoms in the market today.

What about the quality of your sales force, the training?

What kind of churn are you seeing in the sales force?

What do you have like 13 to 15 salespeople, quota people.

Is that right.

That's right.

We have 13 total, I believe.

We have hired recently a new VP of sales and marketing who has a big focus on solutions, selling, training for our reps and getting them up to speed especially in terms of selling in a tougher economic environment through ROI, through talking about productivity enhancements of the workforce and so he will kick off those training sessions starting in January.

And so we are optimistic that he too will be a factor in helping increase our rep productivity.

So that you think sales forces the right size is a matter of the economy and also the new programs that you're implementing to have a significant boost in your gross, kind of gross ads?

I'm just wondering if you had the right size, I mean think half a million quota a year roughly?

I mean is it, you think you're sized right to have enough growth?

You can start adding 2 or $300,000 of revenue a quarter when things turn?

I'm just wondering if you have enough people what's your thoughts on the size of your current workforce, the sales force once things turn?

Tony, for today we think we are at the right size.

We are seeing rep productivity increase and we saw it increase quarter over quarter this past quarter in fact.

So we feel like we are the right size today.

But to your point as we see things loosen up a bit in the economy we believe we will need to add reps as that demand increases.

So we have a plan in outquarters, providing things again to pick up in order to make the larger target numbers we will add reps to carry that quota going forward.

All right.

Okay.

And I guess my last question is competitively for Dick or for you or what's happening competitively?

Are you going up against bigger competitors now, smaller competitors fallen by the wayside?

Where are you competitively in this environment and would that be a plus or minus whenever the economy turns?

I would say-- it's Nancy Tony, I would say roughly the same competitors really.

But we do feel confident that we are in a good position to weather the storm and as Dick suggested in his comments potentially better than some of our competitors.

We continue to keep effectively our prices low and provide, if you will, the value play in the market against our competitors.

And as you can imagine in a time like this that's a very solid strategy.

So we continue to see a lot of wins against the competition.

No one has fallen by the wayside yet but we do think we are in a good position vis-a-vis the competition.

And last question, what about penetration rates, I mean who you're talking to or other companies talking to them or a lot of these Greenfield customers?

I mean I know the market size, et cetera on the macro level is pretty big but what about kind of head room for your products?

Are you just 10%, 5%, what kind of penetration do you think is out there in the marketplace for your products?

I think, we have a lot of opportunity.

I don't know, I haven't ever measured definitively the Greenfield but we see new prospects, given the marketing model we have a lot of brand new prospects coming into the funnel literally every day.

So there is still a lot of people out there that we find that we are replacing what was previously a manually paper based effort, either for NetSimplicity Software Solutions and including iEmployee Software Solutions and they are moving to automation to streamline their operations and make their employees more productive.

So if you think about it from that perspective this notion of replacing previously manually intensive operations in this environment a lot of these prospects are Greenfield and don't have a solution today.

Are you seeing success in moving up market to bigger customers or is that just a plan?

Oh, no, absolutely we are.

With the outlook plug-in, specifically on the NetSimplicity with outlook plug in for Meeting Room Manager we have penetrated a tremendous number of large corporate environments.

It is our fastest growing segment in that part of our business.

And we believe that will continue as we look to further enhance that component.

In addition, we are seeing nice growth in a lot of Marque accounts in our international piece of the business and have landed some very big names there.

So corporate is a big theme and I think we have a product that serves that market well.

Okay.

Thank you, Nancy.

Your next question comes from the line of David Sandberg from Red Oak Partners.

Please proceed.

Hi, thank you, can you help me reconcile again the EBIT loss of 1.7 versus how we get to 550?

I heard the 600 combined between the lease assignment and the law based in legal but I don't get to 550, is in something I'm missing, accelerated depreciation versus prior quarter perhaps.

Actual EBITDA loss is 1.15 million for the quarter.

The reconciliation is two items.

Once we assign the building we will save approximately 200,000 a quarter.

And we will forego approximately $400,000 a quarter in legal expenses then will get us down to 550.

If we don't get the full impact of the lease assignment by the April quarter essentially now that Wild Basin has at least been put aside we should see improvement of the 275 or so which would get us to a 750-ish type of EBIT loss assuming the business holds steady versus prior quarter?

Yes, with one caveat.

We do have some tertiary, if you will expenses related this quarter to finalizing this assignment.

But nothing to the magnitude that we experienced in Q1.

And so if that occurs then and we are at the 550 to say, 700,000 loss per quarter that's roughly a good cash loss, do you think or do you think the actual cash losses might be different from the reported EBITDA?

These expenses were in fact cash carrying expenses so that would be a good number.

Okay.

I have a slightly different view than the prior caller where he was talking about if we had enough employees here for growth.

I guess my concern is for the contrary.

It look in the 10(Q) that was filed last night that there was a write-off of 7 out of 12 million from the deal cost and assuming that's correct and that was done because of a view that the deal may be worth less or it's not quite performing at that level.

Has there been any thought to a further cost rationalization?

And, again, my view is even after all of these savings in the lease assignment that are made the Company is still burning cash, we have 13.7 now but given 2/3s of the business is recurring at a very higher margin has there been thought to just cash flowing this thing given that we are in a recession and who knows how long it will take to recover?

Let me take a cut at that.

This is Dick Snyder and then I will turn it over to Jay.

First of all, the note that you as a saw in the 10(Q) was the impairment charge which we did discuss the last earnings call and this was purely from an accounting non-cash point of view based upon our market capitalization.

Okay.

Got it..

So it really doesn't reflect any indication about the value of the business at all.

Okay.

And, number two, I can understand stand your concern with regard to expenses and that's certainly the thing that the management team looks at but if you look at our history of bringing our headcount down from a little over 200 less than a year ago to less than 100 today, I think it is gives you some idea of the intensity we approached this with, we also cut our expenses in a number of different areas.

It's a balance now to make sure we have enough to scale going forward as the previous caller mentioned and being responsible with regard to getting to cash flow positive as soon as possible.

So we think we have the right plan to give us the capability of scaling as we go forward but we continue to look at everything and make sure that we are prudent in those choices.

Great.

And we are a small company, small companies have one advantage and that they can be fairly nimble with their infrastructure and therefore change decisions at different points based on different data.

If this ends up being a Q3 year, horrific recession as some believe it is and a year later we are a couple million lighter on the balance sheet, not really seeing the daylight is there an ability to your presume headcount rationalization or I think as Nancy had mentioned this is already a leaner organization, are you guys starting to hit a wall as to what you could potentially cut?

No, we think that there is always the opportunity to continue to scale smaller.

Obviously the trade-offs there is that you begin to eat your own muscle and the ability then tow grow into something, our vision is to have a $100 million business in five years and it clearly would not be capable of doing that if we went too far.

On the other hand we do have the capacity to do things like salary freezes which we are currently under.

We are not increasing salaries for the foreseeable future.

We look at other options to obviously the thing like getting out of the building lease was a significant breakthrough and we will continue to look for those kind of items as well.

And then lastly, last year the annual meeting was held in July.

I guess the details on the acquisition.

This year you are working on lease assignment which does involve some accounting and legal as well.

Should we expect therefore that the annual meeting might be held around a similar time as to last year?

Yes, we believe it will be held some time in the next 90 to 120 days, maybe a little earlier than the prior year, David.

So we would be talking maybe February to March time frame -- sorry, 90 to 120 between, I guess we are talking April, May.

Yes.

Thank you very much.

Thank you, David.

Your next question comes from the line of David Ratliff from Doucet Asset Management.

Hey, good morning and thank you for taking my question.

I only have one question, just a follow up asked previously and I didn't understand or wasn't clear if you answered it, but have you given a projection of when you expect to be cash flow positive or EBITDA positive?

Previously or on this call?

Yes, David, on the last call we indicated that we were anticipating or planning to be EBITDA profitable in our July quarter of this year.

Okay?

Okay.

And I would tell you we are still endeavoring to that goal.

However, that will require us to increase our topline revenue in order to achieve that and our ability to do that is somewhat related to some external factors that we might not be able to have full control over.

Right.

But that is, that is still our goal.

That is still the number one objective, number one financial objective for this company.

Okay.

Excellent.

That's my only question.

Good luck with it.

Thank you.

At this time there are no questions in queue.

Thank you for your participation in today's conference.

This concludes the presentation.

You may now disconnect and have a wonderful day.

Thank you everyone.