Asure Software Inc (ASUR) 2010 Q2 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the second quarter 2010 Asure Software earnings conference call.

I will be your Operator for today.

At this time all lines are in listen-only mode.

Later we will conduct a question-and-answer session.

(Operator Instructions).

I will now like to turn the conference over to Cheryl Trbula of Asure Software.

Please proceed.

Thank you, Operator and welcome to 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 of the 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.

You're urged to consider the risk factors relating to the Company's business contained in our latest periodic report on file with the Securities and 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 for the financial analyst community.

I would now like the turn over to Patrick Goepel, CEO of Asure Software.

Pat?

Thank you, Cheryl, investors and folks interested, Asure is very excited about the second quarter and communicating the results today.

As you know, we have a new Management team that took over in late September in 2009 and we had four initiatives, simplify the business of Asure; we wanted to fix the core business and grow the business; we wanted to maintain that we were legislative compliant; and we had a 20/20 operational plan by the fourth quarter where we would grow at to 20% and have 20% EBITDA, and we've made great strides on all core elements of those plans.

First of all, on the 20/20 plan in the second quarter, Asure achieved 13% revenue growth and 19% EBITDA, ex some real estate items.

In order to do that, we had to sell, and sell we did.

In the NetSimplicity line of business, some logos or companies that we ultimately sold this past quarter were GlaxoSmithKline, Unum Provident, Samsung, and the Andrews Air Force base; in iEmployee, People's Community Bank and Clearwire were major customers that signed for us.

All in told, in keeping with our goal as being a SaaS company, we had 71% reoccurring revenue.

We're very proud in the progress we've made in transforming to a SaaS company and the progress has continued 71%, was a good number for us in the quarter.

We're also proud of some of the product enhancements we've made in the second quarter.

We had a new release in the iEmployee business, and in the iEmployee business that new release affected some of the time entry areas of our product in the shift differentials and our largest customer, DeVry, enjoyed beta testing that release for us.

In NetSimplicity we were excited about our 8.3 release that went in at the end of June and our customers were excited because we had very, very strong sales.

Operationally, our DSO, we were very pleased with the progress that we've made there.

Since taking over in September, Dave Scoglio's group has worked very hard to go from 61 days down to 35 days.

As far as under the manner of simplifying the business, we've made great progress.

We announced previously -- previously announced in April that we parted ways with our long-time partner HPI on our commercial real estate in Austin.

And we have settled that in April and we are moving locations in August, at the end of August, in our corporate headquarters.

Similarly in this quarter, Vancouver, we are going to move locations in the third quarter in Vancouver and that will continue to simplify the business.

We also in the quarter have disposed of our -- some our last remnants of our intellectual property patents and they are no longer part of Asure.

So now Asure is really truly software as a service business and the commercial real estate and the IP portions of the business now have been sold off of Asure.

Also in the quarter, we -- our largest customer was Ceridian, and Ceridian was a series of multiple customers.

We went through a process where now we have contacted with those clients directly, and there is no client in our portfolio that is more than 1.5% of our revenue.

We think this has stabilized our client base.

We're also very, very excited about the cross-selling elements that we have going forward and to nurture our client base and our customers.

Also many of these Ceridian customers were on a month-to-month contracting basis, and our clients that are direct now are on an annual renewal, or in some cases, a multiple-year renewal.

So we feel like the program we just completed with Ceridian that we announced a couple days ago, the metrics were very strong and it puts us in a position to succeed long-term in the business.

Looking ahead in the third and fourth quarter, we feel like we'll make continued progress.

I mentioned that we will have a couple of moves in the third quarter with our Austin headquarters and our Vancouver move.

In the third and fourth quarter, we're providing guidance and we have some one-time items relative to the moves in the third quarter.

We don't anticipate any one-time items in the fourth quarter at this time, and the core business, or the core earnings, we're going to continue to drive revenue growth with our product enhancements, our sales strategy and being aggressive in sales, as well as operational efficiency and controlling cost, which will lead us to continued good results in the third and fourth quarter.

As far as the compliance or being NASDAQ, we are now NASDAQ compliant and have been so for a quarter and feel that we're really on track as the turnaround that we've made now enters the stage where we are really all about sales growth and looking for opportunities to grow the business.

I like to remind everybody we have no debt and that we have a growing, profitable business.

With that, for the specific results, I like it turn the call over to David Scoglio, our CFO.

Dave?

Thanks, Pat.

I'm going to take a few minutes to go over the financial highlights of our second quarter and I'll be happy to address questions during the Q&A period at the end of today's' call.

In the second quarter, as Pat mentioned, revenue grew 13% over the comparable period in 2009, with both product lines producing gains.

NetSimplicity revenue grew 23%, while iEmployee revenue grew 5%.

Gross margin contribution held strong at 81% compared to Q2 2009, and actually increased by 7% over our last quarter, Q1 2010.

Q2 operating expenses, excluding one-time charges, decreased 36% over the comparable period in 2009, reduced from $3.1 million to $2.0 million due to reductions in compensation and legal costs.

Interestingly enough, current quarter one-time charges stemming from the modification of our Austin, Texas, headquarters lease were offset by similar one-time expense in Q2 2009, which were driven largely by impairment and a reserve innet profit interest in this lease.

The one-time expense in both periods amounted to $1.2 million.

Excluding these one-time charges, Asure posted a profit for $188,000 for the current period, or $0.06 per share, which was a 114% improvement over the comparable period of 2009.

This concludes our discussion of the financial results of the second quarter, and next I'd like to further discuss our 2010 outlook.

With our Austin lease solved, our material IP assets sold off and our core business simplified and profitable, we are ready to bring this business forward.

We have forecasted some site strategy one-time cost, as Pat mentioned, in our income in Q3, which will serve to finalize the Austin headquarters move and streamline our Vancouver site.

Both decisions will allow us to continue invest in our products and related infrastructure, which we believe will further enable organic growth as well as facilitate external growth, as we acquire and (inaudible -- technical difficulties) competitors or complimentary products and services.

Based on our strategy, and as described in our press release, we believe that we can post core earnings of $0.05 to $0.10 in Q3, excluding one-time costs, and $0.08 to $0.12 in Q4 2010.

Lastly, in terms of liquidity, last earnings call we reported that we had $633,000 in cash at the day of the call.

As of today, we have $838,000 in cash, despite a one-time return of $124,000 in sub-tenant security deposits at the end of the May, which was directly related to finalizing the lease termination.

At this time I like to turn the discussion back to our CEO, Pat for closing comments and questions.

Yes, thank you, Dave.

Asure was busy this quarter.

We made great progress on solidifying some big decisions that we needed to make, in the HPI real estate agreement, the IP agreement, as well as the Ceridian customer base.

We came through all of those decisions very, very well.

We did a good job with those.

We managed the transition well and it sets up Asure nicely in the quarters and years to come.

Also operationally, we did with a very, very good job.

Sales were very strong, revenue growth was strong, our leading accounting indicators were strong and our product and technology, we're very proud of the work we've done in releasing new products.

So with that, we hope you're as pleased as we are with the second quarter results and our future outlook.

And with that I'd like to turn the conference call over to any questions that anybody have.

(Operator Instructions) Your first question comes from the line of James Gladney with Liberty Capital Partners.

Please proceed.

Pat, first I 'd like to thank you and your Management team for the outstanding job that you've done in turning the Company around over the past 12 months.

You deserve to be applauded, you've done an incredible job.

So thank you for that, and I'd like to know if you can give us any more guidance or information surrounding your strategy on M&A transactions that you mentioned in today's release?

Tim thank you for the kind words and we very much appreciate that, and I'll pass those on to the employees, as well, because they make it happen.

From an acquisition perspective, we're now at a point where we feel like we've simplified the business, we got rid of the brush and now we're focusing on the two lines of business, both iEmployee and NetSimplicity.

We feel like we're in two outstanding markets.

Both are growing, they are big markets, and, relative to a technology shift, many of the companies that are out there don't have the ability to invest in the SaaS platform or to take their business in that way.

Our Management team, Product team and Technology team is deeply experienced in the SaaS model, and we feel that riding the wave of the future in the cloud, we feel that it's a very prudent strategy.

There are businesses that instead of making that investment, will look to potentially be acquired.

We are going to be active in those conversations.

We also feel like we have some assets in the net operating losses that we have over 20 years -- the next 20 years, we have well over $100 million in net operating losses that shield net income.

So now that we're profitable and we're growing.

We're going to look to organically grow but we're also going to look to put more business on our existing platforms and we feel like the bottom line will grow exponentially when we have those opportunities.

We also think with the uncertainty in the marketplace today and the economy.

Some companies haven't weathered the storm or haven't made the transition, and we are going to be active in those companies that are in the space that we feel have potential where we can add customers to our platform or grow those businesses and have synergies with our core business.

And we can now really take a product line or a business and merge it with Asure, whereas Asure can take advantage of its assets, its products, it's technology and grow that business for the shareholders, for the clients, for the employees alike.

And we are looking for acquisitions that are accretive in nature as we move forward.

Pat, thank you for that.

Can -- can you talk at all -- I know it's not your job, but can you talk at all about sort of the share price?

It's our opinion that the shares of the Company are very undervalued, and thinly traded but the market doesn't seem to appreciate those very stellar results that, not only that you've announced today, but the guidance that you've given over the last couple quarters, which were very positive.

Is there anything you can comment on that or do you just want to stay away from that?

No, I think, Jim, and it's a conversation that the Board has been having and I've been having and having with Management.

One of the key metrics we highlighted was adjusted EBITDA, or EBITDA this quarter, and the 20/20 plan.

If you were to straight line over four quarters, our adjusted EBITDA, you can make a case here that we're trading at three times or so EBITDA, which is a very low number.

And we feel, and share your concern, that the stock price is undervalued at this point in time.

So, one of the things we do believe is, first of all we have to believe that as we deliver, sooner or later people will notice.

And we feel like we've delivered on what we said we're going to do and we're going to continue to do that as much as we can in future quarters.

We believe that that will help our stock price and consistency over time.

Two, as we get bigger or we look for ways to double bound on our businesses or to grow our businesses, we think we're going to get noticed.

Also we think the good news that we're sharing is we're giving guidance and we're sharing it today, but if you look over the history of the stock over the last couple years, I think some people live in the past.

So we're being very forthright about what we're doing, what we expect to do, and then we try to deliver on those outcomes and we think consistency is going to reward the shareholders overall.

And as we grow and look to double the business over the next period of time, we believe then that that volume will get us on the radar to more and more institutions that cover stocks, as well as people that are looking for value and growth in their portfolios.

And, Pat, am I to understand that there's a Rights Plan in place that limits -- and correct me if I'm wrong about this, that limits any one shareholder to owning more than 5% of the Company?

Is that correct?

Yes, at this point in time, Jim, what we did is we feel that we have a tremendous value in our net operating losses.

We've done different cash flow analysis around our net operating losses and, depending on different assumptions, you could assume that the value of the net operating losses alone is $10 million to $13 million, just on the present value.

So it's an undervalued asset that Asure has as a public Company and a business going forward.

Now we have to operationally deliver to get the results of what I talked about on the NOLs.

And with that, one of the things that we have to be mindful of is there's some ways to protect those NOLs and one of the things that our Board -- and that we passed was a Rights Plan and that Rights Plan will allow people to take a position in the stock.

But at this point in time, it's no more than 5% without prior approval in the sense that we want to be able to protect those net operating losses, which we think is part of our undervalued asset in Asure Software.

Pat, I personally own just over 150,000 shares of the Company, which is just under 5% of the Company.

I've never sold a share and if I could I'd buy more.

Are there any plans to increase that cap to allow me or other shareholders to own more than 5% of the Company?

One of the things -- we'll take that under advisement, and I think one of the things that we have looked at as a Board is at which point we have -- it's kind of a calculation on how do we preserve kind of the ownership values in the NOLs and different shareholders or different shares in the calculation roll off at different points in time.

So there may be opportunities in the future where it's easier to purchase shares and not get involved in the -- or not take away from the value of the NOL calculation.

And we'd be happy to address that at the next call or consider that at the next at the next Board meeting.

Pat, as usual, you've been extremely forthright, transparent and frank, and I very much appreciate your answers to all my questions.

And again, I want to thank you and the Management team for the incredible job you've done over the last year in turning things around, and we look forward to that kind of performance continuing into the future.

So thank you very much.

And, James, thanks for your involvement in Asure, and we appreciate your interest in the Company and the kind words we'll definitely pass to all the employees.

You have no further questions.

This concludes the question-and-answer session of today's call.

I'd now like to turn the call back over to Pat Goepel with closing remarks.

Thank you for your interest in Asure Software today.

I always feel we have four constituents in looking at a business.

We have the communities we serve, and that we're in,whether it's in Austin, Texas, or Vancouver, Warwick, Rhode Island, or Mumbai, India.

We have shareholders and we think we've made a very strong effort in getting the shareholders a good return and we think over time, that return will continue.

The employees.

The employees at Asure work very hard in this turnaround and we're thrilled that we can get the results that we're getting, and we think that the future is bright for Asure, and we thank the employees for their efforts.

And, finally our clients.

We have excellent clients that have been very patient with us, but also have been very forthright on what they need going forward to be part of a successful partnership.

And we acquired many more clients this quarter, we're going to do a great job for them and we're excited about the partnership that we have with them going forward.

So all four constituents, we thank you.

We have you in our mind everyday.

We hope you're pleased with the results at Asure for the second quarter.

Our future is bright, we're making stuff happen and we want to thank you again for listening on the call.

Have a great day.

Ladies and gentlemen, that concludes today's conference.

Thank you for your participation, you may now disconnect.

Have a great day.