Asure Software Inc (ASUR) 2011 Q4 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the Asure Software's corporate conference call. My name is Karen and I'll be your coordinator for today. At this time, all participants are in a listen-only mode. We will facilitate a question and answer session towards the end of today's presentation. (Operator Instructions). I would like to turn the call over to Cheryl Trbula of Asure Software.

Thank you, Karen, and 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 other 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 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 actual results to differ materially.

This call is also being recorded on behalf of Asure Software and is copyrighted material. It cannot be reported 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 to questions from the financial analyst community. I would like to now turn the call over to Pat Goepel, CEO of Asure Software.

Thanks, Cheryl. I would like to welcome investors, clients, employees, potential investors, and otherwise interested parties in our fourth quarter conference call and also the 2011 year end review. We will get to the fourth quarter results in a minute, but first, I would like to take just a short moment and talk about the results of 2011. As we close the chapter of 2011, history will show that 2011 was the year Asure moved from a turnaround story to a growth story. The turnaround is now largely complete and we are going to grow the business.

Several events in 2011 solidified the foundation of growth. First of all, we completed our management team make over. As you recall throughout the year, we hired Steven Rodriguez as our Chief Operating Officer, and Steven has dug in and done a tremendous job with the Company. Mike Kenny is now the Senior VP of sales. He's done a great job for us in the sales area.

We revamped our sales area and brought sales in-house throughout the year, largely in the second quarter timeframe, and Mike has led that tremendous effort. Christian Cowan, heading up marketing with our acquisition of ADI. He has done a great job on the marketing side and is a fantastic leader for the marketing group. And Todd Giaquinto, who is our VP of development, has done a phenomenal job, and we are real excited to have Todd as part of the family. In addition to the management team, we felt like we've really strengthened it throughout 2011. We're happy with the backgrounds. We're happy with the work that they have done, and it makes it for a much stronger Asure going forward.

We also acquired two companies in 2011 and in the fourth quarter. ADI, the acquisition of ADI, and the acquisition of Legiant really has bolstered our position in the work force market and the time and attendance market. It brought us new products, new talent, new development, new clients, and we have a lot to work with as we move forward and the results in the fourth quarter paid off, as well as 2012 looks very exciting because of those acquisitions. In addition to that, we streamlined our office locations.

When I first started, we were in three countries and four facilities. Largely, we're in two facilities. We're in Warwick, Rhode Island and Austin, Texas. We've now closed Vancouver, Canada, as well as Mumbai, India. For our size and where we're trying to grow, to streamline of those two office locations is an important aspect for us. We introduced a new SaaS platform, or cloud-based platform, and we spent a lot of time fixing and integrating the current platforms to the cloud, and that has done well for our clients, our employees, our net profit margin going forward and it's given us a foundation of growth. We introduced a mobile strategy in 2011 for our clients. We have beta customers already on our service and we think that will be a foundation for growth going forward.

We also, with the acquisition of ADI, we acquired new clock technology and our clocks did very well in selling in the fourth quarter, as well as give us a foundation for growth in 2012. We also have spent some time with the community. I think a good company spends time motivating employees and getting the best talent in the world. We get the best clients in the world. And we also have to be good in the communities we served. In the community we serve, just one example of that is we had a sales kickoff and the employees built bikes for the Riverside Youth Foundation, and that was a great team building exercise for the employees and it was a great give back for the community. I'm as proud of that as the results that we have.

We solidified our infrastructure. Every department is now focused on growing Asure and making it great. I feel like we're poised and in position to do that. I want to thank the employees of Asure for all their tireless efforts. They have done a phenomenal job in transitioning this turnaround story into a growth story, and we're very, very proud of them. As for the quarter, we're going to start to get into the specific results, but we have had outstanding fourth quarter in terms of revenue and EBITDA, and I'm going to turn it over to Dave Scoglio to give those specific results.

Thanks, Pat. I'm going to take a few minutes here to go over the fourth quarter and full year financial highlights and I'll be happy to answer any and all questions during the Q&A period at the end of this morning's call. In the fourth quarter, revenue was at $3.65 million, which grew 46% over the last quarter, largely driven by the acquisitions of ADI Time and Legiant during the quarter. Core business revenue was down around 7%, but this is really driven by lower one-time revenue, which is consistent with our desire to increase our cloud-based and recurring revenue streams.

Organic recurring revenue, excluding acquisitions as a percent of overall revenue, grew to 84% sequentially and grew by 8% compared to the comparable quarter of 2010. We finished the year at $10.9 million in revenue, which is a 9.1% increase. Professional license revenue, or one-time license revenue, was down as expected, with the acquired company revenue driving the bulk of the year over year increase. NetSimplicity cloud bookings were up essentially by 64% and 82% year over year, while iEmployee cloud-based bookings posted sequential growth of 60% and 151% year over year.

EBITDA for the third quarter was $715,000 excluding one-time items driven by the recent acquisitions of ADI Time and Legiant, along with mark-to-market and original issue discount due to the conversion of some of our debt and the derivatives related to that, and the fair valuation of some of our acquired debt. This same measure for the full year was $1.8 million, which was a 37% improvement over the prior year. Net income excluding one-time items for the fourth quarter was $0.06 per share and $0.15 per share for the full year. GAAP net income for the full year and the fourth quarter was minus $0.01.

From a gross margin perspective, we landed at 79% for the full year, which was a 2% improvement over the last year. We're very pleased with our free cash flow at $1.47 million for the fourth quarter. Our strong cash flow over the last year enabled us to allocate approximately $3.1 million of cash from our balance sheet towards the two acquisitions this quarter. Additionally, deferred revenue was increased 22% sequentially and 57% versus the comparable quarter in 2010, driven by both our strong cloud bookings growth and a successful campaign to bring month-to-month customers into our standard annual paid upfront contracts.

Due to the Company's efforts to restructure a portion of our debt through equity conversion, the Company will regain compliance of the NASDAQ's threshold for continued listing requirements as of March 31, 2012, which we had fallen below as of 12-31-2011. For additional information, please see the 8-K filed on that day, March 12, 2012, for additional information and related impacts, and also please note that these impacts were excluded from the earnings guidance published in this morning's release.

For Q1 2012, we expect EBITDA excluding one-time items to fall within the range of $700,000 to $800,000. Revenue will fall between $4.1 million and $4.2 million, and cash generation or free cash flow will be between $500,000 and $650,000. EPS guidance for the full year will be given at our next earnings call, due to the upcoming stock split. At this time, I would like to turn the discussion back to our CEO, Pat Goepel, for closing comments, and then we'll do the Q&A period.

Thanks, Dave. Again, we are very pleased with the results of the fourth quarter and for the full year. Just some more color on the fourth quarter. First of all, in sales, I mentioned Mike Kenny, and he's done a tremendous job as the VP of sales. Just clients of note in the quarter, Boston Consulting Group, Alan & Overy, KPMG, John Hopkins, GE, The Aviation Division, USDA, Kaiser Permanente, Kaiser University in Florida, Salesforce.com, Goodwill, and Easter Seals. Those are just some examples that are clients that we won or bought additional business with us in the fourth quarter. That's a very impressive list of names and we want to do a great job for them every day.

The cash flow was outstanding this quarter. If you look at our history the last four or five quarters, we've had increasing cash flow. We were aided by the conversion in the cloud. That was a one-time program and customers paid a year in advance instead of month-to-month. But the cash accruals has been impressive. It's put us in a position to do a couple acquisitions and we're certainly not done yet. We're actively looking to grow the Company organically, as well as looking to make timely acquisitions, because we do feel that now that we have the foundation for growth, we can grow both organically, as well as via acquisition and we think the marketplace is very attractive for that as well.

In addition to 2012, the stock had outstanding shares of a little over $3 million. I've been on the road show with stockbrokers, as well as with institutional investors, and one of the things that they have asked us is for more liquidity in the stock or more shares outstanding. Because of the results, we felt that it was prudent at this point in time with the Board to do a three-for-two stock split and that, in addition to the convertible notes, will make our stock more liquid for investors and we think it will be more investor-friendly to get in positions with our stock. We've announced that move.

The details were in the press release and the ex-dividend date, which will be in late April, early May, we think that will solidify or help our liquidity of the stock and we're excited about that. We're most excited about being in a position to do that. We work hard for the investors each and every day. We're excited about the Company. I would like, at this point in time, to turn it over for any questions that you may have.

(Operator Instructions)

Thomas Pfister, RedChip.

Congratulations again on completing a great year for the Company and it should be exciting to see what you guys have in store for 2012. I just have a few questions here. I think you guys mentioned the monthly to annual contract conversions. You said that was like a one-time thing. Could you give us some additional color maybe on what drove those conversions, was it a result of the acquisitions or something else?

Great question. What we did is our model with cloud-based bookings and cloud-base going forward was we charge an annual fee. And for that annual fee, we deliver service each and every day. We recognize that annual fee on a month-to-month basis.

With some of the acquisition and with some of our legacy clients, they would pay us once a month. What we did is put them in our standard program that we offered them a package, whether it was an upgrade or some features or perhaps a 5% discount, but in one of those packages, we would offer them that if they paid upfront for the year, they would get additional value in their services and several elected to do that in the fourth quarter. That helped us from a cash flow perspective. It also helped us from standardizing our offering for our clients and from our employees, making collections a lot easier. We thought it was a win-win-win all the way around and we ran that program in the fourth quarter.

Yes, it definitely sounds like a good idea. Is there going to be any additional wash over there, maybe in the first quarter of 2012, or did it all happen during the fourth quarter?

As far as the fourth quarter, we were pleased with the cash. We've announced our cash guidance in the $500 million to $650 million range in the first quarter, and we'll continue to look at standardizing some of our clients throughout the year. We're very pleased with our cash generation.

Okay, great. Next question here, related to research and development expenses, I saw a little bit of an uptick there in the fourth quarter that went along with the growth in revenue. Going forward, do you guys anticipate growing the research and development along with the revenue, or could you give us some guidance as it relates to that?

Sure. In the fourth quarter, we picked up ADI Time, who switched the proportion of R&D expense. We are actively developing a new platform. We're not necessarily doing any substantial further investment, but I do expect that, that R&D rate will continue as you see in the fourth quarter. The focus of our new platform development is in ADI Time versus Legiant, so you won't see any quarter-over-quarter influence because of the partial quarter with Legiant. I do expect that to remain relatively static.

Okay, great, thanks for the color there. Next question, I saw you guys put a release out about a month ago on the monthly time clock subscription program. Could you give us maybe some color on the impetus behind that and I guess how maybe it helps out your customers?

Our customers more and more are buying in a cloud or repetitive business model. Historically, clocks were sold in a one-time business model. Let's say a clock was sold at $1,000 with $200 maintenance and they bought the clock. And the clients don't always want to buy the clock. In some cases they want to lease the clock or they want to subscribe to the clock. And they want to make it easier.

Let's say for $75 or $100 a month, we can provide that service. It's very similar to how we price our cloud-based solutions anyway. What that does for us is it allows the client to have a very consistent service offering and billing mechanism to take advantage of the service and they know they don't have to take full ownership responsibility where they can rely on the service of Asure. We announced that offering. We offered that clock model in both offerings, and we think it will ultimately grow sales and delight our clients.

Thanks, great. I just have one final question here, then I'll jump off the call. As regards to the conversion of the debt to equity of the convertible, I think you said about $1.15 million of the debt was converted. Do you think the rest of it's going to be converted or do you think the rest of the holders are going to hold on to their notes?

The actual that converted was $1.15 million converted. The other $350,000 will not convert. What we did is we have a deal with them, where they are not going to convert, but we had some language in there that we negotiated away, so we don't have to have mark-to-market accounting for that area. Without that language, if we didn't make that provision, if our stock price goes up, we would have a non-cash charge. Now that we've negotiated that, we don't have to have a mark-to-market impact going forward. We thought that was attractive for us and our financing from the convertible stock is known now. $1.15 million converted and the other $350,000 have notes and they have the option to go to become a shareholder at $5 a share for the next, approximately, two years or so.

So a follow-up on that, I think there's going to be a non-cash charge just in the first quarter of 2012 and then after that, that will disappear; is that correct?

That is correct.

We will continue to see a small OID charge related to that convertible debt that remains, but it will be minimal.

Right, okay. Thanks, that's all the questions I have today and again, congratulations on the excellent quarter and year.

(Operator Instructions)

[David Flamhold], GEM Asset. He seems to have removed himself. I see no further questions in the queue at this time. This concludes our question and answer session. I'll now turn the conference back to Pat Goepel for any concluding remarks.

Thank you, and again, we had a lot of folks on the call today. We want to thank you for your support. Again, we are very, very pleased with the results of the fourth quarter. We're very pleased to be in the position we are for 2012. It's been a lot of hard work getting to this point. When we first started as a Management team and a Board of Directors was in September of 2009 and the stock price I think was somewhere around $0.20 a share or so. We did a reverse split. We did a lot of heavy lifting to build the infrastructure, to be in a position to grow.

As I look out in 2012 to see $18 million in revenue and $4 million gain in EBITDA and the cash flow of $3 million and some other one-time events that are taking us to get there with the two acquisitions, and we're actively looking at acquisitions going forward, we're really excited about the market opportunities that Asure brings to us. We're excited about the hard work that our employees and our clients have been with us and we think we're going to reap those rewards in 2012 and beyond and we would really like to thank you as investors for your support in our Company and you're interest. We're looking to have a prosperous year. Thanks for your time today and we'll talk to you down the road.

Ladies and gentlemen, thank you for your participation in today's conference. This concludes the presentation. Thank you and have a great day.