Asure Software Inc (ASUR) 2014 Q2 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the Asure Software's conference call. My name is Charlotte and I will 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.

I would now like to turn the call over to Cheryl Trbula of Asure Software. Please proceed.

Thank you, Charlotte, 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 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 are urged to consider the risk factors related 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 recorded or rebroadcast without the Company's expressed permission and your participation implies consent to 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 now like to turn the call over to Pat Goepel, CEO of Asure Software. Pat?

Thank you, Cheryl. And I would like to welcome investors, interested parties, analysts, clients and employees to our second-quarter call.

The second quarter of 2014 was an eventful quarter for us, a solid quarter for us, and it gives us optimism for the future.

Some key development in the quarter -- we have been working on our sales strategy and the hiring of the salespeople for about a year and a half. In the second quarter, we achieved very, very strong results in bookings. We were up 83% over the previous year. Some big deals that we had -- KPMG, PWC, PSSI -- reflect the global changing nature of our business. We focused on the mobile, global and technology companies and employees and we want to serve them well. And the fast bookings in the second quarter being up 83% was an outstanding number for us. It also led to our first seven-figure deal, which we are very proud of. And now we move forward to implementing those deals.

Our SaaS revenues grew double digits, 10% overall. Our revenue growth of 4% reflects the changing nature of our business. We've told you for some time now that we are really committing to a global SaaS company and the SaaS revenues come on a reoccurring basis. Reoccurring revenue was up to 78% of our business and it reflects the changing nature of our business.

We were profitable this quarter, and this is the first quarter in quite some time that we were profitable. We had a profitable quarter last year. That was due to a one-time sale. This is profitable with really no one-time events happening in the quarter, so we are very pleased on our progress with profitability.

Gross margin was high, reoccurring revenue was high and our EBITDA was ahead of the previous quarter.

In the area of product, we spent a lot of time with our clients developing products, and we developed the AirClock, which is a facial recognition tablet which we feel will benefit all our clients someday. And this allows us to be on the forefront of technology. It is an additional strategy that we have of integrating hardware and software. And we feel, in our bigger deals, our global deals, that that integrated hardware/software strategy is starting to pay off for us. It gives us facial recognition, which gives us markets in a number of different areas that are exciting to us from a sales perspective.

On the client satisfaction end, our net promoter score was 79%. We continually see progress in our client satisfaction numbers and we are thrilled with the progress.

Some subsequent events since the quarter but before the earnings call, we did acquire Fotopunch, which is a long-term partner for us. And now we are a leader in the mobile device area of time and attendance and also the facial recognition capabilities, will help us lead to new markets and growth. And then we acquired Roomtag, which is an assets play for us where, today, we can go in and help companies track their employees and track their real state. We can also help them now track their assets, whether it is mobile devices, PCs, tablets, et cetera. It is another part of the value proposition that will allow our clients ultimately to be more satisfied with our services and pay more for our services. So we are thrilled with Roomtag. It will also allow our clients to get deeper in the tracking of their real estate needs. We think this is a great market play for us. And Roomtag has the same architecture from a technology perspective that we do today, so it is an easy plug and play for us, and the cross-sell efforts will begin as early as Tuesday. So a lot is going on.

And I am going to turn over the call at this point in time to Kristi Richburg, who is -- I am thrilled has been with us as the Controller and she is now the acting CFO. And she will share the specific results for the quarter. Kristi?

Thanks, Pat. Good morning, everyone. I will take a few minutes to go over the second-quarter financial highlights and then we will be happy to answer any questions during the Q&A period at the end of this morning's call.

In the second quarter, revenue was at $6.5 million, a 4% increase from the $6.3 million reported for the same quarter last year. Year-to-date revenue was at $13.1 million, up 7% from $12.3 million reported for the first half of 2013. The year-over-year increase in both second quarter and year-to-date revenue is comprised primarily of increases in cloud revenue and professional services revenue as we continue to emphasize our integrated cloud-based solutions.

As compared to the second quarter of 2013, cloud revenue increased $325,000, or 10%. Professional services revenue increased $200,000, or 31%. Hardware revenue, on-premise software license revenue, and maintenance and support revenue decreased by $273,000, or 11%.

As compared to the first half of 2013, year-to-date cloud revenue increased $561,000, or 9%. Professional services revenue increased $447,000, or 39%, and hardware revenue increased by $96,000, or 11%. On-premise software license revenue and maintenance and support revenue decreased by $300,000, or 7%.

Our AsureSpace revenue was $3.8 million for the second quarter, an increase of $395,000, or 12%, from the $3.4 million recorded for the second quarter of 2013. This increase was primarily due to an increase in cloud revenue, hardware revenue, and professional services revenue.

AsureForce revenue for the second quarter was $2.8 million, a decrease of $143,000, or 5%, from the $2.9 million recorded for the second quarter of 2013. This decrease was primarily in Legent product revenue and was offset by an increase in AsureForce time, cloud, and professional services revenue, as we continue to upgrade and transition our legacy AsureForce products over to our latest product offering.

Recurring revenue as a percentage of overall revenue for the quarter was 78% compared to 76% last quarter and 78% in the second quarter of 2013. Gross margin for the quarter was $5.2 million, or 79%, up $360,000, or 7%, from $4.8 million, or 76%, year-over-year and up $206,000, or 4%, from the previous quarter gross margin of $5 million, or 76%. Year-to-date gross margin was $10.1 million, or 78%, as compared to the $9 million, or 73%, for the first half of last year, an increase of 13%.

EBITDA for the quarter was $1.18 million, excluding one-time items. This is up from $1.14 million reported in the previous quarter and $1.15 million in the second quarter of 2013. We incurred $138,000 in one-time items this quarter, which were primarily severance and legal services related to our acquisition of Fotopunch.

Year-to-date EBITDA, excluding one-time items, was $2.3 million, up from $1.9 million reported for the same period last year. For the year, we have incurred $534,000 in one-time items, which consisted of a loss on debt refinancing of $1.4 million, offset by the gain on settlement of note payable and litigation of $1 million, as well as severance, legal, and professional fees and other one-time expenses.

Net income, excluding one-time items for the second quarter, was $0.02 per share. GAAP net income per share amounted to $0.00 per share. The per-share difference of $0.02 was due to the one-time items discussed above. Year-to-date net income, excluding one-time items, was $0.00 per share. Year-to-date GAAP net loss per share amounted to $0.09.

Cash flow from operations for the quarter was $676,000 and $747,000 year-to-date. Capital expenditures were $122,000 for the quarter and $290,000 year-to-date.

Finally, we are maintaining our 2014 guidance and expect to be within the range of $29 million to $30 million in revenue with EBITDA, excluding one-time items, between $5.5 million and $6.5 million, and net income per share, excluding one-time items, of $0.08 to $0.24 per share.

At this time, I would like to turn the discussion back to Pat Goepel, our CEO, for closing comments and then we will open it up for questions.

Kristi, thank you.

As we look forward, we are excited about the bookings we had this quarter. We are excited about the progress we have made on profit. This was the first quarter that the refinancing of Wells Fargo took hold and you can see it in the net income line, so we are very pleased with that.

We are also pleased about our two acquisitions. We think Fotopunch will enable us to go global and mobile in the area of time and labor software. We think there is a huge market for that. It fits our strategy very nicely. It also takes our average client per pay to about $100 per employee per year as they have and developed the integrated product hardware and software strategy.

As far as Roomtag, we are very, very pleased that we were able to make that acquisition as well. We like the product capabilities of Roomtag. It we think it fits our global real estate strategy and asset strategy very nicely. We think it bridges traditionally AsureForce and AsureSpace when we go to the client. Our value proposition now is one Asure, and it takes our overall client cross-sell opportunity and per employee per year strategy ultimately to a couple of hundred dollars per employee. So, that allows us for a foundation to grow. From a technology perspective, it fits very nicely into our initial architecture.

We are innovating with technology and rolling out products to serve our clients. Our client counsels, both in Europe and the United States, helping to drive that innovation, and we have had some success with sales as a result of that innovation.

So, as we look forward, we are very excited about the business. We are transforming from kind of a turnaround to a growth story to now a growth story and a profitable company.

And we have guidance up for the year. It is a step up on the revenue side, but we are starting to have bookings to support that. I think, as I look into the second half of the year, installing the business and getting the clients lined up at the appropriate time probably is our biggest risk. But that is a nice problem to have because, a couple of years ago, it would have been a bookings issue or it would have been a revenue issue. So, we are starting to line up the appropriate way, still have a lot of work to do, but we are very optimistic for the future.

I would like to thank you for your interest in Asure. And, at this point in time, I would like to turn it over to any questions.

(Operator Instructions). Jeff Houston, Barrington Research.

It is great to see the 83% increase in SaaS bookings and the large transactions. A few questions about that. How are these deals structured? What was the length of the contracts and the payment terms? Is it upfront monthly? And then, along the same lines, when should that booking start to show up in deferred revenue and then also into revenue?

What was the third point there after deferred, Jeff? I didn't hear it.

Just when the great bookings in the quarter, when that is going to translate into deferred revenue and then also into revenue? It kind of ties in with the contract terms and the payment terms as well.

Yes. A couple of different questions within that. One of our large contracts, we should see the cash either in the third quarter or the fourth quarter, and we should see a decent amount of revenue in the third quarter, fourth quarter. I would say fourth quarter at this point in time, but we are still working with delivery and working with some of that -- some of the project plan.

And as far as another one of the bookings that we had, it is a project that we are rolling out at several different organizations, or locations I should say. And of those locations, we will recognize revenue as we get to each location. Their headquarters is being implemented next month, and that will roll over probably about 18 months or so. So, it is a phased-in implementation over 18 months. And, from a cash perspective, we will recognize cash and revenue as we implement the phases.

Okay. And then, following up about the acquisitions, what was the purchase price for Roomtag?

It was $1.7 million and $1 million was upfront, or so. There was some cash involved, but let's say $1 million upfront and then it was about $760,000 in a very strong small interest-bearing note over the course of 27 months or so.

Okay. And for the two deals, how much revenue do you think those -- expect those two to contribute for 2014?

From a run rate basis, probably in the area of $400,000 or so, and that would be with software and then expected hardware. We do think that there is some upside in the end of 2014 and certainly in 2015. Some of it is just too early to tell. We've completed both acquisitions in the last 40 days, so we are heavily having conversations and rolling out some of the products and services. So some of it is to be determined, but that is what is in the plan so far.

Great. And then how will the capital structure look post the deals -- cash, the loan facility, and revolver? I am just trying to get a sense of what -- post the deal, how the balance sheet is going to look.

Yes. We did -- on the balance sheet front, there was a small note -- or, excuse me, a small conversion of $250,000 that this quarter we can -- the note holder converted that to equities, so that no longer will be part of debt. And then the two deals were about $3.25 million in cash and note, $2.5 million off the revolver and then the $750,000 was a note.

So from a debt perspective, call it, we have added $3 million on debt. Now we have about a $200,000 payment in principal to Wells Fargo, and that will be at the end of the third quarter. You will see that show up in the financial statements.

Great. And then, last question is kind of a two-part question -- is the wins in the quarter, were those legacy clients? And then, looking at the sales force productivity, is it still at about 35 salespeople and how do you measure their productivity? Thank you.

Yes. Just on the wins, they were a mixture of current client -- they were all -- actually one was new client, a couple were current clients. In some areas, it was new geography. And our land and expand and reaching out to global capabilities, our current clients obviously want to participate in that. There was a new client as well in that effort.

And then, as far as sales force productivity, right now we are at about 30 salespeople. There was some turnover. We anticipate we will be about 32 or so in the second half of the year. Some of it is our focus in not only the midmarket, but also the enterprise clients. Our sales are trending upmarket a bit, and that is just with the functionality that we are developing.

And, as far as sales force productivity, we measure off-quota man months and what have you, and we are pleased with the progress that we are making on the (technical difficulty) overall the color I would give you is the reps that have been here a while we're very pleased with and happy with their production. The new hire reps we are not getting online as fast as we would like, so we are putting more of an emphasis on training and working through the value proposition with our products. In fact, we had a number of training sessions here in the July timeframe. So we will continue to work in that area.

Thank you.

(Operator Instructions). Mike Chadwick, a private investor.

So, just a couple of quick questions here. In regards to Fotopunch, you had, in your public filings, the earn-out payments based on meeting various revenue goals over the next couple of years. Can you provide some color on what types of channels the revenues are expected to come from, either direct sales or indirect licensing?

Good question, Mike. Obviously, we are hoping direct sales will continue to drive a number of different revenue. We have spoke to some indirect licensing opportunities. And while I can't tell you we have anything right now, we certainly think that there are some opportunities with global security, with security going increasingly more facial recognition. And that leads to some of our clients that have some very interesting inquiries around how they standardize global security. We think there is opportunities there.

The revenue, we do have a licensing strategy around markets that we are not in directly and hope to have some success in that area. And then, also, direct, we landed our first seven-figure deal partly as a result of Fotopunch, and feel like there is more deals out there.

Great. Great. And in terms of that seven-figure deal, I know there was another question asked already and answered, but can you give us a little bit of color in terms of the licensing model associated with that?

It is a per-location. The client has a number of locations, and we will bring on an integrated hardware/software solution for them at each location headquarters. And I think the first 10 will be installed quickly in this third quarter, and the rollout will take about 18 months. And each time we get a number of different locations turned on, then the revenue will start with that.

Right. And you read the projections for the remainder of the year. Assuming the low end of the guidance, say $29 million, it looks like you are currently forecasting an additional $16 million in incremental revenue in the back half of the year. And so if we divide that in half per quarter, that is roughly an $8 million quarterly revenue run rate, which would be over a 20% increase at the current run rate we have ran for the first half of the year, which would be certainly significant and much higher than the high water revenue mark we hit in the fourth quarter of 2013. So certainly, if that is the case, I'm looking forward to seeing those results and it sounds like this large deal may be a part of that.

Yes. I think, Mike, just in general, the first half of the year, I think we budgeted about a 73% reoccurring revenue because we have an integrated hardware/software strategy. Currently, we are at 78%. So the second-quarter revenue at $6.5 million (technical difficulty). The good news is the reoccurring revenue will continue to go into third and fourth quarter.

We do have a number of different big deals that we are pleased with. The 83% bookings -- July was a good month. The two acquisitions we think will contribute. So I think there is a number of factors that contribute in the second half of the year going up, and I think we have some momentum in the business. I think it is all about how fast we grow.

And then, from a profit perspective, we have continually made progress. Last year, at this point in time, I think we have been able to grow and still be up year-to-date about $450,000 of EBITDA or so. And we think that we will improve EBITDA in the second half based on last year and based on the first half as the revenue comes in. So, it is a transformational business. It is now a growing business. We recognize that it is a step up, and it is a step up with consistent improvement and results. And the fact that we are profitable off the refinancing at the $6.5 million revenue number I think gives us comfort that, as the revenue does come in, we will be profitable.

Yes. And your comment regarding profitability, I assume that there is going to be some margin improvement as well, given the fact that you now own Fotopunch, and you are not a third-party licensor of the product. So we should see some margin improvement there as the sales ramp as well. Is that correct?

No, I think margin improvement is something we focus on and I think, certainly at the numbers in the earnout, if we can hit those numbers, certainly we would be improving our margins quite a bit.

Yes, great, excellent. Thank you.

(Operator Instructions). George Melas, MKH Management.

Just trying to understand a little bit better the last questions regarding the projection for the rest of the year. There is a lot of great things happening, yet it still seems like an ambitious goal to try to hit the guidance. How much do those -- I think you said that the two acquisitions would have a run rate of $400,000. Does that mean that they would contribute roughly $200,000 in the second half?

No, I think the $200,000 would be roughly what they would contribute, less any sales that happen. So we do believe that there is going to be some sales and cross-sales within the product line that we have, and so we think that there ultimately will be more, but the run rate business that we acquired was about that.

Okay. And, right now, you are at 78% recurring revenue. Do you expect that to happen as well in the second half? Because, with recurring revenue, it is just harder to grow your revenue -- it is hard to have big increases in total revenue.

No, George. Good observation, good point. I think the first half of the year, I think I mentioned that we thought we would be closer to 73% or 72%. I think the second half, I think you will see us with recurring revenue and little bit lower. Our focus is clearly on the cloud, but it is also on an integrated hardware/software strategy. We do think that there will be some one-time hardware associated with the cloud and with some of the rollouts that we have, so I could see that percentage going down a bit.

Down a bit from the 73% or from the 78%?

From the 78%.

Okay.

So say it would be closer to the 73%.

Okay. Great. And, so congratulations on this large deal. That seems like a big milestone for the Company. Do you have other such deals in the pipeline, or was that a fairly unusual situation?

Well, clearly, first of all, the name brands of the three that we mentioned, we are very thrilled to be associated with that type of company that those three brands would suggest. We are going upmarket. Our technology is becoming recognized and leading a forefront of a new frontier here, and so we are really excited about the kind of customers we are partnering with. And we think that this is no accident that we have had -- had us in bigger deals. I think we anticipate bigger deals in the future. But this is also a first. So, I am very optimistic that we will get more deals like that. And we are thrilled to be in this position, but we are also still learning.

Some of the management team come from backgrounds where some of these deals we have had on a quarterly basis or so, we hope to get there. I want to say that we are still early in those days, so I don't want to say we are going to do $7 million -- or seven-figure deals every quarter, not yet, but certainly that will be the expectation over time. But we are still early in the movie.

Okay. And those deals were both on the Force and the Space side?

Yes. We had success in Force and Space and, clearly, we see deals emerging of nice size in both areas. And I think, with the exit acquisition of Roomtag, really what it has allowed us to do is start to elevate our value proposition where we are -- no longer we are going to be Force or Space, but clearly we can help clients with their technology strategy, around their employee costs, the real estate costs, and keeping track of their assets. And we think that story is a much bigger story than we have been positioning. It gets us into the C-suite and when you are in talking to the C-suite, big deals can happen. And so we are clearly focused on training our salespeople, getting our management team, getting our products aligned to the new strategy because we feel like we can make bigger and bolder change in the future. So, still early days, but we are really excited about it.

Okay, great. Good luck.

Thank you, (Operator Instructions). All right. And at this time, I am not showing any further questions. I would like to turn the call back over to Pat for any closing remarks.

I would really like to thank everybody for participating on today's call. Asure, those of you that have been with Asure for the last five years have seen the transformation and have seen the results. And we have achieved great things. Five years ago, almost to this quarter, or to do this date, when we inherited this company, it was $10 million, losing $10 million. We are starting to get in an area where this is pretty exciting. We are partnering with really good clients and I have some really good optimism for the future. I would like to thank our employees who make it happen every day and work so hard, and look forward to showing you the progress. And thanks for your partnership. Have a great day.

Ladies and gentlemen, thank you for participating in today's conference. This does conclude the program and you may all disconnect. Everyone, have a great day.