Asure Software Inc (ASUR) 2015 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 Lauren and I will be your coordinator for today.

(Operator Instructions)

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

Please proceed.

Thank you, Lauren, and welcome 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 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 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 recorded or rebroadcast without the Company's express 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'd like to welcome investors, analysts, interested parties to the 2015 fourth-quarter and annual earnings call.

Today we will cover the fourth quarter, the year that was 2015.

We will also touch on the subsequent acquisition of Mangrove that we did in March and we will provide a peek of financial results into 2016.

First of all, our fourth-quarter 2015 results did not meet expectations.

Three reasons.

Revenue was light and the reason for that is, while bookings in this business, especially in the business hoteling space, are exciting, turning revenue from the backlog is slower than expected.

We do feel that we are making significant improvements in this area.

We are getting our arms around the backlog, but clients are going to this business hoteling in a bigger way.

The bigger they get into the hoteling, the longer sometimes the implementation process is.

And we are getting our arms around it, we are helping our clients get their arms around it, and we believe that we will solve that problem in 2016.

We also took an obsolete inventory charge at the end of 2015 and then we had some deal expenses with the acquisition of Mangrove in the first quarter.

And for those reasons, we were behind in the fourth quarter meeting expectations.

For the year 2015, we set out to do really four things to improve the business.

First of all, we wanted to market ourselves globally in the business hoteling space and we've done that in spades.

Client wins like Morgan Stanley, [Fiserv], Rogers Communication out of Toronto, Genpact; we've had significant wins and significant large-scale implementations.

We are very pleased with the progress we are making on selling global deals and we think will have much success in 2016.

Mobile adoption.

We set out to have product lines in both Android and the Apple-related products where our products came with a native mobile app.

We are pleased that that is now a standard that we can deliver with our client installations and that has become a standard as opposed to a twinkle in the eye of some of the technology folks.

Financial transformation.

Under Brad we've went through the process of a business transformation, a financial transformation.

As some of you may know, since 2009 the business has gone through a re-engineering and really a pointing towards growth.

The financial systems needed an overhaul and we've upgraded the salesforce and redirected some of our processes.

We implemented a new version of [Great Plains].

We had an initiative around straight-through processing that would help us get an acquisition and, in 2015, we really laid the foundation for us to grow as a business financially.

I'm very proud of the team as they were able to execute a 24% improvement in our cash growth and, more importantly, they really set the table to acquire in the subsequent acquisitions.

Then, finally, the fourth initiative we had was taking our on-premise clients and starting to move them to the cloud.

And we had great progress in that area, specifically from May on.

We are very, very pleased with the sales team, customer success team, and our clients who see the value of the cloud.

They are moving to the cloud, many times the average price is about 2.4 times or so the annual bill on maintenance.

It is a product win for the client, for us, as well as our cloud customers are more profitable.

So we are continuing to make good progress in that area and that initiative will continue in 2016.

We also built backlog in 2015.

Now end the year with about $2.8 million and that revenue will become revenue in 2016 and beyond.

The good news about that is we've sold it already.

It's sitting there waiting to turn into revenue and we feel we have good project plans to get that -- realize that revenue in 2016 and beyond.

What also 2015 did is we've seen the convergence of scheduling people and scheduling the space in which they work.

The human capital management broadly is, by some accounts, $100 billion marketplace and -- globally.

And we have some clients that are now -- almost 7,000 clients that have opportunities to bring where people work and how people work and teams together.

We feel we have a unique set of combination of a product offering that will be able to turn some heads.

With the acquisition of Mangrove that we did in March, we are really excited about the future and the transformative nature of this acquisition.

It won't happen overnight, but clearly we are excited about the opportunity to acquire Mangrove and we are excited about the possibilities, for sure, going forward.

We think this is the most significant event that we've undertaken in the last six, seven years.

We think it will pay dividends for years to come and we are really, really excited about our positioning with this product line and this company into a marketplace that's growing.

It's large and the valuations in this marketplace are very high.

We think, as an investor, over the next few years will be exciting time to be at Asure.

Finally, I want to think our partner in this endeavor with Wells Fargo.

Wells Fargo provided us the fuel to complete the acquisition.

They've been an excellent partner of ours and we've enjoyed a relationship for the last couple years.

With the specific results I'm going to turn it over to Brad.

Brad?

Thanks, Pat.

Good morning, everyone.

I will take a few minutes to go over the fourth-quarter financial highlights and then we will be happy to enter any questions during the Q-of-A period at the end of this morning's call.

Cloud bookings in the quarter increased 135% from the fourth quarter of 2014.

Cloud bookings year-to-date increased 82% excluding PSSI and 30% including PSSI over last year-to-date.

Cash flow from operations for the quarter was $1.4 million, an increase of $365,000 over 2014, and $3.4 million year-to-date, an increase of $700,000 over 2014.

Capital expenditures were $116,000 for the quarter and $1.4 million year-to-date.

In the fourth quarter, revenue was at $6.8 million, a 5% decrease from the $7.1 million reported for the same quarter last year.

Fourth-quarter revenue was consistent with the $6.7 million reported in the previous quarter.

Year-to-date revenue was at $26.9 million, down slightly by $300,000, or 1%, from the $27.2 million reported for the year ended 2014.

The year-over-year decrease in fourth quarter is comprised of increases in HaaS and professional services revenue, offset by a decreases in cloud, hardware, and on-premise software license and maintenance and support revenue.

Year-to-date 2015 revenue decreased slightly by $300,000, or 1%, as compared to 2014 revenue.

Cloud revenue year-to-date remained consistent with 2014 and hardware revenue increased $677,000, or 26%, over 2014, offset by decreases in maintenance and support revenue on-premises software license revenue and professional services revenue.

We continue to deemphasize maintenance and support revenue and on-premises software license revenue as we move toward more cloud revenue.

AsureSpace revenue was $3.9 million for the fourth quarter, a slight decrease of $142,000, or 4%, from the $4 million recorded for the fourth quarter of 2014.

Hardware revenue, primarily HaaS increased $162,000, or 43%, and cloud revenue increased $55,000, or 3%, over fourth quarter last year.

This was offset by decreases in professional services revenue, which decreased $60,000, or 10%, and maintenance and support revenue and on-premises software license revenue which decreased $60,000, or 6%, and $239,000, or 117%, respectively.

We continue to emphasize the sale of integrated cloud-based solutions.

AsureForce revenue for the fourth quarter was $2.9 million, a decrease of $198,000, or 7%, from the $3.1 million recorded in the fourth quarter of 2014.

This decrease was primarily in cloud and hardware revenue with a decrease of $132,000, or 8%, and a decrease of $210,000, or 42%, respectively, as compared to the fourth quarter of 2014.

On-premises software license revenue increased $81,000, or 99%, and professional services revenue increased $124,000, or 58%.

AsureSpace revenue for the year-to-date 2015 was $16 million, a decrease of $62,000, or 0.4%, from the $16.1 million recorded year-to-date 2014.

AsureForce revenue decreased $238,000, or 2.1%, to $10.9 million as compared to $11.1 million for 2014.

The decrease in AsureSpace revenue consists of a decrease of $300,000 in maintenance and support revenue, a $459,000 decrease in on-premises software revenue, and a $356,000 decrease in professional services revenue, partially offset by a $439,000 increase in cloud revenue and a $614,000 increase in hardware revenue.

The decrease in AsureForce revenue consists of a $528,000 decrease in cloud revenue and a $135,000 decrease in maintenance and support revenue, partially offset by increases in hardware revenue of $64,000 and a $54,000 increase in professional services revenue and a $316,000 increase in on-premises software revenue.

Recurring revenue as a percentage of overall revenue for the quarter was 76% compared to 75% last quarter and 73% in the fourth quarter of 2014.

Recurring revenue as a percent of total revenue was 75% year-to-date as compared to 75% last year-to-date.

Gross margin for the quarter was $4.7 million, or 70%, down by $611,000, or 12%, from the $5.3 million, or 75%, year-over-year and down $202,000, or 4%, from the previous quarter gross margin of $4.9 million, or 74%.

Write-offs of obsolete inventory contributed to this decrease.

Year-to-date gross margin was $19.6 million, or 73%, as compared to the $20.9 million, or 77%, for year-to-date last year, a decrease of 6%.

EBITDA for the quarter was $609,000, excluding one-time items, compared to the $667,000 reported in the previous quarter and the $1.3 million in the fourth quarter of 2014.

We incurred $298,000 of one-time items this quarter.

Year-to-date EBITDA, excluding one-time items, was $3.7 million, down from the $5.1 million reported in the same period of last year.

For the year, we have incurred $734,000 in one-time items, which included $110,000 loss on early termination of our Warwick, Rhode Island, lease.

GAAP net loss and net loss excluding one-time items for the fourth quarter was a negative $0.13 and $0.08 per share, respectively.

Year-to-date net loss, excluding one-time items, was negative $0.17 per share.

Year-to-date GAAP net loss per share amounted to $0.28 per share.

We introduced backlog as a metric in the second quarter of 2015.

We define backlog as sales bookings that have not yet turned into revenue or deferred revenue, including both repetitive and non-repetitive product lines.

For repetitive product lines, one year's value is included in backlog.

Backlog at December 31, 2015, is $2.8 million, up $889,000, or 55%, from December 31, 2014.

As these clients move out of backlog, it bodes well for next year's growth and supports our 2016 guidance.

As Pat mentioned, on March 21, 2016, Asure purchased Mangrove Employer Services in a stock and asset purchase transaction.

Asure management reaffirms its guidance for 2016.

On a pro forma basis, which includes the financial results of Mangrove as if it and Asure had combined as a single company on January 1, 2016, as follows: revenue of $37.5 million to $38.5 million; EBITDA excluding one-times of $7.5 million to $8 million; and earnings per share excluding one-time items of $0.12 to $0.20.

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

Thank you.

Thanks, Brad.

In 2015 we made a lot of progress in the foundation of Asure Software.

We are pleased with our progress in some of the initiatives that we had spoken about on the conference call.

We are not pleased with the financial results.

As we look forward to 2016, there's four initiatives we are focusing on.

We are going to integrate the companies of Mangrove Employer Services and Asure Software.

We believe we have huge products synergies in the human capital management marketplace.

Payroll to time integration, integrating the human capital management platform with the real estate optimization platform will provide tremendous values to our clients and will bring us a first-mover advantage in this industry.

We believe we have significant cross-sell opportunities.

The integration work that we are doing with product and the new version of product that we are implementing or developing right now on the Mangrove Employer Services platform will be ready in the third quarter of this year.

We are excited about that opportunity.

We are excited about talking to our clients about that opportunity.

We believe that that will give us cross-sell opportunity to the 7,000 clients that we serve.

There continues to be progress and opportunity in our on-premise customers; migrating them to the cloud.

We feel that we are about a third of the way there on the client base.

We think we have two-thirds more to go.

The response has been very positive from our clients.

And then, finally, the fourth initiative is getting the backlog to revenue.

We feel that our change management services, coupled with implementation of some of these big business hoteling deals, will provide experience and comfort to those that are in the middle of the implementation and be able to shrink some of those implementation cycles going forward.

So those are our focus in 2016.

We are really excited about the Mangrove acquisition.

We think it's the transformative acquisition we've been telling you about.

We are excited about the culture, the people, the management team.

We feel that we have a winner in Mangrove Employer Services.

As we do deals, this deal will be accretive.

We feel that there's $2 million of synergy.

There will be some one-time costs.

First half of the year we're going to go through the transformative part of integrating the acquisition, so there will be some noise in the numbers.

The second half of the year from the cost synergy, we should be able to really pick up steam on the cost side.

From a revenue perspective, we are going to work hard on the product all throughout 2016 with a special emphasis in the second quarter and then we believe the revenue synergies will really kick in in 2017.

From the guidance perspective we are thoughtful about our guidance.

We feel that there's some business momentum in the current Asure business from the Mangrove Employer Services business.

We really built growth into 2017 as opposed to 2016.

We are focused on executing in 2016 the product, delighting our customers, and introducing the new value proposition to all our customers.

And we think we will have a big bang in 2017 and going forward.

We are highly confident in the numbers and the guidance that we presented.

We don't feel it's an overreach.

We feel we've been very prudent.

We recognize that, as a small company with big aspirations, sometimes we've gotten ahead of ourselves and we've taken great caution to make sure that we guide to a result that we believe we can hit.

So with that I will turn it over to questions.

We are excited about the opportunity and we are excited to serve you as an investor.

And with that what questions do you have?

(Operator Instructions) Jeff Houston, Northland Securities.

Hey, Pat and Brad.

Thanks for taking my questions.

Looking at the cross-sell opportunities with your three business units now -- Space, Force, and Mangrove -- how do the buyers compare between these three different businesses?

I think, first of all, there is a common thread that -- I call it the holy trinity of buyers and all businesses, all product lines have three areas of buyers.

You have the CFO, who primarily is looking at cost reduction, efficiency, savings.

You have what I will call a senior VP of HR, who is looking at productivity, cost, and keeping their best people.

And then the CIO, which is looking at cloud and scalable technology solutions.

And our job, no matter what product we are coming at it and ultimately with the whole solution, is to find out which one of those three buyers will ultimately make the right decision or which one of those three buyers has the budget in order to make the transformative or the product decision that we are offering.

And so our salespeople, we focus the training on how to sell the value of their services to one of those three buyers.

And by elevating our message to those three buyers, we believe that we get a more profitable sale and a bigger sale going forward.

Great.

Then switching over to Mangrove, what is their mix of payroll versus their other HCM talent management type products?

I think we will break that out formally, Jeff, when we file the 8-K and that'll be sometime in probably early May or so.

But just as a general, Mangrove Employer Services has payroll, recruiting, talent management, benefit services, ACA services, COBRA, FSA.

What I would say is, in many cases, payroll and talent management are the linchpin and probably, order of magnitude, 75% of the business.

About 25% of the business comes at it from a benefit perspective or so.

And we are really excited about the opportunities that we can integrate those solutions, but also looking at books of business in specific areas to be able to grow that business going forward.

Great.

Then switching gears to the guidance for 2016.

What type of organic growth are you assuming?

Is it in the 5% to 10% range?

Just trying to get a sense of how much Mangrove is bringing versus what organic growth will be.

What we are planning on is call it a range from 8.5% to 9% with Mangrove, so kind of a steady-state.

We believe we have some product opportunities and we are pointing towards understanding, learning the product, but then pointing towards 2017.

And then probably a 10% growth on the Asure business, which we believe we have backlog that will drive that right out of the gate.

Got it.

Okay, great.

Thank you.

(Operator Instructions) I'm showing no further questions at this time.

Well, I'd like to wrap up the call then and just -- again, my name is Pat Goepel, about a 9%, 9.5% owner of Asure.

Previous life I ran multi-hundred-million-dollar P&L's at Ceridian and Fidelity and have been in this space a long time.

It's rare that you find an asset like Mangrove Employer Services that has the capability that they have.

It really was exciting for us to really get to know them and to be able to complete this deal.

We feel that we have unique capability coupled with Asure's time and attendance, AsureSpace management to wrap around this human capital management.

We think it elevates us into a market position that is just much greater than we've ever experienced.

We feel like we have a unique value proposition that we are really, really excited about.

We feel like we have a management team that has been in this space before running million-dollar P&L's.

We understand the key players in the space.

We understand the clients in this space.

We think this is a once-in-a-lifetime opportunity.

Those of you that have been with us for six, seven years; those of you, I can't thank you enough, when you were there when we were $0.10, $0.20 a share.

We are now in the $5s.

We believe that this is a growth opportunity that for the next five, 10 years.

From a valuation perspective, Asure does have some debt.

We will look at that debt-to-equity conversation down the road.

We are very, very pleased with the cash flow of Asure.

We will support that debt from a valuation perspective.

We've looked at other human capital, public management, public companies.

Some are much bigger.

Some are a little bit bigger and the valuations of where that reoccurring revenue is; we feel that we have a product line and a platform to be able to really go after market share in this space.

We are excited about that opportunity going forward.

We will have an 8-K in May and our next earnings call is May 15.

We will continue to provide more color and we are excited about the possibilities going forward.

We thank you very much for your support.

We are in it together with you and we look forward to more communication in the year of 2016.

Have a great day.

Ladies and gentlemen, thank you for your participation in today's conference.

This concludes the presentation.

Thank you and have a great day.