Asure Software, Inc. (ASUR) Q3 2009 Earnings Report, Transcript and Summary

Good day, ladies and gentlemen, and welcome to the third quarter 2009 Asure Software earnings conference call. (Operator Instructions) I would now like to turn the presentation over to your host for today’s call, Ms. Lisa [Splen]. Please proceed, Madam.

Thank you, Francine. 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 outcomes. You are 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 have completed our review of the quarter, we’ll open up the call for questions. I would now like to turn the call over to Richard Snyder, Executive Chairman of Asure Software. Dick.

Thank you, Lisa and good morning, everyone and welcome to our third quarter fiscal ’09 conference call. Well, despite the harsh macroeconomic environment, I am pleased to report a solid Q3 financial and operational results, including continued progress toward our goal of being a leading provider of on-demand workforce management software. We will give you some details on that in a minute. First, I would like to address some important changes to our management and board structure. Your board of directors has had a CEO succession plan in place for some time, which included the intent to separate the Chairman and CEO position. I am very pleased to announce that Nancy Harris, who has been Chief Operating Officer for the past 18 months, has been appointed to be President and Chief Executive Officer effective immediately. Nancy is well-qualified with 23 years of experience in software development and marketing. She has been with Asure for eight years in marketing and sales and more recently as senior vice president of operations and then as Chief Operating Officer. During that time, the company has grown software revenues from less than $1 million to over $11 million, with more than 3,000 customers. We believe the timing is right to make this transition. The company, in a strategic evolution as an early stage software enterprise and with the end of our fiscal year and our 2009 annual meeting approaching. Nancy has also been elected to Asure's Board of Directors to fill the seat vacated by Kathleen Cote on June 1, 2009, and will be named on the company’s slate of election at the annual meeting. Nancy will bring her strong operational knowledge to the board that already has a very deep public company and tech industry background. In addition, there is a broad set of skills across the board with experience in software development, marketing and distribution, intellectual property, and investment banking, which makes this board well tuned to the needs of the company and its shareholders. My role as Executive Chairman of the Board is to support Nancy in a smooth transition of responsibilities and to provide leadership to the board as it continues to work to increase shareholder value. This new management structure is streamlined, cost-effective, and appropriate for a smaller company. Now I’ll make some comments on Q3. While I am not satisfied with flat revenue for the quarter, given the realities of today’s tough economic climate, I believe we outperformed our competitors and made gains into our chosen market segments. I am particularly pleased with iEmployee bookings, which grew 59%. We have spent a great deal of time and investment since making this acquisition, improving almost everything from products, marketing and sales, to operational efficiency and from a declining customer base. We believe this dramatic growth in bookings is a clear indicator that we have turned the corner. Our net simplicity products also continued to be key components of revenue with a rising ASP, international reach, SAS offering, and a strategic fit for customer self service to reduce cost. It’s interesting to note that Asure's two product lines, net simplicity and iEmployee, are quite similar in their contribution to revenue and their overall cost structure, so that sales growth in both lead to improvements to the bottom line. Now on the expense side -- as many of you will recall, we basically inherited a public company shell many years ago and took on the challenge of creating a profitable company by growing new revenue and reducing its old expense structure. We opportunistically pursued strategic acquisitions with excellent growth potential at an attractive price and have successfully integrated those businesses. While we have reduced expenses about 93% since we started, revenue growth has been slower than we hoped due to economic difficulties. We will continue to aggressively drive revenue in our chosen high growth markets but we are equally committed to hammering expenses that do not directly contribute to growing the company. A few examples of this in Q3, we changed our telecom system, which will save approximately $120,000 a year. We have renegotiated equipment leases, reduced the number of contractors that we work with, and we have implemented a 10% pay-cut across the company. Our growth strategy is proven and remains unchanged. Innovative products that meet real customer needs in high growth markets that will deliver steadily increasing long-term value to our shareholders. In our case, software as a service and easy-to-use applications that allow employee self-service capability will be our focus in the workforce management space. Finally, I would like to comment on our recent effort to take the company private. We proposed that move after weighing all strategic options in order to save about $1 million in expenses related to being public, which is a significant burden for a company of our size. However, the shareholders made it clear that they were concerned with liquidity and wanted the company to remain public. Therefore, the board and the management team are fully committed to remaining public and will go forward with our plan to achieve profitable growth as a public company. We are determined to reach cash flow positive this year by reducing targeted expenses in other areas. I would now like to turn the call over to our new CEO for more comments on Q3. Nancy.

Thank you, Dick. First let me say I am very excited and frankly humbled by the opportunity to serve as President and CEO of Asure Software. I am extremely passionate about this business and its exceptional people, and absolutely believe that we have the right strategy and plans to create sustained, profitable growth and value creation for our shareholders over the long-term. Dick, I truly appreciate the faith that you and the board have shown in me and I look forward to working with you to ensure a smooth and effective transition as we move the company forward. Now, turning to fiscal Q3, let me start with highlights of the iEmployee business before turning to the highlights for Net Simplicity. Within iEmployee, we are pleased with the steady progress we are making to retool this business and believe the performance in Q3 is clear evidence that our strategy is working. For example, our emphasis on stabilizing customer retention while generating new customer demand took a significant step forward during the past quarter. In Q3, new customer bookings for iEmployee increased 59% over the prior quarter. In addition, bookings from one of our larger distribution partners exceeded the prior three quarters combined. And speaking of channel partners, our efforts to expand and build a strong, productive indirect channel for the iEmployee business is paying off. We signed three new payroll partners in Q3 and two payroll partners in Q3, all of whom chose iEmployee time and attendance as their time and attendance solution of choice for their payroll customers. We continue to see significant upside for iEmployee, which we opportunistically acquired at an attractive price in fiscal ’07 as a turnaround opportunity. Let me add a little color about this business and why we remain so excited about the growth potential of iEmployee. As we have indicated in prior calls, we believe that indirect distribution is an important strategy for this business. As a prime example, payroll companies lead the way in this marketplace with solutions that require a great deal of trust and relationship building between seller and buyer. When payroll companies choose iEmployee as their time and attendance solution, it creates a unique opportunity for us to expand upon that trust base relationship and to products and services such as time and attendance and HR products from iEmployee. Our channel strategy is working and this is a key component of our growth plan. Now I would like to turn to the Net Simplicity highlights for Q3. We had a very solid bookings performance in Q3 with growth of 8% over the prior quarter. In Q3, we continue to add new customers to our roster, bringing the total number of new customers added since the Net Simplicity acquisition to approximately 2,600. In keeping with our history, many of these customers were from legal, healthcare, education, and corporate verticals, including Yale School of Management, Dickinson Wright, Atlantic Health, and WetJet Airlines. In addition, the trend continued in Q3 in terms of the average selling price of meeting room manager continuing to increase. In fact, since acquisition, the ASP of meeting room manager has increased five-fold. This is a reflection of the demand that larger organizations have for our enterprise product with its Outlook plug-in and active directory capabilities. On the marketing front, we continued to widen our marketing reach with new programs that added 35,000 prospects into our funnel. In addition, we launched a new Net Simplicity website with the goal of increasing search engine optimization traffic and improved conversion of the site. Before I turn the call over to Jay Peterson, our Chief Financial Officer, let me first say that while I am exceptionally proud of the progress the company has made, despite the extremely harsh macroeconomic conditions, our work is far from done. The potential for this still young organization with its distinctive brands and rapidly expanding customer base is vast. Together this management team and its board will work tirelessly to achieve our long-term potential. That is our promise to you. Jay.

Thank you, Nancy. This morning, I will comment on some of the financial highlights for this last fiscal quarter and then I will discuss some high level guidance for the near future, and then we will turn the call back over to questions from the investment community. First off, I would like to point out that sequentially, our software and services revenue was essentially flat with this past quarter at $2.4 million. It’s interesting to note that recurring revenues -- that is, revenue under a maintenance contract or a SAS contract -- remain flat with historical levels of 73% of total revenues. Our deferred revenue -- that is, revenue that goes on the balance sheet and is amortized in future periods, decreased slightly this past quarter due to the sale of our VAM product line in February of this year. Overall, our gross margins decreased slightly to 79% this past quarter versus 81% in the prior quarter and this decline was due to software testing costs that were expensed in the quarter for our MRM release that begins shipping in July. We saw a sequential decrease in our operating expenses of approximately 11% in the quarter and this is our second consecutive quarterly decline with additional expense reductions planned for both Q4 and Q1. These expense reductions hit virtually every category of spending, including a company-wide 10% salary reduction. On a pro forma basis, had it not been for a required reserve of approximately $200,000 relating to a receivable due from our landlord, our expenses would have actually declined by 16% versus the prior quarter. Our EBITDA loss in Q3 decreased 9% to approximately $1.1 million, and this was our second consecutive reduction in our EBITDA loss. Excluding privatization costs, legal costs relating to our trial with our former IP attorneys, and the receivable reserve and parenthetically all three of those costs are non-related to our core business, our EBITDA loss would have declined significantly this past quarter to less than $800,000. Looking at our balance sheet and other liquidity measures, we had working capital of over $6 million and cash and cash equivalents of over $11 million as of the end of April. Also, it’s interesting to note that of our $1.9 million of our liability relates to deferred revenue, which is a non-cash liability, and an additional $600,000 relates to non-cash liabilities relating to our leased facilities. So approximately 30% of our liabilities on our books do not relate to cash outflows. Our trade DSO for the quarter ended at 33 days, a five-day improvement over the prior quarter. Also, the company does not have any long-term debt and as of the end of April, Asure had federal net operating loss carry-forwards in excess of $150 million. Let me finish with guidance -- our most important financial objective for our company continues to be EBITDA profitability and to generate cash and we’re committed to doing that this year. And in order to accomplish that important goal, we are focused on the following -- continuing management of expenses, including the previously discussed company-wide salary reductions; cost reductions relating to our delivery of our products and services; gross margin improvements; and a moderate increase in top line revenue. And when you put all of those into the calculus, we will be able to achieve EBITDA profitability at revenues that are consistent with revenues that we were able to achieve last summer before the economic downturn. With that, I would like to turn the call back over to Francine to moderate our Q&A session.

(Operator Instructions) And we have no questions at this time.

Thank you for your participation in today’s call. We look forward to working with you. Thank you.

Ladies and gentlemen, thank you for your participation in today’s conference. This concludes the presentation. You may now disconnect. Good day.