Good morning. Welcome to Asure Software's Fourth Quarter 2016 Earnings Conference Call. Joining us for today's call is Asure's CEO, Pat Goepel; CFO, Brad Wolfe; and Director of Human Resources, Cheryl Trbula. My name is Leanne 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 to provide the necessary cautions regarding the forward-looking statements made by management during today's call. Cheryl?

Thank you, Leanne. Good morning, everyone. 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 or guidance. 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're 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 expressed permission and your participation implies consent to the call's recording. It will be made available for replay via a link available in the Investor Relation sections of the company's Web site at www.asuresoftware.com. After we've completed our review of the quarter, we'll 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. I'd like to welcome everyone to our fourth quarter and final year conference call. I want to thank you for all joining our call and appreciate your support whether you’re an employee, client, investor or a valued third-party resource. Before we start to get into the call, I did want you all to be made aware. We did send an earnings release out before the bell and we round to 1 decimal point with everything but net income per diluted share. For whatever reason, the first press release went out with one digit. So our final year results of $0.24 and $0.26 rounded to $0.20 and $0.30. There has since been a corrected earnings release. We’ve been working with NASDAQ and MarketWatch and if it hasn’t hit the wire, it will hit very, very quickly. But it says corrected on the press release and it was an unfortunate formula error but we want to make sure to draw your attention to that one. So it is a corrected release with a two-digit net income per diluted share. And in the absence of a doubt, I want to cover right away our net income for the quarter was $0.09 in both actual and pro forma. For the year, it was $0.24 in actual and $0.26 on pro forma. Now that we have that away, I want to talk about the fourth quarter, high level financial highlights. Q4 was a strong quarter for us highlighted by double-digit year-over-year growth in key financial metrics; total sales, revenue, gross profit, EBITDA and net income. We were very, very pleased. It felt like we had a very strong year. Fourth quarter and year guidance; revenue was just a little light at just out of the range by about $50,000. We did some…

Thank you, Pat, and good morning, everyone. Turning to our financial results for the quarter and fiscal year ended December 31, 2016, revenue for the fourth quarter of 2016 was up 44% to $9.7 million from $6.8 million in the same quarter last year. The improvement in revenue was driven by increases in cloud, space, on-premises software and professional services revenue. For the full year, our revenue increased 32% or $8.6 million to 35.5 million from 26.9 million reported in 2015. Of this increase, Mangrove Software which was acquired in March of 2016 contributed 6.9 million. For 2016, cloud revenue increased $7 million or 51% over 2015; space revenue increased 585,000 or 133%; on-premises software license revenue increased 1,362,000 or 159% and professional services revenue increased 1,289,000 or 42%. This is offset by decreases in maintenance support revenue of 1,488,000 or 25% as compared to 2015. As I talked about in our last call, we continue to deemphasize maintenance support revenue as we move toward more cloud revenue. On a pro forma basis, including the results of Mangrove as if the acquisition was completed on January 1, 2015, our total revenue for Q4 increased 10% to 9.7 million from 8.8 million in the same year-ago quarter and increased 7% for the full year to 37.7 million from 35.1 million in 2015. Our recurring revenue as a percentage of total revenue was 73% compared to 74% in the prior quarter and 76% in Q4 of last year. The fiscal 2016 recurring revenue as a percent of total revenue was 74% as compared to 75% in 2015. Looking at our revenue by source, revenue for our workspace management solution Asure space in the fourth quarter totaled 4.6 million which was up 17% from the 3.9 million reported in the same quarter last…

Thanks, Brad. It’s clear I think from Brad’s reading of the results that we’ve done a nice job this year and Asure had a very strong year. If you look at any of the key metrics you can see we made really nice progress this year and very, very happy with the transformative acquisition of Mangrove. Our consistent ability to deliver results and execute on our sales strategy helped us drive a doubling of the stock in 2016 as far as the price goes and we’re thrilled about that. We’re also thrilled to partner with Roth Capital on our $14.4 million equity raise that we just were at the Roth conference, I was there this past week and a lot of the real high quality investor that went and had faith of us in December were at that conference and very, very pleased with the quality of institutions that participated. And on that amount, that 14.4, I just want to remind everyone that 10% came from management and I think that speaks volume of the confidence that we have in the business going forward. David Sandberg, the Chairman, myself, we participated and again have high confidence in the business going forward. Finally, the balance sheet in December was bolstered and we were able to close on three strategic tuck-in acquisitions. Two of these acquisitions; PSNW and CPI which are our two regional service bureaus that resell our human capital management products, very, very successful acquisitions for us. They’ll close and we’ll end up delivering almost and pay them back with a four-year cash flow, maybe even three years. They’ve been integrated seamlessly into our business, very pleased with the results and we will file an 8-KA today that explains the economics of that in more detail, so look for that.…

Thank you. [Operator Instructions]. Our first question comes from Richard Baldry with ROTH Capital. Your line is open.

Hi. Thanks. And congrats on a big year. Can you maybe talk about the number of heads you had in sales maybe a year ago so we have a comparison to that 40 number? And then maybe sort of the average tenure in that group and their productivity in '16 and what would you expect in '17?

Yes, Rich, I think the average number, I think we shopped for 35. We probably ran about 33, so we’re up a little over 20%, so 33 to 40. Now average productivity is probably about two years or so. We have a lot of new employees but we have I think about 24 that are tenured and are really delivering results. Some of the next wave here will deliver more and more and then the third wave are just hired. So I think our core 24 we feel real strong about. We have another 10 or so that were hired in the past year that are starting to get up the curve and have half productivity or so. And then we have about seven or so new ones that will deliver nicely as '17 evolves. So that’s the sale strategy and kind of where we are. Now one change we did make in January is they’re selling all products, so they sell in platform, which we think is going to increase. Our cross-selling increased the value that they sell. And they’re incented to sell core products as well as all our products.

And will that group also be responsible for cross-selling to existing customers or over time will you build a group that’s focused on cross-selling and lead the hunting for new logos?

All of our sales reps have some cross-sell opportunities but we do have a group under Brad Burrows that is dedicated to cross-selling only and that has about 12 sales reps. So we have 12 sales reps dedicated but even our new hunters, if you will, have a cross-selling component, it’s just smaller because we want them to have some opportunity to understand the client experience and be able to cross-sell in addition to going after new prospects.

And then talk about what you think a good organic growth rate could be for 2017 and then maybe longer term, how many heads do you think you’d add to that 40 on a typical annual basis heading out?

Implicit in our guidance I think with the acquisitions is about a 10% growth. We finished the year right about that amount or so. I’d like to go up 1% or 2% per quarter. So in other words we go from 10 to 11 or 12; 12 to 13 or 14 and keep showing progress. Sometimes that’s a little lumpy around sales with big deals from the year before or year after. But that’s kind of the goal. The trend line should be to go up. And I’d like us to get to the 20% growth. Historically, we’ve been running a little bit over EBITDA with one-time, so a little bit over 20%. What we’re trying to do is guarantee a 20% and reinvest in the sales until we get 20% growth rate. This year was 20% add-on in sales people. We’re going to look to get more productivity increases with the cross-selling but we’re also going to evaluate on how we keep growing, because we think the marketplace is huge and we think that there’s no shortage of opportunities to invest.

Last thing would be, you’re having some success migrating people off of the on-premise on to the cloud, do you internally sort of have a timeframe for how quickly you’d like to get that done and all this cost that you can take out once that’s completed either on a platform side, support side, et cetera? Thanks.

When we look at the on-premise we think we can redeploy people. We think we can take some cost out. But more importantly redeploy some of our engineers support to our growth as well as to some of our development of future products. So we do think that there’s efficiencies to be gained. We are down to about a little over – just a little over $3 million in maintenance revenue and we’ll continue to drive that. I’d like to see that finish up probably in a three-year timeframe. What I don’t want to do is I don’t want to force the migration but I want to partner with our clients to make the migration opportunity in the frame and in the business light. Sometimes it requires a strategic change and we sell to what I’ll call three functional heads of the CIO or the technology executive, the CFO, the financial executive and the VP of HR. And whoever leaves that initiative to the cloud, we will continue to be very active and partner with them to ultimately go to the cloud. So we’d like to see that ramp up within the next three years.

Thanks.

Our next question comes from Eric Martinuzzi with Lake Street. Your line is open.

Thanks. Congrats on the 2016 as well as the new acquisitions. My first question has to do with those acquisitions. Just wondering from a modeling perspective when you guys got into HCM, you kind of took on a new seasonality maybe is the best way to describe it, in other words kind of a Q4 – much larger Q4 than I guess maybe historical trends have been. You talked about an incremental $5.5 million to $7.5 million of revenue from the acquisitions, but how does that layer on to the legacy business?

Well, I think, Eric, we’re going to file some 8-KAs today that I think you’ll have greater insight in the three acquisitions in the numbers. So I think that will provide a lot of color on the acquisition revenue. And then what we have modeled primarily is about a 10% growth factor if you kind of layer both in. We think we have the opportunity to beat that number both organically. I would say our acquisitions are performing strong, so we’re pretty pleased with January and February results in getting out of the gate. You’re right. There is some seasonality depending on W2s and adjustment runs and some other stuff within the business. We’re still learning that as this was our first year with Mangrove. But by all counts, I think we’re very, very pleased with how the business is progressing and our ownership and the client feedback as well as the employee feedback.

Maybe if I can just take it down to Q1 here, you just finished Q4 with 9.7 million. Do you view that number going up sequentially or down sequentially in Q1?

Q1 usually is our softest quarter. We are going to provide – we’ll break out quarterly guidance in the next earnings call. I would say on the Q1 --

With the three acquisitions coming in, revenue will more likely be up. I can give you some more guidance on sort of the seasonality as we get more expertise on that. But we would expect revenue for the first quarter to be up compared to fourth quarter.

Yes, and I think our guidance was 45 to 47. I don’t think you can multiply it by four and give the guidance but we’ll definitely be up from the results that we have here.

Okay. And then you’ve obviously taken on some new employees here. Do you have insight on what the operating expense number looks like for the first quarter?

Well, I want to remind people that the first quarter, we take all of our employer taxes upfront so [indiscernible] et cetera. So the first quarter is a high cost quarter for us. Typically, we run at a loss. I think we feel that our net income per – we’re not going to give specific guidance but I would think that breakeven would be a good starting point. And clearly as those taxes go off when they hit limits, we’ll drive a lot of results from there.

Okay, that’s helpful. And then a couple of housekeeping questions here. For the share count, where did the share count finish up at year-end?

8.6 million is the share count.

Okay. And then the transaction close date for the acquisitions, can you give us a picture of kind of pro forma what the cash and the debt looks like sort of maybe a snapshot as of end of January or into February?

The transactions were all closed on January 3, so as far as the – they’ll show up in the first quarter results. And as Pat said, I think in the 8-KA you’ll get the audited statements. We revealed in the 8-K that we filed right after the acquisitions what the terms were for those.

Okay. Thanks for taking my questions.

Thanks, Eric.

Our next question comes from Vincent Colicchio with Barrington Research. Your line is open.

Yes, Pat, I’m curious. What organic growth rate would you need to hit to hit the high end of your earnings forecast range for '17?

Yes, I think the midpoint is right around 10%, so we’d be in that 46, 47. If we get higher organic growth, we should be above that.

Okay. And then could you help us in terms of – maybe this is for Brad, what gross margin range would you expect for '17?

Gross margin has been very consistent for this 74% to 78% range. I think probably the 76%, 77% is what we’re expecting. The businesses that we acquired have very strong gross margins, especially on the SPOs [ph] we rolled up. So I don’t see any change in that as time goes on. I also think we continue to invest back in the business. Pat mentioned tuck-in acquisitions and we’re really focused on growth. We’d like to hold our EBITDA at 20% but really not trying to focus on getting EBITDA higher, we’re focused on growth.

Okay. And Pat, could you give us more color in terms of cross-selling where you’re seeing the greatest synergies? Has that changed from the prior quarter?

Payroll and time is clearly – we’re off to a really good start in that area. HR and space is kind of nice. Payroll and benefits is the other area. Those three areas I think we’re seeing – we’re seeing some people buying whole kind of platform solution and the key for us was to have a Version 8 out. And Version 8 now allows us to have the same common user interface, same single sign on, et cetera. So we’re happy with the cross-selling activity and we think that will lead to results.

Okay. Thanks for answering my questions, Pat.

Thanks, Vince.

[Operator Instructions]. Our next question comes from Ryan MacDonald with Wunderlich Securities. Your line is open.

Hi, guys. Can you talk about – it looked like in the quarter you had about additional 12 customers come and adopt Version 8. Can you talk about sort of the mix there between existing customers and new customers? And now obviously being late into Q1 how you started to see demand evolve for Version 8 into start 2017?

Thank you, Ryan. I think we are probably about eight and four, eight new with four cross sell of the 12. I think cross sell is getting introduced quite a bit right now and we’ll continue to grow nicely. And then new employees, typically the first quarter is probably the slowest quarter; second, third and fourth will be higher activity. But suffice it to say we’re very pleased with the pipeline growth. And I think you’ll see us grow pipeline all year. And now we got to close the amount of specific quarters and do well. So that’s been our focus. We’ve trained people. We had an all-sales training event here in January. We have a customer conference in May where we’re going to really introduce to all our customers the cross-sell component and have people in Austin. So pretty excited about what '17 will bring us in cross-sell.

Got it. And when you look at the transition of moving on-prem customers over to the cloud, approximately what percent of the existing base is still on-prem and how aggressive do you expect to be to continue to get those customers over to the cloud this year?

From a revenue perspective, we have about $3 million or so in revenue on maintenance revenue. We’d like to continue to be opportunistic. What we’ll do is we’ll raise prices a little bit more on the maintenance folks. We’ll also offer more and more development to the cloud folks. And the combination of raising prices but also enticing and giving rewards to the people that go to the cloud we think over the next three years we’ll continue to have advantage. What I have found is you don’t want to force them quite as much on a specific date because what you want to do is you want to educate and be there when the client is ready. So over the next three years we want to see the completion of that but we also want to do it in such a way that we’re partnering with them on the right time and the right place to migrate, and that’s been our strategy.

Got it. And then just lastly from me, on the M&A strategy, are you looking for any particular areas of focus in terms of additional technology to expand sort of the breadth of the platform or is it more similar – looking for similar opportunities to the acquisitions you already closed at the beginning of the year?

I think you’ll see – first of all, we have a strong bias right now to first of all anybody that is on our platform and they’re running out a separate business, so they have a technology license. We will continue to support them on that technology license. But if we can get them into the family and be able to buy them, they’re very accretive acquisitions and we want to continue to drive that result. I wouldn’t think we’re going to get too much wider over the next year or two. We feel like we have a very strong solutions set and we got to sell into that set. What I would look at is we will look at some core acquisitions to increase our base and we’ll look for areas to expand the platform acquisitions. And that will be kind of the area that we’re going to focus on because if we can get scale, our thesis is we’re already at 20% EBITDA margins and when we double scale over time that will increase and then the organic growth with the acquisition growth will allow us to really break through from being a micro-cap, small-cap. We’d like to get into mid-cap land eventually. We think there’s plenty of market opportunity to do that and we think we have a core solution set that’s very attractive to the market, so we’ll continue to build on that.

Great. Thank you very much.

Our next question comes from Mike Latimore with Northland Capital Markets. Your line is open.

Hi, guys. This is Nick Altmann on for Mike. Just to clarify, are all 40 sales people currently selling the entire suite or is that by year-end?

No, they’re currently trained and introducing it. They might have help via a system consultant or a systems expert in an area but they’re all selling the entire suite of services.

Okay. And then you guys mentioned the pipeline increased 32% sequentially. What percent of the pipeline is cloud now?

Cloud is really almost all of it. There may be a 2% that’s not cloud but really that’s what we’re selling. Where there’s a legacy on-premise or if they want to have another location or something like that, we might give them the right to do that. But we’re not going out after on-premise software, so it’s really almost 100% engagement at this point.

Okay. Thanks, guys.

Thank you, Nick, and appreciate your support as well. I want to thank everybody for joining today’s call. It was a long one but we had a lot to celebrate over the past year and we had to unpack a lot of information that you’re going to receive today via 8-Ks and 8-KAs. So I especially want to thank the employees, partners, investors for their continued support. Really just thrilled with the interest in Asure at this point in time. I think people see what we’re building and I think frankly people are pretty excited about what we’re building into '17. I think '16 was a transformative year and '17 I think is the year that we really pound the table. And so I’m looking forward to the other earnings calls with '17. I want to thank everybody for their support and I appreciate your time today.

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