Asure Software, Inc.
Q1 2010 Earnings Call Transcript

Published: 12 May 2010

[Operator:]

Good day, ladies and gentlemen and welcome to the Q1 2010 Asure Software earnings conference call. (Operator Instructions) I would now like to turn the conference over to your host for today, Ms. Lisa Flynn. Please proceed.

[Lisa Flynn:]

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 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 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’ll open up the call for questions. I would now like to turn the call over to Mr. Pat Goepel, CEO of Asure Software.

[Pat Goepel:]

Thanks Lisa, and welcome. My name is Pat Goepel, CEO of Asure and we’re pleased to report our results today. We also will provide an update on some significant initiatives and we’ll provide guidance for the rest of the year. First of all I want to remind folks of our business strategy. One we wanted to simplify the business as we set out last September. We wanted to provide great products and services for our clients in a SaaS environment. We wanted to reduce our cost structure. We wanted to deliver on a 20/20 plan where we believe by the fourth quarter we can achieve 20% revenue growth and 20% EBITDA margins. And all of these results as we deliver the results we will also increase our credibility with the public markets. I’d like to provide an update on several of the initiatives, first of all some of the operational results in the first quarter. Our key products and services for our clients have led to retention rates in the 92% range for NetSimplicity and a 94% range for iEmployee. Those are very, very strong results on keeping our clients and with that, what we’re doing is we’re rolling out new products and services on the iEmployee side, time clocks have been increased. We have biometric time clocks, both for small clients and large clients. In the NetSimplicity area of the business we’ve rolled out or started to announce the public calendar. We’re increasing our integration with Microsoft Outlook in a joint partnership and we are moving clients to the SaaS products and services from a perpetual maintenance and support. Some of the key wins that we had this quarter, we had several notable names, large divisions of CSC or Computer Sciences Corporation, Honeywell over in the UK, Georgia State University, Johnson Controls, Glaxo Smith Klein were some notable wins from NetSimplicity. Chevron on the iEmployee and Master Craft Tools, due to our partnership with Oasis were wins that we were very proud of. We also announced in the quarter and just recently that one of our large clients, Ceridian, which makes up a little over 20% of our revenue, we are changing the relationship of which we do business and we’re excited about that long-term because those clients now will go to us directly and by the end of the summer or so, there will not be a client that will be over 2% of our revenue. We believe that that’s very positive for us long-term. We’re in control of our client base. We’re in control of the technology and the services we provide and we have a more intimate relationship with the customers. So we think that’s all good news. I’d also like to turn for an update on some significant initiatives, as you know as of April 1st we’ve come together with HPI which changes the nature of our real estate. We had a synthetic lease that was an untenable relationship from a cost perspective. We’ve settled with our partner in the bank, HPI, and the financial institution so we are now out of that lease and we’ve signed into a new lease through 2013. We’re very pleased with that outcome. We’ve let you know about that in the past couple of quarters and now that will be behind us. Dave Scoglio will present the details for the second quarter. We also under the umbrella of simplifying the business, are going to continue to look at our history around the IP or the intellectual property and I can see in the second quarter or in the future where we look to deal with that as that will no longer be part of our core structure. We’ll be focusing on the software and the SaaS businesses only. We’ve also significantly reduced our cost structure and really we’re at a stage now where we feel like the underlying cost structure of the organization is a platform for growth. We’re proud that we can grow from here and the results we have this quarter and the guidance in the second quarter will lead not only to growth in the second quarter but also into that 20/20 plan that I have mentioned. So for the specific financial results I’m going to turn it over to Dave Scoglio, our CFO. Dave’s done a great job and he’ll let you know the exact results.

[Dave Scoglio:]

Thanks Pat, as Pat mentioned I’m going to take a few minutes to go over the financial results of our first quarter fiscal quarter of 2010. From a revenue perspective revenue grew 2% over the comparable period in 2009, excluding our divested visual asset management or VAM product revenue. NetSimplicity excluding VAM as well neutral which iEmployee grew about 5%. That was driven equally be core software as a service revenue and related hardware sales. Our gross margin contribution decreased about six points over the comparable period in 2009, driven by a higher proportion of hardware sales and some one-time consulting costs. Operating expenses decreased 44% over the comparable period in 2009 which was a reduction from $3.4 million to $1.9 million. The reductions were largely driven by lower compensation due to headcount and rate per head efficiencies as well as other cost reductions. As noted in the press release we posted a net loss of $188,000 for the current period or about $0.06 a share. This is an 87% improvement over the comparable period of 2009. The net loss can be broken down into a few different components; $85,000 of the net loss is attributable to the negative impact of our former Austin headquarters lease arrangement, $60,000 was attributable to our core business, and another $43,000 was related to foreign exchange loss driven by a weakened US dollar in the first fiscal quarter. Since then our currencies that we have exposure to have actually been rising, so we don’t expect that to continue. From a Q1 perspective that concludes the results for the first fiscal quarter of 2010, and I wanted to take this opportunity to reiterate our 2010 outlook in our press release. In the second quarter we do have an impact related to solving our Austin headquarters lease arrangement and while we are projecting a significant impact which is $0.41 loss per share, as Pat stated this is a much needed change in our cost structure and along with our second quarter projected double-digit revenue growth compared to 2009 comparable period, along with freeing up significant expenses related to getting out of that Austin headquarters lease. This will help us materialize our projected profitability in Q3 and beyond as represented in today’s press release. In the press release we noted that in Q2 we’d have that $0.41 loss, core software business was going to earn between $0.02 and $0.04 a share for a net range of a loss of $0.39 to $0.37. However in Q3 we have some minor charges related to real estate but really we’re projecting core software business profitability of $0.05 to $0.10 and then $0.8 to $0.15 in Q4. At this time I’d like to turn the discussion back to our CEO, Pat Goepel for closing comments and questions.

[Pat Goepel:]

So in summary, I’m very pleased at the position Asure is in as we look to the future. One, we have a platform now where we’re increasing our revenue growth and we’re providing guidance not only to the fourth quarter but also to the second quarter where we see double-digit revenue growth. We have no debt in our financial position. Also we’ve greatly simplified the business and eliminated a lot of the surprises that were in the past. Our NOL’s and I’d like to remind people that we have some net operating losses and so as we move to profitability we can take advantage of that for several years to come. We are forecasting profitability in our core software business right now, in the second quarter and in the third quarter and the fourth quarter and an increasing level of profitability as of that. We’ve been EBITDA positive and we thought that was the first milestone. We’ve delivered on that. Now we’re moving into net income profitable. Our clients, we’ve had some very big names that I spoke of where we’re winning business. We’re going to continue to win business and our clients are staying with us in the 90-plus percent so we’re very proud of that. Also our repetitive revenue in the NetSimplicity business is now up to 60% which bodes well for the future. In the iEmployee business its 91%. So the nature of this reoccurring revenue and in the future where no one customer has more than 2% of our revenue it should be a very predictable revenue stream. A very predictable profitable stream and an increasing one as that. So we think we’ve positioned Asure in a very nice place. We’re pleased with our results and we hope you are as well. And with that we’ll open the line for any questions that anybody might have.

[Operator:]

(Operator Instructions) Your first question comes from the line of Mike Chadwick – Unspecified Company

[Mike Chadwick:]

Thank you for continued focus on expense control management, I just have one quick question regarding the cash balances that you foresee at calendar year end given the pending HQ lease termination fee, can you provide some color on that.

[Dave Scoglio:]

To answer your question, as of today after paying the $1.5 million termination fee, I have $633,000 in cash. I am now free of about $120,000 in excess payments per month. We’re projecting positive net income, positive EBITDA, and significant revenue growth to boot. So we’re projecting while this will be a low and we’ll just continue building cash balances as we go forward.

[Pat Goepel:]

And as you know we also have no debt so we feel like we’re in a pretty good position going forward and we’re going to build cash balances as the operating results come in line with expectations.

[Operator:]

There are no additional questions at this time; I would like to turn it back over to management for any additional or closing comments.

[Pat Goepel:]

I want to thank you for your time today. We’re pleased with our results. We hope you’re pleased too. We have made significant progress in that last six, seven months at Asure. We’ve guided for positive results. We’ve let you know what issues that we had to work through. We’ve delivered now on those major initiatives and really bolstering our core business. We’re pleased with the results and in the future we see very positive developments ahead for Asure Software. We thank you for your support and your interest in Asure and we hope you have a great day. Thank you.