Asure Software, Inc.
Q2 2010 Earnings Call Transcript

Published: 27 Aug 2010

[Operator:]

Good day, ladies and gentlemen, and welcome to the second quarter 2010 earnings conference call. [Operator instructions.] I would now like to turn the conference over to Cheryl Trbula of Asure Software. Please proceed.

[Cheryl Trbula:]

Thank you operator, 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 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 for the financial analyst community. I would now like to turn the call over to Pat Goepel, CEO of Asure Software. Pat?

[Pat Goepal:]

Thank you Cheryl, investors, and folks that are interested in Asure. Asure is very excited about the second quarter and communicating the results today. As you know, we had a new management team that took over in late September in '09, and we had four initiatives

[Dave Scoglio:]

Thanks Pat. I'm going to take a few minutes to go over the financial highlights of our second quarter, and I'll be happy to address questions during the Q&A period at the end of today's call. In the second quarter, as Pat mentioned, revenue grew 13% over the comparable period in 2009, with both product lines producing gains. NetSimplicity revenue grew 23%, while iEmployee revenue grew 5%. Gross margin contribution held strong at 81%, compared to Q2 2009, and actually increased by 7% over our last quarter, Q1 2010. Q2 operating expenses, excluding one-time charges, decreased 36% over the comparable period in 2009, reduced from $3.1 million to $2.0 million due to reductions in compensation and legal costs. Interestingly enough, current quarter one-time charges stemming from the modification of our Austin, Texas headquarters lease, were offset by similar one-time expenses in Q2 2009, which were driven largely by impairment and a reserve in net profit interest in this lease. The one-time expenses in both periods amounted to $1.2 million Excluding these one-time charges, Asure posted a profit of $188,000 for the current period, or $0.06 a share, which was a 114% improvement over the comparable period of 2009. This concludes our discussion of the financial results of the second quarter, and next I'd like to further discuss our 2010 outlook. With our Austin lease solved, our material IP assets sold off, and our core business simplified and profitable, we are ready to bring this business forward. We have forecasted some site strategy one-time costs, as Pat mentioned, in our upcoming Q3, which will serve to finalize the Austin headquarters move and streamline our Vancouver site. Both decisions will allow us to continue to invest in our products and related infrastructure, which we believe will further enable organic growth as well as facilitate external growth as we acquire and/or roll up competitors or complementary products and services. Based on our strategy, and as described in our press release, we believe that we can post core earnings of $0.05 to $0.10 in Q3, excluding one-time costs, and $0.08 to $0.12 in Q4 2010. Lastly, in terms of liquidity, last earnings call we reported that we had $633,000 in cash at the day of the call. As of today, we have $838,000 in cash, despite a one-time return of $124,000 in sub-tenant security deposits at the end of May, which was directly related to finalizing the lease termination. At this time I'd like to turn the discussion back to our CEO, Pat, for closing comments and questions.

[Pat Goepal:]

Yes, thank you Dave. Asure was busy this quarter. We made great progress on solidifying some big decisions that we needed to make, both in the HPI real estate agreement, the IP agreement, as well as the Ceridian customer base. We came through all those decisions very very well. We did a good job with those. We managed to transition well, and it sets up Asure nicely in the quarters and years to come. Also, operationally we did a very very good job. Sales were very strong. Revenue growth was strong. Our leading accounting indicators were strong. In our product and technology, we're very very proud of the work we've done in releasing new products. So with that, we hope you're as pleased as we are with the second quarter results, and our future outlook. And with that I'd like to turn the conference call over to any questions that anybody has.

[Operator:]

[Operator instructions.] Your first question comes from the line of James Gladney with Liberty Capital Partners. Please proceed.

[James Gladney:]

Pat, first I'd like to thank you and your management team for the outstanding job that you've done in turning the company around over the past 12 months. You deserve to be applauded. You've done an incredible job. So thank you for that, and I'd like to know if you can give us any more guidance or information surrounding your strategy on M&A transactions that you mentioned in today's release?

[Pat Goepal:]

Jim, thank you for the kind words, and we very much appreciate that and I'll pass those on to the employees as well, because they make it happen. From an acquisition perspective, we're now at a point where we feel like we've simplified the business, we got rid of the brush, and now we're focusing on the two lines of business, both iEmployee and NetSimplicity. We feel like we're in two outstanding markets. Both are growing, they are big markets, and relative to a technology shift, many of the companies that are out there don't have the ability to invest in the SaaS platform, or to take their business in that way. Our management team, product team, and technology team is deeply experienced in the SaaS model, and we feel that riding the wave of the future and the cloud we feel that it's a very prudent strategy. There are businesses that, instead of making that investment, will look to potentially be acquired. We are going to be active in those conversations. We also feel like we have some assets in the net operating losses that we have. Over the next 20 years we have well over $100 million in net operating losses that shield net income. So now that we're profitable, and we're growing, we're going to look to organically grow, but we're also going to look to put more business on our existing platforms, and we feel like the bottom line will grow exponentially when we have those opportunities. We also think with the uncertainty in the marketplace today, and the economy, some companies haven't weathered the storm, or haven't made the transition, and we are going to be active in those companies that are in the space that we feel have potential where we can add customers to our platform or grow those businesses and have synergies with our core business. And we can now really take a product line or a business and merge it with Asure, whereas Asure can take advantage of its assets, its products, its technology and grow that business for the shareholders, for the clients, for the employees alike. And we are looking for acquisitions that are accretive in nature as we move forward.

[James Gladney:]

Pat, thank you for that. Can you talk at all, I know it's not your job, but can you talk at all about the share price? It's our opinion that the shares of the company are very undervalued and thinly traded, the market doesn't seem to appreciate the very stellar results that not only that you've announced today, but the guidance that you've given over the last couple of quarters, which were very positive. Is there anything you can comment on that, or do you want just to stay away from it?

[Pat Goepal:]

No, I think Jim, and I think it's a conversation that the board has been having, and I've been having, and having with management. One of the key metrics that we highlighted was adjusted EBITDA or EBITDA this quarter, and the 20/20 plan. If you were to straight line over four quarters, our adjusted EBITDA, you can make a case here that we're trading at three times or so EBITDA, which is a very low number. And we feel, and share your concern, that the stock price is undervalued at this point in time. So one of the things that we do believe is first of all, we have to believe that as we deliver, sooner or later people will notice. And we feel like we've delivered on what we said we were going to do and we're going to continue to do that as much as we can in future quarters. We believe that that will help our stock price and consistency over time. Two, as we get bigger, or we look for ways to double down on our businesses, or to grow our businesses, we think we're going to get noticed. Also, we think the good news that we're sharing is we're giving guidance, and we're sharing it today, but if you look over the history of the stock over the last couple of years, I think some people live in the past. So we're being very forthright about what we're doing, what we expect to do, and then we try to deliver on those outcomes and we think consistency is going to reward the shareholders overall. And as we grow and look to double the business over the next period of time, we believe then that volume will get us on the radar to more and more institutions that cover stocks as well as people that are looking for value and growth in their portfolios.

[James Gladney:]

And Pat, am I to understand that there's a rights plan in place that limits, and correct me if I'm wrong about this, that limits any one shareholder to owning more than 5% of the company? Is that correct?

[Pat Goepal:]

Yes, at this point in time, Jim, what we did is we feel that we have a tremendous value in our net operating losses. We've done different cash flow analyses around our net operating losses and depending on different assumptions you could assume that the value of the net operating losses alone is the $10 million to $13 million just on the present value. So it's an undervalued asset that Asure has as a public company, and a business going forward. Now we have to operationally deliver to get the results of what I talked about on the NOLs, and with that one of the things that we have to be mindful of is there's some ways to protect those NOLs. And one of the things that our board and that we passed was a rights plan, and that rights plan will allow people to take a position in the stock but at this point in time it's no more than 5% without prior approval in the sense that we want to be able to protect those net operating losses, which we think is part of our undervalued asset in Asure software.

[James Gladney:]

Pat, I personally own just over 150,000 shares of the company, which is just under 5% of the company. I've never sold a share, and if I could I'd buy more. Are there any plans to increase that cap to allow me or other shareholders to own more than 5% of the company?

[Pat Goepal:]

You know, one of the things - we'll take that under advisement and I think one of the things that we have looked at as a board is at which point we have - it's kind of a calculation on how do we preserve the ownership values in the NOLs. And different shareholders, or different shares in the calculation roll off at different points in time. So there may be opportunities in the future, where it's easier to purchase shares, and not take away from the value of the NOL calculation. And we'd be happy to address that at the next call or consider that at the next board meeting.

[James Gladney:]

Well, Pat, as usual you've been extremely forthright, transparent, and frank, and I very much appreciate your answers to all my questions and again, I want to thank you and your management team for the incredible job you've done over the last year in turning things around. And we look forward to that kind of performance continuing into the future. So thank you very much.

[Pat Goepal:]

And James, thanks for your involvement in Asure, and we appreciate your interest in the company and the kind words we'll definitely pass to all the employees.

[Operator:]

You have no further questions. This concludes the question and answer session of today's call. I would now like to turn the call back over to Pat Goepal with closing remarks.

[Pat Goepal:]

Thank you for your interest in Asure Software today. I always feel we have four constituents in looking at a business. We have the communities we serve and that we're in, whether it's in Austin, Texas; or Vancouver; Warwick, Rhode Island; or Mumbai, India. We have shareholders, and we think we've made a very strong effort in getting the shareholders a good return. And we think over time that return will continue. The employees, the employees at Asure, have worked very hard in this turnaround, and we're thrilled that we can get the results that we're getting, and we think that the future is bright for Asure. And we thank the employees for their efforts. And finally, our clients. We have excellent clients that have been very patient with us, but also have been very forthright on what they need going forward to be part of a successful partnership. And we acquired many more clients this quarter. We're going to do a great job for them, and we're excited about the partnership that we have with them going forward. So all four constituents, we thank you. We have you in our mind every day. We hope you're pleased with the results at Asure for the second quarter. Our future is bright. We're making stuff happen, and we want to thank you again for listening on the call. Have a great day. Copyright policy