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Asure Software, Inc. (NASDAQ:ASUR)

Q3 2012 Results Earnings Call

November 14, 2012 11:00 AM ET


Cheryl Trbula - Investor Relations

Pat Goepel - Chief Executive Officer

Jennifer Crow - Chief Financial Officer


Aaron Martin - AIGH Investments

Thomas Pfister - RedChip Company

David Baratta - Sebago Capital


Good day, ladies and gentlemen. And welcome to Asure Software Corporate Conference Call. My name is Alli, 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. (Operator Instructions)

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

Cheryl Trbula

Thanks you, Allison, 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 other statements that maybe 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 statements 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 re-recorded or re-broadcast without the company’s expressed permission and your participation implies consent to the calls recording.

After we’ve completed our review of the quarter, we will open up the call for questions from the financial analysts community.

I would now like to turn the call over to Pat Goepel, CEO of Asure Software. Pat?

Pat Goepel

Thanks, Cheryl. And I’d like to welcome investors, clients, interested third patients, employees to the Third Quarter Asure Conference Call. The third quarter was the floury of activity as we closed on the acquisition of PeopleCube, and PeopleCube primarily web-based organization that we are excited about. We closed that for $9.8 million cash, $3 million of seller note and 255,000 shares of stock.

With that we have a lot of synergies in the product line especially with our Netsimplicity and what we are now calling AsureSpace. With that acquisition we established our European office for our customers in London. A lot of activity in product development in addition to acquisition where we launched series of enhancement in our SaaS business, really excited about the product development that we have incurred as a result of the enhancements.

We’ve also established and expanded the leadership team and transition from our CFO to David Scoglio, from David Scoglio to the recent announcement where we hired Jennifer Crow as our CFO, and Jennifer will be on the call today and we’ll introduce her and she will be going through some of the detailed results.

On the marketing side, we also hired Jen Roth and I worked with Jen in my past life. She is a 20 plus year performer in marketing and has an established track record and we are excited that she joined us as well, as we continue to solidify a share over the next three to five years for the growth that we are anticipating.

For the quarter revenue was up 35% to the acquisition of PeopleCube. We were below guidance and in three areas, one, we had deferred revenue and Jennifer will talk through the details. We did lose the large customer in the financial services industry within PeopleCube and the business mix was at 80% instead of 75%, so that accounts for most of the mix.

On EBITDA, we came in on EBITDA with some one-time items just below guidance and the affected to deferred haircut put us out of the range in EBITDA.

As far as bookings, bookings were down across the Board about 20% to 40%, that is not what we anticipated, not what we expect that out of our organization. We were disappointed with the Booking. That being said, I think the organization swallowed an acquisition in PeopleCube long-term, it’s going to be great for us, short-term it was the pain and we were distracted.

Despite that we had some great wins, Pearson, Xerox, Merck were all new SaaS customers that were booked this quarter. Carnegie Mellon University was the SaaS customer this quarter and AsureForce Goodwill Industries and Salisbury University were big wins for the quarter.

So, one, when we’ve had a disappointing bookings to be able to write-off those names in a disappointing quarter is heartening. We are also though adjusting low performers in focus and we will see progress at bookings, Jen Roth as well from a VP of Marketing is looking at our lead generation and our flow and we’ll hope to get back on track.

At this point in time, I’m going to turn over to detail numbers and introduce Jennifer Crow. I’ve got the opportunity now Jennifer to work with you nine days and I’m excited for your tenure at Asure and appreciate all the hard work and getting starting, I think as investor we’ll do one-on-one meetings and I think you’d be excited as I am when you speak with Jennifer. Jennifer?

Jennifer Crow

Thank you, Pat. Good morning, everyone. I want to take a few minute to just go over the third quarter financial highlights, and then Pat and I will be happy to answer any questions during the Q&A period at the end of this morning’s call.

In the third quarter, revenue was up $5.7, which is up 126% year-over-year, driven by the acquisition of PeopleCube in the third quarter this year, and Legiant and ADI acquisitions in the fourth quarter 2011.

Our non-GAAP revenue this quarter was $6.2 million. The difference in the GAAP and the non-GAAP revenues is $536 incur this quarter as a result of the business combination accounting rules that require our fair market valuation of the PeopleCube deferred revenue.

Recurring revenue as a percentage of overall revenue increased to 80% compared to the 75% last quarter. New annual cloud booking were up 22% year-over-year as a result of the PeopleCube acquisition.

EBITDA as Pat mentioned was $906 excluding one time items, we incurred $739 in one-time which consisted of $439,000 in legal and professional fees, and $273,000 in severance and other related employee cost that can attributed to the acquisitions.

Net income excluding one-time items for the second quarter -- for the third quarter was loss of $0.09 a share. GAAP earnings per share amounted to a net loss of $0.23. The per-share difference is $0.14 in one-time items.

Gross margin this quarter was at two points, year-over-year to 83%, and free cash flow was 455. The primary difference between prior quarters was lower capital expenditures. We have updated our guidance for the rest of the year, which was outlined in today’s press release.

For the fourth quarter, we’ve guided a range of $5.8 million to $6.2 million in revenue and we expect EBITDA excluding one-times to be 1, between a $1 million and $1.3 million.

For 2013, we lowered our previous projections of $25 million to $27 million in revenue and free cash flows of $6 million to $7 million. We also expect EBITDA to come in between $6 million and $7 million excluding one-time items.

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

Pat Goepel

Yeah. I think what -- thanks, Jennifer. I think what’s important also is we’ve been looking at the guidance. Largely, the cash portion of the guidance is almost unchanged. So our previous guidance for 2013 was $7 million. It is now $6 million to $7 million.

The cash in the quarter, the increase was about $1.3 million. What we are seeing in the SaaS model is customers are signing between one and three-year contracts. And in some cases, they are paying three years upfront.

We are pleased with that kind of model and we think when we look at the reparative model in the SaaS based or cloud based model, over time it is much more valuable to the shareholders, the business, the clients, we can run it in a more profitable model. We’ve been in this hybrid of perpetual license for a SaaS based model.

We are just emphasizing SaaS more and more, and we are going to do that in our guidance going forward, what I think is appropriate and to make sure we keep – in spite of it, the cash really isn’t changing. And as an investor, I know that’s an important point.

Since the third quarter, we did announce that we subsequently have the rights of the software to FotoPunch and we acquired the source code and what that will do for us, suspension both lines of business. But in the AsureForce business, what that will do is it opens up the idea of cell phone punching, both on dump phones and smartphones.

So, if you wanted to know if a worker was on 57 Street in New York, we’ll take a picture on a cell phone, they’ll record your name into the cell phone. And with our combination of GPS tracking, facial recognition software and voice recognition software, our clients can punch in for work on 57 Street at New York and our clients can know, and be sure that those people are exactly what they say there are going to do, or say if they are going to with or they are going to work.

What’s important about that is it opens up a bigger market in our AsureForce business and it compliments our biometric class in some of our other PC-based clock, and we are really excited about that subsequent development. We think that will help sales in ’13 and ’14, and the reparative nature of that model, gives us a high-tech approach to AsureForce industry.

From an AsureSpace perspective, our real estate experts and in big companies here as well as medium-size experts, in many cases they want a picture of who went to the meeting and whether it’s a law firm, defense industry, financial institution, to have that kind of record of the facial recog initiatives, they went into the meeting and they have that stored, our clients will see value in that and we think that will help us in ’13 AND ’14.

So we are excited about that subsequent development. Our management team, we are the same management team. When I first started, it was about $0.20 a share. The turnaround is complete. We are looking for opportunities to grow.

The acquisition of PeopleCube, we think is a pretty good acquisition long-term. We think short-term, we got the cost out. We did get distracted on revenue growth and bookings, which we are disappointed. That being said, we go back to work everyday and we will fix this problem and we will continue and grow. And the guidance that we like for next year, we think are more in line with our strategic shift and the reparative model.

So that’s my thoughts and questions or thoughts for a share for the quarter, as well as little bit of a look forward. I’m going to now open that up to any questions that Jennifer and I can answer.

Question-and-Answer Session


(Operator Instructions) Our first question comes Aaron Martin of AIGH Investments. Please go ahead.

Aaron Martin - AIGH Investments

Aaron Martin from AIGH. Just centered on the guidance, are you assuming any large or any deferred revenue in Q4 and going forward?

Pat Goepel

Aaron, the question was on deferred revenue and with the acquisition of deferred revenue, our deferred revenue is now in Q3 is about $9.7 million or so. To a reference point in Q2 last year was $4.7 million or so. So, we do have a deferred revenue that is doubled from past year.

We will see deferred revenue and bookings continue to grow as SaaS bookings grow. And then, I think it depends on the length of the contract between one year and three years. Most of our contracts today are one year, although we are seeing a trend in some cases for multi-year contracts but it’s early yet.

Aaron Martin - AIGH Investments

Okay. And then I guess, just related to this, how much has the shift to a SaaS focus affected the guidance change, and just talk a little bit more about why you are making this change, why are your feeling now to do it? I mean, obviously when you acquired it, why you’ve gone more aggressive?

Pat Goepel

Yeah. I think where we are going more aggressive is, first of all, we’ve been running to it and we’ve been very consistent in our press releases over the last three years and really since I started it was a strategic focus.

One, we had to come aboard to transition which as a company when I first started, we were in a position to afford it. As we’ve gained more and more confidence in the model and gained more and more in the predictability as well as the cash flow that is combined.

If you take the earnings inside the cash growth, we’ve been able to increase cash with an increasing SaaS model and then with the acquisition of PeopleCube, really we just didn’t want to fight the market anymore. What happened is the market is moving more and more to SaaS-based or cloud-based solution.

If I look at IDC comparable studies through 2019, you’re going to see it six-fold referenced to the market opportunity of cloud or SaaS-based. So we wanted to align ourselves with the market and rather than have the lumpiness of a big order one quarter and next quarter and take this out of the model.

We just came with the realization that we’re already there in most of our products. Let’s continue and grow that. And then as far as guidance going forward, the guidance this quarter through the rest of the year is reflective of that shift in the repetitive revenue and we’re excited about that opportunity because we think long-term it’s great for our shareholders.

Lastly, if I look in our broad-based HR space and I look at company’s like Ultimate Software, Cornerstone OnDemand. If I look at Taleo, SuccessFactors, all those companies made this strategic shift and while they are bigger in revenues than us, we feel that as we follow that model, we will be rewarded over the long-term much better as a SaaS-based company.

Aaron Martin - AIGH Investments

Okay. And then follow-up, in terms of economic sensitivity, of course, your product line, do you see -- some products that are more economic sensitive or not, any thoughts on that?

Pat Goepel

Absolutely, and I think -- obviously, I do think the election forced some people a bit but I don’t want to blame that. I look internally first. But the election forced some people, the fiscal cliff has frozen some people. We think economic sensitivity in the SaaS model is less than the perpetual model.

The perpetual model to get capital expenditures of 20 grand or 200 to 300 grand and big customers, its tough order to do right now and you see customers that want predictability of cost and expenses and you want to see investors have predictability of revenues as well as profits.

And so we think we’re aligning ourselves to the market at this point in time and it’s right thing to do. As far as economic sensitivity, we sell ROI in a share force and space for companies to know and get a whole of their two biggest balance sheet items or earnings statement items, labor and real estate are really important.

So if we prove ROI, we’re not seeing that much economic sensitivity although I’m saying that in a down bookings quarter. So traditionally I have been in this space 25 years. We think we’ll be fine with in a downturn or for that matter in a growth mode.

Aaron Martin - AIGH Investments

Okay. And then how quickly do you think we’re going to transition to being a 100% SaaS?

Pat Goepel

Yeah. I don’t know. From a 100% SaaS, new bookings will be 100% SaaS in 2013. There will be some clients that will have to migrate over time and -- but as far as the new bookings, you will see that right away in ‘13.

Aaron Martin - AIGH Investments

Okay. Thank you very much.

Pat Goepel

Thanks for the question.


Our next question comes from Thomas Pfister of RedChip Company. Please go ahead.

Thomas Pfister - RedChip Company

Hi Jennifer. Just by the way, congratulations on your appointment as the new CFO.

Jennifer Crow

Thank you so much.

Thomas Pfister - RedChip Company

Just my first question here, related to the change, I guess, the acceleration towards the more SaaS-based model. Does that have any effect on the short-term decrease here in the bookings?

Pat Goepel

Thomas, I think that’s a thoughtful question. I’m sure that had some impact in the bookings. I don’t want to blame that. I mean, I believe strategy without execution is to lose the nation. And I’m an execution guy. So I really take things like this very seriously and I’m accountable.

As far as the transition, it’s absolutely the right long-term solution. Then we have some hiccups in that or potentially -- yeah, I’d say we did. That being several sort of that quickly.

Thomas Pfister - RedChip Company

Okay. Thanks. And then just on my second question here is related to the integration of PeopleCube. Do you guys anticipate any more one-time cost related to integration and then just all from top of that, has all the cost cutting measures in the integration, has that been completed already and what are you guys seeing there right now as far as the cross-selling opportunities are concerned?

Pat Goepel

Great. Great thoughts, Thomas. What I would say is on the cost cutting, the one-times are largely done although we will have some in the fourth quarter. Next year, we’ll hopefully be clean and I don’t foresee a lot of one-time costs.

As far as the cost cutting that we did do, we went through a lot of other people cost that we saw as redundant and those have already taken place. What we do have when we see some opportunity in IT consolidation and we want to be thoughtful in doing that but we see that both and primarily the first quarter of next year.

So we think there will be opportunities there. And then as far as the business in cross selling, we see the opportunity because where we were as we were more in a meeting room scheduling spot, we’re now in a real estate spot. So we’re giving companies reports on their meeting room utilization, now we can give them reports on their cubicle utilization.

And if you take the average cost of real estate somewhere around $10,000 a year for a company, the fact that we can produce some reports and give them optics on how they can rightsize their workforce and their mobile workforce than that, we think we have the opportunity to make that value proposition.

And I would say that has been received very well by our sales people. What I would say is, we’re off to a slower start in sales. We think as they digest their information that will be just fine going forward. So we’re excited about that opportunity.

Thomas Pfister - RedChip Company

Okay. Great. And then just one last question from me here, this relates to the FotoPunch acquisition. I think I heard you say during the last RedChip conference that, you thought maybe that having FotoPunch could potentially increase the amount of revenue maybe you receive per employee, could you maybe go over that please?

Pat Goepel

Yeah. Thomas, I think it’s too early to say that, yeah. I do think overtime we have the opportunity to double our revenue per client with the acquisition of source code of FotoPunch and what it does is two fold.

One it gives its access to more employees. But some employees did turn around the clock and be able to punch it. Mobile is important. It also opens up our international marketplace because internationally everybody has a cell phone.

And then thirdly, tab is kind of technology. There is pricing power associated with that. But acquired to source code, we have to do some integration work and then we have to launch in sale. You will see it be part of our 2013 strategy. I would not expect much in the fourth quarter.

Thomas Pfister - RedChip Company

Okay. Great. Thanks, Pat, for answering my questions and congratulations on your continued progress.

Pat Goepel

Thank you, Thomas.


(Operator Instructions) Our next question comes from David Baratta of Sebago Capital. Please go ahead.

David Baratta - Sebago Capital

Hi. I apologize, I got on a little late. This is redundant. You talked a little bit about execution. And I guess what I am wondering is if you could discuss little bit about where you fit competitively and more importantly your win rate in light the changed guidance -- are you wining what you expected to or I think it’s a general question but wondering about that, if you are not winning what you thought, you are going to win?

Pat Goepel

I think David, when I reflect in the quarter and look through the data, I think the biggest think as we did get some no decision. So I think what happened just candidly July and August I think we’ve got little distracted. The lead flow was down from where we thought.

So, we weren’t in as many opportunity. As far as the win rate, we didn’t lose to competitors. We did have company rethink continent strategy versus global strategy and that cost those some revenue in it sale and we might win that global strategy.

So, I was -- still I’m excited about that opportunity, but short-term I heard it. As far as the sales we want some big deals and some good size deals, that kind of names we are talking about Pearson, Xerox, Merck, those were great sales from a SaaS perspective or cloud-based perspective.

We did get no decision quite a bit and because I think organization we’re distractive with the acquisition. We didn’t have the pipeline we normally have. And then as far as the macro economic factors, I do think the fiscal cliff and the election probably board some people.

But really we just have to do better, we have to win more and our focus is on marketing and sales. I heard a new leader to get us more leads. And as far as competitors, I actually think with acquisition of source code of FotoPunch, we have something that our competitors don’t have and we’re losing deals. It just we did have deals push and we are not enough of them at least particularly July and August.

David Baratta - Sebago Capital

Okay. Thanks.


I am showing no further questions at this time. And I would like to turn the conference back over to Mr. Pat Goepel for any closing remarks.

Pat Goepel

I just want to remind people, I have been here three years with management team. This was a turnaround and this is a growth story. We’re excited about the prospects going forward nobody wants to hear a bad news. I am a shareholder on the Board. Our Board doesn’t want to hear it but I will tell you. The Board of the management team, we’re aligned and we are here to build great value for shareholders. If the stock goes up, I live it. If the stock goes down I live it.

So, we are going to work everyday to get our execution back in focus. Strategically, we’re very excited about the PeopleCube acquisition. We are very excited about the move to cloud and SaaS. If your horizon is such that your investment to long-term for the previous three years, you were rewarded handsomely since we’ve got in and made a difference in Asure and we think the outlook over the future is very good.

So we are in a big market, a growing market. We are in with the model that’s growing. And we have some tremendous people that are making difference each day. I’d like to welcome the new folks we added to the management team. We think that all solidify us as well and from an investor perspective we appreciate your patients and support. We appreciate your interest in the call.

I will be available as well as Jennifer the rest of the day or in the future for questions. For those of you who don’t have my cell phone, my cell is 508-726-4663. I will be happy to talk about the business as time permit. So with that, have a great day and again appreciate your interest in Asure.


Ladies and gentlemen, this does conclude today’s conference. You may all disconnect. And have a wonderful day.

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