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Asure Software Inc. (NASDAQ:ASUR)

Q4 2013 Earnings Conference Call

March 26, 2014 11:00 AM ET

Executives

Cheryl Trbula – Head-Investor Relations

Patrick F. Goepel – President, Chief Executive Officer & Director

Jennifer Crow – Chief Financial Officer

Analysts

Jeff L. Houston – Barrington Research Associates, Inc.

Matthew Paul – Sidoti & Co. LLC

Operator

Good day ladies and gentlemen and welcome to the Asure Software Corporate Conference Call. My name is Shirley, 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 of Asure Software. Please proceed.

Cheryl Trbula

Thank you, Shirley, and 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 outcome. 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 expressed permission and your participation implies consent to the call’s recording. After we 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?

Patrick F. Goepel

Thank you, Cheryl. This is Pat Goepel, and first of all, I want to thank everyone that’s on the call today, all shareholders, clients, employees and interested parties to the fourth quarter and 2013 annual call.

Today, we’re going to spend the first part of our call discussing the results of fourth quarter and the year. And the middle part of the call, we will really spend looking forward to 2014, and then at the end naturally we’ll take questions to finish the call.

As you may recall, 2013 was really important for us. In the beginning of the year, we had done about three acquisitions in the previous 18 months. And 2013 was our year of stability, our year of growth, and really we were driving the business to an organic growth and also to – in EBITDA margin that was approaching 20%.

And when I look at the beginning of the year in 2013, we did spend a lot of time talking about our salespeople. We hired 12 salespeople for the year, train no salespeople, and in the fourth quarter, they delivered. In the fourth quarter, we had record sales for our cloud products, which is exactly the type of business that we were driving and hoping for when we hired the salespeople in the beginning of 2013.

We also really wanted to grow organically. And we pointed out in the third quarter and the fourth quarter that we – you would see as investors, organic growth in the double-digits. And we grew organically at a 13% clip in 2013, in the third quarter, excuse me, and in the fourth quarter, we grew organically in double-digits.

Our product was also a big focus. As you may recall, we really focused on the cloud products and also integrating the PeopleCube acquisition to Asure. And our repetitive revenue, we’ve enjoyed, excuse me, quite some success, and our products have led to record client satisfaction. In the fourth quarter in AsureSpace alone, we had 87% client satisfaction, which is an outstanding metric for us and bodes well for future revenue retention metrics and the revenue retention was a big focus for us, and we are enjoying 90% revenue retention metrics.

Finally, our focus on cloud-based revenues and revenue growth was met. We also had cost reduction. In the beginning year, we focused on a consolidation around our cloud hosting, and today not only our client satisfied with our hosting initiatives. But you may recall in the first quarter, we had an initiative that saved us close to $1 million annually. Why that is important is it set us up for future growth and the hiring of the salespeople in addition to delivering bottom line results.

So 2013 was also an eventful year. We started talking to people in the analyst community, and we’re very proud and happy with our relationships with Sidoti and Barrington. And they have initiated coverage this year on our stock and our overall stock performance has trended up nicely in the fourth quarter and the first quarter.

And finally, subsequent to the fourth quarter, we did want to improve our financing situation. We announced Monday the Wells Fargo refinancing and that saved us quite a bit of money and you will see that in our press releases, as well as in the first quarter, we put the last remaining to the PeopleCube acquisition behind us when we settled the PeopleCube earn-out, and that was $1 million gain that will be in the first quarter.

So as you can see a lot of initiatives moving the business forward, we’re very pleased with the initiatives that we had and that led to the results that we’re going to announce today.

And I’m going to turn the call over to Jennifer Crow, our CFO, and she will go through the results in more detail. Jennifer?

Jennifer Crow

Thank you, Pat. Good morning, everyone. I would like to take a few minutes to go over the fourth 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 fourth quarter, revenue was at $6.7 million, up 13% year-over-year and year-to-date revenue was $25.5 million, up 28% year-over-year. The year-over-year increase in revenue was $5.5 million, it spilt among all products. Our cloud revenue increased $2.9 million, or 29.4% over 2012. During 2013, hardware revenues increased $723,000, or 51% over 2012.

During 2013, maintenance and support revenue increased to $6.7 million from the $5.6 million in 2012, and during 2013, on-prem software license revenue decreased $119,000, or 9.8% as compared to 2012, as we continue to emphasize our cloud-based product suite.

Our non-GAAP revenue this quarter was $6.7 million and $25.9 million year-to-date. The difference from the GAAP and the non-GAAP revenue for the quarter is only $13,000 and year-to-date is $416,000. This difference represents the amounts recorded as a result of the business combination accounting rules that require a fair market valuation of the PeopleCube deferred revenue. We have now recognized all amounts associated with the PeopleCube deferred revenue valuation adjustment and we will not see this going forward in 2014.

Recurring revenue as a percentage of overall revenue was 75% compared to the 76% last quarter, and recurring revenue for the year was 77% compared to 79% in 2012. We attributed the change due to the increase in our professional services revenue related to the installation now then training on our products and other add-on or customization work.

EBITDA for the quarter was $1.48 million, excluding one-time. We incurred $215,000 in one-time items, which consisted of legal and professional fees for $163,000 in severance and $53,000. EBITDA year-to-date, excluding one-times was $4.8 million. We incurred $867,000 in one-time items, which consisted of legal fees of $697,000, legal and professional fees of $697,000, severance, recruitment and relocation of $212,000, gain on the sale of assets of $72,000, interest income from our settlement of $48,000 and other miscellaneous one-time items of $78,000.

Net income excluding one-times for the fourth quarter was $0.02 per share. GAAP net loss per share amounted to a loss of $0.02 per share. The difference of $0.04 per share is due to the one-time items.

Gross margin for the quarter was $5.1 million, up $800,000, or 18% year-over-year. Gross margin year-to-date was $19 million, up $3.6 million, or 24% year-over-year. Cash flow from operations for the quarter was 846,000 and $2.0 million year-to-date.

CapEx was $241,000 million for the quarter and $383,000 million year-to-date. For 2014, we are guiding a range of $29 million to $30 million in revenue and EBITDA, excluding one-times between $5.5 million and $6.5 million, and net income per share excluding one-times of $0.08 to $0.24.

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

Patrick F. Goepel

Thank you, Jennifer. And as we look forward to 2014, Jennifer gave you our guidance, and really from a revenue growth, we are looking organically to keep our focus. We’re going to grow in cloud-based businesses. We’re going to keep a roughly 35 sales employees. We’re not going to expand in that area, we’re going to let them mature for another year. On the product side, we’re going to invest in products to continue our cloud growth. You will see investment in Mobile, you will see investment in some of our iPad touch products both in AsureForce and AsureSpace.

As far as our sales initiatives, we’re very happy with our global initiatives around our clients going to Europe. We’re going to expand further as we go, we’re going to let our clients take us to different parts of the world. We also are focused on our land and expand initiatives. We’ve been very happy with what we call our former sales, where we feel like we planted the seeds and our clients are growing with us.

We had an outstanding fourth quarter with some cultural names like Iron Mountain, Kaiser Permanente, Cushman & Wakefield, KPMG, State Street, Monsanto, we will continue their focus in 2014 to grow with our clients and expand the relationship. We feel like we’re tied into some megatrends around the globalization, the mobilization of the work force, we think hoteling offers us the huge opportunity not only across the business. And I think, you will see more combinations of cross-sell activity as we go forward in 2014.

From a cost perspective, the Wells Fargo was the big cost initiative as far as the refinancing, and we’ll save interest expense starting here in the second quarter, and we’re very, very proud to be associated and partnering with Wells Fargo. We think they’re the perfect match for us going forward. The interest rate starts out at 5%. We have an opportunity potentially to lower that over time. We also have $10 million facility that we can use for acquisitions in addition to $3 million revolver.

We are looking for acquisitions, I wouldn’t say one is eminent right now. However, we do want to grow organically and also with acquisitions in mind. Our FotoPunch story will also expand in 2014. We’re very pleased with the product introduction, and we will continue to grow within our AsureForce product line with FotoPunch.

So those are the big initiatives in 2014. We’re excited about our growth potential. We’re excited about the EBITDA potential in the business. We think we’re remaking the company in the exact right way. We feel like we have a lot of momentum as we head the year, and we will continue to grow off that momentum. That’s our story, and we’ll stick into it.

And we’ll open up the line for any questions that you may have.

Question-and-Answer Session

Operator

(Operator Instructions) Our first question will be coming from the line of Jeff Houston from Barrington Research. Your line is open.

Jeff L. Houston – Barrington Research Associates, Inc.

Hey, Pat and Jennifer, thanks for taking my questions.

Jennifer Crow

Hi, Jeff.

Patrick F. Goepel

Hi, Jeff.

Jeff L. Houston – Barrington Research Associates, Inc.

Hey, guys. So to start off with, it’s great to see SaaS bookings up 40% year-over-year in the fourth quarter. And a few questions around that is, is booking kind of poise to post roughly the same growth rate in first quarter? And is there any seasonality related to that as we move from fourth quarter to first quarter? And then also following up on that, should we expect SaaS revenue growth to kind of ramp gradually as we go through each quarter in 2014?

Patrick F. Goepel

Yes, I think Jeff, first of all, I think there is some seasonality to the fourth quarter and the third quarter in our business. We are going to report bookings numbers year-over-year. And so when you look at first quarter SaaS bookings in 2013 and first quarter SaaS bookings in 2014, I would expect that, we will be up nicely. And we’re going to – show that metric year-over-year, so the seasonality doesn’t, we don’t get caught in that seasonality if you will. And I think that’s a true measure of the business.

As far as cloud-based bookings, we are – we do think at least the cloud-based revenue as you know depending on the size client, it could be in the second quarter versus the first quarter on a fourth quarter sale. But we are implementing our cloud-based booking, our retention has been positive. And I would expect to see over the year in 2014 quite a nice growth in cloud-based revenue.

Jeff L. Houston – Barrington Research Associates, Inc.

Great. That’s a good color. Then separately after the – the debt refinance, could you update us as of today where the fixed charge ratio and the leverage ratio stand?

Jennifer Crow

Our Q1 covenant is 1.5 on the fixed charge ratio, and on the leverage covenant, I believe is 3.5 and will be both of those so.

Jeff L. Houston – Barrington Research Associates, Inc.

Okay, great. And in the press release this morning, you had mentioned some improvements in product development and customer support operations, could you elaborate on those a bit?

Patrick F. Goepel

Yes. Jeff, we spent 2013 and thanks for reminding me. 2013 we really implemented the service cloud and sales force internally and we put everybody on the same system. And what that’s done is, first of all, lot of our client cases now are online, so they don’t have to call us and the adoption rates have been very, very positive. We also introduced the net promoter score to really get feedback and get enthusiastic clients.

And so just satisfying somebody isn’t good enough. We want them to recommend us and promote us and while that’s done internally. And we’ve had a lot of trading internally to get client satisfaction to where people are promoting us the scores have been higher and higher. So that was the main focus for us. We’re in a repetitive business that our clients are value and we have to make sure they stay around for years and years and years, and so that’s been the initiative.

On the product side, really a couple of things, all our products now, we’re integrating hardware and panels and mobile devices with our software. And then our software is running on those mobile devices, so that’s been a big focus for us this year and we’re very pleased with some of those product initiatives in the integration opportunities.

And then finally in AsureForce what we’ve done is, we’ve with our products in some areas of the business they are traditionally to the blue color or grey color of employees and we really spend a lot of time broadening the focus with FotoPunch to capture the white color market as well on the exception based, on the vacation based time, and those products have paid off for us in the third and fourth quarter.

In AsureSpace, the integration of the cloud activities and the integration that were more than just the conference room where we’re integrating to real estate utilization and one of them was our partnership with Abintra that we just announced. What we’re seeing is our desk sensors and we’re seeing a broadening of the offering and that helped us with the big clients that we have, and there is a lot of interest and that’s encouraging for us as we look to 2014.

Jeff L. Houston – Barrington Research Associates, Inc.

That’s a great color. Thanks, guys.

Patrick F. Goepel

Thank you, Jeff.

Operator

Thank you. (Operator Instructions) Our next question will be coming from the line of Matthew Paul from Sidoti & Company. Your line is open.

Matthew Paul – Sidoti & Co. LLC

Hi, guys, good morning. Thanks for taking my questions. First one with the two pieces of debt news in the last couple of weeks, I just want to make sure in the first quarter, are we looking at one-time gains a net figure of 300,000?

Jennifer Crow

It’s a net loss, roughly 400,000.

Patrick F. Goepel

So, Matthew, the announcement with PeopleCube we settled on a gain of $1 million, and then the announcement with Wells Fargo was $1.4 million loss, 700,000 was cash.

Matthew Paul – Sidoti & Co. LLC

Is in cash, okay, that’s rose [ph] coming up with the 300,000. Okay.

Patrick F. Goepel

So 300,000 if you will cash gain I guess, but 400,000 accounting loss.

Matthew Paul – Sidoti & Co. LLC

Okay, thank you. The client satisfaction figure gives 87% that you gave on the call, is that from a net promoter score you were just discussing?

Patrick F. Goepel

That is.

Matthew Paul – Sidoti & Co. LLC

Okay. Is that sort of a new metric you guys have just kind of calculated for the first time or?

Patrick F. Goepel

We spent a lot of time focusing on the – on net promoter score in addition to our client satisfaction initiatives. And we spent and introduced that metric in 2013 and we’ll continue going forward.

Matthew Paul – Sidoti & Co. LLC

All right, great. And the last question I know towards the end you noted 2014 key strategy points and included the GeoPunch mobile application. But I just want to ask in the quarter was there any significant momentum gained in the mobile department of the business?

Patrick F. Goepel

Absolutely, we don’t necessarily break that out, because some of our clients will buy GeoPunch and mobile devices with the bundling of the sale. But clearly, we had very strong sales and a large majority of those sales came with the Geo and mobile punching in time for us, and then mobile devices or hardware was very strong in AsureSpace as well. So we’re very pleased with the role that GeoPunch and the Mobile Technology has in our growth of sales.

Matthew Paul – Sidoti & Co. LLC

Great. And the last question within your sales force you noted a lot of success maybe into fruition a little quicker than maybe you had anticipated maybe at least I anticipate, do you have any sort of target for how quickly you are going to grow that team out this year or maybe in the quarter?

Patrick F. Goepel

Last year we spent a lot of calories and money hiring 13 salespeople in the first quarter primarily of the year in 2013. This year really we are going to let them get some seasoning. We feel that sales personnel, we really want to see that second and third-year. I would anticipate we’ll probably grow sales head count again next year at this time, but this year really we’re going to focus on letting them get productive.

We feel like we have the products in the right place and we’re going to continue to grow out the products. We’re investing more and more into products, and we’re going to let the salespeople now that they’re trained and ready to go and have had some success. We’re really going to enjoy the fruits of 2013 and allow them to help grow the business, and we got a nice start.

Matthew Paul – Sidoti & Co. LLC

All right. Great, guys. Thanks for taking my question.

Patrick F. Goepel

Thank you.

Operator

Thank you. (Operator Instructions) Our next question will be coming from the line of Mike Chadwick from [indiscernible] Capital. Your line is open.

Unidentified Analyst

Hi, Pat, congratulations on the solid quarter.

Patrick F. Goepel

Thank you, Mike.

Unidentified Analyst

Hey, I have one question regarding the percentage of revenues. It looks like you’ve been trending up nicely right, again, 29% growth on the cloud-based revenue versus the overall revenue, and so that the faster growth clip then the overall revenue growth. And so my question has to do with as we move forward, can you give us a little bit of guidance or color in terms of maybe next year or the coming years in terms of we’re at about 50% run rate of cloud-based revenue versus overall revenue, where do we think we can take that in terms of the overall revenue contribution?

Patrick F. Goepel

I think it’s an interesting question, Mike, and I appreciate it. I think we’ve had some success coming off some of our acquisitions. We’ve grown cloud quite well. But I think we also have done coming from some of the acquisitions that we acquired, we’ve also grown our service revenue and our hardware revenue associated with that. And I think having acquired some of these businesses, we would really put additional distant plan and rigor and that’s allowed us to grow service revenue and hardware revenue almost as fast as cloud.

I think over the long-term cloud will grow much faster than some of those revenues, so I think if you’re asking a question three to five years, and then cloud-based revenue will continue to be more and more of this business. What I think in the short to medium-term the discipline around and the expertise that we’ve had around change management charging for services have allowed us to grow that for the time being as fast as cloud. And that’s where you see the number of cloud revenues being about 51% or so of overall revenues. But over time cloud-based revenues will clearly take hold and grow faster than the business.

Unidentified Analyst

Great. Thank you.

Operator

Thank you. And at this time, I’m not showing any further questions. I would now like to turn the call back over to Pat Goepel for any closing remarks.

Patrick F. Goepel

Thanks so much, and I really appreciate you being on today’s call. I think we – 2013 was a great year for us, and it was in many cases transition year from finally putting the turnaround to rest and really we making Asure into a growth company.

And so I will always be thankful for 2013, where we can kind of close the chapter of the turnaround and now we’re growing organically. I think we’re really well positioned to grow not only organically, but via acquisition as well. When I step back from it or in big markets, we’re around big trends with mobilization, globalization and the cloud. They always say luck, good fortune as luck, is preparation meeting opportunity, and I really think we have opportunity, I think we prepared for this event.

So we’re planning on growing in 2014. We’re planning to look for additional opportunities to grow faster. We’re also growing with discipline. Our EBITDA, we want to grow at a 20% EBITDA range and we want to reward the investors. And then finally, our banking relationship with Wells Fargo, I think is an important part, because they’ve invested with knowing that we’re a cloud-based company, knowing that we’re going to grow, and their lending is matches our strategic vision and to grow with the partner like Wells, it’s a great opportunity for us.

So we hope you appreciate the results. We thank you for being a shareholder and we look forward to a fantastic 2014. Thanks for your time today.

Operator

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

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