Asure Software Inc. (NASDAQ:ASUR)
Q3 2010 Earnings Call Transcript
November 9, 2010 11:00 am ET
Lisa Flynn – IR
Pat Goepel – CEO
David Scoglio – CFO
Good day, ladies and gentlemen, and welcome to the Asure Software Corporate Conference Call. My name is John and I'll be your coordinator for today. At this time all participants are in listen-only mode. We will be facilitating a question-and-answer session towards the end of today's presentation. (Operator Instructions)
I would now like to turn the presentation over to your host for today's call, Lisa Flynn of Asure Software. Please proceed.
Thank you, John. 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 outcome. 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. After we've completed our review of the quarter we'll open up the call for questions from the financial analyst community.
I would like to now turn the call over to Pat Goepel, CEO of Asure Software. Pat?
Thanks, Cheryl [ph] and welcome everyone to Asure's third quarter results. We're happy you're joining us on our quarterly call. And today we're going to address the 2010 third quarter, some fourth quarter guidance and our business outlook for 2011, 2011 specifics will be handled on our next quarterly call.
First of all in the third quarter, we had a very busy third quarter. We're proud of our 7% revenue growth, 12% in NetSimplicity 2% in iEmployee. We're positive that we had positive net income and our EBITDA was approximately $0.08 a share.
In iEmployee, we had revenue growth and we did a number of different things that moved the business forward in the third quarter. First of all, client implementation rose 36%. We also gained an additional level of partnership with our channel partner, OASIS where they're going to include us in on more deals and we're proud of the evolution of that relationship.
Key wins in the quarter were Boys and Girls Club, United Labor, International Paper and The National Association of Public Schools. We also completed a significant milestone event in the Ceridian transition was completed this quarter. Our largest client now is approximately 1.5% of our base. That was not true quarters ago. So we're very proud of our independence.
NetSimplicity rose 12% this quarter. Three key wins, Carnegie Mellon, Raytheon and Samsung were the highlights in NetSimplicity. NetSimplicity, also I want to point out deferred revenue grew 10%. So while we're excited about the growth in our business year-over-year from a quarter perspective.
We're also excited that we're beginning to see traction in our deferred revenue or our repetitive revenue. And we're going to talk a little bit more about that as we move forward with this call. Also I want to remind investors that we have zero debt and our cash grew to $837,000 this quarter.
All this is a busy quarter for us, but this doesn't talk about what we did operationally. And operationally in the third quarter we largely completed our restructuring that's been going on for a year. One of our objectives, as you'll recall was to compete with a streamline cost structure and a streamline business.
What we did in the third quarter is, first of all, we moved some of our workforce out of Vancouver and we went into a smaller office in Vancouver this quarter. We moved headquarter offices in Austin this now complete. The HBI relationship where the second quarter we got out of the real estate deal, now we moved headquarter offices, we're in a much more right size sufficient office that allows us for focus and growth. We have now completed those moves.
All the technology, from our standpoint we've been through a process where we've centralized our technology and our IT infrastructure. There is virtually no more technology in each of our locations, i.e. India, Vancouver, Warwick or Austin. It is now in a centralized infrastructure and we feel that we're much more cost effective and we can scale the business in that approach.
We are now approaching our business in a similar structure. We settled a previous management dispute and got that behind us. And we also invested in some client services technology and some web based structure to help our clients and help our retention rates.
Also in the quarter, we divested our equity interest in a hardware business that we had and we completed that transaction. And then we did get a tax return advantage and a financial consideration advantage in our 401-k program.
In addition to all of that, some of our core service metrics remained very positive. In NetSimplicity we did a process change and we have more accountability in line of sight in our renewal processes and very pleased with our individuals that are participating. And our retention rates in some of the months were as high as 94% and 96%, which were very strong metrics for us. iEmployee, as you know we completed the Ceridian transition.
Our client service metrics were very strong in the 90% range and that is very strong for the business. We had product releases that also happened in the quarter and our customers were very pleased with the product releases. What this will add to us is it'll further our retention metrics, as well as open up some cross selling opportunities.
So in the third quarter, we largely positioned the company for continued success. We were profitable a bit, not as much as we would have liked, but we setup the business for success in the future.
Now, a word to quarter four, quarter four we set about a year ago some guidance on a 20-20 plan and that's 20% revenue growth, 20% profitability on EBITDA. We are choosing now to invest in growth of the platform and growth of the business and scalability of the business in addition to grow sales. You're going to see us focus more on bookings. We are going to continue to run profitable.
Some questions have come up can you get to the kind of profitability numbers? We think we can get to very strong EBITDA numbers, maybe 1-8 a 1/4 in millions, free cash flow. However, we would be tied to a one-time sales business that would not grow the company long-term.
From a profitability perspective, we think this company has enormous potential in future years so we're going to invest in the repetitive nature of it. It's transforming the business to repetitive nature business a profitable business during that transition, which we're holding ourselves accountable to as evidenced by this quarter. And we feel the long-term success of this business will be very, very positive.
Fourth quarter our guidance is now $0.02 to $0.04 per share. We've largely finished the operational rightsizing of the business. Now it's all about growth and we're adding salespeople and some repetitive focus.
At this point in time, I'm going to turn to Dave Scoglio, our CFO who has done an outstanding job for the specific results and then I will comment on 2011 business strategies and then take questions on the call.
Thanks, Pat. I'm going to take a few minutes to go over the third quarter financial highlights. And as Pat said, we'll be having a Q&A session at the end of this morning's call and I'll be happy to answer any and all questions at that time.
In the third quarter, revenue at $2.54 million grew 7% over the comparable period in 2009 with both product lines producing gains. As Pat stated, NetSim revenue grew 12% while iEmployee revenue grew 2%.
EBITDA, excluding one-time items, was positive at $255,000 or $0.08 per share. Net income was slightly positive at $0.00 per share. Asure's core business operated at a minimal loss of minus $15,000 or minus $0.01 per share. Contributing to that loss were foreign currency translation and bad debt expense, each driving minus $0.01 per share.
One-time items projected at a loss of $0.04 to $0.05 per share actually contributed positively to overall earnings at $0.01 per share. Primarily driving the offset of forecasted moving and restructuring costs was the sale of Asure's equity interest in a previously divested hardware company.
Gross margin contribution in dollars was up $82,000 versus the comparable period in 2009. Q3 operating expenses decreased 73% over the comparable period in 2009 reduced from $7.7 million to $2.05 million. While predominantly driven by one-time costs in Q3 '09, we continue to recognize gains from our reduced overhead structure, including the modification of our Austin headquarters lease.
Going forward, as discussed in today's press release, we will be making further investments in operating expenses, particularly in the areas of sales and R&D to facilitate our 2011 strategy.
This concludes our discussion of the financial results for the third quarter of 2010. And as Pat mentioned in the fourth quarter in terms of outlook, our estimates are $0.02 to $0.04 per share. We’re committed to running profitably and we feel that the time is right for the strategic investments that Pat described as they will help ameliorate longer term shareholder value.
In terms of our balance sheet metrics, I'm pleased to report that cash is up $132,000 or 18% from last quarter and stands at $837,000. Additionally, our quick ratio increased from 0.6 to 0.7 quarter-over-quarter. Excluding deferred revenue, which arguably has a substantially lower actual cost than other liabilities when coming due, our quick ratio for the current quarter, would be 1.6 up from 1.4 in Q2 by the same measurement. Lastly, we continue to have zero debt on the balance sheet.
At this time, I'd like to turn the discussion back to our CEO, Pat Goepel, for closing comments and questions and further comments on the 2011 strategy.
Thanks, David. So there's a lot to be excited about as an Asure investor. First of all in 2011, we – the restructuring of costs is largely behind us, we're getting out of the businesses that didn't make sense for us. We're focused on our two product lines, NetSimplicity and iEmployee. We're laser focused on growing sales and specifically sales of repetitive revenue.
You see SaaS related businesses are doing very well as an industry. We're going to tap into that industry and we're going to be more and more focused on SaaS sales or the repetitive nature of SaaS.
Our clients, we're hugging our clients, we're loving our clients and our retention rates have been very positive. We anticipate that they're going to continue to buy more from us in more cross selling opportunities and we're going to invest in getting them to buy more from us and stay with us longer.
From a product and technology offering, what we have done internally is now centralized our IT and we're getting out of being in the software premise deployed business. We are going to continue to offer that to some clients, but we're going to minimize that and we're going to invest more in the SaaS related businesses and the repetitive nature.
What this will do is this will have a two, three, four year effect of growth. Short term it puts pressure on growth rates. What we are going to do is start articulating our bookings as a leading indicator of that. Our repetitive revenue will be strong and we continue to do this in a profitable business.
Our goals for '11 is to complete some of the product and technology enhancements, make sure that our customers are staying with us and buying more, keeping the cost structure lean and setting us up for explosive growth in sales going forward.
We're also going to be opportunistic about the value of the company. We're actively looking at acquisitions that we could leverage more clients on our platforms. And we're excited about the long-term growth prospects of Asure.
So with that, we're going to translate what '11 – 2011 results and expectations will mean on the next quarter's call but we're pleased with our results and we'll take questions now as we go forward.
And with that, operator, are there any questions?
(Operator Instructions). And at this time, you have no questions.
I want to thank everybody for joining the call. We're happy you have invested in Asure and take interest in the company. We are excited about the growth prospects going forward and we look forward to seeing you on our next call. Thank you.
Thank you for your participation in today's conference. This concludes the presentation. You may now disconnect. Have a great day.