Asure Software, Inc. (NASDAQ:ASUR)
Q4 2011 Earnings Call
March 29, 2012 11:00 a.m. ET
Cheryl Trbula – IR
Pat Goepel – CEO
Dave Scoglio – CFO
Thomas Pfister - RedChip
Good day ladies and gentlemen, and welcome to the Asure Software Corporate Conference Call. My name is Karen, and I’ll be your operator 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. Ma’am, please proceed.
Thank you, Karen 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 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 and I’d like to welcome investors, clients, employees, potential investors and otherwise interested parties in our fourth quarter conference call and also the 2011 year-end review. We will get to the fourth quarter results in a minute but first, I’d like to take just a short moment and talk about the results of 2011.
As we closed the chapter of 2011, history will show that 2011 was the year Asure moved from a turnaround story to a growth story. The turnaround is now largely complete and we’re going to grow the business. Several events in 2011 solidified the foundation of growth. First of all, we completed our management team makeover. As you recall throughout the year we hired Steven Rodriguez as our Chief Operator Officer. And Steven has ducked in and done a tremendous job with the company. Mike Kinney is now the Senior VP of Sales. He’s done a great job for us in the sales area. We revamped our sales area and brought sales in-house throughout the year, largely in the second quarter timeframe and Mike has lent a tremendous effort.
Christian Cowan, heading up Marketing with our acquisition of ADI, has done a great job in the marketing side and he is a fantastic leader for the marketing group. And Todd Giaquinto who has been our VP of Development has done a phenomenal job, and we are really excited to have Todd as part of the family.
So in addition to the management team we felt like we really strengthened it throughout 2011. We’re happy with the backgrounds. We’re happy with the work that they’ve done, and it makes it for a much stronger Asure going forward.
We also acquired two companies in 2011 and in the fourth quarter is that ADI -- the acquisition of ADI and the acquisition of Legiant really has bolstered our position in the workforce market. And in time and attendance market it brought us new products, new talent, new development, new clients, and we have a lot to work with as we move forward. And the results in the fourth quarter paid off as well as 2012 looks very exciting because of those acquisitions.
In addition to that, we streamlined our office locations. When I first started, we were in three countries and four facilities. Largely we are in two facilities. We are in Warwick, Rhode Island and Austin, Texas. We’ve now closed Vancouver, Canada as well as Mumbai, India. And for our size and where we’re trying to go, the streamlining those two office locations has been important aspect for us.
We introduced a new SaaS platform or cloud-based platform and we spent a lot of time fixing and integrating the current platforms to the cloud. And that has done well for our clients, our employees, our net profit margin going forward and it’s given us a foundation of growth. We introduced a mobile strategy in 2011 for our clients. We have beta customers who’re ready on our service, and we think that will be a foundation for growth going forward.
We also -- with the acquisition of ADI, we acquired new clock technology and our clocks did very well in selling in the fourth quarter as well as given some foundation for growth in 2012.
We also spent some time with the community, and I think a good company spends time motivating employees and getting the best talent in the world. We get the best clients in the world, and we also have to be good in the communities we serve. And in the community we serve, just one example of that is we had a sales kick-off and the employees had a bill bites (ph) for the Riverside youth foundation and that was a great team building exercise of the employees, and it was a great give-back for the community. So as part of that is the results that we have.
We solidified our infrastructure. Every department is now focused on growing Asure and making it great, and I feel like we’re poised and in position to do that. And I want to thank the employees of Asure for all their tireless efforts. They’ve done a phenomenal job in transitioning this turnaround story into a growth story, and we’re very, very proud of them.
As for the quarter, we’re going to start to get into the specific results but we had an outstanding fourth quarter in terms of revenue and EBITDA. And I am going to turn it over to Dave Scoglio to give those specific results. Dave?
Thanks Pat. I am going to take a few minutes here to go over the fourth quarter and full year financial highlights. And I will be happy to answer any and all questions during the Q&A period at the end of this morning’s call.
In the fourth quarter, revenue was at $3.65 million, which grew 46% over the last quarter and largely driven by the acquisitions of ADI Time and Legiant during the quarter. Core business revenue was down around 7% but this is really driven by lower one-time revenue which is consistent with our desired increases, our combination recurring revenue streams.
Organic recurring revenue, excluding acquisitions, as a percent of overall revenue grew to 84% sequentially and grew by 8% compared to the comparable quarter 2010. We finished the year at $10.9 million in revenue, which is a 9.1% increase. Perpetual license revenue or one-time license revenue was down as expected with the acquired company revenue driving the bulk of the year-over-year increase.
NetSimplicity cloud bookings were up sequentially by 64% and 82% year over year while iEmployee cloud-based bookings posted a sequential growth of 60% and 151% year over year.
EBITDA for the third quarter was $715,000, excluding one-time items, driven by the recent acquisitions of ADI Time and Legiant, along with mark to market and original issue discount due to the conversion of our debt and the derivatives related to that and the fair valuation of some of our acquired debt. This same measure for the full year was $1.8 million, which was a 37% improvement over the prior year.
Net income, excluding one-time items, for the fourth quarter was $0.06 per share and $0.15 per share for the full year. GAAP net income for the full year and the fourth quarter was minus $0.01. From a gross margin perspective, we landed at 79% for the full year, which was a 2% improvement over the last year. And we’re very pleased with our free cash flow at $1.47 million for the fourth quarter. Our strong cash flow over the last year enabled us to allocate approximately $3.1 million of cash from our balance sheet towards the two acquisitions this quarter.
Additionally, deferred revenue was increased 22% sequentially and 57% versus the comparable quarter in 2010, driven by both our strong cloud bookings growth and a successful campaign to bring month to month customers into our standard annual paid upfront contracts.
Due to the company’s efforts to restructure a portion of our debt through equity conversion, the company will regain compliance of the NASDAQ’s threshold for continued listing requirements as of March 31, 2012, which we had fallen below as of 12/31/2011. For additional information -- please see the 8-K filed on that day March 12, 2012 for additional information and related impacts. And also please note that these impacts were excluded from the earnings guidance published in this morning’s release.
For Q1, 2012 we expect EBITDA, excluding one-time items to fall within the range of $700,000 to $800,000. Revenue will fall between $4.1 million and $4.2 million and cash generation or free cash flow will be between $500,000 and $650,000. EPS guidance for the full year will be given at our next earnings call due to the upcoming stock split.
At this time, I would like to turn the discussion back to our CEO Pat Goepel for closing comments and then we will do the Q&A period.
Thanks Dave and again, we are very pleased with the results of the fourth quarter and for the full year. Just some more color on the fourth quarter. First of all on sales, I mentioned Mike Kinney and he’s done a tremendous job as the VP of Sales. Just clients of note in the quarter, Boston Consulting Group, Allen & Overy, KPMG, John Hopkins, GE, the aviation division, USDA, Kaiser Permanente, Keiser University in Florida, Salesforce.com., Goodwill and Easter Seals. And those are just some examples of the clients that we won or bought additional business with us in the fourth quarter. And that’s a very impressive list of names and we want to do a great job for them everyday.
The cash flow was outstanding this quarter. If you look at our history the last four or five quarters, we’ve had increasing cash flow. We were aided by the conversion into cloud. That was a one-time program and customers paid a year in advance instead of month to month. But the cash growth has been impressive. It’s put us in a position to do a couple acquisitions and we’re certainly not done yet. We’re actively looking to grow the company organically as well as looking to make timely acquisitions because we do feel that now that we have the foundation for growth, we can grow both organically as well as via acquisition. And we think the marketplace is very attractive for that as well.
In addition to 2012 the stock had outstanding shares, a little over $3 million. I have been on a road show with stock brokers as well as with institutional investors. And one of the things that they’ve asked us is for more liquidity in the stock or more shares outstanding. Because of the results we felt that it was prudent at this point in time with the board to do a 3-for-2 stock split and that in addition to the convertible notes will make our stock more liquid for investors and we think it will be more investor friendly to get in, in positions with our stock. So we’ve announced that move. The details were in the press release and the Exhibit Index which will be in late April or early May. We think that will solidify or help our liquidity of the stock and we’re excited about that.
We’re most excited about being in a position to do that. So we work hard for the investors each and every day. We’re excited about the company and I would like at this point in time to turn it over for any questions that you may have.
(Operator Instructions) We do have a question from the line of Thomas Pfister from RedChip.
Thomas Pfister - RedChip
I just have a few questions here. I think you guys just mentioned the monthly to annual contract conversion. You said that was kind of like a one-time thing. Could you give additional color maybe on what drove those conversions, whether it’s all the acquisitions or something else?
No, a great question. And what we did is our model with cloud-based bookings and cloud base going forward was we charge an annual fee and for that annual fee, we deliver service each and everyday. We recognize that annual fee on a month to month basis. With some of the acquisition and with some of our legacy clients, they would pay us once a month. And what we did is put them in our standard program that we offer them a package whether it was an upgrade or some features or perhaps a 5% discount. But in one of those packages we would offer them that if they paid upfront for the year, they would get additional value in their services. And several elected to do that in the fourth quarter.
So that helped us from a cash flow perspective. It also helped us from standardizing our offering for our clients and from our employees making collections a lot easier. So we thought it was a win-win-win all the way around and we ran that program in the fourth quarter.
Thomas Pfister - RedChip
Yeah, that definitely sounds like a good idea. Is there going to be any additional loss over there maybe in the first quarter 2012, or did it all kind of happen during the fourth quarter?
I think as far as the fourth quarter, we were pleased with the cash. We’ve announced our cash guidance in the $500,000 to $650,000 range in the first quarter, and we will continue to look at standardizing some of our clients throughout the year. But we’re very pleased with our cash generation.
Thomas Pfister - RedChip
Okay, great. Next question here, with related, I guess, to research and development expenses, there was a – I saw a little bit of an uptick there in the fourth quarter. I saw that, that went along with the growth in revenue. Going forward, do you guys anticipate growing the research and development along with the revenue or could you give us some guidance of that, as it relates to that?
Sure. So in the fourth quarter we picked up ADI Time who switched the proportion of R&D expense. We’re actively developing a new platform. We’re not necessarily doing any substantial further investment but I do expect that, that R&D rate will continue as you see in the fourth quarter. The focus of our new platform development is in ADI Time versus Legiant. So you won’t see any quarter-over-quarter influence because of the partial quarter with Legiant. So I do expect that to remain relatively static.
Thomas Pfister - RedChip
Okay, great. Thanks for the color there. Next question, I saw you guys put a release out a little – about a month ago on the monthly time clock subscription program. Could you give us maybe some color on the impetus behind that and I guess how maybe it helps out your customers?
Yeah, and really our customers more and more are buying in a cloud or repetitive business model. And historically clocks were sold in a one-time business model. So let’s say a clock was sold at $1000 with the $200 maintenance, what, and they bought the clock. And the clients don’t always want to buy the clock. In some cases they want to lease the clock or they want to subscribe to the clock. And they want to make it easier. So let’s say for $75 or $100 a month, we can provide that service. It’s very similar to how we price our cloud-based solutions anyway. And so what that does for us is it allows the client to have a very consistent service offering and billing mechanism to take advantage of the service. And they know they don’t have to take full ownership responsibility where they can rely on the service of Asure.
So we announced that offering. We offer that clock model in both offerings and we think it will ultimately grow sales and delight our clients.
Thomas Pfister - RedChip
And then I just have one final question here and then I will jump off the call. This is just really with regards to the conversion of the debt to equity of the convertible. I think you said about $1.50 million of the debt was converted. Do you think the rest of it is going to be converted or do you think the rest of the holders are going to all outs (ph) their notes?
The actual that converted was $1,150,000 converted. The other $350,000 will not convert. And what we did is we have a deal with them where they’re not going to convert. But we had some language in there that we negotiated away. So we don’t have to have mark to market accounting for that area. So without that language – if we didn’t make that provision, if our stock price goes up, we would have a non-cash charge. Now that we’ve negotiated that, we have a – we don’t have to have a mark to market impact going forward. So we thought that was attractive for us and our financing from the convertible stock is known now – 1,150,000 converted and the other 350,000 have notes and they have the option to go to become a shareholder at $5 a share for the next approximately 2 years or so.
Thomas Pfister - RedChip
Okay. So I guess, just to follow up on that, so I think there’s going to be a non-cash charge just in the first quarter 2012 and then after that, that will disappear right, is that correct?
That is correct.
Yeah, Tom, we will continue to see small OID charge related to that convertible debt that remains but it will be minimal.
(Operator Instructions) We also have a question from the line of David Plantholt from Gem Asset. Mr. Plantholt, your line is open. And he seems to have removed himself. I see no further questions in the queue at this time. This concludes our question and answer session. I will now turn the conference back to Pat Goepel for any concluding remarks.
Thank you, and again, we had a lot of folks on the call today. We want to thank you for your support. Again, we are very, very pleased with the results of the fourth quarter. We’re very pleased to be in a position we are for 2012. It’s been a lot of hard work getting to this point.
When we first started as a management team and board of directors was in September of 2009, and stock price, I think, was somewhere around $0.20 a share or so. We did a reverse split, we did a lot of heavy-lifting to build the infrastructure to be in a position to grow and as I look out in 2012 to see $18 million in revenue and $4 million gain in EBITDA and the cash flow of $3 million, and some of the one-time events that are taking us to get there with the two acquisitions . And we’re actively looking at acquisitions going forward. We’re really excited about the market opportunities that Asure brings to us. We’re excited about the hard work that our employees and our clients have been with us. And we think we’re going to reap those rewards in 2012 and beyond and we really like to thank you as investors for your support in the company and your interest. And we’re looking to have a prosperous year. So thanks for your time today and we’ll talk to you down the road.
Ladies and gentlemen, thank you for your participation in today’s conference. This concludes the presentation. Thank you. And have a great day.
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