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An extensive interview with Asure's CEO, Pat Goepel, at the conclusion of this report.
As wage increases have been weak at around three percent for the past four years, employees are becoming dissatisfied with their situations. As employers have to maintain their workforce with less profits in a more competitive marketplace, they need a more efficient way to run their organizations. Asure's cost cutting efficiencies and cost-savings offered through its workforce and workplace management solutions are a go-to for any organization that wants to be leaner and more advanced.
Asure Software (NASDAQ:ASUR) is a cloud-based workforce management software solutions provider based in Austin, TX. Founded in 1985, Asure is a $30M microcap company with an impressive growth story. The company is profiting by saving businesses time and money. This is accomplished by streamlining workforces and workspaces into highly productive engines.
With thousands of clients and a global footprint, Asure is an established company, not a typical overvalued technology company based upon promises. Further, Asure has aligned itself with three major market trends to bolster growth - globalization, mobilization and technology.
With a conservative revenue growth rate, Asure has the potential to reach $35-$40M in revenue and an EPS of $0.70 to $0.74 in EPS for FY15. This equates to 150% to 200% upside potential with an industry average 20x P/E ratio.
A Breakdown Of Assure's Two Product Suites:
The company's AsureSpace and AsureForce each comprising various product offerings that can integrate with each other, while both product lines strive to make businesses more efficient.
AsureSpace is a scheduling and workplace management software that allows employees to book meeting space or a desk from their own mobile device, or a kiosk - improving workspace utilization. This suite includes a resource scheduler, meeting room manager, workspace manager, workplace business intelligence, smart view and integrated hardware comprising of employee's devices or touch panels and kiosks. Further, NowSpace allows you to book rooms or desks, view co-worker availability directly from your smartphone.
AsureForce comprises a suite of software, hardware and mobile workforce management solutions to improve efficiency through enhanced business intelligence to better allocate a business's workforce, decrease costs by flagging staffing issues and reduce labor expenses while creating strategy opportunities. On the software side, AsureForce Time and Labor Management Software that allows the managing of leave requests and PTO, time sheets online, employee attendance, workforce scheduling and more all from the cloud. This segment also comprises Asure's time clocks and data collection device and GeoPunch to track employees.
New Product Offerings Can Benefit Organizations - While Increasing Asure's Sales:
Recently, Asure has unveiled four new product offerings to complement its two key product and software suites. These new and unique products will bolster the efficiency Asure can offer to businesses while increasing sales for the company.
GeoPunch: Asure stated that their time tracking management software delivers an 80% reduction in time and attendance administration. Further, the association of Certified Fraud Examiners found that the average organization loses 5% of its annual revenue to occupational fraud. Managing new hires, an expanding business and mobile workers leads to this lost revenue. Asure's GeoPunch tracks whose working to eliminate fraud and enhance productivity. This application requires virtually no training, and eliminates the clocking in of a co-worker through facial recognition.
AirClock: The average organization pays $5720 in non-work dollars to every employee. Overall, workers spend 26% of their time at work, not working. Companies are turning from the old manual system to fully automated time clock hardware from Asure. Asure offers proximity cards, barcode cards and biometric options to eliminate time fraud and payroll costs. To the benefit of the business, Asure's options can be licensed on-demand or pay-as-you-go.
Asure's AirClock offering is a fixed cloud-based device that offers biometric facial and PIN entry for employees to check in at work. This eliminates buddy punching, and increases business efficiency as employees can be better tracked. Moreover, AirClock requires virtually no training.
NowSpace: NowSpace is Asure's easy to use solution that solves a massive problem ubiquitous to every organization - the frustration of an employee reserving a desk only to drive all the way to work to find their reserved desk is occupied due to miscommunication within the system. Asure's NowSpace is an easy to use application that allows an employee to book a room or desk to work at, when they want it. This cuts down on the real estate needed by a business and allows employees workspace only when they need it - especially as many employees are working from home, or are on the go. With NowSpace, Asure has stated that they can accommodate employee needs with up to half the physical real estate requirements. NowSpace can be used on employee devices or on employer given ones, and is an actual application - not a web based site.
SmartTag: Last on the list of new products is Asure's SmartTag. This goes beyond employees and tracks physical assets from an employee phone to a desk chair or computer monitor. This allows for reduced asset losses and misplacements and the ability to recognize vacant or misallocated space. This division is reminiscent of our article on SuperCom's (NASDAQ:SPCB) acquisition of OTI's SmartID Division. OTI's SmartID division ranged from electronic monitoring and location tracking to SmartID creation such as Passports. Although Asure's SmartTag division can only be used to track business assets. It is worth noting that SuperCom has increased roughly 300% since the acquisition, although that was based upon a highly accretive acquisition. This example demonstrate the playing field and opportunity Asure's SmartTag can target.
Asure's recent financials demonstrate that growth is currently underway. For the 2Q 2014, Asure reported revenue increasing 4% Y/Y, while net income increased 103% Y/Y. Asure's gross margin of 79% represented an 7% increase Y/Y. Interestingly, the company grew repetitive cloud based revenue by 10% Y/Y and saw increased cloud bookings of 83% Y/Y. Asure's net income per share improved to $0.00 per share from $(0.10) Y/Y as the company's new refinancing was in place. It is worth noting that recurring revenue amounted to 78% of total revenue in the quarter. Asure has reached a critical inflection point as the company reported a positive 2Q net income after two quarters of losses.
The company is becoming a leaner machine as they recently refinanced the company's senior deb under a new credit agreement with Wells Fargo. The new facility has a new term loan of $15M, a $3M revolver and an additional uncommitted incremental loan facility of $10M for future acquisitions. The new loan currently has a 5% interest rate, in comparison to the 11.5% loan agreement the company had with Deerpath Funding, LP. After incurring a one-time charge of $1.4M, Asure expects to reduce interest expenses by $0.6M in 2014, $0.7M in 2015 and reduce cash principal payments by $0.8M in 2014 and $1.1M in 2015. This will result in increased profitability for the company in 2014 and 2015.
High insider ownership of 20% demonstrates that management's goals are aligned perfectly with shareholders - eliminating any potential principal agent problem. Pat Goepel, CEO of Asure, owns 6.7% of the company and Asure's Chairman Daniel Sandberg owns 13%.
In addition to a healthy insider ownership, institutions have begun to add to their holdings in Asure as the company grows and develops. Institutionsincreased their holdings by ~20% Q/Q. Overall, 26% of the company is owned by institutions and mutual fund owners, equating to a solid ownership level while allowing liquidity with a 4.69M share float.
Many companies offer promises as to the value proposition offered by their products and services - whereas Asure has documented success to prove it. On October 14, 2014, Asure reported that they implemented an agile working program that enabled Scottish Water to save over ~$6.3M (€5M) in construction and operating costs. This was achieved in Scottish Water's new office with a 25% reduction in the number of workspaces through Asure's Workspace Manager solution to support a hot design and resource sharing system.
With almost 3,400 employees in six locations throughout Scotland, employees had faced various problems that reduced efficiency. Scottish Water's employees were spending too much time in vehicles between locations, had difficulties reserving rooms via email and lacked any form of hot desk reservation system. Together, these items caused employee frustration and reduced work efficiency.
After the implementation of the agile working program, roughly 1,500 employees use Asure's Workspace Manager to book workspaces and meeting rooms online and in the office using kiosks and touch panels. Asure's solutions also cut down significantly on the time employees spent in vehicles between locations. Asure's solutions eliminated employee frustration and allowed management to be aware of room and desk utilization. Looking ahead, a pilot program us underway which will allow employees to book carpooling, and include video conferencing resources. Per the release, Scottish Water has plans to roll out Workspace Manager hardware and software to four additional offices and is evaluating Asure's Visitor Management and Catering services.
Outside of Scottish Water, Asure closed several other deals as of last quarter. These deals include the sale of AsureForce workforce management solutions to PSSI in the U.S., and the sale of Asure Space workforce management solutions to KPMG and PriceWaterhouseCoopers in the UK. Documented success and cost savings for businesses using Asure's solutions will attract future clients for Asure moving forward.
Asure's solutions are being adopted by the marketplace as they are proven to make businesses not only more efficient, but in turn more profitable. Management has provided projections for the current fiscal year that we believe are achievable based upon Asure's recent documented growth, closed deals, and the cost savings and efficiency their competitive solutions provide to businesses. Management has stated that Asure can deliver $29M-$30M in revenue and $0.08 to $0.24 in EPS for FY14'.
2015's Projections and How This Growth Will Be Achieved:
With a quarter and a half to go for FY 14', we believe looking to 2015 can provide an even more fruitful opportunity. As with other technology companies, a company's products generally have a high curved adoption curve - slow at first before high growth sets in. We believe Asure is in an excellent position to target and capture growth hinged on three macroeconomic trends that will drive top-line growth. Looking ahead to FY 15' we believe Asure can achieve revenue of $35M-$40M, and EPS of $0.70 to $0.74.
Asure's high recurring revenue ~79%, coupled with their high ~80% GM offers excellent visibility and should result in a premium multiple moving forward. This is a key reason why we believe our 20X P/E ratio used in our model is conservative. Further, as Asure continues to demonstrate growth in the coming quarters, institutions will be more willing to reward Asure with a higher multiple due to its high GM and recurring revenue level which offer excellent visibility.
With a large GM, Asure is a lean machine dropping more revenue dollars to the bottom line. Further, a high recurring revenue percentage offers a predictable growth model moving forward. Due to this visibility, the market should grant Asure a higher multiple than the industry average -the main reason why we believe our 20X P/E ratio is conservative.
Barrington research found that Asure has a 90% client retention rate and has only penetrated 4% of its $600M addressable market. This research estimated 150,000 potential clients paying $4,000 annually. A high client retention rate further solidifies the predictability of Asure's business model. Asure's 90% customer retention rate, coupled with its ~79% recurring revenue stream offer stable growth and high visibility moving forward. The company also has a massive untapped market that it will target in the coming quarters.
Asure's high client retention rate, gross margin and recurring revenue stream all provide for visibility and stable growth moving forward not seen in other technology or microcap companies and should provide for a stronger multiple moving forward.
More business are eliminating the employee backpack and increasing support for BYOD strategies - thus allowing an employee to use their own devices to achieve work results. Frost and Sullivan found that 70% of organization in the US will embrace BYOD activity, and 78% will by 2018. As such, more businesses will embrace trends which favor Asure's solutions - driving growth as Asure is a very competitive player in the field. This is noted by their new and innovative product offerings.
Further, the permeation of the cloud for businesses and employees means employees can collaborate more easily than ever before, while not having to be in the same physical location. Asure's employee tracking helps keep tabs of mobile employees, prevents clocking in a fellow employee, and allows for hot desk and meeting room bookings through their integrated apps, kiosks and smart panels. So when employees need to come into the office they can easily reserve a space - saving time, money and frustration for the employee and the business owner.
Telecommuting rose nearly 80% from 2005 -2012 and 1.3B workers will be mobile by 2015. Asure's offerings not only allow a business to better keep track of their employees through GeoPunch and other solutions, but allows the business to keep track of their physical assets that employees may utilize with SmartTag. Further, since all of Asure's offerings are integrated, Asure will be a friend to the growth in mobilization. For example, an employee can clock in on AirClock, verify their location if they run out with GeoPunch and then reserve a desk for the evening with NowSpace - all the while a business can track their physical assets with SmartTags.
With over 82,000 companies and 800,000 subsidiaries being multinational - business are more geographically stretched than ever. With multiple satellite offices ranging from a few to larger side operations with thousands of employees - businesses are craving efficiency to better track their organization and save money while doing so. Asure's offerings can virtually eliminate the26% of time workers spend at work, not working. Further, they can virtually eliminate the 5% of total revenue lost through occupational fraud. These items are more prevalent than ever as business expand geographically, with managers not being a quick walk down the hall. With Asure's offerings, the employee-manager link is re-enabled with increased efficiency.
With 4,161 locations in 80 countries, Asure's global footprint will ensure that it can profit from providing increased efficiencies and cost-savings to business beyond domestic borders. The work norms and operations are different in foreign countries, but the concept of business efficiency is a globally shared business goal. Asure can offer its solutions to businesses around the world, a near limitless opportunity for the small company.
With over 5,000 current clients, I believe Asure will be able to both cross-sell its new products and offer solutions these clients may not already have, to the company's benefit. If these clients purchased Asure's products in the past, the addition of Asure's newer offerings will result in increased efficiencies. Further, this proven partner channel demonstrates Asure's ability to work with and satisfy some of the world's largest companies, which can also be used as a selling point for potential new clients.
Recently, Asure partnered with Douma, Japan's only firm dedicated solely to workplace management, whihc will offer Asure's solutions to its clients. This partnershipw will help Asure bolster its revenue in a new untapped international market with the only provider in that country.
These thousands of clients include brand name companies such as Pfizer (NYSE:PFE), Staples (NASDAQ:SPLS) and Wells Fargo (NYSE:WFC). These are major companies, and signing deals with these giants should not be brushed off as an easy endeavor.
The market for mobile workforce programs and solutions that Asure is targeting is huge. Specifically, Steven Rodriguez, Asure's COO stated the following with regards to 2013' spending allocated to time and labor management technology.
"According to Forrester's 2013 Mobile Workforce Adoption Trends, approximately 10 percent of the $6.1 billion time and labor management technology market is spent on mobile workers. Almost two thirds of all organizations are implementing mobile workforce programs and the demand for mobile workforce solutions is growing by 23 percent."
Outside of current macroeconomic spending trends, Asure is looking to expand its high-margin cloud options over the next 2-5 years. These initiatives include items such as community cloud offerings to cloud security and platform as a service or PaaS offerings. We believe that Asure aligning itself with growth initiatives in the cloud market is an excellent decision as cloud computing service revenue is projected to top $500B in 2019.
As seen with Scottish Water, Asure's offerings saved the company over $6.3M in only one location. Asure also signed deals with PSSI for AssureForce workforce management solutions in the U.S., and the sale of Asure Space workforce management solutions to KPMG and PriceWaterhouseCoopers in the UK. We believe these deals, sporting documented cost savings with large organizations, demonstrate Asure's viability in the marketplace and that the company can offer these types of savings to many organizations in the future. Since Asure is proven to save businesses money, we believe the company will not have a problem attracting future clients.
9) These Initiatives Will Lead To Impressive Growth in FY15':
Looking ahead to 2015, Asure can offer shareholders a very impressive return on a very conservative growth level for an SaaS company. To achieve the low end of management's guidance for FY14', Asure will have to grow revenue 15% this year. We believe this conservative growth rate is obtainable as the company has already reported $13.08M in revenue for the first have of 2014. Further, since the company's new product offerings have rolled out, and recent deals, such as with Scottish Water, can entice new clients to reach out to Asure for their solutions. At the low end of the revenue target of $29M, on a GM slightly below this past quarter, we believe Asure can reach $0.12 in EPS - the midpoint of management's guidance for FY14. Our low end target is in line with Kristi Richburg's, CFO of Asure, guidance for FY14.
Turning to 2015, Asure has an opportunity to reward shareholders handsomely. Due to the cost savings and efficiencies Asure's product offerings can achieve for customers, we believe a 30% Y/Y top line growth rate is achievable as the company ramps up its offerings and unveils further cloud solutions hinged on a $500B addressable market by 2019. With a slightly expanded 80% GM as Asure has become a leaner engine, the company can deliver $0.70 to $0.74 in EPS for 2015. With a P/E ratio of 20X, this equates to 150%-200% upside potential from current levels.
We believe our model is conservative as a company's P/E ratio generally expands as the company grows, yet we have chosen the industry average P/E ratio. Further, we have accounted a notable increase to 10M S/O by 2015 to account for any increases in Asure's S/O for any future acquisitions.
We have elected to expand Asure's S/O to be conservative in out model. Although since the company is now profitable and producing a TTM operating cash flow of $2M, the company will likely not need to raise its S/O and this can result in a stronger EPS number for FY15'. Management has also stated they believe they will generate sufficient cash for its short term needs and debt requirements over the next twelve months, so there may be no reason for a raise.
We believe ~29M in revenue for 2014 is an accurate target as the company reported $7.03M in revenue alone for the quarter ending September 30, 2014. Growth is also accelerating as the company became much more profitable earning $161K for the quarter versus only $15K in the previous one.
Achieving An 80% GM For FY15':
A Leaner Machine:
Our model includes a slightly enhanced GM as Asure better handles their costs moving forward. Asure's largest operating expense, SG&A has slowed as revenue has increased, allowing for a higher gross margin. In the 2Q, SG&A increased only 1.4% Y/Y as revenue increased 4%. This is notable as SG&A accounted for 72% of Asure's operating expenses in the second quarter.
Our model includes a 10% Y/Y increase in all expenses. A closer look reveals how Asure will be a leaner and profitable machine moving forward, even with higher expenses - specifically its SG&A load. Due to the company's refinancing of its original $14.5M in senior debt through DeerPath with Wells Fargo. This resulted in Asure's interest expense decreases $0.6M in 2014 and $0.7M in 2015. Without this decrease, keeping interest expense even Y/Y, Asure would only deliver $0.03 in EPS in 2014, ceteris parbius. This refinancing will also reduce principal payments by $1.9M over the next two years as well.
In addition, in March 2012, Asure amended the terms of the $1.5M convertible notes bearing 9% interest the company issues to finance its acquisition of ADI. Under the amendment, each 9% notes holder was permitted to convert the balance into common stock at $5 per share. $1.15M of the $1.5M was converted - eliminating a large portion of this 9% debt burden.
Further, In July 2012, Asure issued a $3M note to the seller in its acquisition of PeopleCube. Asure had a dispute with the PeopleCube and Meeting Maker over a post-closing adjustment. The parties agreed in February 2014 to reduce the original $3M amount by $540K. The parties then settled and dismissed all litigation after settling the then $2.46M note for $1.7M. Asure's insurance carrier also agreed to pay Asure $500K in conjunction with the settlement. The end resulting in Asure recording a net gain of $1.034M recognized in the 1Q of 2014. This note had an outstanding balance last fiscal year of $2.22M at 10% interest - and this has now been eliminated as well.
Overall, Asure has become a much leaner and cost efficient machine as the company's outstanding debt at the various interest rates of 9%, 10% and 11.50% have mostly been paid off or refinanced to 5%. This allows Asure to drop more money to the bottom line, also known as a higher GM.
Growth In Higher Margin Cloud Offerings:
Asure's cloud revenue inherently has higher margins than its hardware segment. As Asure continues to grow its cloud offerings, and offer more as demonstrated in their 2-3 year growth scenario, the company's GM should stabilize at 80%, from 74.75% in 2013. We believe this is obtainable as last quarter's 79% GM increased 7% Y/Y. In addition to higher margin cloud revenue, Asure has two other items bolstering its GM.
Coupled with Asure's excellent moves to refinance their debt to entail much lower interest expenses, the slowing growth of the company's highest op-ex metric SG&A and an emphasis on higher margin cloud sales moving forward, Asure's GM can expand from 74.75% in FY13' to 77.50% in FY14' and 80% in FY15'.
Cloud Strategies has found the median growth rate for a public SaaS company to be 28%, for the reasons noted we believe Asure will be able to grow just above this median rate, 30% Y/Y, for 2015. This industry metric also places our growth rate in the conservative range.
Overall, Asure's refinancing and largest op-ex, SG&A, now lagging revenue growth coupled with increased higher-margin cloud offerings will result in an 80% GM. This is a conservative estimate as the company's GM in Q2 came in at 79%.
As of the end of last year, Asure had a federal net operating loss carry forwards of approximately $116.5M. In addition to this large NOL, Asure had a Federal R&D credit carry forwards of approximately $4.9M and an alternative minimum tax credit carry forwards of $161,000. The former two items expire in varying amounts between 2018 through 2034. This massive NOL can help the company achieve increased profitability through reducing its tax burden in the coming quarters and fiscal years.
At a 1.67x enterprise value/revenue multiple, Asure is well below the software industry average of 3x EV/Revenue. Asure's billion dollar in-direct competitorAutomatic Data Processing (NASDAQ:ADP) packs a valuation much akin to this average. ADP has an EV/Revenue ratio of 3.13x - nearly double Asure's ratio and in line with the software industry average. Further, with a price to sales ratio of 1.17x, Asure is wells below ADP's P/S ratio of 3.17x.
Statistics on public SaaS industry metrics can be difficult to obtain. Luckily, Software Equity Group publishes an SEG SaaS index to track public SaaS companies. Currently the index tracks 43 public pure play SaaS companies.
Looking at SEG's SaaS index, Asure's EV/Revenue ratio of 1.67X is much below the industry average of 6.1x. Asure's EV/EBITDA ratio of 9.68X is also well below the industry average of 58.7X. These metrics conclude that Asure is extremely undervalued in comparison to the company's peers.
Looking specifically at workforce management companies in SEG's index, the EV/Revenue of 8.2X and EV/EBITDA of 59X are even higher than the industry average. This subset is more in line with Asure's offerings and demonstrate how undervalued Asure currently is.
With a market capitalization of $30M Asure is well below the average market cap of $877.5M for SaaS companies overall and below the $974M average market cap for workforce management companies. This demonstrates that the company has plenty of room to grow. Further, Asure's 2Q GM of 79% is also much higher than the SaaS industry average of 64.3% - demonstrating the company's increased efficiency over its peers.
As Asure's gains exposure with institutions and retail investors, the company's valuation will move closer in line with its peers. A comparison of both EV/Revenue and EV/EBITDA demonstrates the upside potential as Asure's valuation moves more in line with its peers as the company grows and management executes - resulting in increased upside potential.
Betting on the right leader is the most powerful force in microcap investing. Following a net loss of $12.7M in 2008, Pat Goepel was appointed CEO of Asure with an effective date of October 1, 2009, replacing Nancy Harris. Mr. Goepel is a powerful leader and led a strong turnaround at Asure.
Mr. Goepel took over the a titanic losing $12.7M annually in the year before he took over the helm. In 2009 Mr. Goepel simplified Asure's business, improved the company's cost structure, improved and added products to turnaround the company. Since that date, Mr. Goepel has realigned Asure to near profitability in 2011.
In 2012 the company's net loss did widen, but this was a strategic choice. SG&A increased $5.6M in 2012 with the $3.4M acquisition of People Cube and $1.6M in expenses linked to its ADI acquisition. As such, we see the loss as strategic choice in 2012 - since income would have been positive without these acquisitions. This loss narrowed in 2013, and Asure has recently beam net income positive in the 2Q of 2014. Due to the powerful turnaround Mr. Goepel was able to accomplish, we believe he is a leader worth betting on as Asure can now focus on growth.
A Look At Asure's Direct Competition:
In the space optimization space, Asure has a few direct competitors. NFS-Hospitality, offers meeting room and resource scheduling software, although from our research they do not offer integrated physical kiosks or airlocks. AgilQuest also does not offer these physical options either.
SteelCase provides physical smart panels to reserve a meeting room, although its TagWizard panel is not integrated via the cloud to devices such as Asure's NowSpace. Further, SteelCase's upgraded RoomWizard II is a larger panel to reserve rooms, although it also is not integrated via the cloud to iPhones and employee devices. RoomWizard 2 can only be accessed physically or by a computer on a network PC - placing Asure's integrated cloud solutions a step above. SteelCase also does not have an integrated solution to compete with Asure's NowSpace.
CyberMatrix offers an appointment scheduling software, although it has anoutdated design in our opinion. Further, the company offers time-sheet software, where-as Asure offers GeoPunch to track employee movement with biometric validation. This solves a key problem of employee tracking and eliminating employee punching a friend in, not just another time-sheet solution. CyberMatrix offers an application known as Project Clock, although this does not compete with Asure's offerings and simply offers time tracking capabilities. CyberMatrix has no competing Kiosk or AirClock offerings.
AMX does offer functional smart panels for room configuration and to schedule available rooms. These panels are fixed, and AMX does not have an integrated application for employees to utilize nor do they offer kiosks. AMX does offer a cloud-based application for their devices, but it is aimed for IT managers and not employees.
Event Management Systems, also known as Dean Evans and Associates, is Asure's closest competitor offering many of the same products including interactive displays, and overlapping room scheduling software. Although, EMS does not offer any competitive product for GeoPunch or an application such as NowSpace. EMS does offer a web-application but not an integrated app from what we can discern. Further, EMS is a private company, so public investment dollars on this theme will flow to Asure. Emerging Soft also includes many overlapping capabilities, but does not offer a direct integrated application, only a web-based app.
In order to directly invest in a small company with effective workplace management solutions and cost savings for its customers - Asure Software is the only choice. This is since Asure's direct competitors in the space optimization space, Crestron, CyberMatrix, EmergingSoft, NFS Hospitality, Event Management Systems, AgilQuest and Condeco, are all private.
SteelCase (NYSE:SCS) is a public $2B company, but they are more focused on office furniture and do not have competing solutions for certain products offered by Asure - described earlier. AMX is owned by Harmon (NYSE:HAR) a public $6B company. To specifically play the theme of workplace and employee efficiency Asure is the only solution, as these two direct competitors are too large to play this specific theme.
The usual impediments facing microcap companies range from cash burn, illiquidity, share price swings and raising capital. We believe Asure is in a unique position since the company is producing a positive $2M TTM operating cash flow. Further, Asure is more liquid than most microcap companies as the $30M company is already NasdaqCM listed. Investors should be aware of all of the risks associated with microcap stocks before placing an investment as timelines are generally longer and price swings are common. Although these risks usually offer much more upside potential over blue-chip securities. Investors should be aware of liquidity risks and share price swings common in microcap companies.
With the risks noted, Asure has the potential to offer shareholders considerable upside from current levels. In comparison to the SaaS industry overall and workforce management companies, Asure is extremely undervalued on a slew of metrics including EV/Revenue, EV/EBITDA and P/S. Moreover, At the helm of Asure is a powerful leader - Pat Goepel.
Asure's new product offerings, a growth strategy pinged to three major macroeconomic trends and the costs savings it offers to organizations will fuel growth into 2015. As a leaner, freshly refinanced entity producing $2M in operating cash flow with high insider ownership and institutional buying, Asure has a solid foundation for growth. Using a conservative growth rate and valuation in line with the industry average, Asure has the potential to offer shareholders 150%-200% upside potential from current levels.
Recorded CEO Interview:
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This recorded interview is separate and additional to the written interview below. The recorded interview features more in-depth questions and Q/A.
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Tom: Mr. Goepel, thank you for taking the time to offer investors insight into Asure Software.
Mr: Goepel: Of course. Happy to be here talking with you today.
Tom: AsureSpace and AsureForce are the two key solution offerings by Asure Software. Could you give investors the potential market opportunity for these solutions - such as a dollar amount these solutions are targeting?
Mr: Goepel: Both AsureSpace workspace management solutions and AsureForce time and labor management solutions are cloud-based. Together, they allow our customers to better manage the time, space and assets associated with their employees and their real estate. This is especially key in today's world of the agile workforce. The traditional markets of workspace management and time and labor management within the mid-market only are predicted to be about $310 million and $100 million respectively. However, when you take these offerings up market to the enterprise level, and across the globe as multinational offerings, which we are doing, the opportunity is much larger.
Tom: Management has guided towards $29-$30M in revenue for 2014. This seems to be a conservative target due to your competitive product offerings -- clients numbering over 5,000, over 4,000 locations in 80 countries and the three key trends Asure is targeting.
Mr: Goepel: Asure Software is focused on predictable growth through the marketing, sales and delivery of SaaS-based solutions. Over the next few years, we will focus on bringing highly innovative SaaS-based mobile solutions to a global market and driving client satisfaction and retention.
Tom: Asure offers a more aggressive growth target for cloud computing service revenue for 2015 and even 2019. How is Asure aligning itself with the growth of cloud computing service revenue? What are Asure's planned major cloud offerings?
Mr: Goepel: All of our solutions are designed to work in SaaS environments and we have aligned our resources to develop and support SaaS solutions accordingly. Future development initiatives are looking at even more innovative ways to leverage the Cloud for mobile workforces. For example, we are looking into beacon technologies and few other exciting technologies right now.
From a sales and client perspective, our goal is to market and sell all new sales as Cloud-based solutions. Within our customer base we are actively pursing migrations from on premise solution to Cloud solutions.
Tom: When you joined the company you created an impressive turnaround bringing Asure to where it is today. How much was the company losing and how did you accomplish this turnaround?
Mr: Goepel: I came to Asure in 2009, and at the time we were a $10 million a year company losing $10 million. The company lacked focus and the products were antiquated. Through talent upgrades, a renewed focus, a sound strategic plan, and a lot of hard work, Asure is now in a much better position. Today, we have highly differentiated mobile offerings, happy customers, and a truly mobile, global, SaaS-based offering we can be proud of. That, combined with better positioning and a solid go-to-market strategy, sets us up nicely for the future.
Tom: Asure's solutions saved Scottish Water over $6.3M dollars per year in construction and operating costs. Which of Asure's solutions were utilized here? Was it costly for Scottish Water to implement your solutions?
Mr: Goepel: Scottish Water is using our full AsureSpace solution with panels and kiosks, supported with consulting services and Professional Services. We do not publicize the value of our contracts, however, as you indicated, they received an annual savings of $6.3 million dollars in hard cost. While hard cost savings alone is certainly impressive, when you factor in increased productivity and less absenteeism, the savings is even more substantial.
Tom, I'm glad you mentioned Scottish Water because our partnership is a great illustration of what we are seeing in the market place. This initiative started as a culture initiative led by their Vice President of Human Resources to better support the health and well-being of their employees by allowing them to work from home and reduce telecommuting times. But it quickly became apparent that in addition to improving the culture and increasing employee productivity, there was also a significant opportunity for cost savings. Their management team collaborated cross-functionally and with Asure Software to develop a solution that satisfied several key company initiatives and exceeded all expectations. A winning situation all-around.
We are seeing several similar initiatives with other clients, both in Europe and the U.S. It's really exciting to be a part of these transformational changes.
Tom: 2Q 2014 revenue was only up marginally, 4%, but your gross margin improved 7%. Do you see revenue as a picking up speed moving forward and do you think Asure's GM will stabilize at 80%? I ask as revenue has been somewhat stagnant the past few quarters.
Mr: Goepel: We see revenue picking up moving forward and we will continue to look for operational efficiencies that will substantially improve gross margins.
Tom: Also in the 2Q net income improved 103% and broke even. How did management achieve this much increased level of profitability?
Mr: Goepel: We accomplished this by staying laser-focused on our key initiatives, improving operational efficiencies, automating manual process and top-grading our talent. And we will continue to make strides here well into 2015.
Tom: How successful has Asure's new channel partner's portal been?
Mr: Goepel: We are very pleased with the response to our channel partner portal. The portal is in it's early stages, and has just been released within the last 60 days. Our channel partners are critical to our success, and we are excited to be able to offer them tools and resources to position, sell and support Asure solutions.
Tom: Asure is an SAAS provider, without the SAAS valuation. For example Asure's P/S is 1.17x while the industry average is 2.80X. With many of your direct competitors being private, it is hard to view Asure in comparison to them. Can you offer us details on Asure being an undervalued player?
Mr: Goepel: We're focused on building a great company. We feel we're making the right actions in support of long-term client relationships. We happen to be in a technology sector that is enjoying nice valuations. As a small cap company sometimes valuations lag the market; we're confident as we execute our plan, valuations will rise to the level they are supposed to be.
Tom: Asure acquired a few companies to support its product offerings. Is Asure done with product-enhancing acquisitions or do you see acquisitions possible in other areas of the business?
Mr. Goepel: As a growth company, we are always looking for opportunities to supplement our offerings with products that are a strategic fit. We will remain focused on building, buying or partnering to round out a Cloud-based offering that brings best in class software solutions to our clients. This will likely include more acquisitions in the near future.
Tom: Asure is targeting a plethora of opportunities looking ahead 2-5 years and 5-10 years from now. What is Asure targeting for the next two years' time and how will the company achieve its longer term goals?
Mr. Goepel: Over the next few years, we are committed to three areas of focus: 1) Best-in-class SaaS solutions; 2) Solutions uniquely designed to support mobile workforces and work spaces, and 3) Offering global capabilities that scale for our clients. With a strong focus on these three areas, I am confident we will outperform our competitors and bring highly innovative products to the market that delight our clients and help them better run their business.
Tom: Asure is leveraging three major trends in the marketplace to grow its market share. These are:
At first glance these major trends seem to be above Asure's solutions. How specifically are Asure's solutions crafted to benefit and grow from these three major trends?
Mr: Goepel: Great question. These trends inform our product strategy and we watch them carefully as we create our product vision and company initiatives. I'll respond to this by addressing each trend.
Globalization is here for all companies, large or small. With very few exceptions (health care, municipalities), all business leaders will need to plan for global capabilities to successfully compete. With the proliferation of the Cloud, consumers and employees are no longer confined to geographical boundaries. Employee recruiting, retention and overall workforce management strategies must accommodate a global workforce. We have over 5,000 clients in 80 countries, so we already see the need for global solutions first-hand.
Mobilization: As you mention in your statistic above, the mobile workforce and the support for personal devices is growing at a rapid rate. Our solutions are specifically designed to help organizations manage time, space and assets of their workforces, wherever they are. Whether your employees reside in one time zone or five, our solutions will help tell clients where, when and how people are working and help them optimize employee time and labor costs and real estate expenses.
Technology: SaaS and the Cloud fuel our ability to offer global, mobile solitions. With anytime, anywhere access to data, the ability to service our mobile workforces and workspaces becomes a whole new ballgame.
Tom: Within the TLM ecosystem, Asure is targeting the mid-sized business market and only has two key competitors. How is Asure differentiated from its various competitors? I see some not offering physical smart displays and others having no rival integrated hot-desk application. In other words, what is Asure's moat?
Mr: Goepel: Our differentiation lies in product innovation and specifically with our mobile apps. With our GeoPunch™ time and labor management offering, we are the only software company that can offer mobile time and attendance with both facial recognition AND geo-location capabilities. We have also introduced Air Clocks, which brings a unique capability to track time for employees who are not at a desk, and may not have regular access to a mobile device. The value of our Air Clocks is particularly beneficial to field workers, a great example of this is in our work with PSSI.
For workspace management, our NowSpace™ mobile app offers the ability for employees to find, reserve and manage space. This is the first of its kind and we've received rave reviews. Our SmartTag offering is also highly unique in that our clients can track people, space and assets using a highly visual display. Being able to track these things in a variety of ways helps clients save millions of dollars simply by knowing when and where their physical assets are. As you mention, we do also have smart panels and kiosks, which supplement our SaaS-based software.
Above all though, we are the only technology company in the world that can offer Cloud software solutions specifically designed to help manage people, time, space and assets together. We are very proud of this position.
Tom: Asure has several new products out - NowSpace, AirClock, Smart Tag and GeoPunch. Can you walk us through the potential market opportunity for each of these products?
Mr: Goepel: As mentioned your earlier statistic, 1.3 billion workers will be mobile by 2015. And business leaders are searching for ways to better manage their workforces and workspaces in a mobile world where alternative work arrangements are common place. Publicized numbers on workplace on"mobile workforce and workplace market opportunity are not available, but based on our own predictions, we believe it to be in the range of $1 billion or greater across time and labor, mobile and space management
Tom: Asure acquired Roomtag on August 11, 2014 and recently unveiled SmartTag. Did this acquisition allow you to offer SmartTag?
Mr: Goepel: Yes, the Roomtag acquisition allowed us to introduce SmartTag to our prospects and clients. We've received great interest in this product and are excited about its potential within our product portfolio.
Tom: What is the biggest risk to your business?
Mr: Goepel: We are in a big market with big opportunity. Our biggest risk is time. We are laser focused on grabbing our share of the opportunity.
Tom: Asure has a high debt level at just over $15M. Is this an overhang to obtain future financing if necessary?
Mr: Goepel: Asure has roughly 6 million shares. We have not chosen to issue shares at this valuation. We have a very predictable revenue stream and cash flow model. This allows us to borrow at a historically reasonable levels. We're proud of our relationship with Wells Fargo Bank; sound financial backing makes Asure Software that much stronger.
Tom: I see you own 6.7% of Asure, and Asure's Chairman owns 13% of the company. Institutional buying has also picked up recently. I have seen institutional buying pick up Q/Q with Asure, has the company been aware of new institutional interest?
Mr: Goepel: Yes, that is correct. We have highly invested board members and we believe in the great growth potential of Asure. Institutional buying is higher and is a purposeful part of our strategic investor growth.
Tom: I have projected Asure's S/O expanding to 10M in 2015 to provide for any future acquisitions. Is Asure planning to continue with acquisitions financed with shares or will you look to raise money for working capital looking ahead to 2015?
Mr: Goepel: It is too soon to comment on 2015 and the associated market conditions, but we have many options available to us, including shares, a line of credit for acquisitions, and a revolver agreement with Wells Fargo.
Tom: Can you share the size of the deals you signed with KPMG, PriceWaterhouseCoopers or PSSI?
Mr: Goepel: We don't share information about client contracts publicly. However, as with the example of Scottish Water we discussed earlier, these enterprise contracts are a great testament to the innovation of our products and the market demand for full SaaS solutions to manage people, time, space and assets.
Tom: Is an 80% GM the company's goal looking ahead to 2015?
Mr: Goepel: We are continuously looking to grow margins through operational efficiencies, and as a result, gross margin improvements are always a goal for us.
Tom: SG&A is the company's largest operating expense what is being done to curb this moving forward?
Mr: Goepel: We're choosing to invest in sales and marketing to capture our enormous opportunity. This, over time, will lead us to strong revenue growth. We also have initiatives focused on straight through processing, which will allow our systems, as opposed to people, to drive operational efficiencies. All of these areas will help us control our SG & A expenses in comparison to our revenue.
Tom: Lastly, how do you intend to use your large NOL moving forward?
Mr: Goepel: Before I started at Asure Software, the organization had accumulated over 100 million in net operating losses. Just last quarter we achieved profitability. We're looking forward to growing profitability as we continue to achieve momentum in the business. We have an enviable position in that we have a tax benefit to our profit growth for the foreseeable future. That is quite an asset for the company and its investors.
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