Business Context and Reporting Period
Company: Forgent Networks, Inc. (trading as Asure Software, ticker: ASUR)
Filing Type: Form 10-Q (Quarterly Report)
Period Ended: October 31, 2008
Business Overview: The company provides software and services, including scheduling, asset management, and human resource/time and attendance solutions (iEmployee), primarily delivered via a Software-as-a-Service (SaaS) model. The company rebranded to Asure Software in September 2007 to reflect its focus on the software segment.
Key Financial Metrics
| Metric | Q1 2009 (Oct 31, 2008) | Q1 2008 (Oct 31, 2007) |
|---|---|---|
| Revenues | $2,792,000 | $1,875,000 |
| Gross Margin | $2,228,000 (79.8%) | $1,545,000 (82.4%) |
| Operating Expenses | $3,907,000 | $2,767,000 |
| Net Loss | $(1,539,000) | $(918,000) |
| Loss Per Share (Basic/Diluted) | $(0.05) | $(0.03) |
| Cash and Equivalents | $10,554,000 | $12,062,000 |
| Short-term Investments | $3,289,000 | $2,627,000 |
| Total Liquidity | $13,843,000 | $14,689,000 |
| Working Capital | $8,641,000 | $14,423,000 |
| Cash Used in Operating Activities | $(808,000) | $(9,064,000) |
Material Changes vs. Prior Period
- Revenue Growth: Revenues increased 48.9% to $2.8 million, driven primarily by a full quarter of revenue from the iEmployee acquisition (completed Oct 2007), which contributed 97.4% of the revenue increase.
- Expense Increases: Operating expenses rose 41.2% to $3.9 million. Selling, General, and Administrative (SG&A) expenses increased 31.0%, largely due to full-quarter iEmployee costs and legal fees related to litigation. Research and Development (R&D) expenses increased 92.6% due to full-quarter iEmployee R&D costs.
- Net Loss Expansion: Net loss widened by $621,000 (67.6%) to $1.5 million, as the increase in operating expenses outpaced the growth in gross margin.
- Cash Flow Improvement: Cash used in operating activities improved significantly to $0.8 million from $9.1 million in the prior year, aided by better collection efforts (Days Sales Outstanding dropped from 49 to 35 days) and a reduction in accounts payable outflows.
Guidance, Outlook, Risks, and Contingencies
- Market Risk (Delisting): The company received a Nasdaq deficiency letter in February 2008 for failing to maintain a $1.00 minimum bid price. It was transferred to the Nasdaq Capital Market in September 2008. Due to market conditions, Nasdaq suspended enforcement of the minimum bid rule until January 19, 2009, extending the compliance deadline to May 5, 2009. Failure to comply by then could result in delisting.
- Legal Contingencies:
- Jenkens & Gilchrist: Former counsel is suing for $3.4 million in fees. A court previously ordered payment of $2.8 million, which Forgent appealed. A trial is scheduled for April 27, 2009. Management cannot predict the outcome or timing.
- Wild Basin: Litigation regarding a lease assignment was settled in September 2008. Forgent paid $75,000 and expects to finalize the lease assignment by December 31, 2008, which should reduce rent expenses. However, finalization is not guaranteed.
- Goodwill Impairment: In the fourth quarter of fiscal 2008, the company recorded a $7.391 million non-cash goodwill impairment related to the iEmployee acquisition due to depressed stock prices. This had no impact on liquidity.
- Liquidity Outlook: Management believes current cash and short-term investments ($13.8 million) are sufficient to fund operations for the next 12 months without long-term financing, though future capital raises may be necessary if cash consumption increases.
Investor Verification Checklist
- Nasdaq Compliance: Verify if the company has regained the $1.00 minimum bid price requirement by the May 5, 2009 deadline to avoid delisting.
- Lease Assignment: Confirm if the Wild Basin lease assignment was finalized by December 31, 2008, as this is critical for reducing future rent expenses.
- Jenkens Litigation: Monitor the April 27, 2009 trial date and potential financial impact of the $2.8 million - $3.4 million liability.
- Revenue Sustainability: Assess whether the 48.9% revenue growth is sustainable given the "softness in the market" noted by management due to the macroeconomic environment.
- Cash Burn Rate: Track the trend in operating cash flow to ensure the company can maintain its current liquidity position without dilutive financing.