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Edited Transcript of ATEA earnings conference call or presentation 31-Mar-17 8:30pm GMT

Thomson Reuters StreetEvents

Q4 2016 Astea International Inc Earnings Call

Horsham Apr 1, 2017 (Thomson StreetEvents) -- Edited Transcript of Astea International Inc earnings conference call or presentation Friday, March 31, 2017 at 8:30:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Fredric Etskovitz

Astea International Inc. - CFO and Treasurer

* Zack B. Bergreen

Astea International Inc. - Founder, Chairman and CEO

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Conference Call Participants

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* Sam Rebotsky

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Presentation

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Operator [1]

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Ladies and gentlemen, thank you for standing by. Welcome to the Astea International Incorporated Fourth Quarter and Year-End 2016 Financial Results Conference Call. (Operator Instructions) With us today from Astea International are Zack Bergreen, Chairman and Chief Executive Officer; Rick Etskovitz, Chief Financial Officer.

I would like to remind you that this conference call may contain certain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 as amended and Section 21E of the Securities Exchange Act of 1934 as amended. All statements other than statements of historical fact included in today's conference call are forward-looking statements, including statements regarding the company's business strategy, plans, objectives and statements of non-historical information.

Although the company believes the expectations reflected in these forward-looking statements are reasonable, they do involve some assumptions, risks and uncertainties, and these expectations may prove to be incorrect. Those factors are incorporated by reference from the press release issued earlier today as well as in the section entitled Risk Factors as outlined in the company's filings with the Securities and Exchange Commission. You should not place any undue reliance on these forward-looking statements, which speak only as of today, March 31, 2017. All forward-looking statements attributable to the company or persons acting on its behalf are expressly qualified in their entirety by these factors. Other than as required by securities law, the company does not assume any duty to update these forward-looking statements.

With this statement concluded, I will turn the call over to Mr. Bergreen. Please go ahead. The floor is yours.

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Zack B. Bergreen, Astea International Inc. - Founder, Chairman and CEO [2]

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Thank you. Good afternoon, and thank you for joining us today to discuss our fourth quarter and full year 2016 results. Following my overview, I'll turn the call over to Rick Etskovitz, our Chief Financial Officer, who will cover the detail of our financial results. We'll then open the call for Q&A.

I'm pleased to report that we have finished the fourth quarter profitably and generated 12% of revenue growth for 2016. As indicated in the press release issued earlier this afternoon, many of our financial metrics continued to trend upward. This represents our second year in a row with double-digit revenue growth and is reflective of our increased focus on sales execution in all of our operating regions, which resulted in a greater number of new customers acquired when compared with 2015.

In the fourth quarter alone, we have added 9 new customers. Some of the new customers we have added during the fourth quarter were marquee names such as Fuji Australia, Mitsubishi Electric and Electronic Environments, which is a division of NTT, Carrier [ph] Corporation, Nabtesco Japan to name a few. Many of these new clients are large multinational organizations, which our flagship product, Alliance, was designed. These 5 organizations represent both an immediate win as well an additional growth in future quarters as they plan to deploy our solution into many regions in which they operate.

We also experienced an uptick in both sales and services activity from our existing customer base. Among our smaller customers, we continue to add additional feature sets and modules to become increasingly effective service provider, while our larger customers continue to expand the usage of our product into new regions and areas of their business. This reinforces the benefit and unique value proposition of our product. This heightened level of activity has significantly increased the backlog of professional services in all our regions. Many of our large global customers have long-term deployment and expansion plans that will fuel our growth for several years to come.

In today's environment, it is -- we realized that it's no longer enough for our clients to deliver quality service to their customers on time. Competition is increasingly intense in every part of the world. Top executives realize they need to look beyond the cost control in order to focus long-term planning on value creation. They know that they must reinvent customer relationship, embrace new technologies and build new business models. As a result, we see more and more of these forward-thinking organizations turning to us as their partner and their platform of choice to help them drive this change throughout their service organizations.

These new service-driven enterprises have come to rely upon the breadth and depth as well as the flexibility of our platform to meet the demands of increasingly complex connected and expanding ecosystem in which they must operate. Accordingly, we believe our unique position in the market will naturally strengthen as our world becomes increasingly connected. This also means that our quest for innovation will never end, and our pursuit for development of capabilities that will help us -- our customers grow revenue, optimizing the employee, customer and partner experience, drive productivity improvements, and this customer satisfaction level must be relentless.

In the third quarter of 2016, we introduced Astea Alliance Version 14, one of our most comprehensive releases. This release provides the companies with greater control and flexibility to adapt and expand the Alliance platform to meet critical needs of their business, both in the cloud and in on-premise. Their reaction and the adoption of this new version has been outstanding. Our long-standing global customers, they share our commitment to continual innovation, and therefore, we remain committed to our strong track record of investments and constant improvement of our solutions. For decades, Astea has been at the forefront of the industry, defining service management, automation and demonstrating thought leadership. As we look ahead into 2017, we are even more excited about the innovation we will be introducing into the market and the positive corporate results they will allow our clients to realize.

The Internet of Things, augmented and virtual reality and artificial intelligence used to combat an aging and shrinking work force, and speed issue resolutions are just few of the projects that we are actively involved in. At the same time, we see the concentration of services are shifting to more predictive, event-driven and customer based service model that would more fluidly incorporate both internal and third-party technician, while preserving the level of quality of service. We are incorporating these changing mindsets into our technology so that management has a single point of visibility and control when managing and interacting with any stakeholder that can influence their service performance. We are excited, and we have an exciting dynamic road map taking us into this exciting new future.

We're also excited about our upcoming global customer conference taking place in June. We have a multi-day, jam-packed conference agenda that offers technical sessions, hand-on training, workshop, product demonstration, customer success story presentations and much more. It will provide our customers with ideal environment to exchange ideas, experience and best practices.

With that, I will turn the call over to Rick to cover our financial review. We'll make some additional closing comments after he finishes his review. Go ahead.

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Fredric Etskovitz, Astea International Inc. - CFO and Treasurer [3]

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Thank you, Zack. For the quarter ended December 31, 2016, Astea reported revenues of $9.1 million compared to revenues of $5.3 million for the same period in 2015. Part of the increase in revenues for the fourth quarter resulted from the conclusion of a contract with a customer, which allowed us to recognize all related deferred hosting and professional services revenues.

Net income to shareholders for the quarter was $2 million or $0.52 per share compared to a net loss to shareholders of $2.1 million or $0.59 per share for the same period in 2015. For the 2016 fiscal year, the company reported revenues of $25.8 million compared to revenues of $23 million for 2015. The net loss available to shareholders was $90,000 or $0.03 per share in 2016 compared to a net loss to shareholders of $4.4 million or $1.32 per share for the same period in 2015. Total revenues increased 12% in 2016 compared to 2015. We are proud that we achieved double-digit revenue growth for 2 consecutive years. We expect to maintain this positive trend in 2017. Adjusted EBITDA was negative $0.8 million for the fourth quarter of 2016 compared to breakeven for the same quarter last year. For the year ended December 31, 2016, adjusted EBITDA was minus $2 million compared to $1.3 million in 2015.

This concludes my remarks, and I will turn the call back over to Zack.

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Zack B. Bergreen, Astea International Inc. - Founder, Chairman and CEO [4]

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Thank you, Rick. We are proud of the progress we have made in 2016. We are optimistic about the market and the opportunities as we look ahead. Over the past 2 years, there had been a lot of consolidation in our industry. Many of the companies that were once very visible and prominent are slowly fading away. Investor demand for companies in our industry has been very high as indicated by transaction over the past few years. The multiples of revenue that buyers pay acquire some of our competitors has been at a level never seen before. This clearly reinforces the importance of what we do in the eye of the capital market. We believe that we are in the midst of a mini industrial revolution of sort in terms of connectivity, machine-to-machine communication and data analytics. Almost every aspect of our lives is changing as it relates to connectivity and business intelligence. Service delivery is a critical component in this evolution, especially the launching of machine by machine and the predictive and proactive improvements to the overall service supply chain.

Astea's solution plays a vital component of this evolution, and we're intensely committed to innovation will keep us entrenched in this particular process. We strive daily to build value for both our customers and our shareholders. Here at Astea, we remain laser focused on sales execution and our continued commitment to our core competency, which is innovation and delivering world-class service management in mobile workforce solution. Our solution suite remains one of the most compelling platform for large, complex and often, multinational organization that has diverse complex requirement for achieving the service and corporate objectives.

This concludes my overview, and operator, we are now ready to open the call for questions.

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Questions and Answers

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Operator [1]

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(Operator Instructions) We can take our first question from Sam Rebotsky with SER Asset Management.

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Sam Rebotsky, [2]

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This must be an easy call for you. I mean, how did you make so much money here? Tell me, Rick, you indicated there was some significant amount of a contract that was closed in the fourth quarter. How much was that? And how long was that hanging around?

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Fredric Etskovitz, Astea International Inc. - CFO and Treasurer [3]

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It was approximately $3 million, Sam, and it was a contract that was about 2 years.

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Sam Rebotsky, [4]

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Two years, okay. So do we -- what do we do for the next act? Do we get another $3 million contract in a year? Or how do we close a big contract again?

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Fredric Etskovitz, Astea International Inc. - CFO and Treasurer [5]

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We have a very significant pipeline of sales opportunities in every operating region and where we are. We worked hard through our marketing programs to develop such a pipeline. We have a good list of customers, existing customers, that have plans to expand their usage both within their local operating regions and also to expand to other parts of the world. So between that installed base as well as our sales pipeline and a very strong services backlog, we expect that we can continue the growth that we've had over the past 2 years into the future.

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Sam Rebotsky, [6]

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Okay. Now going forward on a -- well, I guess, we're -- it's March 31. I mean, we're not going to do a quarter that we did December in March. But do you have the ability to be profitable on a quarter-to-quarter basis and increase from there? If you could address the March quarter. I mean there's no doubt that something has happened significantly even if it's a one-shot deal that you've been working on a long time presumably. So what's the possibility on a regular profitability on each quarter?

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Fredric Etskovitz, Astea International Inc. - CFO and Treasurer [7]

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I don't think at this time, Sam, that we're in a position to be -- to say that we expect profitability every single quarter of this year. It still depends on the mix of new customers that we bring in, whether they're going to be on-premise customers, perpetual license, which allow immediate revenue recognition, or we're going to add hosted customers, which we cannot recognize revenue until they go live. It is our expectation that as the year goes on, we'll be closer to and hopefully at that point, where we'll have profitability on a regular basis. But at this time, I don't think I can make that commitment.

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Sam Rebotsky, [8]

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Okay. Is there any contracts that you have currently that's been hanging around 1 year, 2 year, that you haven't been able to close like this major contract?

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Fredric Etskovitz, Astea International Inc. - CFO and Treasurer [9]

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No, not at this time.

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Zack B. Bergreen, Astea International Inc. - Founder, Chairman and CEO [10]

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We have, Sam, contracts that are in flight and that we envision or forecast substantive and additional revenue from these contracts. But in terms of one particular contract of this magnitude, not immediate.

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Sam Rebotsky, [11]

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Are you -- so you're working on getting major contracts? Or...

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Zack B. Bergreen, Astea International Inc. - Founder, Chairman and CEO [12]

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The answer is yes. Some of the contracts that we have signed this past year have a potential to be very significant for us over some period of time. A lot of it has to do with how quickly the customer deploys these solution and expand into these other regions. There are, for example, some customers that have operation across over 100 countries. Ultimately, they would love to see our solution deployed in all these countries. But as you know, it takes time to these major corporations to train, to migrate the data, to do all the difficult things they need to do in order to deploy solutions, so and the cadence is basically a case-by-case basis, I would say.

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Sam Rebotsky, [13]

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It sounded like you indicated that you have a lot more work that you're working on. And so would we say that the backlog or the bids are significantly higher than the third quarter and the same at this time last year?

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Fredric Etskovitz, Astea International Inc. - CFO and Treasurer [14]

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The services backlog is as high as my -- as I can recall it ever being, so it's clearly growing.

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Sam Rebotsky, [15]

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Okay. The one thing -- I'm happy you guys got some good options just recently. I should've known. Now tell me, Zack, your preferred stock, 2.51 and 3.63, it needs -- one needs 130% improvement for 30 days and the other is 300%. What does it need for these options to be automatically converted?

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Zack B. Bergreen, Astea International Inc. - Founder, Chairman and CEO [16]

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It's a good question.

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Fredric Etskovitz, Astea International Inc. - CFO and Treasurer [17]

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I got to tell you, I can't tell you off the top of my head.

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Zack B. Bergreen, Astea International Inc. - Founder, Chairman and CEO [18]

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We cannot give you the answer. We need to investigate that. I'll come back to you with an answer. We just don't have the -- these preferred happened a long time ago, and the exact destination of these -- of the conversions, something that we just don't have on our fingertips.

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Sam Rebotsky, [19]

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No, I understand it's a Friday morning -- Friday afternoon, 4:30. If it was Monday during the day, you would sort of get a handle how the stock trades. And at this point in time, do you sort of plan -- hopefully that this continues, not at the same level as $0.50 per quarter, and that's clearly, this is a one-shot thing. Do you think you're ready to do some investor relations? Or do something to tell your story? Is it ready for you so that if you needed to do something with the stock it would be more -- you'd have a greater value for it?

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Zack B. Bergreen, Astea International Inc. - Founder, Chairman and CEO [20]

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Look, I think I alluded in my scripted comments the fact that the amount of focus that we see from capital market is unbelievably high. There have been quite a few transactions in the last 2 years and some almost record-breaking in many ways. And so clearly, this investor evolution that I alluded to will continue, and it only will grow. I think we are very uniquely positioned to really benefit from that. And as our solution becomes more entrenched and these large multinational corporations and the good sensibility we get from these companies in different parts of the world help us expand our footprint in other organizations and so on. So yes, I think that we are strongly optimistic about the position we're in and the market we're in and so on. The opportunity exists in the market.

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Sam Rebotsky, [21]

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Yes. Then one thing, Rick, the cost of the software license, could you sort of explain why sometimes the cost is very small relative to the revenue. Is there any explanation why the cost is relatively high on the software license relative to the revenue?

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Fredric Etskovitz, Astea International Inc. - CFO and Treasurer [22]

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Yes. The lion's share of what is contained in cost of license sales is the amortization of capitalized development costs that we have on the books. In other words, when we develop a new version, we capitalize on the costs from the time that we start with technological feasibility and until it becomes marketable. Those accumulated costs are capitalized, and then once the version is released, we amortize that cost. And we amortize that cost of each version over its expected useful life, which is generally 2 years. And that's on a straight-line basis, and that has nothing to do with the level of sales. So it's just a fixed amount, and it's based on versions of the release of versions and the cost to develop each version.

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Sam Rebotsky, [23]

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All right. Zack and Rick, I guess Monday we'll find out how the stock trades. It's a wonderful quarter, wonderful year-end. Hopefully that you could sort of put it together on a quarter-to-quarter basis and people could come back and do it. Hopefully, some other people are in the call, but these are all the questions I have. And I think you did a great job, and good luck. Get some more business.

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Zack B. Bergreen, Astea International Inc. - Founder, Chairman and CEO [24]

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Thank you, Sam.

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Operator [25]

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(Operator Instructions) And we can take our next question from Gary Getts, a private investor.

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Unidentified Participant, [26]

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Yes, Zack, Rick, I wanted to congratulate you on a super quarter. It's great to see this kind of growth. I also wanted to congratulate David Giannetto on his promotion, and I think he'll do very well in that job. And Sam talked about the stock price. My vision as a private investor, and I've communicated this to you privately, but my vision as a private investor for this company is ultimately $100 million in annual sales, which would mean high growth. And I think that could justify a price to sales ratio of 4 compared to Salesforce.com has a price to sales ratio of 7, and your current price to sales ratio is 0.35. And somebody can easily do the math, and you get a triple-digit stock. I recognize that, that's far away, and it's very hypothetical at this time, but I'm beginning to think that Godot is finally arriving. So congratulations on a good quarter. I recognize that things are lumpy and will continue to be lumpy, but you're definitely on the right track. And I wish you the best.

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Zack B. Bergreen, Astea International Inc. - Founder, Chairman and CEO [27]

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Thank you, Gary.

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Fredric Etskovitz, Astea International Inc. - CFO and Treasurer [28]

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Thank you, Gary.

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Operator [29]

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(Operator Instructions) And it appears we have no further questions at this time. So I will turn the program back over to our presenters for any final or closing comments.

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Zack B. Bergreen, Astea International Inc. - Founder, Chairman and CEO [30]

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Thank you, everybody. Thanks for joining us today. Have a wonderful weekend.

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Operator [31]

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And this does conclude today's program. Thank you for your participation. You may now disconnect, and have a great day.