PREMIERE GLOBAL SERVICES, INC. July 17, :00 pm CT

Transcription

1 Page 1 PREMIERE GLOBAL SERVICES, INC. July 17, :00 pm CT Operator: Ladies and Gentlemen, please stand by; we are about to begin. Good day everyone and welcome to the Premiere Global Services, Inc. Second Quarter 2014 Financial Results Conference Call. Today s call is being recorded. This call is also being simultaneously broadcast over the Internet. For details, please visit our Web site at and go to the Investor Relations section. Alternatively, you may listen to the rebroadcast from your telephone beginning at 8:00pm Eastern Time today through Friday, July 25th at midnight. The replay numbers are Again that s within the United States and Canada, or at That s worldwide. The passcode to access the replay is That s All lines will be muted throughout the presentation until the question-and-answer period begins. At this time, I would like to turn the conference over to the Executive Vice President of Strategy and Communications for PGI, Mr. Sean O Brien. Mr. O Brien, please go ahead sir.

2 Page 2 Sean O Brien: Thank you and good afternoon everyone. If you ve not received a copy of our second quarter 2014 earnings release, please visit our Web site at PGI.com where it is available in the Investor Relations section. Joining me on the call this afternoon are Boland Jones, Chairman & CEO of Premier Global Services, Ted Schrafft, President of PGI, and David Trine our CFO. Following some brief comments by management, we ll open the call to your questions. But before I turn the call over to Boland, I would like to remind everyone that statements made in this conference call, other than those concerning historical information, should be considered forward-looking and subject to various risks and uncertainties. Such forward-looking statements are based on management s beliefs as well as assumptions made by information currently available to management pursuant to the Safe Harbor provisions, the Private Securities Litigation Reform Act of Our actual results may differ materially from the results anticipated in these forward-looking statements as a result of a variety of factors including those we identified on our Annual Report on Form 10-K for the year ended December and our other filings with the SEC. In addition, during this call we will present non-gaap financial measures of our business. Please consult both our press release and Form 8-K filings of this afternoon for reconciliation of these non-gaap financial measures to the most comparable GAAP measures. These materials are also available on our Web site at PGI.com. At this point, I ll turn the call over to Boland. Boland Jones: Thanks Sean and good afternoon everyone. This is Boland Jones, Chairman and CEO of PGI, and I d like to welcome you all to our Second Quarter 2014 Earnings Call.

3 Page 3 Let me begin by saying that we re very pleased with the trends in our business and our continuing strong performance on all fronts. During the second quarter, we continue to execute our focus strategy to transform PGI into a global leader in collaboration software while at the same time continuing to grow our key financial metrics. For example, during the quarter, we grew revenue from our SaaS-based products by greater than 50% year-over-year. We generated the largest sequential increase in our SaaS revenue ever. And we exited the quarter with a revenue run rate of approximately $48 million from these products. While we are winning an increasing number of new customer opportunities, we re also continuing to have great success in transitioning our traditional conferencing customers to our high value/high margin SaaS products with over 70% of our new sales coming from our existing customers during the quarter. The increasing momentum in our SaaS-based business and our overall solid business trends helped us generate robust financial results again during the second quarter including total revenue growth of over 9%, an increase in first half cash flows from continuing operations of greater than 30% and our highest reported gross margin in three years. While we are still early in transitioning our model to SaaS, we are delighted to see both continued validation of our strategy in the market and the positive impact our strategy is already having on our overall business results. We continue to believe that there is a large void in the market for user-friendly collaboration products that leverage the cloud, mobility, video and emerging technologies to help business

4 Page 4 users collaborate from anywhere, accelerate their business results, grow their revenue, and succeed and thrive in the global marketplace. We continue to believe that as the world s largest solely focused cloud collaboration provider, PGI is uniquely in position to address this void and to lead the market in its transition from traditional phone-based conferencing to richer more meaningful cloud-based collaboration from a desktop tablet or mobile device. To help us extend our market lead and capitalize on the growing opportunities in our pipeline, we are accelerating our investments in our SaaS business this year. For example, this year we plan to add more than 100 new professionals to PGI predominately quota-caring sales people and new software developers. We are launching our first ever drive time radio and outdoor advertising programs in key US markets to drive broader awareness of our award-winning products. And we will further expand our SaaS product suite and feature capabilities to include new PGI products that target the large and growing markets for webinars, webcasting, large Web conferencing events, asynchronous team work spaces, and other areas closely related to our core expertise in real-time business collaboration. We believe these investments will enable us to further differentiate PGI in our existing markets, while at the same time, positioning us to compete in the new expanded market opportunities as well. Finally, as I did last quarter, let me again mention that our foundational audio conferencing business remains very solid with meaningful new growth opportunities available to us in the market. This integral part of our business continues to generate significant cash flows which we believe will support our continuing investment in transitioning our model and growing our business as well as our ongoing acquisition program.

5 Page 5 And we re confident that transitioning our company toward SaaS business model will position PGI to deliver higher value to our customers, strategic partners and shareholders around the world. And we look forward to updating you on our progress on future calls. So in closing, let me again thank all of our associates worldwide for their hard work and dedication to our success. Let me also thank our customers and shareholders for their continued support of PGI. At this point I ll turn the call over to our President Ted Schrafft. Ted? Ted Schrafft: Good afternoon everyone and thank you for joining our Second Quarter 2014 Earnings Call. Like Boland, I too am pleased with our second quarter performance, and I m also very pleased with the continuing progress we are making against the plans and strategies we laid out three years ago to build PGI into a global leader and collaboration software applications, and using that strategy to transition our company towards a SaaS business model. Based on the strength of our recent results and the continuing momentum in our global business, we believe our strategy is working, and we remain confident in both our near-term and long-term outlooks for PGI. Now let me turn to our second quarter financial performance beginning with revenues. As reported, net revenues grew 9.2% in the second quarter totaling $144.3 million, up from $132.2 million in the second quarter last year.

6 Page 6 During the second quarter, we continued to generate strong momentum in sales of our PGI SaaS-based products. Revenue from our SaaS products totaled approximately $12 million in the quarter representing more than 50% growth year-over-year and the highest sequential quarterly increase in our SaaS revenue ever. During the quarter, we generated approximately $4 million of new revenue run rate from our SaaS-based products, and we exited the period with an annual SaaS revenue run rate of approximately $48 million. Based on current business trends and current foreign currency exchange rates, and assuming no additional acquisitions, we continue to project that net revenues in 2014 will be in the range of $565 to $575 million. Turning to profitability, our gross margin increased meaningfully during the second quarter totaling 59.1% of revenues, an increase of approximately 70 basis points from the first quarter of 2014 and our highest reported level in three years. Our gross margin increase was driven in large part by continuing growth in revenue from our SaaS applications which generate gross margins that are significantly higher than our corporate average. We anticipate that gross margins will decline modestly in the current seasonally slower third quarter, and we further project that gross margins will remain within recent ranges for the remainder of Non-GAAP diluted EPS from continuing operations was $0.23 in the second quarter, up from $0.20 in the second quarter Based on current business trends and current foreign currency exchange rates, and assuming no additional acquisitions, we continue to anticipate that non- GAAP diluted EPS from continuing operations in 2014 will be in the range of $0.85 to $0.88. As we have stated in past calls, our strategic priority is to continue to demonstrate operating leverage in our business while at the same time reinvesting excess earnings in product sales and

7 Page 7 marketing initiatives designed to accelerate sales of our SaaS-based products and the transition of PGI to a SaaS model. For example, we plan to add more than 100 new employees this year weighted toward quota carrying sales people and additional software developers. We believe these near-term investments will drive meaningful corporate performance and therefore shareholder value over time. As a final note on profitability, as we anticipated, we incurred acquisition-related expenses during the second quarter which are detailed in the financial statements included in both our Earnings Release and our AK Filing this afternoon. We expect to incur additional acquisition-related expenses during the coming quarters as we execute the integration plans associated with the acquisitions we completed last year. We continue to generate strong cash flows with net cash provided by operating activities from continuing operations totaling $39.1 million in the first six months of 2014, an increase of over 30% from the same period last year. Capital expenditures totaled approximately $15.5 million in the first half of 2014, which is down about 10% from the comparable period in During the second quarter, we repurchased over 1.2 million shares of our common stock in the open market under our board approved share repurchase plan. We ended the second quarter with significant liquidity with cash and equivalence and room on our credit facility, including the according feature, totaling over $250 million. Consistent with our ongoing investment strategy, we plan to use this liquidity and our strong cash flow to fund an aggressive investment and acquisition strategy as well as continuing to be opportunistic buyers of our common stock.

8 Page 8 In conclusion, let me say again that we are very pleased with our performance during the second quarter as we continue to implement our objective to increase PGI s value to our customers, our associates and our shareholders and to transform our business. Based on our continuing solid results, we believe our plan is working and we look forward to updating you on our continuing progress on future calls. Until then, let me join Boland in thanking our customers and all of our associates for their continuing support and commitment to our success. And at this point, we will open up the call to your questions. Operator: Thank you sir. If you would like to ask a question, please signal by pressing star 1 on your telephone keypad. If you re using a speakerphone, please make sure that your mute function is disengaged to allow your signal to reach our equipment. Again press star 1 to ask a question, and we will pause for just a moment to allow everyone the opportunity to signal for a question. And for our first question we go to Barry McCarver with Stephens Inc. Brian Hoffman: Hi guys, this is Brian Hoffman filling in for Barry. Good afternoon. Group: Hey Brian. Brian Hoffman: So I guess kind of the first question - so Next-Generation, can you kind of talk about the adoption there and what you kind of expect for the rest of the year? Boland Jones: On the SaaS products?

9 Page 9 Brian Hoffman: Yes. Boland Jones: Well the adoption rate, as we said in our remarks, and you know, as you see in the numbers, the adoption rate is very good. We had our biggest, as I said, we had our biggest sequential increase from Q-to-Q, and the adoption rate is picking up and getting wider. Our pipeline, you know, and all the new modern CRN Systems we re using, our pipeline is huge; it s healthier than it s ever been. There s more deals, there s not just one or two big ones. There s a wide range of deals in the pipe that are very good. It seems like we re really picking up speed in our sales force and our sales velocity. And as you saw and also the remarks - maybe you heard in the remarks or saw in the press release, we wanted to make sure people knew that we were adding, you know, literally a hundred heads between this quarter and next quarter, whether they be in sales for SaaS or product development or product architecture or product design heads, just really doubling down to increase the speed even more in the coming quarter. So we re pretty excited about how fast it s moving and how it s picking up some speed. Brian Hoffman: How far along are you in that 100 people? Boland Jones: You know, you can t hire them all at once; it s just too hard and takes too much. But we hired a good third of them this quarter. We ll hopefully higher another maybe two-thirds in next quarter and maybe a few stragglers in the third quarter. We seem to, you know, have a pipeline there of plenty good people. But you ve got to bring them on and train them and get them, you know - you can t bring on too many at once because then it,

10 Page 10 you know, there s negative economies there in those areas of SaaS sales and SaaS product people, but we re bringing them on pretty quick. Brian Hoffman: Sure. Okay, cool. And then as far as activity in your traditional business, can you kind of talk about the number of minutes and the usage there? Ted Schrafft: Sure. Brian, it s Ted. Brian Hoffman: Hi Ted. Ted Schrafft: Yes, we re seeing, I think, some, I want to call overall solid trends in the traditional business - I mean in addition to selling the SaaS products. And the software products, I think, our base business has been solid. We continue to bring on, you know, a good - our new logo growth continues to be solid. The minutes that we continue to generate each quarter, and you know, quarter-over-quarter/year-over-year have been increasing so we re doing more meetings. You know, for customers we re bringing in new customers, and we re obviously, as Boland reiterated earlier, we re bringing, you know, we re migrating customers to our new SaaS products. So you know, all that combined, again I think we re seeing pretty stable trends in the base business. And again, that is important to us. We want to bring in more base business because it s more market for us to farm and migrate to the new products. So, you know, in addition, that business, as you guys probably know, drives a lot of significant cash flow. We had a very, very strong cash flow quarter as you saw, so that base business is a

11 Page 11 big driver of that cash flow which allows us to make the investments we re making that Boland just talked about. Brian Hoffman: Okay cool, then last question. Do you guys have any early indicators from the imeet launch under Powwownow? Boland Jones: Yes Brian, that launch probably is going to happen around August/September. We re pretty excited about the progress that we ve made with our new associates at Powwownow and they re excited too, and we ll keep you tuned in on that. But that will probably be brought to market in August/September timeframe. Brian Hoffman: Okay cook, thank you guys. Operator: And for our next question we go to Tavis McCourt with Raymond James. Tavis McCourt: Hey guys, thanks for taking my question and nice quarter. Boland Jones: Hey Tavis, thanks. Ted Schrafft: Hey Tavis. Tavis McCourt: A couple of questions. Help us frame kind of the hundred million new - I mean 100 new employees. Is that a gross number or kind of a net number, and where are you roughly or where did you enter the year roughly in terms of total headcount? Ted Schrafft: I mean it s a net number. I want to make sure I understand what you mean by gross net. That s, you know, an empirical hundred added to what we already have and that doesn t include

12 Page 12 filling in anything that we lose; we d add more to that. And we may add more later in the third and fourth quarter; that s just where we re starting right now. And it s 100% for the new product; it s 100% for the SaaS products. It s either product design or product architects, product developers or sales people. It s mostly sales people in the SaaS area. Tavis McCourt: Got you. In terms of the M&A pipeline, I guess compare that now to how it s looked over the last year. Is it skewing towards more traditional audio conferencing vendors or technology or kind of a little of both? Boland Jones: Now there s a clear bias in the pipeline now that we re actively working that is more in the SaaS business and the New Generation products. In fact, it s probably, you know, gone from, you know, 70% traditional and 30% SaaS to the opposite of 70% SaaS and 30%, you know, good traditional business. And by the way, we like them both. When you can find them, and you know, you get the right cultures and people come together you can do some really good things. And so we re excited for the people that have joined our company last year and they are paying huge dividends in all sorts of ways, not only from revenue and profitability contribution but from culture contribution; they re showing us new ways to do things that, you know, we hadn t tried before and so forth so it s all good. But we definitely have a bias in our pipeline right now towards more of the SaaS stuff.

13 Page 13 Tavis McCourt: Great. And then in terms of the SaaS revenue today, is that still heavily skewed towards GlobalMeet or is imeet ((inaudible))? Boland Jones: Yes, so this quarter 25% of all sales were imeet sales. Last quarter, 10% were imeet sales. So definitely had a lot of product advancement in imeet and a result, you know, a lot of product sales pickup in imeet. You know, we re going to come out, as I said Tavis in my remarks, we re going to show the market between here and the end-to-year probably four or five new products that are meaningful that have good vertical capability in the enterprise that we re hunting and that we have right now as customers, we re lucky enough to have right now as customers. And so, you know, there ll be a smorgasbord of different forms of imeet and GlobalMeet. And you know, as the products themselves mature to fill a spot, you ll see the sales pick up. IMeet fills a different spot than GlobalMeet; you know, GlobalMeet for webinars. You know, these other products that we discussed that we re coming out with, they ll all fill a different void. And so it s just a matter of, you know, what the enterprise, either in the verticals or the functionality is looking for, but imeet is gaining on our total sales quickly because of new functionality is embedded in it. Tavis McCourt: Got you. And in terms of the distribution strategy as you hire these sales folks, does that mean it s still going to be skewed more towards kind of an enterprise sale, or are you doing anything related to kind of small and medium business market ((inaudible)) get that engine going? Boland Jones: Well I think we ve discussed this before but let me just recap it real quick.

14 Page 14 You know, sort of the 500 to 3000 employee company is our sweet spot for what we call our, you know, middle-size enterprise. And then 3000 employees up is our large enterprise business; both sectors are flourishing. Obviously the 500 to 3000 are quicker adopters; we ve got the VARs, we ve got the strategic partners in the infrastructure companies around the world that are selling our products. So you know, we segment the market in those types of ways for our channels. And each one of them is sucking down the SaaS products. Obviously the fastest adopters of the SaaS products are the partners, the infrastructure companies and the 500 to 3000, the sort of middle enterprise area. But when the large enterprise takes down the SaaS products, they take them down in such big volumes it sort of catches out and makes up for it. Tavis McCourt: Got you. And then final housekeeping question in terms of what should we think of for a tax rate for the full year. David Trine: Tavis, this is David. I would use a normalized rate of 31% for the year right now. Tavis McCourt: Great, thanks a lot. Operator: And we go next to Mike Latimore with Northland Capital. Mike Latimore: Great, yes, thanks a lot. In terms of the new sales headcount here, is there a way to quantify maybe like what percent increase that is to your SaaS sales force?

15 Page 15 Boland Jones: You know, we haven t cut up those numbers and talked about those before. It s a decent increase. It may be a 15% increase in the total sales force. And the sales force is not segmented now SaaS versus traditional conferencing. They re talking to similar decision makers most of the time now, and so everybody is carrying a collaboration product that s either, you know, a real-time passcode or a SaaS product. Now in the future that may change, but for now it s staying where it is there. And this is probably, for the people that are, you know, the high producers of the SaaS products, if you take those on a standalone basis, the stand outers and so forth, this is probably a 20% increase or a 25% increase; it s probably a 15% increase overall. But one, it s - you know, it s probably easier to understand for us but one product begets the other. So when we get a traditional conferencing customer, we go right back at them with the SaaS products; it usually works pretty good. You know, approximately 70% of our sales last quarter from SaaS are that. Walking in and just getting a SaaS product to begin with without a relationship existing was 30% of the cases this quarter. So there s a mixture of both. That s why I having the customers already there is important as well as getting new customers. Mike Latimore: Copy that; that makes sense. And then in terms of the SaaS revenue growth, I assume most of the new growth comes from your bookings. But is there a separate revenue bucket that isn t reflected in the bookings number? Maybe it s kind of a usage number or something that might grow or is it all really booking driven?

16 Page 16 Boland Jones: Well I m not sure what you mean by bookings. I mean when we, obviously - this is a pretty quick cash register to implementation product; there s not a lot of lag or delay, you know, 60 days max, since they re cloud based. So we can deploy and distribute these products when they re acquired by the customer pretty quickly and pretty efficiently so there s not a big lag. So what you see is what you get. Now as far as bookings goes, you know, our average contract length is nearing, in this last quarter, as high as 21 months; 20 to 21 months. So you know, what we ve sold this quarter obviously has a bigger booking number than the sales we re reporting. So there is bookings that are far out in the future that we can count on right now which is great. I don t know if I m answering your question Mike or not; I m sorry. Mike Latimore: Yes, so basically the $4 million and I think you said $4 million of new revenue sold, that encompasses sort of everything that you - kind of everything new in the quarter. Boland Jones: That s right. Mike Latimore: Okay, got it. And then when you sell Web conference, you know, GlobalMeet Web Conferencing to a current customer, are you typically, you know, replacing Web conferencing service that, you know, somebody else has sold to that customer or are you replacing, you know, a Web conference like a WebEx or Adobe that you sold to that customer? Boland Jones: Typically the former. Mike Latimore: Okay, alright.

17 Page 17 Boland Jones: Typically the former. Mike Latimore: And in terms of your overall customer base, where are you do you think in terms of, you know, percent penetration of your SaaS products into the current customer base? Boland Jones: I mean if you look at the global total customer base, we ve penetrated around 15% of our accounts with SaaS products. That doesn t mean the entire account went total SaaS. That just means in that account there is some of our SaaS products. But that s building pretty quickly. So you know, that s where we are today. Mike Latimore: Okay, thank you. Operator: And with that, Ladies and Gentlemen, we have no further questions on our roster. Therefore Mr. O Brien, I ll turn the conference back over to you for any closing remarks. Sean O Brien: Thanks (Rufus). Thank you all for dialing in today. If you have any follow-up questions, please try me on my direct number which is Thanks and have a great day. Operator: And Ladies and Gentlemen, this will conclude today s conference. Thank you for your participation. END