AUGT – Augme Technologies Emphasizes its Core Business
By Ken Nagy, CFA
On October 10, 2012, Augme Technologies, Inc. (AUGT), the provider of strategic services and mobile marketing technology to leading consumer and healthcare brands, reported financial results for its fiscal 2013 second quarter and six months, ended August 31, 2012. New Interim Chief Executive Officer Robert Hussey wasted no time in laying out a plan to ramp up the top-line and cash flow while partnering or potentially selling part of its IP portfolio.
A concrete first quarter resulted in a $4.902 million year over year and $1.110 million sequential increase in sales, with revenues expanding to a record $6.189 million for the three months ended August 31, 2012. Augme’s strength in its second quarter revenues was primarily driven by the addition of the Hipcricket operations in August 2011 and the JAGTAG operations in July 2011.
Likewise, the Company saw higher demand for its AD LIFE Platform with more campaigns than any previous quarter while Hipcricket’s operations continued to grow through the acquisition of new customers as well as increased spending by existing customers on mobile marketing and advertising campaigns.
It should be noted that Hipcricket has an established leadership position in the nascent mobile marketing advertising industry which is a $1.2 billion market that is forecast to grow over fivefold to nearly $7 billion in the next three or four years.
Augme’s net loss gained ground, improving to a net loss of $2.299 million for the second quarter of fiscal 2013, with net loss falling $3.703 million year over year and $5.261 million sequentially. Still, the majority of improvement to net loss was a result of a $4.860 million adjustment to the acquisition related contingent consideration at the measurement date as well as decreased general and administrative expenses and increased sales volume related to the expansion of the Company both organically and through acquisitions.
Gross margin for the quarter fell to 60 percent from 68 percent for the three months ended August 31, 2011. The decrease in gross margin was primarily due to the Company's shift in business towards mobile ad network sales.
During the second quarter, Augme’s new business momentum and customer retention rate resulted in new order bookings (the dollar value of contracts signed during the second quarter) totaling $7.9 million, of which approximately 71 percent were received from existing customers and 29 percent from new customers.
Furthermore, Augme reported a record quarter end backlog (the dollar value of signed contracts including deferred revenue and unbilled revenue) of $18.9 million as of August 31, 2012, up 9 percent sequentially from $17.4 million for the three months ended May 31, 2012.
Along the same lines, Augme added approximately 30 new customers during the second quarter.
Even with the expanding customer base, Augme was able to maintain an over 95 percent retention rate per client basis.
Similarly, Augme completed over 29,000 campaigns in the second quarter, which was a record quarterly amount for the Company.
Likewise, nearly half of the brands that completed campaigns with the Company in the first quarter increased the number of campaigns that completed in the second quarter.
Based on a weighted average number of basic and diluted common shares of 96.317 million shares, basic and diluted net loss per share resulted in a net loss of $0.02 per basic and diluted share during the second quarter of fiscal 2013. This compared to a basic and diluted net loss per share of $0.08 on a weighted average number of basic and diluted shares of 71.189 million shares during the three months ended August 31, 2011.
Revenues for the six months ended August 31, 2012, resulted in an $8.774 million year over year increase in sales, with revenue improving to $11.267 million.
Net loss for the first half of fiscal 2013 was $9.860 million compared to a net loss of $10.020 million for the six months ended August 31, 2011.
Based on a weighted average number of basic and diluted common shares of 95.403 million shares, basic and diluted net loss per share resulted in a net loss of $0.10 per basic and diluted share during the first half of fiscal 2013. This compared to a basic and diluted net loss per share of $0.14 on a weighted average number of basic and diluted shares of 70.001 million shares during the six months ended August 31, 2011.
As of August 31, 2012, Augme had $475,784 in cash and equivalents and a working capital deficit of $12.525 million. This compares to $3.242 million in cash and equivalents and a working capital deficit of $22.248 million as of May 31, 2012.
Still, it should be noted that the Company recently implemented its previously announced restructuring plan in which Augme intends to remove approximately $6.0 million of annualized operating expenses in the areas of corporate staffing and other non-revenue generating costs.
The Company has also implemented a 20% senior management pay cut, which is not a deferral. Likewise, management intends to continue to scrutinize expenses, identify additional savings and carefully control expenses going forward.
Regarding non-core business, the Company have taken steps to slow down on its the pace of investments in its IP portfolio and expects to reduce capitalized IP costs from approximately $1.5 million per quarter to less than $500,000 per quarter by the end of the current quarter.
Still, the Company’s IP portfolio now numbers 13 patents with 80 pending patents applications and over 2000 claims in the telecom media space.
Along the same lines, Management continues to consider all its options including selling the portfolio, entering into strategic partnerships with regards to the IP portfolio and continuing to pursue licensing opportunities that offer a lower cost structure and lower legal fees.
However, the Company continues to expand its sales team and recently hired two new senior sales executives to manage sales activities on the east and west coast.
Nevertheless, as a result of the its growth in its AD LIFE Platform and Hipcricket operations , combined with the cost actions taken, the Company now expects to reach operating cash flow breakeven in the second quarter of fiscal 2014, ending August 31, 2013, on quarterly revenue of $10.0 million, for a $40.0 million annualized run rate.
Here again, management continues to expect to generate sequential revenue growth on average between 15% and 20% to reach its anticipated $10.0 million in quarterly revenue.
Please visit Ken Nagy's coverage page at scr.zacks.com to access a free copy of the full research report.
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