Asure Software, Inc. — Q1 2015 Form 10-Q
Business context and period. This unaudited quarterly report covers the three months ended March 31, 2015, compared with the three months ended March 31, 2014. Asure provides SaaS time-and-labor and workspace-management software, alongside hardware, support, and professional services. Unless noted otherwise, financial amounts below are in thousands of dollars.
Financial performance and position
| Metric | Q1 2015 | Q1 2014 / prior date |
|---|---|---|
| Revenue | $6,332 | $6,527 |
| Gross profit / margin | $4,680 / 73.9% | $4,969 / 76.1% |
| Operating income (loss) | $(12) | $389 |
| Net loss / loss per share | $(483) / $(0.08) | $(530) / $(0.09) |
| Cash from operations | $546 | $71 |
| Cash used in investing | $(632) | $(163) |
| Cash from (used in) financing | $29 | $(2,165) |
| Cash and cash equivalents | $274 at Mar. 31, 2015 | $320 at Dec. 31, 2014 |
| Total notes payable | $15,252 at Mar. 31, 2015 | $15,131 at Dec. 31, 2014 |
| Working capital deficit | $(7,962) at Mar. 31, 2015 | $(7,314) at Dec. 31, 2014 |
Operating expenses were $4,692, or 74.1% of revenue, versus $4,580, or 70.2%, a year earlier. SG&A was $3,449; R&D was $738; intangible amortization in operating expenses was $505. Interest expense and other was $282, and income tax expense was $60. Cash declined by $46 during the quarter.
Material changes versus the prior comparable quarter
- Revenue fell 3.0%. Cloud revenue increased 2.0% to $3,371; hardware fell 6.7% to $585; maintenance and support fell 3.9% to $1,566; on-premise licenses fell 22.4% to $166; and professional services fell 14.2% to $644.
- Management attributed lower gross margin percentage principally to a less favorable mix of higher- and lower-margin revenue. AsureSpace revenue declined 2.5% and AsureForce revenue declined 3.7%. Hardware revenue in AsureSpace was affected by an inventory-related order backlog; AsureForce declines in legacy offerings were partly offset by growth in ADI.
- Other loss was $411 versus $877. Q1 2015 included a $110 lease-termination loss; Q1 2014 included a $1,402 debt-refinancing loss and a $1,034 gain on settlement of PeopleCube litigation. The prior-period settlement and refinancing items make the comparison unusual.
- Operating cash flow rose to $546 from $71, with the filing citing, among other factors, higher accounts payable and lower accounts receivable. Investing cash use increased primarily because property-and-equipment purchases rose to $658 from $168.
Liquidity, debt, outlook, and risks
- At quarter-end, current assets were $6,588 and current liabilities were $14,550. Current liabilities included $10,265 of deferred revenue, which the company says represents future service obligations and is not future cash receipts.
- Debt included a $14,250 Wells Fargo term loan, $300 drawn on a $3,000 revolver, and a $702 Roomtag acquisition note. The filing reports no revolver availability at March 31, 2015. The term loan matures in March 2019; the Roomtag note is due October 2016.
- Asure did not meet the leverage-ratio covenant before a lender waiver at March 31, 2015; following the waiver, it reported compliance with all covenant requirements. Management cited one-time lease-consolidation and sales-reorganization costs. Payments were current. The company expected to remain compliant, or obtain compliance through debt repayments, over the following 12 months.
- Management believed available and expected operating cash would cover operational needs and debt payments for at least 12 months, and projected positive operating cash flow. It cautioned that cash use could exceed expectations, additional capital might be needed, and financing might not be available on acceptable terms. It also said it was exploring acquisitions but had no acquisition agreements at the time.
- Management said it would continue developing and selling SaaS products, investing selectively in revenue- and cash-generating areas, and evaluating SG&A reductions. It cautioned that revenue growth and profitability for the remainder of 2015 were not assured. No numerical revenue or earnings guidance was provided.
- Other disclosed risks include competition and pricing pressure, customer retention and market acceptance, service disruptions and security or privacy concerns, execution of growth and acquisitions, and the possibility that subscription-model sales changes may not immediately affect reported results.
Important facts for investors to verify
- Whether operating cash generation continues without relying on favorable working-capital movements, particularly increased payables and collections.
- Cash availability and debt-covenant compliance after the March 31 waiver, including the company’s actual borrowing availability and required debt repayments.
- Whether the hardware-order backlog clears and cloud growth offsets declines in other revenue categories.
- Whether the lower gross margin and elevated operating-expense ratio improve, and whether the company progresses toward profitability.
- Potential FotoPunch earnout payments, contingent consideration, and any new acquisition or external-capital plans.