ASURE SOFTWARE INC quarterly report, Q1 FY2014

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ASURE Software, Inc. — Q1 2014 Form 10-Q

Reporting period: Three months ended March 31, 2014. Asure provides cloud-based SaaS time-and-labor and workplace-management software, alongside hardware, licenses, support, and professional services. Unless otherwise stated, financial figures below are in thousands of dollars.

Financial performance

  • Revenue: $6,527, up $552 (9.2%) from $5,975 in Q1 2013. Cloud revenue increased 7.7% to $3,305; professional services rose 49% to $751; hardware rose 33.7% to $627. Maintenance and support and on-premise license revenue each declined $44.
  • Product lines: AsureSpace revenue increased 20.6% to $3,881; AsureForce revenue decreased 4.0% to $2,646.
  • Gross profit and margin: Gross profit was $4,969, up 18.4%; gross margin improved to 76.1% from 70.3%. Management attributed the margin improvement to efficiencies from consolidating hosting and support costs after the PeopleCube acquisition.
  • Operating results: Operating income was $389 versus an operating loss of $360 a year earlier. Operating expenses were $4,580, nearly flat year over year.
  • Net loss: $530, or $0.09 per share, compared with a $1,100 loss, or $0.21 per share, in Q1 2013. The 2014 result included a $1,402 debt-refinancing loss, partly offset by a $1,034 PeopleCube settlement gain. Other expense, net, was $877.
  • Cash flow: Operating cash flow was $71 versus $76 in Q1 2013; investing used $163, and financing used $2,165. Cash and cash equivalents fell $2,266 during the quarter to $1,672.
  • Margins and costs: SG&A was $3,362 (51.5% of revenue), versus $3,276 (54.8%); R&D was $721 (11.0%), versus $700 (11.7%). Intangible amortization was $497, down from $582.

Balance sheet, debt, and liquidity

  • At March 31, cash was $1,672 and restricted cash was $400. Total assets were $33,034, compared with $35,615 at December 31, 2013; stockholders’ equity was $3,739, down from $4,217.
  • Working capital deficit was $6,326, improved from $7,837 at year-end. Current liabilities included $10,042 of deferred revenue, which represents future service obligations and is not itself future cash receipts.
  • Total notes payable were $15,242: $992 current and $14,250 long term. In March, Asure refinanced its Deerpath debt with a $15,000 Wells Fargo term loan, maturing in March 2019. The loan’s stated rate was 5% for the six-month period ending August 20, 2014; thereafter the margin varies with leverage.
  • The Wells Fargo agreement includes a $3,000 revolving commitment, with no balance drawn and $2,580 available at quarter-end, plus a $10,000 uncommitted incremental term-loan facility for permitted acquisitions. The agreement includes financial and other covenants, collateral over substantially all company and subsidiary assets, and specified prepayment requirements. The company reported covenant compliance at March 31.
  • Management said it expected sufficient liquidity for at least 12 months, including debt service, and projected positive operating cash flow for 2014. It cautioned that cash use could exceed expectations and additional capital might be needed; there is no assurance it could be raised on acceptable terms or at all.

Material changes, outlook, and risks

  • The PeopleCube seller dispute was settled: Asure settled a $2,460 remaining note balance for $1,700, received $500 from its insurer, and recorded a net gain of $1,034 after related costs. The note was paid in full, pending litigation was dismissed, and the settlement released the lockup on 130,000 shares.
  • The Deerpath refinancing resulted in a $1,402 loss, including a $704 prepayment premium and $698 of noncash deferred financing costs.
  • Management plans to focus on growing existing products and customer base, investing selectively in areas intended to support revenue and positive cash flow, reducing expenses as appropriate, and exploring acquisitions. It had no acquisition agreement at the filing date and gave no specific revenue or earnings guidance. Management stated there was no assurance of revenue growth or profitability for the remainder of fiscal 2014.
  • Risks identified include weaker economic or IT spending, SaaS-market and product-acceptance uncertainty, customer retention, security or service disruptions, competition and pricing pressure, acquisition integration, and the possibility that subscription sales changes may not immediately affect reported results.
  • Asure reported no pending legal proceedings as of March 31, 2014, and management stated disclosure controls were effective. No material changes in internal control over financial reporting were reported.

Important facts for investors to verify

  • Whether operating cash flow and the $1,672 cash balance can support operations and scheduled debt payments, given the working capital deficit.
  • Whether the company meets Wells Fargo’s financial covenants beginning with the quarter ending June 30, 2014, and how leverage-based interest margins and required repayments affect liquidity.
  • How much of the improved year-over-year net loss reflects recurring operating progress versus the one-time settlement gain and refinancing charge.
  • Whether AsureSpace growth can offset weakness in AsureForce, and whether cloud revenue growth and improved gross margin persist.
  • Whether management’s 2014 positive-operating-cash-flow expectation is achieved and whether future acquisitions or capital needs change the funding outlook.