Business context and reporting period
Asure Software, Inc. filed this unaudited Form 10-Q for the quarter and six months ended June 30, 2012. The company sells scheduling, human-resources, and workforce-management software and related services. Year-over-year growth primarily reflects the fourth-quarter 2011 acquisitions of ADI Time and Legiant. A 3-for-2 stock split was reflected in share and per-share figures.
Financial results and liquidity
Amounts below are in millions except per-share data and percentages.
| Metric | Q2 2012 | Q2 2011 | Six months 2012 | Six months 2011 |
|---|---|---|---|---|
| Revenue | $4.205 | $2.434 | $8.357 | $4.791 |
| Gross margin | $3.214 (76.4%) | $1.997 (82.0%) | $6.320 (75.6%) | $3.914 (81.7%) |
| Operating income (loss) | $(0.003) | $0.041 | $0.086 | $0.017 |
| Net income (loss) | $(0.323) | $0.027 | $(1.170) | $(0.033) |
| Basic and diluted EPS | $(0.06) | $0.01 | $(0.24) | $(0.01) |
- Q2 revenue grew 72.8%; six-month revenue grew 74.4%. Acquired ADI Time and Legiant contributed $1.763 million of the Q2 increase and $3.474 million of the six-month increase.
- Gross margin percentage fell year over year in both periods. SG&A and R&D rose in dollars, while each declined as a percentage of revenue. Intangible amortization also increased following the acquisitions.
- For the six months, operating cash flow was $0.938 million, investing cash use was $0.079 million, and financing cash use was $0.459 million. Cash increased $0.426 million to $1.493 million. Operating cash flow included substantial noncash adjustments, including $0.819 million of depreciation and amortization and $0.591 million of OID and derivative-related interest expense.
- At June 30, cash was $1.493 million and working capital was negative $4.203 million. The balance sheet showed $0.555 million drawn on the line of credit, $4.785 million of notes payable, and $7.742 million of current liabilities. Total assets were $15.833 million.
Material changes, outlook and risks
- Q2 net loss included $0.487 million of one-time expenses, described primarily as acquisition-related. Six-month other expense included $0.591 million of OID amortization and derivative mark-to-market expense, a $0.198 million loss on debt conversion, and higher interest expense. The company also reported a $0.060 million one-time tax charge associated with closing its India operations.
- Effective July 1, 2012, Asure acquired Meeting Maker–United States for $9.8 million cash, 255,000 shares, and a $3.0 million seller note. The company described it as NetSimplicity’s largest competitor in meeting-room management and expected it to increase EBITDA and free cash flow immediately, excluding one-time acquisition costs.
- The acquisition and debt refinancing were funded with a new $14.5 million senior secured term loan, advanced July 5. The filing states that total debt remaining after the related paydowns was $17.2 million. The loan bears interest at LIBOR plus 8%, with a 2% LIBOR floor, quarterly principal payments beginning October 2012, and final maturity July 2016. It includes financial covenants and mandatory-prepayment provisions.
- Management expected positive operating cash flow for the remainder of 2012 and said it believed liquidity was sufficient for the next 12 months and beyond. It also acknowledged that additional capital may be needed and that raising it is not assured. Management cautioned that there was no assurance the company would achieve revenue growth or profitability in the remainder of 2012.
- Other considerations include the company’s negative working capital, debt-service and covenant obligations, acquisition integration and execution, and uncertainty around future cash needs. The filing says pending legal proceedings were not material; management reported effective disclosure controls as of June 30, 2012.
Important facts for investors to verify
- Review post-acquisition results, including Meeting Maker’s contribution to revenue, EBITDA, cash flow, and integration costs.
- Confirm the post-closing debt balance, interest burden, amortization schedule, and compliance with the new loan’s financial covenants.
- Track cash conversion and working capital, given the reported cash balance and negative working capital at June 30.
- Assess whether revenue growth and margin performance can offset higher operating costs, interest expense, and intangible-asset amortization.