ASURE Software, Inc. — Q3 2013 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2013. The company provides web-based workforce and workplace management software, primarily SaaS, alongside hardware and professional services. Amounts below are in thousands of dollars unless noted.
Financial performance
| Metric | Q3 2013 | Q3 2012 | Nine months 2013 | Nine months 2012 |
|---|---|---|---|---|
| Revenue | $6,470 | $5,659 | $18,742 | $14,017 |
| Gross margin | $4,928 (76.2%) | $4,723 (83.5%) | $13,941 (74.4%) | $11,044 (78.8%) |
| Operating income (loss) | $479 | $(634) | $240 | $(548) |
| Net income (loss) | $109 | $(1,228) | $(1,560) | $(2,399) |
| Basic and diluted EPS | $0.02 | $(0.23) | $(0.28) | $(0.48) |
- Q3 revenue rose 14.3%; nine-month revenue rose 33.7%. Management attributed most of the increase to PeopleCube, acquired in July 2012, as well as growth in SaaS, maintenance, and professional services.
- Q3 SG&A fell 19.1% to $3,216, largely reflecting PeopleCube cost savings. Nine-month SG&A rose 17.7% to $9,939, partly due to the acquisition and higher sales-related staffing and commissions.
- Operating cash flow was $1,179 for the first nine months, versus $1,871 in 2012. Investing cash outflow was $143, compared with $9,895 in 2012, which included PeopleCube acquisition spending. Financing cash outflow was $121, versus $9,677 of inflow in 2012. Cash and equivalents increased to $3,106 from $2,177 at year-end 2012.
- At September 30, total notes payable were $16,658, including $1,965 current and $14,693 long-term. The senior note balance was $13,411; its floating rate had a minimum of 11.5%. Total assets were $35,334 and stockholders’ equity was $4,169. Working capital remained negative at $(6,448), improved from $(9,251) at December 31, 2012. Restricted cash of $400 was collateral for a credit-card line.
Material changes and unusual items
- In May, the company issued approximately 662,000 shares for net proceeds of about $3,435; $2,000 funded a required senior-debt payment. Shares outstanding at September 30 were 5,929,000.
- In September, Asure borrowed an additional $2,500 under its senior loan and used proceeds to repay Legiant notes and related-party 15% notes. The lender also committed up to $1,500 additional borrowing by December 31, 2013. Quarterly senior-loan principal payments increase to $425 beginning January 2014; remaining principal is due July 2016.
- The PeopleCube purchase-price dispute resulted in a $540 credit, including interest, against deferred purchase consideration, reducing the remaining purchase-price balance to $2,460 and goodwill by $496. Related litigation continues in Massachusetts; sellers seek unspecified damages and trebling. The company says it considers the claims without merit and is defending them.
- Q3 other income included a $72 gain on the sale of certain PeopleCube-related intangible assets and a $135 benefit from early repayment of Legiant notes, partly offset by debt-discount amortization. In October, the company repaid the ADI acquisition note at a discount.
- NASDAQ notified the company of listing-compliance deficiencies earlier in 2013. Following the share issuance and shareholder ratification, NASDAQ confirmed on October 4 that the company regained compliance and closed the matter.
Outlook, liquidity, and risks
- No specific revenue or earnings guidance is provided. Management said it expected to generate positive operating cash flow in 2013 and believed available and projected liquidity was sufficient for operational needs and debt payments for at least 12 months. Management cautioned that cash use could exceed expectations and that future capital may be needed, with no assurance it can be raised on acceptable terms.
- The amended senior-loan covenants were met at September 30; management expected continued compliance or the ability to achieve it through debt repayment. Covenant limits were revised, including a minimum fixed-charge coverage ratio of 0.8 to 1.0 at September 30, with requirements changing thereafter.
- Management plans to grow recurring revenue, invest selectively in revenue-generating areas, reduce expenses, and explore acquisitions, but reported no acquisition agreements. It cautioned that growth and profitability for the remainder of 2013 were not assured.
- Disclosure controls were assessed as effective, with no material changes to internal control over financial reporting during the quarter. The filing does not provide a separate updated risk-factor discussion.
Investor facts to verify
- Whether operating cash generation can support scheduled debt payments given the working-capital deficit and high-cost senior debt.
- Performance excluding PeopleCube acquisition contributions, including recurring SaaS growth and the decline in gross margin percentage.
- Compliance with future debt covenants and availability of the lender’s additional $1,500 commitment.
- Outcome and potential financial exposure from the remaining PeopleCube litigation and indemnification claims.
- Effects of the May equity issuance, including dilution and any further capital needs.