Asure Software, Inc. — 2012 Form 10-K
Reporting period: Fiscal year ended December 31, 2012; comparison is with the year ended December 31, 2011. This is an annual filing, not a standalone fourth-quarter report. Amounts below are in millions unless stated otherwise. Asure provides cloud-based and on-premise workforce time-and-labor and workplace-management software and related hardware and services.
Financial performance
| Metric | 2012 | 2011 |
|---|---|---|
| Revenue | $19.965 | $10.941 |
| Gross profit | $15.392 | $8.652 |
| Gross margin | 77.1% | 79.1% |
| Operating loss | $0.513 | Operating income $0.091 |
| Net loss | $3.032 | $0.649 |
| Basic and diluted loss per share | $0.60 | $0.14 |
| Cash from operating activities | $2.809 | $3.353 |
- Revenue increased 82%, primarily reflecting acquisitions: ADI and Legiant contributed a full year of revenue, and PeopleCube contributed about six months following its July 2012 acquisition. Existing iEmployee and Meeting Room Manager revenue was approximately $9.6 million, essentially flat.
- Subscription revenue growth and recurring maintenance were offset by lower perpetual-license revenue in Meeting Room Manager. Gross margin declined 2 percentage points. SG&A rose 90% to $11.803 million, while intangible amortization rose to $1.726 million, substantially reflecting acquisitions.
- Interest, original-issue-discount amortization and other items contributed to $2.234 million of total other loss. Income tax expense was $0.285 million despite the pretax loss.
Cash, liquidity and debt
- Year-end cash and cash equivalents were $2.177 million; an additional $0.250 million was restricted cash. Working-capital deficit was $9.689 million, including $9.684 million of deferred revenue, which represents obligations to provide future services.
- Investing activities used $10.978 million, including $9.8 million for PeopleCube and purchases of property, equipment and intangibles. Financing activities provided $9.252 million, including $14.5 million of notes payable proceeds.
- Notes payable had a $20.137 million carrying value at year-end, including $3.450 million current and $16.687 million long-term. The senior secured note was $14.138 million; its stated rate was amended to a minimum of 11.5% after year-end.
- Asure disclosed noncompliance with certain Deerpath financial covenants at December 31, 2012; the lender did not declare a default. A March 29, 2013 amendment, effective as of year-end, revised covenants and removed minimum-EBITDA requirements, in exchange for higher borrowing costs, a $0.240 million amendment fee and a separate $2.0 million principal payment due by October 31, 2013. If that payment is not made by May 31, 2013, the rate on the relevant portion increases by 3% until paid.
Outlook, risks and notable items
- Management expected positive operating cash flow in 2013 and believed liquidity would support operations and debt obligations for at least 12 months, but cautioned it could not assure revenue growth, profitability, positive cash flows or sufficient liquidity. Planned 2013 capital expenditures were approximately $0.4–$0.7 million, mainly for cloud infrastructure.
- Management intended to expand SaaS sales and direct sales efforts and continued to consider strategic acquisitions, with no acquisition agreement then in place. Acquisition integration, competitive pressure, technology and customer acceptance, and the ability to retain key staff are stated business risks.
- Federal NOL carryforwards were approximately $118.1 million and R&D credits approximately $4.8 million; ownership-change rules may limit their use, and some carryforwards may expire. Goodwill and intangible assets increased materially with acquisitions; the company reported no impairment for the periods presented.
- PeopleCube acquisition consideration included $9.8 million cash, stock valued at $0.747 million and a seller note recorded at $2.404 million fair value. The acquisition’s preliminary purchase-price allocation remained subject to measurement-period updates.
- The company reported no pending material legal proceedings. The independent auditor issued an unqualified opinion on the financial statements. Management reported effective disclosure controls and effective internal control over financial reporting, but its assessment excluded PeopleCube and was not attested by the auditor.
Key facts for investors to verify
- Progress against the amended Deerpath covenants and the timing and funding of the required $2.0 million principal payment.
- Cash generation, working-capital needs and whether management’s 2013 operating-cash-flow expectations were achieved.
- Organic revenue and subscription growth, separated from acquisition contributions, and the durability of margins.
- PeopleCube integration, final purchase accounting and the recoverability of goodwill and acquired intangible assets.
- Debt balance, interest expense and the extent to which tax attributes can be used despite ownership-change limitations.