Business Context and Reporting Period
Company: Asure Software, Inc.
Filing Type: Form 10-Q (Quarterly Report)
Period Ended: March 31, 2010
Business Overview: Asure provides software and services, primarily through two product lines: NetSimplicity (facility scheduling) and iEmployee (workforce management). The company changed its fiscal year-end from July 31 to December 31 effective January 1, 2010. A 10-for-1 reverse stock split was implemented on December 28, 2009.
Key Financial Metrics
| Metric | Q1 2010 | Q1 2009 |
|---|---|---|
| Revenues | $2.46 million | $2.51 million |
| Gross Margin | $1.82 million (74.1%) | $2.02 million (80.4%) |
| Operating Expenses | $1.93 million | $3.43 million |
| Net Loss | $(0.19) million | $(1.38) million |
| Loss Per Share (Basic/Diluted) | $(0.06) | $(0.44) |
| Cash and Equivalents | $1.99 million | $8.17 million (end of period) |
| Working Capital | $0.11 million | $6.65 million |
| Net Cash Used in Operating Activities | $(0.11) million | $(1.02) million |
Material Changes vs. Prior Period
- Revenue: Decreased 2.0% to $2.46 million. Excluding the sale of the Visual Asset Manager (VAM) product line in 2009, comparable revenues increased 2% due to growth in hardware, SaaS, and maintenance services, offset by declines in software license and deployment revenues.
- Gross Margin: Margin percentage declined from 80.4% to 74.1%, primarily due to a higher mix of hardware sales which carry lower margins than software.
- Operating Expenses: Total operating expenses decreased significantly by 43.7% ($1.5 million). Selling, General, and Administrative (SG&A) expenses dropped 47.8% due to headcount reductions, a mandatory 10% pay cut implemented in 2009, and reduced marketing and legal costs. R&D expenses decreased 34.6% due to compensation reductions.
- Liquidity: Cash and equivalents decreased by $272,000 during the quarter. Working capital dropped from $6.65 million to $106,000, largely due to the reduction in cash balances and changes in operating assets/liabilities.
Outlook, Risks, and Unusual Items
- Lease Amendment (Subsequent Event): On April 28, 2010, the company amended its corporate office lease to reduce square footage and monthly rent from $299,000 to $20,000. In exchange, Asure agreed to a one-time payment of $1.5 million and expects to record a one-time charge of approximately $1.2 million in the second quarter. This amendment is expected to save approximately $120,000 in monthly cash payments starting April 2010.
- Ceridian Agreement: On May 3, 2010, Asure entered an agreement with reseller Ceridian Corporation allowing joint customers to contract directly with Asure. Failure to retain sufficient revenue from these customers could lead to a decline in revenue and potential impairment of intangible assets.
- Liquidity Risk: Management believes current cash ($2.0 million) is sufficient for the next 12 months, including the $1.5 million lease payment. However, the company notes no assurance it can limit cash consumption or raise additional capital if needed.
- Accounting Change: The company adopted updated FASB ASC 605 guidance on January 1, 2010, separating software subscriptions from setup/implementation services for revenue recognition. The impact was immaterial for the quarter.
Investor Verification Checklist
- Verify the impact of the $1.5 million lease payment and the anticipated $1.2 million one-time charge on Q2 2010 liquidity and earnings.
- Monitor the success of the Ceridian customer transition and the potential risk of intangible asset impairment if joint customers are not retained.
- Assess the sustainability of the reduced operating expense structure following significant headcount and pay cuts.
- Review the company's ability to maintain cash balances above the $1.5 million threshold required for the lease amendment payment.
- Confirm the trajectory of hardware vs. software revenue mix, as hardware sales are compressing gross margins.