Asure Software, Inc. — 2023 Form 10-K Summary
Business context and reporting period
Asure provides cloud-based human capital management software and services to small and medium-sized businesses, including payroll and tax processing, HR compliance, time and attendance, and integrations. It sells directly and through reseller and referral partners; about 15% of its more than 100,000 clients are direct. This annual report covers the year ended December 31, 2023, compared with 2022; it does not provide standalone fourth-quarter results. Unless stated otherwise, figures below are in millions of U.S. dollars.
Financial performance and liquidity
| Metric | 2023 | 2022 | Change |
|---|---|---|---|
| Revenue | $119.1 | $95.8 | +24% |
| Recurring revenue | $99.7 | $86.2 | +16% |
| Professional services, hardware and other revenue | $19.3 | $9.6 | +101% |
| Gross profit / gross margin | $85.5 / 72% | $62.5 / 65% | Margin +7 pts |
| Operating expenses | $88.5 | $73.8 | +20% |
| Loss from operations | $(3.0) | $(11.3) | Loss narrowed |
| Net loss / loss per share | $(9.2) / $(0.42) | $(14.5) / $(0.72) | Loss narrowed |
| Cash provided by operating activities | $18.9 | $13.7 | +$5.2 |
Gross-margin improvement reflected a greater contribution from higher-margin revenue streams and operating consolidation and standardization. Sales and marketing expense rose 42% to $28.7 million, while general and administrative expense rose 16% to $39.3 million; research and development expense was $6.8 million, up 11%. Interest expense, net, was $4.3 million. The company also recorded a $1.5 million loss on extinguishment of debt.
At year-end, cash, cash equivalents and restricted cash reported outside client funds were $30.3 million, versus $17.0 million a year earlier. Working capital was $25.9 million, up from $8.1 million. Funds held for clients were $219.1 million, with related client fund obligations of $220.0 million; these balances relate to payroll and tax disbursements and should be distinguished from corporate liquidity.
Gross notes payable were $5.7 million at year-end, compared with $37.6 million in 2022; net carrying value was $4.3 million after debt discounts and issuance costs. Asure repaid its $30.9 million Structural Capital facility in September 2023. Remaining acquisition-related notes mature in 2024–2026. The company raised $46.8 million net from common-stock issuance during 2023, contributing to an increase in year-end shares outstanding from 20.2 million to 25.0 million.
Material changes and unusual items
- Revenue increased $23.3 million. Recurring revenue gains included approximately $7.2 million in HR compliance, $6.5 million in interest earned on client funds, and $3.3 million in AsureMarketplace; these were partly offset by a $2.3 million decrease in ERTC revenue.
- Non-recurring and other revenue increased $9.7 million, primarily due to growth in non-recurring ERTC revenue. The filing does not state a clear total ERTC revenue amount.
- Investing cash outflow was $29.5 million, including $27.6 million of purchases of available-for-sale securities. Financing cash inflow was $24.2 million, reflecting equity proceeds and increased client fund obligations, partly offset by $35.6 million of note payments.
- The 2023 net loss improved by $5.3 million. The company reported no goodwill impairment in 2023 or 2022. Goodwill and intangible assets together represented approximately 33% of total assets at year-end.
- A February 2024 acquisition of payroll-processing and benefits-brokerage assets had stated consideration of $6.0 million: $0.5 million cash, $4.5 million in stock and a $1.0 million promissory note.
Outlook, commentary and principal risks
Management expects to grow revenue by introducing applications, expanding its client base, and renewing and expanding existing relationships. It plans continued investment in product development, sales, automation, AI, hosting and integrations, and is pursuing strategic acquisitions. No numerical revenue, earnings or cash-flow guidance is provided. Management stated it believed available liquidity was sufficient to support operations for the next 12 months, while noting future growth or acquisitions could require additional capital.
- ERTC exposure: The IRS announced a moratorium on processing new claims in September 2023. A bill passed by the House in January 2024 proposed ending additional claims as of January 31, 2024, subject to further legislative action. Changes, delays, or termination could reduce revenue and collections; certain customer and referral-partner payments are deferred until customers receive credits, creating collection risk.
- Payroll funds and banking: Asure depends on banks and ACH processors, handles significant client funds, and may face client underfunding, reversals, fraud, investment, liquidity and counterparty risks.
- Cybersecurity, privacy and service continuity: The company processes sensitive payroll, personal, financial and biometric information and relies on third-party cloud infrastructure. A breach, outage or regulatory violation could lead to disruption, claims, penalties and customer losses. The filing says cyber risks had not had a material impact to date, but could do so in the future.
- Profitability, competition and financing: Asure has a history of losses and an accumulated deficit of $290.4 million. It faces larger competitors, customer renewal and retention risk, acquisition-integration risks, and potential limits on access to additional capital.
- Regulatory and asset risks: Changes in privacy, employment, tax and money-transmission rules may increase costs or require product changes. Impairment of goodwill or intangible assets could materially affect results.
The financial statements received an unqualified audit opinion from Marcum LLP, which reported no critical audit matters. Management concluded disclosure controls and internal control over financial reporting were effective at December 31, 2023. The company reported no material legal proceedings at year-end.
Most important facts for investors to verify
- Track ERTC claim processing, regulatory developments, related revenue and receivable collections, particularly deferred or percentage-of-recovery amounts.
- Assess recurring-revenue growth and retention separately from ERTC-related and other non-recurring revenue; verify whether higher sales and marketing spending generates sustained growth.
- Monitor operating cash generation, corporate cash available apart from client funds, client-fund investment exposure, and the maturities and terms of remaining acquisition notes.
- Consider the effects of the 2023 equity issuance and subsequent stock-based compensation on dilution and per-share results.
- Reconcile the MD&A narrative: it describes a 2023 “loss from operations” of $9.2 million and a 2022 loss of $14.5 million, while the consolidated statements report operating losses of $3.0 million and $11.3 million, respectively; $9.2 million and $14.5 million are the reported net losses.