Asure Software, Inc. — 2022 Form 10-K Summary
Reporting period: Fiscal year ended December 31, 2022; filed February 27, 2023. Dollar amounts below are in millions unless otherwise noted. The filing describes a full fiscal year, not a standalone fourth quarter.
Business context
Asure provides cloud-based human capital management software and services, primarily to U.S. small and medium-sized businesses. Its offerings include payroll and tax, HR compliance, time and attendance, and professional services. The company reported more than 100,000 clients, including approximately 15,000 direct clients and 85,000 clients served through reseller partners. It operates as one reportable segment.
Key financial metrics
| Metric | 2022 | 2021 |
|---|---|---|
| Total revenue | $95.828 | $76.064 |
| Recurring revenue | $86.222 | $71.078 |
| Gross profit / margin | $62.510 / 65% | $46.564 / 61% |
| Operating loss | $(11.307) | $(12.962) |
| Net income (loss) | $(14.466) | $3.193 |
| Basic and diluted earnings (loss) per share | $(0.72) | $0.17 basic; $0.16 diluted |
| Cash from operating activities | $13.674 | $1.378 |
| Cash, cash equivalents and restricted cash, excluding client funds | $17.010 | $13.427 |
| Working capital | $8.093 | $17.006 |
| Notes payable, gross | $37.554 | $38.402 |
Recurring revenue was over 90% of 2022 revenue. The filing reports interest expense and other, net of $4.438, compared with $2.038 in 2021. Net cash used in investing activities was $35.999, primarily reflecting purchases of available-for-sale securities; financing activities used $12.376, largely from a decrease in client fund obligations and debt payments. Client funds held were $203.588, with related client fund obligations of $206.088; these balances are distinct from the company’s own cash.
Material changes versus 2021
- Revenue increased 26%; recurring revenue rose 21%, while professional services, hardware and other revenue increased 93%, primarily due to higher Employee Retention Tax Credit (ERTC) activity.
- Gross margin improved to 65% from 61%, which management attributed primarily to revenue growth and more efficient operations.
- Operating loss narrowed to $11.307 million from $12.962 million. However, net results shifted from income to loss, reflecting higher interest expense and the absence of substantial 2021 benefits.
- 2021 included an $8.312 million gain on extinguishment of debt and a $10.533 million ERTC benefit; neither was recorded in 2022. The 2021 debt gain primarily related to forgiveness of a Paycheck Protection Program loan.
- Operating cash flow increased to $13.674 million from $1.378 million, while working capital declined to $8.093 million from $17.006 million.
- Unrealized losses on marketable securities contributed $2.384 million to 2022 other comprehensive loss.
Outlook, risks and unusual items
- Management expected sufficient liquidity to support operations for the next 12 months, while noting that future growth and acquisitions could require additional capital and that financing may not be available on acceptable terms.
- The company’s senior credit facility carried a 13.25% cash interest rate at year-end, matures in October 2025, and includes a potential balloon payment. Gross notes payable were $37.554 million; the reported balance net of debt issuance costs and discount was $34.901 million.
- ERTC-related filing services were a significant source of tax-processing revenue. The company expected the program to expire in 2025, with possible earlier termination; it cautioned that related revenue should not be expected beyond expiration. It received $3.457 million of ERTC cash in 2022 and a further $7.076 million in January and February 2023.
- Key risks include cybersecurity and privacy incidents, changing payroll and money-transmission regulation, client-fund and payment-processing risks, customer retention and competition, debt service, and acquisition integration. The filing also cites significant turnover in the finance and accounting team and resulting risks to continuity and reporting controls.
- No material legal proceedings were reported at year-end. Management stated that disclosure controls and internal control over financial reporting were effective as of December 31, 2022. The auditor gave an unqualified opinion on the financial statements but did not express an opinion on internal-control effectiveness.
- The auditor identified goodwill and long-lived asset recoverability as a critical audit matter because valuation depended on management’s forecast cash flows, particularly future revenue. No goodwill or long-lived asset impairment was recorded in 2022.
- Asure’s stockholder rights plan was extended to October 28, 2025. It may be triggered by ownership reaching 4.9% or more, subject to stated exceptions.
Important facts for investors to verify
- How much of revenue and future collections depends on ERTC services, and how those revenues may change as the program winds down.
- Whether operating cash generation can be sustained given the net loss, lower working capital, client-fund obligations and debt maturities.
- The facility’s interest, repayment and covenant terms, including the potential balloon payment and any extension options.
- Customer retention, organic growth and acquisition contributions underlying the reported 26% revenue increase.
- Collection of receivables and deferred ERTC-related partner payments, and the company’s exposure to client payment reversals or fraud.
- Progress in retaining and integrating finance personnel and maintaining reliable financial reporting controls.
- The assumptions supporting goodwill and intangible asset valuations, given the auditor’s critical audit matter and the sensitivity to revenue forecasts.