ASURE Software, Inc. — Q2 2022 Form 10-Q
Reporting period: Three and six months ended June 30, 2022. Financial statements are unaudited; amounts below are in $ millions unless stated otherwise.
Business context
Asure provides cloud-based human capital management software and services, primarily to small and midsized businesses. Its offerings include payroll and tax, HR, time and attendance, and HR services. The company reported serving more than 80,000 businesses, including direct clients and clients through reseller partners.
Financial results and liquidity
| Metric | Q2 2022 | Q2 2021 | Six months 2022 | Six months 2021 |
|---|---|---|---|---|
| Revenue | $20.300 | $17.168 | $44.633 | $36.970 |
| Recurring revenue | $19.014 | $16.072 | $42.018 | $35.314 |
| Gross profit / margin | $12.261 / 60% | $9.945 / 58% | $27.725 / 62% | $22.437 / 61% |
| Operating loss | $(5.848) | $(4.369) | $(8.019) | $(5.638) |
| Net income (loss) | $(5.860) | $3.764 | $(8.877) | $2.166 |
| Diluted earnings (loss) per share | $(0.29) | $0.20 | $(0.44) | $0.11 |
| Operating cash flow | — | $7.481 | $(1.898) |
- Revenue grew 18% in Q2 and 21% for the first half, with management attributing recurring revenue growth to organic growth. Recurring revenue was more than 94% of first-half revenue.
- Gross margin improved, but operating expenses rose faster than revenue overall. First-half sales and marketing increased 31%, general and administrative 21%, R&D 33%, and operating amortization 34% year over year.
- Net interest expense was $1.085 million in Q2 and $1.901 million for the first half, up from $0.223 million and $0.447 million, respectively, primarily due to the 2021 senior credit facility.
- At June 30, cash, cash equivalents and restricted cash on the balance sheet were $14.594 million; working capital was $14.451 million, down from $17.006 million at year-end. Funds held for clients ($184.661 million) largely corresponded to client fund obligations ($184.428 million) and are not ordinary operating liquidity.
- Gross debt principal was $38.880 million; reported notes payable net of financing costs and discount were $35.855 million. The senior credit facility balance was $30.246 million, with a stated 10.50% cash interest rate and an October 2025 maturity. The additional $20 million borrowing commitment was not drawn and expired June 30, 2022.
- First-half investing cash use was $21.570 million, including purchases of available-for-sale securities; financing cash use was $32.524 million, primarily reflecting a decrease in client fund obligations. Total cash, cash equivalents and restricted cash decreased $46.613 million, substantially affected by client-fund movements.
Changes, outlook and risks
- Compared with 2021, Asure moved from net income to net loss despite higher revenue and gross margin. Prior-year results included $8.654 million of income from PPP loan forgiveness; this materially affects the year-over-year earnings comparison.
- Management said it continued to invest aggressively in sales and marketing and R&D to drive growth and market share, while acknowledging these investments and pandemic-related client headcount effects weighed on operating results. No specific revenue or earnings guidance is provided.
- Management believes liquidity is sufficient for at least the next 12 months, but cautioned that cash use could exceed recent levels and that additional capital may be needed for growth or acquisitions; access to capital on acceptable terms is not assured.
- Risks discussed include client employment and pandemic effects, customer attrition and sales cycles, service interruptions or security breaches, regulatory and privacy requirements, acquisition outcomes, competition, hiring and retention, interest rates, and the ability to convert deferred revenue into revenue and cash flow. No material changes to previously disclosed risk factors or material pending legal proceedings were reported.
- Asure reported no goodwill or intangible-asset impairment in the period, while noting that market conditions or a stock-price decline could contribute to future impairment. Approximately $26.340 million of remaining performance obligations was expected to be recognized, with about 73% over the next 12 months.
- Subsequent-event disclosures describe July 2022 adjustments and payments related to acquisition notes and contingent consideration. One subordinated note matured July 1; the company said it was not in default and withheld $0.232 million pending resolution of indemnification claims.
- The MD&A says approximately $10.533 million of employee retention tax credits was recognized in 2021 interest income, but the filing’s financial statements do not clearly reconcile that statement with the reported income-statement amounts. The company also attributes $8.654 million of prior-year other income to PPP loan forgiveness; verify the presentation and amounts.
Key facts investors should verify
- Whether recurring-revenue growth and margin improvement can continue as sales, administrative, R&D, and amortization costs remain elevated.
- The company’s unrestricted cash and operating liquidity, excluding funds held for clients, and its cash requirements over the next 12 months.
- Debt terms, interest expense, covenant triggers, repayment schedule, and obligations arising from seller notes or contingent consideration.
- The impact of prior-year PPP forgiveness and the filing’s unclear ERTC disclosure on period-to-period earnings comparisons.
- Acquisition-related claims, contingent payments, and the potential for future goodwill or intangible-asset impairment.