Asure Software, Inc. — FY2020 Form 10-K
Reporting period: Year ended December 31, 2020. This is an annual report, not a standalone fourth-quarter report. Amounts below are in millions of dollars unless otherwise noted.
Business context
Asure provides cloud-based human capital management software and related services, primarily to small and mid-sized U.S. businesses. Its products include payroll and tax, HR, time and attendance, and HR services. The company reported approximately 80,000 SMB clients, including about 10,000 direct clients and 70,000 served through resellers. Following the 2019 sale of its Workspace Management business, Asure operated as a single-segment HCM company.
Financial performance
| Metric | FY2020 | FY2019 | Change |
|---|---|---|---|
| Revenue | $65.507 | $73.150 | Down 10.4% |
| Recurring revenue | $63.315 | $70.066 | Down 9.6% |
| Gross profit | $38.093 | $43.314 | Down 12.1% |
| Gross margin | 58.2% | 59.2% | Down 1.0 percentage point |
| Operating loss | $(13.753) | $(50.397) | Improved |
| Continuing-operations net loss | $(16.311) | $(42.291) | Improved |
| Net income (loss) | $(16.311) | $30.001 | Turned to loss |
| Cash from operating activities | $(1.707) | $(4.117) | Lower cash use |
The FY2019 net income included a $72.292 after-tax gain from the sale of discontinued operations; the continuing business remained loss-making in both years. FY2020 operating loss was approximately 21.0% of revenue and net loss approximately 24.9%. Interest expense and other, net declined to $2.221 from $16.005. The filing does not provide a clear EBITDA figure in the supplied text.
Management attributed lower revenue mainly to COVID-related customer headcount reductions and lower interest rates, which reduced interest earned on client funds. Gross margin also reflected lower sales volume, investment in service personnel, COVID-related tax-code work, higher amortization of capitalized software, and migration to secure cloud hosting. SG&A declined 12.5% to $36.340, while R&D increased 11.4% to $5.959.
Liquidity, cash flow and debt
- Year-end cash and cash equivalents were $28.577, compared with $28.826 a year earlier. Working capital was $8.208, down from $17.854.
- Reported year-end funds held for clients were $321.069, with corresponding client fund obligations of $320.578. These balances relate to payroll and tax disbursements and should not be treated as unrestricted corporate liquidity.
- Investing cash outflow was $201.134, largely reflecting the increase in funds held for clients and three 2020 acquisitions. Financing cash inflow was $202.592, including client-fund movements and approximately $21.4 million of net proceeds from a public share offering.
- Gross notes payable were $24.913 at year-end, including the approximately $8.9 million PPP loan. The company reported $4.5 million available under its $5 million revolver. The Wells Fargo term loan carried a stated rate of 5.25% and matures in 2024.
- After missing a minimum EBITDA covenant amid COVID impacts, Asure amended its credit facility in August 2020, paid down $9.75 million of term debt, and reduced the facility to a $10 million term loan and $5 million revolver. It reported compliance with applicable covenants at year-end.
- Management stated that available liquidity and expected operating cash flows should cover needs for at least 12 months from the report’s issuance, while noting that additional capital or debt might be needed to support growth and acquisitions.
Material changes, outlook and risks
- COVID-19: More than 90% of employees worked remotely at year-end. Customer layoffs and reduced payroll volumes lowered per-employee recurring revenue; lower interest rates and employer payroll-tax deferrals also reduced interest income on client funds. Management expected pandemic-related effects to continue, but could not quantify their full future impact.
- Acquisitions and capital: Asure acquired payroll and HR-related businesses during 2020. It also issued 2.99 million shares at $7.25 per share in December, raising approximately $21.7 million gross. Acquisitions require lender consent under the amended facility.
- PPP loan: The company expected the loan to be forgiven, but forgiveness was not assured. It warned that unforgiven debt above $3.25 million or payments above $185,000 monthly could trigger a credit-agreement default absent a waiver or negotiated terms. The forgiveness application was completed in early February 2021; the filing expected an SBA decision in Q2 2021.
- Profitability and impairment: Asure reported a history of losses and an accumulated deficit of approximately $270.0 million. No goodwill impairment was recorded in 2020, following a $35.060 million noncash impairment in 2019. Goodwill and intangible assets represented a significant portion of assets, and their recoverability depends on estimates of future cash flows.
- Controls: Management said disclosure controls and internal control over financial reporting were effective at December 31, 2020 and that the 2019 material weakness had been remediated. The external auditor did not audit or opine on internal control effectiveness.
- Other risks: Key exposures include cybersecurity and data privacy, third-party hosting and payment providers, payroll-fund and customer credit risks, regulatory changes, intense competition, debt covenants, acquisition integration, and reliance on client renewals and employment levels. No pending legal proceedings were reported as material.
- Outlook: No quantified revenue or earnings guidance was provided in the supplied filing text. Management described continued investment in sales, marketing and R&D and a strategy of growing HCM operations and pursuing complementary acquisitions.
Important facts for investors to verify
- Whether customer employment levels, recurring revenue and interest income on client funds recovered after FY2020.
- The SBA’s final PPP forgiveness decision and any resulting debt, payment obligations or lender waivers.
- Future covenant compliance, revolver availability, debt maturities and the company’s ability to generate operating cash.
- Acquisition performance, contingent consideration obligations and the returns on the 2020 acquisitions.
- Goodwill and intangible-asset recoverability, and whether the remediated control processes remained effective.
- The effect of the December 2020 share issuance and any further equity financing on existing shareholders.