Asure Software, Inc. — Q2 2015 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2015. Unaudited consolidated financial statements. Unless noted, dollar amounts are in thousands.
Business context
Asure provides cloud-based SaaS time-and-labor and workplace-management solutions through its AsureForce and AsureSpace product lines, along with hardware, software licenses, support, and professional services.
Financial performance and liquidity
| Metric | Q2 2015 | Q2 2014 | Six months 2015 | Six months 2014 |
|---|---|---|---|---|
| Revenue | $7,159 | $6,548 | $13,491 | $13,075 |
| Gross margin | $5,280 (73.8%) | $5,175 (79.0%) | $9,960 (73.8%) | $10,144 (77.6%) |
| Operating income | $421 | $328 | $409 | $717 |
| Net income (loss) | $95 | $15 | $(388) | $(515) |
| EPS, diluted | $0.02 | $0.00 | $(0.06) | $(0.09) |
- Q2 revenue rose 9.3%; six-month revenue rose 3.2%. Hardware revenue was the principal growth driver, while maintenance/support and professional-services revenue declined over the six-month period.
- Gross margin percentage fell year over year, which management attributed primarily to product and revenue mix. Q2 net income improved; the six-month net loss narrowed.
- Cash provided by operations was $862 for the first six months, versus $747 in 2014. Investing used $971, mainly for property and equipment; financing provided $38. Cash declined $107 to $213.
- At June 30, total notes payable were $14,772, including $844 current and $13,928 long-term; the Wells Fargo term loan bore a stated 5% rate. No revolver borrowing was outstanding; $708 was available. Working-capital deficit was $7,404, including $10,409 of deferred revenue.
- Total assets were $34,729 and stockholders’ equity was $4,732. Goodwill was $17,441 and net intangible assets were $7,096.
Changes, outlook, and risks
- Q2 AsureSpace revenue increased 13.2% and AsureForce increased 4.1%. Management said AsureSpace hardware sales benefited from a first-quarter backlog and strong enterprise sales; it also continued to emphasize integrated cloud solutions.
- Six-month 2015 other loss was $695, including a $110 lease-termination loss. The comparable 2014 period included a $1,402 debt-refinancing loss and a $1,034 PeopleCube settlement gain, making year-over-year comparison of other loss less comparable.
- Management expected to generate positive operating cash flow and meet operating and debt needs for at least the next 12 months, based on internal projections. It also said there was no assurance of revenue growth or profitability in the remainder of 2015, and that additional capital might be needed and might not be available on acceptable terms.
- The company reported compliance with all debt covenants at June 30, 2015. The credit agreement requires a fixed-charge coverage ratio and leverage limits; substantially all company and active-subsidiary assets secure the debt.
- Management cited risks including customer retention and growth, SaaS market acceptance, competition and pricing, product development, security and service disruptions, employee retention, acquisition benefits, and the ability to manage growth. It was exploring acquisitions but reported no acquisition agreement at the time.
- No pending legal proceedings were reported. Management concluded disclosure controls were effective as of June 30, 2015 and reported no material change in internal control over financial reporting.
Important facts for investors to verify
- Whether operating cash generation can sustain operations and scheduled debt service given only $213 of cash and a $7,404 working-capital deficit.
- Debt-covenant headroom and the availability and conditions on the remaining $708 revolving capacity.
- Whether revenue growth can broaden beyond hardware, particularly in cloud, maintenance/support, and professional services, and whether gross margins recover.
- The timing and amount of future capital spending, acquisition funding, and any potential need to raise additional capital.
- Potential effects of new revenue-recognition guidance; the company said it was assessing the impact and noted the revised effective date begins after December 15, 2017.