Asure Software, Inc. — Q1 2013 Form 10-Q
Business context and period: Unaudited results for the three months ended March 31, 2013, compared with Q1 2012. Asure provides workforce and workplace management software, primarily through SaaS and on-premise offerings, and related hardware and services. Figures below are in thousands of dollars except per-share data. Q1 2013 includes PeopleCube, acquired in July 2012.
Financial results
| Metric | Q1 2013 | Q1 2012 |
|---|---|---|
| Revenue | $5,975 | $4,153 |
| Gross profit / margin | $4,198 / 70.3% | $3,107 / 74.8% |
| Operating income (loss) | $(360) | $89 |
| Net loss | $(1,100) | $(847) |
| Net loss per share, diluted | $(0.21) | $(0.18) |
| Cash provided by operating activities | $76 | $609 |
| Cash used in investing activities | $(140) | $(21) |
| Cash used in financing activities | $(570) | $(494) |
Revenue increased 43.9%, principally from $1,925 of PeopleCube revenue. PeopleCube represented 32% of Q1 2013 revenue and had a 60% gross margin; management said gross margin excluding PeopleCube would have been 76%. Gross margin rate fell 4.5 percentage points year over year. SG&A rose 53.4% to $3,276, largely from PeopleCube costs and higher ADI sales and marketing payroll. Operating expenses increased to $4,558, including higher acquired-intangible amortization. Other expense was $701, primarily interest expense. Net loss widened, although net loss as a percentage of revenue improved to 18.4% from 20.4%.
Balance sheet, debt and liquidity
At March 31, 2013, cash and cash equivalents were $1,588, down from $2,177 at year-end; restricted cash was $250. Working capital was negative $10,226, versus negative $9,689 at December 31, 2012. Total assets were $35,552 and stockholders’ equity was $1,127.
Notes payable totaled $19,924, including $3,450 classified as short-term and $16,474 as long-term. The senior note carried a minimum annual rate of 11.5% and matures in 2016. It requires a separate $2,000 principal payment by October 31, 2013, in addition to scheduled payments. The company reported compliance with amended debt covenants at quarter-end and expected continued compliance over the following 12 months.
Operating cash flow was positive but fell to $76 from $609, while cash declined by $589 during the quarter. Management stated it expected to generate positive operating cash flow in 2013 and believed liquidity would meet operational needs and debt payments for at least 12 months. It also cautioned that cash needs could exceed expectations and additional capital might be required; financing on acceptable terms is not assured.
Outlook, risks and notable items
- No formal revenue or earnings guidance was provided. Management plans to focus investment on areas intended to generate revenue and positive cash flow, reduce expenses as appropriate, and explore strategic acquisitions; no acquisition agreement was in place.
- Management said there could be no assurance of revenue growth or profitability for the rest of 2013.
- On April 11, 2013, Nasdaq notified Asure that its market value of listed securities was below the $35 million minimum. The company had until October 8, 2013 to regain compliance; the notice had no immediate listing effect. The filing noted possible equity issuance as one option.
- The senior lender’s terms provide for a 3-percentage-point rate increase on the specified portion of the loan if the $2,000 payment is not made by May 31, 2013. The filing separately states the principal payment is due by October 31, 2013.
- Management said it was unaware of pending legal proceedings material to the company; Part II reported no legal proceedings. Disclosure controls were assessed as effective, with no material control changes reported.
Important facts for investors to verify
- Progress toward the $2,000 senior-loan principal payment and the associated May 31 rate-increase condition; confirm the payment deadline and lender treatment.
- Cash generation, working-capital needs, and ability to service debt given low cash and negative working capital.
- Nasdaq market-value compliance before the October 8, 2013 deadline, and whether any equity issuance could affect existing shareholders.
- Whether acquired PeopleCube revenue and costs, and the lower reported gross margin, develop as management expects.
- Ongoing covenant compliance and the company’s ability to achieve its projected positive operating cash flow and pursue growth plans.