Asure Software, Inc. — Q3 2012 Form 10-Q
Reporting period: Three and nine months ended September 30, 2012. Amounts below are in thousands of dollars, except per-share data, percentages, and share counts. Financial statements are unaudited.
Business context and reporting period
Asure provides workplace management and workforce time-and-labor software, serving more than 11,000 clients. On July 1, 2012, it acquired PeopleCube, expanding its workplace scheduling and facilities-management offerings. The filing’s reported revenue increase reflects acquisitions, including PeopleCube and the 2011 acquisitions of ADI Time and Legiant.
Financial results and position
| Metric | Q3 2012 | Q3 2011 | Nine months 2012 | Nine months 2011 |
|---|---|---|---|---|
| Revenue | $5,659 | $2,502 | $14,017 | $7,293 |
| Gross margin dollars | $4,723 | $2,016 | $11,044 | $5,930 |
| Gross margin percentage | 83.5% | 80.6% | 78.8% | 81.3% |
| Operating loss | $(634) | $(26) | $(548) | $(9) |
| Net income (loss) | $(1,228) | $29 | $(2,399) | $(4) |
| Basic and diluted EPS | $(0.23) | $0.01 | $(0.48) | $(0.00) |
- Expenses and margins: Q3 SG&A was $3,975, or 70.2% of revenue, versus $1,526, or 61.0%, a year earlier. Nine-month SG&A was $8,443, or 60.2%, versus $4,340, or 59.5%. Amortization of acquired intangibles increased to $573 in Q3 and $1,158 for nine months. Management attributed much of the cost increase to acquisitions; nine-month SG&A also included higher headcount and one-time acquisition-related professional and legal costs.
- Cash flow: Operating activities provided $1,417 for the first nine months, compared with $1,819 in 2011. Investing activities used $9,411, principally for the PeopleCube acquisition. Financing activities provided $9,647. Cash and equivalents ended the period at $2,746, up from $1,067 at December 31, 2011.
- Liquidity and debt: Working capital was negative $6,674. Total debt was approximately $20.2 million at quarter-end, including a $13.05 million senior note, subordinated notes, and current maturities; the $500,000 line of credit had been repaid. The senior loan carries a 10% rate at September 30, 2012, with quarterly principal payments and a July 2016 maturity. The company reported compliance with its senior-loan covenants at quarter-end and made a $363,000 principal payment on October 1.
- Acquisition accounting: PeopleCube consideration included $9.8 million cash, a seller note with $2.404 million recorded fair value, and stock valued at $747,000. The preliminary allocation included $10.040 million goodwill and $7.445 million intangible assets; the company said the valuation remained subject to finalization.
Material changes, outlook, and risks
- Revenue rose 126.2% in Q3 and 92.2% for the first nine months year over year. Management attributed the increases primarily to acquired businesses, rather than identifying organic growth separately.
- Q3 shifted from a small profit to a loss. Management cited PeopleCube-related one-time costs and $520,000 of interest expense and other interest-related charges. Nine-month other expense was $1.655 million, compared with $35,000 of other income in 2011.
- Management expected positive operating cash flow for the remainder of 2012 and believed liquidity was sufficient for the next 12 months and beyond. It also cautioned that cash needs could exceed expectations and that additional capital might be required, with no assurance it could be raised. The filing states there was no assurance the company would achieve profitability during the remainder of fiscal 2012.
- Management expected PeopleCube to increase EBITDA and free cash flow, excluding one-time acquisition costs. It planned to reduce unnecessary expenses, develop existing products, and consider strategic acquisitions; no further acquisition agreements were in place at filing time.
- Debt service, floating-rate interest, required principal and excess-cash-flow repayments, and financial covenants are material liquidity considerations. The company reported that the senior loan requires minimum EBITDA and coverage ratios and maximum leverage ratios. Its negative working capital and dependence on operating cash generation merit attention.
- On October 9, 2012, Asure obtained a perpetual worldwide license to FotoPunch facial- and voice-recognition software and an option to acquire FotoPunch, plus a right of first refusal. Legal proceedings were reported as not material; the company reported effective disclosure controls and no material change in internal controls.
Key facts for investors to verify
- How much of revenue growth and expected future performance is attributable to acquired operations versus organic growth, and whether PeopleCube meets management’s expected contribution.
- The finalized PeopleCube purchase-price allocation, working-capital adjustment, integration costs, and any related impairment or other accounting changes.
- Cash conversion and liquidity, including the negative working capital, required debt repayments, and whether covenant headroom remains adequate.
- The full economics and obligations of the senior and subordinated debt, including interest-rate exposure, prepayment terms, and payments involving company insiders or related investment funds.
- Whether the expected positive operating cash flow and any stated EBITDA or free-cash-flow benefits are achieved; the filing does not provide a clear numerical full-year earnings or revenue forecast.