Asure Software, Inc. — 2021 Form 10-K
Reporting period: Year ended December 31, 2021. Although the request labels this “2021 Q4,” this is an annual filing; standalone fourth-quarter financial results are not provided in the supplied text. Dollar figures below are in millions unless noted.
Business context
Asure provides cloud-based human capital management software and related services to small and midsize businesses, including payroll and tax, HR, time and attendance, and HR outsourcing. It serves more than 80,000 businesses through direct and reseller channels and reports one operating segment. Recurring revenue accounted for more than 93% of 2021 revenue.
Financial performance and liquidity
| Metric | 2021 | 2020 | Change |
|---|---|---|---|
| Revenue | $76.1 | $65.5 | Up 16% |
| Recurring revenue | $71.1 | $63.3 | Up 12% |
| Professional services, hardware and other revenue | $5.0 | $2.2 | Up 127% |
| Gross profit / gross margin | $46.6 / 61% | $38.1 / 58% | Margin up 3 points |
| Operating loss | $(12.8) | $(14.9) | Loss narrowed |
| Net income (loss) | $3.2 | $(16.3) | Improved |
| Diluted earnings (loss) per share | $0.16 | $(1.03) | Improved |
| Cash provided by operating activities | $1.4 | $2.2 | Down $0.9 |
Revenue growth reflected client employee-count recovery after the pandemic’s 2020 impact, acquisitions, and higher interest revenue. Gross margin improved with higher revenue and more efficient operations. Sales and marketing expense rose 14% to $15.4 million; general and administrative expense rose 15% to $27.6 million; research and development expense fell 9% to $5.4 million. Interest expense and other, net increased to $2.0 million from $1.2 million.
Reported net income included an $8.3 million gain on debt extinguishment, primarily related to forgiveness of the Paycheck Protection Program loan, and a $10.5 million Employee Retention Tax Credit benefit. These items helped move the company to net income despite a $12.8 million operating loss.
At year-end, cash, cash equivalents and restricted cash were $13.4 million, excluding client funds. Working capital was $17.0 million, up from $8.2 million. The company reported $38.4 million of gross notes payable ($35.0 million net of debt costs and discount), including $30.2 million under its Structural Capital senior credit facility. It had $20.0 million available to borrow under that $50.0 million facility. The facility carries a stated 9% cash interest rate subject to its contractual rate provisions, plus payment-in-kind interest, and is secured by company and subsidiary assets.
Funds held for clients were $217.4 million, with corresponding client fund obligations of $217.1 million; these balances support payroll and tax disbursements and should not be treated as unrestricted liquidity. Investing activities used $37.0 million, primarily for acquisitions, while financing activities used $90.7 million, largely reflecting a reduction in client fund obligations and debt repayments.
Material changes and unusual items
- Revenue increased 16%, while recurring revenue remained the dominant source of sales.
- Two payroll-business acquisitions closed in September 2021. The reported cash-flow statement shows $25.5 million for acquisitions of intangible assets; purchase consideration also included notes, shares and contingent consideration.
- Asure replaced its Wells Fargo credit arrangements with the Structural Capital facility in September 2021. It also repaid the outstanding Wells Fargo term loan.
- The $10.5 million ERTC benefit was recorded in the third quarter of 2021. The receivable was included in other current assets at year-end.
- The $8.7 million PPP loan and accrued interest forgiveness gain was recorded in 2021. The filing’s highlights cite $8.654 million, while the debt note describes $8.560 million of principal forgiveness plus accrued interest.
- Goodwill and intangible assets totaled approximately $164.6 million, about 38% of total assets. No goodwill or long-lived asset impairment was recorded in 2021.
- Management said internal control over financial reporting was effective at year-end and reported remediation of a material weakness during the fourth quarter. The independent auditor did not audit or express an opinion on internal-control effectiveness.
Outlook, risks and contingencies
Management expects revenue to grow through new applications, customer acquisition, renewals and expansion of existing relationships; it expects revenue mix to remain relatively stable. It plans continued investment in sales, marketing, research and development, product integrations, and acquisitions. No specific revenue, earnings or cash-flow guidance was provided. Management cautioned that pandemic-related effects and increased investment may weigh on net income.
Key risks include continued COVID-19 effects on customers and employment; difficulty achieving sustained profitability; customer renewal and retention; competition; cybersecurity, privacy and service outages; regulatory requirements for payroll processing and money transmission; customer funding and banking-partner risks; acquisition integration and valuation; and the ability to service or refinance debt. The company also disclosed turnover in its finance team and dependence on third-party hosting and payment providers.
Management reported no pending legal proceedings as of December 31, 2021. A further reseller acquisition for $2.35 million closed on January 1, 2022, and the company signed a new Austin headquarters lease in February 2022. These are subsequent events, not 2021 operating results.
Most important facts for investors to verify
- How much of 2021 net income depended on the $10.5 million ERTC benefit and the $8.3 million debt-forgiveness gain, versus recurring operating performance.
- Unrestricted cash, availability and covenant conditions under the Structural Capital facility, its effective borrowing cost, and scheduled principal payments.
- Whether acquisition-related customer retention, revenue contributions and integration outcomes support the purchase prices and recorded customer-relationship asset values.
- Cash conversion and working-capital movements, including the distinction between company cash and client funds held for payroll and taxes.
- Progress on finance-team continuity and internal controls, along with exposure to cybersecurity, privacy, money-transmission and third-party service-provider risks.