Asure Software, Inc. — Q2 2013 Form 10-Q
Business context and period. The filing covers the quarter and six months ended June 30, 2013. Asure provides workforce and workplace management software, delivered primarily as SaaS and on-premise, along with hardware and related services. Results include PeopleCube, acquired in July 2012.
Financial results
Amounts below are in millions of dollars except per-share data and percentages.
| Metric | Q2 2013 | Q2 2012 | Six months 2013 | Six months 2012 |
|---|---|---|---|---|
| Revenue | $6.296 | $4.205 | $12.271 | $8.357 |
| Gross profit / margin | $4.815 / 76.5% | $3.214 / 76.4% | $9.013 / 73.4% | $6.320 / 75.6% |
| Operating income (loss) | $0.121 | $(0.003) | $(0.239) | $0.086 |
| Net loss | $(0.569) | $(0.323) | $(1.669) | $(1.170) |
| Basic and diluted loss per share | $(0.10) | $(0.06) | $(0.31) | $(0.24) |
- Revenue increased 49.7% in Q2 and 46.8% in the first half, primarily reflecting PeopleCube revenue of $2.088 million in Q2 and $4.013 million year to date.
- Q2 gross margin percentage was nearly unchanged year over year; first-half margin declined 2.2 percentage points. PeopleCube represented 33.2% of Q2 revenue and had a 65.8% gross margin; management reported first-half PeopleCube margin of 62.5%.
- For the six months, operating cash flow was $0.796 million, investing cash flow was $(0.245) million, and financing cash flow was $0.517 million. Cash rose to $3.295 million from $2.177 million at year-end.
- At June 30, total assets were $36.065 million and stockholders’ equity was $4.076 million. Working capital deficit was $6.148 million, improved from $9.251 million at December 31, 2012.
- Reported notes payable totaled $17.686 million, including $1.450 million current and $16.236 million long-term. Senior debt bears a minimum 11.5% rate; cash interest paid in the first half was $0.656 million.
Material changes and management commentary
- PeopleCube was the principal driver of revenue growth and also added operating costs and acquired-intangible amortization. Q2 SG&A rose 47.7%, while first-half SG&A rose 50.5%. Intangible amortization in operating expenses nearly doubled in both comparison periods.
- Q2 interest and other expense increased to $0.648 million from $0.200 million, primarily due to interest on the senior loan associated with the PeopleCube acquisition. Higher debt-related costs contributed to the larger Q2 net loss despite higher revenue and a small operating profit.
- May’s common-stock sale of approximately 662,000 shares at $5.31 generated about $3.5 million net; $2.0 million was used to repay senior debt. The company said it expected positive operating cash flow in 2013 and believed available liquidity and projected cash generation would meet operating and debt needs for at least 12 months. It cautioned that this was not assured and that additional capital might be needed.
- Management planned to grow recurring customer revenue, continue expense reductions, and explore acquisitions; no acquisition agreement was in place. It cautioned that revenue growth and profitability for the remainder of 2013 were not assured.
Risks, contingencies, and unusual items
- Debt and covenants: The company reported compliance with amended debt covenants at June 30 and expected to remain compliant, or obtain compliance through debt repayments. The senior facility includes financial covenants, mandatory payments, and default provisions.
- Nasdaq listing: Nasdaq notified Asure that its market value of listed securities had fallen below the $35 million requirement. The company had until October 8, 2013 to regain compliance. It believed the May equity sale brought it into compliance with the alternative minimum-equity test and was awaiting Nasdaq confirmation.
- PeopleCube dispute: Asure sought a purchase-price adjustment and filed a federal indemnification claim; the sellers filed and later amended a Massachusetts suit seeking unspecified damages and treble damages. Asure filed a counterclaim and said it considered the sellers’ claims without merit. The purchase-price adjustment was to be resolved by an independent accountant.
- The filing reports no goodwill or finite-lived intangible-asset impairment for the periods presented. It identifies no material changes to critical accounting policies and estimates.
Important facts for investors to verify
- Whether Nasdaq confirmed compliance following the May stock sale, and the company’s subsequent listing status.
- Actual operating cash flow, cash balances, debt payments, and covenant compliance against management’s 12-month liquidity expectations.
- Progress and potential financial exposure from the PeopleCube purchase-price adjustment and litigation.
- How much reported growth and future profitability depend on acquired PeopleCube revenue, and the sustainability of margins as acquired intangibles continue to amortize.