Asure Software, Inc. — Q1 2024 Form 10-Q
Reporting period: Three months ended March 31, 2024; balance-sheet comparisons are to December 31, 2023. Amounts below are in millions unless otherwise stated. Asure provides cloud-based human capital management software and services to small and medium-sized businesses.
Financial performance
| Metric | Q1 2024 | Q1 2023 | Change |
|---|---|---|---|
| Total revenue | $31.652 | $33.064 | Down 4% |
| Recurring revenue | $30.273 | $27.956 | Up 8% |
| Professional services, hardware and other revenue | $1.379 | $5.108 | Down 73% |
| Gross profit / margin | $22.607 / 71% | $24.400 / 74% | Down $1.793 / 3 percentage points |
| Operating loss / income | $(0.441) | $1.963 | — |
| Net loss / income | $(0.308) | $0.339 | — |
| Diluted loss / earnings per share | $(0.01) | $0.02 | — |
| Net cash used in / provided by operating activities | $(3.947) | $4.588 | — |
Recurring revenue was over 95% of total revenue, versus 84% a year earlier. Management attributed its growth primarily to HR compliance, interest earned on client funds, and AsureMarketplace. The sharp decline in non-recurring revenue primarily reflected lower Employee Retention Tax Credit (ERTC) revenue. Gross margin fell mainly because of the lower professional services, hardware and other revenue mix.
Operating expenses were $23.048 million, up from $22.437 million. Sales and marketing rose 8% to $7.767 million; general and administrative expense increased 1% to $10.063 million; R&D declined 11% to $1.769 million. Intangible amortization was $3.449 million, up 4%. Interest expense fell to $0.180 million from $2.293 million, primarily following repayment of the Structural Capital credit facility in 2023. Income tax expense was $0.033 million, compared with a $0.237 million benefit in Q1 2023.
Financial position and liquidity
- Cash and cash equivalents outside client funds were $23.166 million at March 31, down from $30.317 million at year-end. The cash flow statement’s $190.242 million ending cash total includes $167.076 million held for clients and is not unrestricted corporate cash.
- Funds held for clients were $239.808 million, matched by client fund obligations of $241.141 million. These balances relate to payroll and payroll-tax services.
- Working capital was $24.040 million, compared with $25.880 million at December 31, 2023.
- Gross notes payable were $6.700 million, bearing stated cash interest rates of 2%–5%; net carrying value after debt issuance costs and discount was $5.279 million. The company reported no remaining amounts owed under its former senior credit facility.
- Operating cash use was $3.947 million, with changes in operating assets and liabilities using $10.218 million. Investing activities used $4.495 million, including software capitalization costs of $2.435 million. Financing activities provided $21.062 million, principally from a $21.122 million net increase in client fund obligations.
- Stockholders’ equity was $197.675 million. Shares outstanding were 25.749 million at March 31, 2024; the company issued 450,000 shares as part of the February acquisition consideration.
Changes, outlook and risks
- The February 22 acquisition of New Jersey payroll-processing and benefits-brokerage assets had a stated purchase price of $6.0 million: $0.5 million cash, 450,000 shares valued at $4.5 million, and a $1.0 million promissory note. An April 30 acquisition of Ohio reseller assets for $3.0 million was reported as a subsequent event; consideration included $2.3 million cash, a $0.7 million note, and 50,000 shares.
- On April 19, 2024, shelf registrations became effective: one permits offerings of up to $150 million of securities, and another permits issuance of up to 12.5 million shares for future business combinations.
- No specific numerical financial guidance was provided. Management expects revenue to increase through new applications, client growth, and expansion of existing relationships, and expects continued investment in direct sales, product development, hosting, and technology. It cited AI and automation as tools for improving product and operational efficiency.
- Management believes available liquidity is sufficient for at least the next 12 months, but states it has no credit facility or line of credit and may need additional capital for growth or acquisitions; raising capital on acceptable terms is not assured.
- ERTC revenue and collections remain exposed to program and regulatory changes. The filing notes a proposed expiration date for additional claims and an IRS moratorium on processing new claims, which could affect revenue and delay collections. Other cited risks include customer and business conditions, security and privacy, service interruptions, acquisition performance, cash conversion, capital access, and potential impairment of intangible assets.
- Asure reported no material legal proceedings, no material changes to its previously disclosed risk factors, and effective disclosure controls as of March 31, 2024. Its securities portfolio had $1.489 million of gross unrealized losses; management attributed these primarily to macroeconomic factors and said it did not intend or expect to sell the securities before recovery or maturity.
Important facts for investors to verify
- How much of the year-over-year decline in non-recurring revenue reflects ERTC activity, and what are the resulting revenue and collection trends?
- Whether recurring revenue growth and gross margin can be sustained as the revenue mix changes and seasonal payroll-form activity normalizes.
- Cash generation excluding client-fund flows, including the drivers of operating working-capital use and deferred revenue movements.
- Liquidity needs and potential dilution from future securities offerings, acquisitions, and equity compensation.
- Integration and performance of acquired businesses, and the carrying value and impairment risk of goodwill and intangible assets.