ASURE Software, Inc. — Q2 2014 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2014. Asure provides cloud-based SaaS time-and-labor and workplace-management software, along with hardware, support, and professional services. Financial amounts below are in thousands of dollars unless noted.
Financial results
| Metric | Q2 2014 | Q2 2013 | Six months 2014 | Six months 2013 |
|---|---|---|---|---|
| Revenue | $6,548 | $6,296 | $13,075 | $12,271 |
| Gross profit / margin | $5,175 / 79.0% | $4,815 / 76.5% | $10,144 / 77.6% | $9,013 / 73.4% |
| Operating income (loss) | $328 | $121 | $717 | $(239) |
| Net income (loss) | $15 | $(569) | $(515) | $(1,669) |
| Basic and diluted EPS | $0.00 | $(0.10) | $(0.09) | $(0.31) |
- Q2 revenue increased 4.0%; first-half revenue increased 6.6%. Cloud revenue rose 10.3% in Q2 and 9.0% in the first half. First-half professional services revenue rose 38.7%; maintenance and support and on-premise license revenue declined.
- AsureSpace revenue grew 11.8% in Q2 and 16.1% for the first half. AsureForce revenue declined 4.9% and 4.4%, respectively.
- Management attributed stronger gross margins to hosting/support efficiencies and a mix shift toward higher-margin cloud revenue. First-half R&D expense rose 15.5%, reflecting increased headcount, placement fees, and severance.
- First-half operating cash flow was $747, versus $786 a year earlier. Investing used $281; financing used $2,378. Cash and cash equivalents were $2,005 at June 30, down from $3,938 at year-end.
Balance sheet, debt, and liquidity
- Total assets were $31,940 and stockholders’ equity was $3,786 at June 30, 2014. Working capital deficit was $5,983, compared with $7,837 at December 31, 2013; current liabilities included $9,365 of deferred revenue.
- Total notes payable were $15,059: $996 current and $14,063 long-term. The March refinancing replaced the Deerpath senior note with a $15,000 Wells Fargo term loan, bearing a 5% rate for the first six months and maturing in March 2019. The Wells Fargo facility also included a $3,000 revolver; $2,580 was available at June 30.
- Asure reported compliance with debt covenants at quarter-end, including a minimum fixed-charge coverage ratio of 1.5:1 and a maximum leverage ratio of 3.5:1. The company said it expected to meet requirements or obtain compliance through debt repayment.
Material changes, outlook, and risks
- First-half results included a $1,402 loss on debt refinancing and a $1,034 gain from settling PeopleCube acquisition-note litigation. The settlement resolved all claims, reduced the $2,460 note balance to $1,700, included $500 in insurance proceeds, and the note was paid in Q1. No pending legal proceedings were reported at June 30.
- After quarter-end, Asure acquired FotoPunch in July for $1,500 cash plus up to $3,000 in revenue-based earnouts, and acquired substantially all Roomtag assets in August for $933 cash and a $754 subordinated note. The cash portions were funded with Wells Fargo borrowings: $1,500 and $1,000, respectively.
- Management projected adequate liquidity and positive operating cash flow for at least the next twelve months, while cautioning it could not assure sufficient cash or access to additional capital on acceptable terms. It also stated there was no assurance of revenue growth or profitability for the remainder of 2014. No specific revenue or earnings guidance was provided.
- Disclosed risks include uncertain SaaS market development and customer retention, competition and pricing pressure, product-development and service-disruption risks, security and privacy concerns, hiring and growth execution, acquisition integration, and the possibility that subscription sales changes may not immediately affect reported results.
- Disclosure controls were assessed as effective as of June 30, 2014; no material change in internal control over financial reporting was reported.
Important facts for investors to verify
- Whether operating cash generation and covenant compliance remain adequate after the FotoPunch and Roomtag acquisitions and related revolver borrowings.
- FotoPunch earnout targets and the resulting maximum contingent consideration, as well as Roomtag’s integration and financing terms.
- How recurring cloud growth, declining AsureForce revenue, and deferred-revenue trends affect future revenue and cash conversion.
- The effects of the Wells Fargo loan’s leverage-based interest margins, repayment requirements, and financial covenants on liquidity.