ASURE Software, Inc. — Form 10-Q Summary
Reporting period: Quarter and nine months ended September 30, 2014. Financial statements are unaudited; dollar amounts below are in thousands except per-share data.
Business context
ASURE provides cloud-based SaaS time-and-labor and workplace-management software, alongside hardware, maintenance, support, and professional services. Its main product lines are AsureSpace and AsureForce. In July it acquired FotoPunch, a mobile time-clock technology provider, and in August acquired substantially all Roomtag assets.
Financial performance and liquidity
- Third-quarter revenue: $7,030, up 8.7% from $6,470. Cloud revenue rose 6.4%, hardware 36.2%, and professional services 35.6%; maintenance/support declined 2.4% and on-premise licenses declined 20.4%.
- Nine-month revenue: $20,105, up 7.3% from $18,742. Cloud revenue increased 8.1% and professional services 37.5%; maintenance/support and on-premise license revenue declined 4.3% and 20.5%, respectively.
- Product-line trend: Q3 AsureSpace revenue rose 24.0% to $4,400, while AsureForce fell 10.0% to $2,630. For the nine months, AsureSpace grew 18.8% to $12,033 and AsureForce declined 6.3% to $8,072.
- Gross margin: Q3 gross profit was $5,435, or 77.3% of revenue, versus $4,928 and 76.2% a year earlier. Nine-month gross profit was $15,579, or 77.5%, versus $13,941 and 74.4%.
- Operating results: Q3 operating income was $520 versus $479. Nine-month operating income was $1,237 versus $240. Q3 net income was $161 ($0.03 per diluted share), versus $109 ($0.02); nine-month net loss was $354 ($0.06 per share), improved from a $1,560 loss ($0.28 per share).
- Cash flow: Nine-month operating cash flow was $1,671, compared with $1,169. Investing used $3,449, principally for acquisitions; financing used $520. Cash declined $2,301 from year-end to $1,637.
- Balance sheet and debt: Cash was $1,637; total notes payable were $16,710 ($750 current and $15,960 long-term). The working-capital deficit was $6,331, including $9,455 of deferred revenue. Wells Fargo debt included a $14,625 term loan and $1,400 revolver balance, with $1,600 of revolver availability.
Material changes and unusual items
- In March, the company refinanced its Deerpath senior note with a Wells Fargo facility. The refinancing produced a $1,402 loss, including a $704 prepayment premium and $698 of non-cash deferred financing costs.
- A settlement of the PeopleCube acquisition dispute and related litigation generated a $1,034 net gain in Q1; the remaining $2,460 note balance was settled for $1,700, with separate insurance proceeds and settlement costs reflected in the reported gain.
- FotoPunch consideration included $1,500 cash and up to $3,000 in earnout payments tied to revenue targets. Roomtag consideration included $933 cash and a $754 subordinated note.
- Management attributed improved gross margin partly to hosting/support efficiencies and a mix shift toward higher-margin cloud revenue. R&D spending rose with hiring and severance costs, reflecting investment in SaaS, mobile, and hardware offerings.
Outlook, risks, and contingencies
Management expected to generate positive operating cash flow and have sufficient liquidity for operating needs and debt payments for at least the next 12 months; it reported compliance with debt covenants at September 30. These expectations are qualified: the company said cash consumption could exceed recent levels and it may need additional capital, which may not be available on acceptable terms. It also stated there was no assurance it would grow revenue or achieve profitability for the remainder of 2014. The company planned continued investment in revenue-generating areas and was exploring further acquisitions. No numerical revenue or earnings guidance was provided.
The Wells Fargo credit agreement requires fixed-charge coverage and leverage ratios, has customary restrictions and default provisions, and secures obligations with substantially all company and subsidiary assets. The filing reported no pending legal proceedings at September 30. Management said disclosure controls were effective and reported no material change in internal control over financial reporting.
Important facts for investors to verify
- Whether AsureForce’s revenue declines continue and whether AsureSpace and cloud growth can offset them.
- Cash generation, the working-capital deficit, and the company’s ability to service debt and meet Wells Fargo covenant requirements.
- FotoPunch earnout performance and the financial contribution and integration costs of both 2014 acquisitions.
- The sustainability of improved gross margins and progress toward consistent profitability, given the nine-month net loss and refinancing-related charges.
- Management’s liquidity assumptions and potential need for additional capital; the filing provides no formal numerical guidance.