Business context and reporting period
Asure Software, Inc. provides cloud-based and on-premise workforce time-and-labor and workplace-management software, hardware, support, and professional services. Its principal product families are AsureForce and AsureSpace. This Form 10-K reports the fiscal year ended December 31, 2013, with 2012 comparisons; it does not provide a clear standalone fourth-quarter results summary.
Key financial metrics
Amounts are in millions of dollars unless stated otherwise.
| Metric | 2013 | 2012 |
|---|---|---|
| Revenue | $25.474 | $19.965 |
| Gross profit / margin | $19.049 / 74.8% | $15.392 / 77.1% |
| Operating income (loss) | $0.782 | ($0.513) |
| Net loss | ($1.662); ($0.29) per diluted share | ($3.032); ($0.60) per diluted share |
| Cash from operating activities | $2.025 | $2.809 |
| Cash used in investing activities | ($0.435) | ($10.978) |
| Cash from financing activities | $0.170 | $9.252 |
| Cash and cash equivalents at year-end | $3.938 | $2.177 |
| Working capital (deficit) | ($7.837) | ($9.382) |
| Total notes payable at year-end | $17.006 | $20.137 |
Material changes versus prior year
- Revenue rose 27.6% (reported as 28% rounded). Cloud revenue increased 29% to $12.875 million; hardware rose 51% to $2.135 million; maintenance and support rose 19% to $6.679 million; and professional services rose 51% to $2.693 million. On-premise license revenue declined 10% to $1.092 million.
- Management attributed about $5.0 million of revenue growth to AsureSpace and the full-year contribution of PeopleCube, acquired in 2012. AsureForce also contributed growth, though iEmployee cloud revenue declined 8% as resources shifted toward newer subscription offerings.
- Gross margin declined 2.3 percentage points, reflecting higher cost of sales. SG&A rose 12% and R&D rose 19%, while each declined as a share of revenue. Operating results improved to income from an operating loss; net loss narrowed 45%.
- Operating cash flow declined by $0.784 million year over year. Investing outflow fell substantially because 2012 included $9.8 million for the PeopleCube acquisition.
- Working-capital deficit improved by $1.545 million, but included $10.1 million of deferred revenue, which represents future service obligations and is not equivalent to future cash receipts.
Outlook, debt, risks and unusual items
- Management expected positive operating cash flow in 2014 and estimated $0.4–$0.6 million in 2014 capital expenditures, mainly for cloud infrastructure. It cautioned that there was no assurance the company could grow revenue, achieve profitability, or generate positive cash flows during 2014.
- At December 31, 2013, notes payable totaled $17.006 million, including a senior note carrying a minimum 11.5% rate. In March 2014, the company refinanced the Deerpath debt with a $15 million Wells Fargo term loan, due March 2019, plus a $3 million revolving commitment and a $10 million uncommitted acquisition facility. The loans are secured by substantially all company and subsidiary assets and are subject to financial and other covenants. The company expected a one-time refinancing charge of approximately $1.4 million in Q1 2014, including about $0.7 million of non-cash deferred financing costs.
- The 2014 credit agreement requires a fixed-charge coverage ratio of at least 1.5:1 and a leverage ratio no greater than 3.5:1 beginning with the quarter ending June 30, 2014, with leverage limits stepping down thereafter. Management said it believed it had sufficient liquidity for at least 12 months, but also noted that additional capital might be needed and could not be assured on acceptable terms.
- In February 2014, the company settled all PeopleCube seller litigation, paid $1.7 million to settle a remaining note balance reported at approximately $2.5 million, and expected insurance proceeds of $0.5 million. It forecast a net settlement gain of about $1.0 million in Q1 2014 after related costs; this is a subsequent event, not 2013 income.
- NASDAQ compliance issues raised in 2013 were resolved after a May share sale raised approximately $3.4 million net and shareholders ratified the related-party portion. Compliance was restored in October 2013.
- Tax attributes included approximately $116.5 million of federal net operating loss carryforwards and $4.9 million of federal R&D credits, subject to possible ownership-change limits and expiration; a valuation allowance was maintained against deferred tax assets. Goodwill and finite-lived intangibles were not reported impaired.
Important facts for investors to verify
- Review the Wells Fargo facility’s interest-rate terms, amortization, collateral, covenant calculations, and the company’s actual compliance after June 2014.
- Assess whether recurring cloud growth and customer retention can sustain revenue growth and restore gross margin despite lower on-premise license sales.
- Verify actual 2014 operating cash flow, capital spending, refinancing expense, and the realized PeopleCube settlement gain against management’s estimates.
- Evaluate liquidity needs given the working-capital deficit, debt service, and management’s warning that additional financing may be required.
- Consider share dilution: 662,000 shares were sold in 2013, and 795,000 stock options were outstanding at year-end.