ASURE SOFTWARE, INC. — Q1 2012 Form 10-Q
Reporting period: Three months ended March 31, 2012. Financial amounts are in thousands of dollars, except per-share data and where noted. Asure sells workforce-management and office-scheduling software and services, including NetSimplicity and iEmployee.
Key financial results
| Metric | Q1 2012 | Q1 2011 |
|---|---|---|
| Revenue | $4,153 | $2,357 |
| Gross profit / margin | $3,107 / 74.8% | $1,917 / 81.3% |
| Operating income (loss) | $89 | ($24) |
| Net loss | ($847) | ($60) |
| Loss per share, basic and diluted | ($0.18) | ($0.01) |
| Cash from operating activities | $609 | $312 |
| Cash from investing activities | ($21) | ($8) |
| Cash from financing activities | ($494) | ($12) |
Financial position and period-over-period changes
- Revenue rose 76.2%, primarily because ADI Time and Legiant, acquired in Q4 2011, contributed $1,710 of revenue. The acquisitions also accounted for most of the increase in gross profit.
- Gross margin declined to 74.8% from 81.3%. SG&A increased 52.4% to $2,135, and research and development increased 51.2% to $591; both rose in part due to the acquisitions. Operating income improved from a small loss to $89.
- Net loss widened to $847 from $60. Other expense was $891, including $535 of interest expense related to original-issue-discount amortization and derivative accounting, a $199 debt-conversion loss, and $120 of interest expense and other costs.
- Cash and equivalents were $1,189 at March 31, up $122 from year-end. Operating cash flow was positive, though supported by noncash expenses and working-capital movements.
- Working capital was negative $4,254 at March 31. Current assets were $3,151 and current liabilities $7,405, including $4,860 of current deferred revenue.
- Debt included a $500 line of credit and notes payable reported at $4,746 in total; the balance sheet also reports $30 of other long-term obligations. The line of credit matures September 28, 2012, is secured by company assets, and bears a stated rate of 4.25% in the debt table.
- Stockholders’ equity was $3,516, compared with $2,064 at December 31, 2011. The company reported 4.981 million common shares outstanding at March 31.
Outlook, material items and risks
- In March 2012, the company amended its 9% subordinated convertible notes to remove embedded derivative features. Approximately $1,150 of the $1,500 principal was converted into common stock; Asure also paid $211 to converting holders. The filing reports a $199 loss on debt conversion and a $2,255 increase in additional paid-in capital related to the conversion.
- Management expected positive operating cash flow for the remainder of 2012 and said it believed liquidity would fund operations for at least the next 12 months. It also cautioned that cash use could exceed recent levels and that additional capital might be needed, with no assurance it could be raised when required.
- Management planned to reduce expenses, grow existing software operations, and pursue strategic acquisitions. Acquisitions could be funded with equity, cash, operating cash flow, or external financing. The company did not provide specific revenue or earnings guidance and said profitability for the rest of 2012 was not assured.
- The company declared a 3-for-2 stock split, payable April 30, 2012; share and per-share figures in the statements reflect the split.
- Management reported disclosure controls were effective as of March 31, 2012, with no material changes in internal control over financial reporting. Pending legal proceedings were described as not material.
Investor facts to verify
- Whether the company met its bank-credit covenants at March 31, 2012. The filing specifically states compliance at December 31, 2011, but does not clearly confirm Q1 compliance.
- How the company planned to repay or refinance the $500 line of credit approaching its September 2012 maturity, and whether the facility remained available under its borrowing-base and covenant terms.
- The sustainability of operating cash generation given the substantial net loss, negative working capital, and reliance on noncash adjustments and working-capital changes.
- The final accounting and cash effects of the convertible-note amendment. The filing describes derivative-related amounts and the amendment; investors should reconcile these disclosures with subsequent filings.
- Whether acquisition-related revenue growth and margins can be sustained while the company continues to invest, reduce expenses, and consider further acquisitions.