Asure Software, Inc. — 2011 Form 10-K Summary
Reporting period: Calendar year ended December 31, 2011; comparisons are with calendar 2010. Amounts are in thousands of dollars except per-share data. This is an annual filing, not a standalone fourth-quarter report.
Business context
Asure provides cloud-based workplace and workforce management software, including facility scheduling, time and attendance, HR and payroll-related products, hardware, support and professional services. In October and December 2011, it acquired ADI Time and Legiant, expanding its time-and-attendance offerings and customer base. Management reported approximately 1,550 workforce-management customers and 1,000 workplace-management customers following the acquisitions.
Financial performance and liquidity
| Metric | 2011 | 2010 |
|---|---|---|
| Revenue | $10,941 | $10,033 |
| Gross profit | $8,652; 79.1% margin | $7,774; 77.5% margin |
| Operating expenses | $8,561 | $8,939 |
| Operating income (loss) | $91 | $(1,165) |
| Net loss | $(649); $(0.21) per share | $(1,137); $(0.37) per share |
| Cash from (used in) operating activities | $3,353 | $(939) |
| Cash used in investing activities | $(10,496) | $(141) |
| Cash from (used in) financing activities | $7,231 | $(158) |
Year-end cash was $1,067, compared with $1,070 a year earlier. Working capital was a deficit of $4,315, versus a deficit of $320. Current liabilities included $500 drawn on a credit line, $349 current notes payable and $4,792 deferred revenue. Long-term liabilities included $4,323 subordinated notes, $1,247 subordinated convertible notes and an $835 derivative liability. Reported debt carrying value, including the credit line and notes, was $6,419; scheduled principal payments totaled $7,276, with $6,323 scheduled for 2014.
Operating cash flow improved, but reflected a $1,503 increase in deferred revenue, noncash depreciation and amortization, and other working-capital movements. Acquisitions accounted for $10,401 of investing cash outflow, net of acquired cash. Management expected 2012 capital expenditures of $400–$700 for cloud infrastructure upgrades.
Material changes versus 2010
- Revenue grew 9%, or $908. Management attributed $1,400 of revenue to the late-2011 acquisitions, partly offset by a $400 reduction in the legacy business.
- Core software subscriptions and maintenance increased, while perpetual software license and hardware revenue declined as management prioritized recurring cloud subscriptions. NetSimplicity subscription revenue rose 55%; iEmployee subscription revenue fell 5%, partly reflecting the absence of Ceridian-related settlement revenue recognized in 2010.
- Gross margin increased by 1.6 percentage points. Operating expenses fell overall, principally because 2010 included a $1,203 lease-amendment loss; 2011 SG&A and R&D rose with acquisitions and growth-related staffing.
- Net loss narrowed by $488. However, 2011 included $561 of noncash derivative mark-to-market expense and $44 of original-issue-discount amortization, while 2010 included a $130 investment-sale gain.
Outlook, risks and unusual items
- Management planned to continue emphasizing SaaS subscriptions, retaining maintenance customers, developing products and pursuing strategic acquisitions. It expected positive operating cash flow in 2012 and said it believed available and expected liquidity would fund at least the next 12 months, while acknowledging that additional capital might be needed and could be unavailable.
- The company did not provide specific revenue or earnings guidance. Management stated there was no assurance it could grow revenue, reach profitability or sustain positive cash flow in 2012.
- Asure failed Nasdaq’s $2,500 minimum stockholders’ equity requirement at December 31, 2011, reporting equity of $2,064. The filing attributed the shortfall primarily to the convertible-note derivative liability. After year-end, note amendments removed the embedded derivative features; management estimated equity would exceed the requirement by March 31, 2012. This was an estimate, not a reported result.
- On March 10, 2012, convertible notes were amended to permit conversion at $5 per share by March 15 and to change certain holder payments and registration obligations. Holders representing $1,150 of $1,500 principal had elected or indicated intent to convert. The filing estimated a net $518 increase in one-time expenses and a $1,585 increase in equity for the first quarter of 2012, subject to actual conversions and share price. Failure to register converted shares on schedule could trigger cash penalties capped at 30% of converted principal.
- Acquisitions were financed with cash, bank borrowing and seller notes. The credit line was fully drawn at $500 and matured September 28, 2012; the company reported compliance with its bank covenants at year-end. The 15% subordinated notes carry a high stated interest rate and mature in 2014.
- Key risks described include competition from larger vendors, product acceptance and development, integrating acquisitions, retaining key employees, cash needs and potential limits on using tax attributes. Federal NOL carryforwards were approximately $119.3 million, but ownership-change limits may restrict their use. The filing states that pending legal proceedings were not material.
- The 2010 lease restructuring generated a one-time charge and substantially reduced rent. A 3-for-2 stock split was declared after year-end, payable April 30, 2012; reported share and per-share figures do not reflect it.
Investor verification priorities
- Confirm post-amendment Nasdaq stockholders’ equity compliance and the actual accounting effects of the convertible-note amendments and conversions.
- Review acquisition performance, integration, and the contribution of ADI Time and Legiant to recurring revenue, margins and cash generation.
- Assess whether operating cash flow is sustainable apart from deferred-revenue growth and other working-capital effects.
- Verify debt balances, interest costs, maturities, bank-line renewal and covenant compliance, including the 2012 maturity schedule.
- Track SaaS subscription and maintenance retention against declines in perpetual-license and hardware sales.
- Review the original audited statements and notes for purchase-price allocation, derivative valuation, tax-asset limitations and subsequent-event estimates; the independent auditor gave an unqualified opinion on the financial statements.