Asure Software, Inc. — 2015 Form 10-K Summary
Reporting period: Year ended December 31, 2015; filed March 30, 2016. This is an annual report, not a standalone fourth-quarter report. Financial statements are audited and prepared under U.S. GAAP.
Business context
Asure provides cloud-based workforce and workplace management software, including time and labor management, space scheduling and utilization, asset management, related hardware, maintenance and professional services. Its AsureForce and AsureSpace products serve approximately 6,000 clients in 80 countries. The company reported one operating segment.
Financial performance
| Metric | 2015 | 2014 |
|---|---|---|
| Revenue | $26.906 million | $27.206 million |
| Gross profit | $19.566 million | $20.892 million |
| Gross margin | 72.7% | 76.8% |
| Operating income (loss) | $(0.317) million | $1.584 million |
| Net income (loss) | $(1.757) million | $(0.262) million |
| Diluted loss per share | $(0.28) | $(0.04) |
| Cash from operating activities | $3.355 million | $2.706 million |
| Cash used in investing activities | $(1.388) million | $(4.200) million |
| Cash used in financing activities | $(1.143) million | $(2.147) million |
Revenue mix in 2015: cloud $13.628 million; hardware $3.300 million; maintenance and support $6.054 million; on-premise licenses $0.856 million; professional services $3.068 million. Cash and cash equivalents were $1.158 million at year-end, versus $0.320 million a year earlier. Working capital was negative $8.592 million, compared with negative $7.314 million.
Year-end notes payable totaled $13.687 million, including $1.031 million current and $12.656 million long-term. The Wells Fargo term loan was due March 2019; $3.0 million was available under its revolver at December 31, 2015. Total assets were $34.211 million and stockholders’ equity was $3.718 million.
Changes versus 2014
- Revenue declined $0.300 million, or 1%. Cloud revenue was nearly flat: growth in AsureSpace was offset by lower AsureForce cloud revenue, including reduced iEmployee sales as resources shifted to newer subscription products.
- Hardware revenue rose 26%, while maintenance and support fell 7%, on-premise license revenue fell 14%, and professional services fell 9%.
- Gross margin declined 4.1 percentage points, which management attributed to revenue mix; cost of sales rose 16% despite slightly lower revenue.
- SG&A increased to $14.964 million from $13.999 million, while R&D declined to $3.053 million from $3.310 million. The company moved from operating income to an operating loss and reported a larger net loss.
- 2014 results included a $1.034 million gain on settlement of the PeopleCube note and litigation, as well as a $1.402 million debt-refinancing loss. 2015 included a $0.110 million lease-termination loss and a $1.109 million interest expense and other charge.
Outlook, risks and notable events
- Management said it expected sufficient liquidity for at least the next 12 months and projected positive operating cash flow, but cautioned that it could not assure successful revenue growth, acquisition integration, profitability or positive cash flow in 2016. No specific revenue or earnings guidance was provided.
- At December 31, 2015, the company had failed the leverage-ratio and fixed-charge-coverage tests, but received a lender waiver and stated it was compliant as a result. Management expected to maintain or restore compliance through operations and debt repayment. The debt is secured by substantially all company and subsidiary assets.
- In March 2016, after year-end, Asure acquired Mangrove’s payroll division for $11.348 million cash plus a $6.0 million secured subordinated note, and acquired benefits-administration assets for approximately $1.036 million. These transactions were funded in part with Wells Fargo borrowings and are not included in 2015 results.
- In conjunction with those acquisitions, the Wells Fargo facility increased to $29.188 million: a $26.188 million term facility and $3.0 million revolver. The amended leverage limit began at 5.00:1 for March 2016 and steps down to 2.25:1 by December 2018; LIBOR margins range from 4.50% to 5.50% depending on leverage.
- Other disclosed risks include competition from larger providers and low-cost payroll offerings, technology and product-acceptance risks, acquisition integration and financing needs, and possible limits on using tax-loss carryforwards. Federal NOLs were approximately $117.8 million, but ownership-change rules may restrict utilization. No pending legal proceedings were reported at year-end.
- Management reported effective disclosure controls and internal control over financial reporting as of year-end. The auditor did not provide an attestation opinion on internal controls.
Important facts for investors to verify
- Whether Asure met amended debt covenants after year-end and how the March 2016 borrowing affected leverage, interest expense and liquidity.
- Actual cash generation and working-capital needs, particularly given the $10.803 million current deferred-revenue balance and the reported working-capital deficit.
- Whether Mangrove’s payroll and benefits businesses were integrated successfully and contributed the expected revenue and cash flow.
- Trends in recurring cloud revenue, especially the decline in AsureForce cloud revenue and the company’s ability to offset shrinking maintenance and on-premise revenues.
- Whether the declining gross margin and increased SG&A can be addressed sufficiently to restore operating profitability.
- The filing’s MD&A contains an apparent typo describing 2015 SG&A as “$15.0 million in 2015 and $14.0 million in 2015”; the audited statements show $14.964 million for 2015 and $13.999 million for 2014.