ASURE SOFTWARE, INC. — Q3 2011 Form 10-Q
Reporting period: Three and nine months ended September 30, 2011. Amounts are in thousands of dollars, except per-share data. Asure sells scheduling, HR, and time-and-attendance software and services, including SaaS products.
Financial results
| Metric | Q3 2011 | Q3 2010 | Nine months 2011 | Nine months 2010 |
|---|---|---|---|---|
| Revenue | $2,502 | $2,542 | $7,293 | $7,627 |
| Gross margin | $2,016 (80.6%) | $1,941 (76.4%) | $5,930 (81.3%) | $5,886 (77.2%) |
| Operating income (loss) | $(26) | $(110) | $(9) | $(1,256) |
| Net income (loss) | $29 | $0 | $(4) | $(1,203) |
| Net income (loss) per diluted share | $0.01 | $0.00 | $(0.00) | $(0.39) |
For the nine months, the company reported $1,819 of cash provided by operating activities, $60 used in investing, and $3,314 provided by financing. Cash increased $5,012 to $6,082. Cash and current assets were $6,082 and $7,414, respectively, at September 30; working capital was reported as $3,235. Total liabilities were $7,183, including a $500 line-of-credit balance, $1,450 subordinated notes, and $1,400 subordinated convertible notes. Stockholders’ equity was $2,710.
Material changes versus prior periods
- Revenue fell 2% in Q3 and 4% for the nine-month period. Nine-month MRM perpetual-license revenue declined $466, partly offset by $312 growth in MRM SaaS revenue; iEmployee SaaS revenue declined $206, which the company attributed primarily to Ceridian customer conversions.
- Gross margin percentage improved in both periods, primarily reflecting lower sales of lower-margin hardware and reduced third-party costs.
- Nine-month operating loss improved substantially versus 2010, when results included a $1,203 loss on a lease amendment. Excluding that unusual prior-year charge, the comparison is less favorable; the filing does not present an adjusted comparison.
Outlook, financing, acquisition, and risks
- Management expected positive operating cash flow for the remainder of 2011 and said it believed liquidity was sufficient for the next 12 months and beyond. It also cautioned that cash needs could exceed expectations and that additional capital might be needed, with no assurance it could be raised.
- On October 1, 2011, after quarter-end, Asure acquired substantially all assets and assumed certain liabilities of ADI Time for $6,000 cash plus a $1,095 promissory note. The note bears 0.16% interest and matures in 2014. The company said it would record the acquisition in Q4; funding included cash on hand and proceeds from the credit facility and subordinated notes.
- Financing included a $500 bank line secured by company and subsidiary assets, with financial covenants beginning in Q4 2011. The company also issued 15% subordinated notes due 2014 and 9% subordinated convertible notes due 2014; conversion may begin after 12 months at $5 per share, subject to adjustments. Company officers and parties related to the chairman participated in these offerings.
- Management cited expense reductions and strategic acquisitions as priorities. It warned that macroeconomic conditions and uncertainty could hinder revenue growth or profitability. Pending legal proceedings were described as not material. Disclosure controls were assessed as effective, with no material control changes reported.
Key facts for investors to verify
- Reconcile the cash-flow disclosures: the cash-flow statement reports $1,819 of operating cash provided, while the liquidity discussion attributes $1,662 to cash generated from operations.
- Confirm the final ADI acquisition accounting, purchase-price allocation, assumed liabilities, and post-acquisition performance in subsequent filings.
- Track debt balances, interest costs, covenant compliance, and the impact of related-party financing and possible convertible-note dilution.
- Assess whether SaaS growth can offset declines in perpetual-license and iEmployee revenue, and whether management’s positive cash-flow outlook is achieved.