Asure Software, Inc. (NASDAQ:ASUR) Q3 2020 Earnings Conference Call November 9, 2020 4:30 PM ET Company Participants Cheryl Trbula - VP of HR Pat Goepel - CEO Jay Powers - CFO John Pence - CFO-Elect Conference Call Participants Ryan Meyers - Lake Street Capital Derrick Wood - Cowen Ryan MacDonald - Needham Jeff Van Rhee - Craig-Hallum Vincent Colicchio - Barrington Research Operator Good afternoon and welcome to Asure’s Third Quarter 2020 Earnings Conference Call. Joining us for today’s call are Asure’s C ...

UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q (Mark One) ☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended September 30, 2020 OR ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to Commission file number: 1-34522 ASURE SOFTWARE, INC. (Exact Name of Registrant as Specified in its Charter) Delaware 74-2415696 (State or other jurisdi ...

Asure Software, Inc. (ASUR) Q2 2020 Earnings Conference Call August 10, 2020 4:30 PM ET Company Participants Cheryl Trbula - Vice President-Human Resources Pat Goepel - Chief Executive Officer Kelyn Brannon - Chief Financial Officer Jay Powers - New Chief Financial Officer Conference Call Participants Ryan MacDonald - Needham & Company Derrick Wood - Cowen and Company Richard Baldry - ROTH Capital Partners Vincent Colicchio - Barrington Research Jeff Van Rhee - Craig-Hallum Capital Eric Martinuzzi - Lake St ...

PART I - FINANCIAL INFORMATION [Item 1. Financial Statements (Unaudited)](index=4&type=section&id=Item%201.%20Financial%20Statements%20(Unaudited)) This section presents the unaudited condensed consolidated financial statements of Asure Software, Inc., including balance sheets, statements of comprehensive loss, changes in stockholders' equity, and cash flows, along with detailed notes explaining significant accounting policies, investments, intangible assets, debt, equity, revenue, leases, share-based compensation, discontinued operations, net loss per share, and subsequent events [Condensed Consolidated Balance Sheets](index=4&type=section&id=Condensed%20Consolidated%20Balance%20Sheets) Condensed Consolidated Balance Sheets (in thousands) | Metric | June 30, 2020 (in thousands) | December 31, 2019 (in thousands) | | :-------------------------- | :--------------------------- | :------------------------------- | | Total Current Assets | $154,011 | $184,443 | | Total Assets | $302,598 | $335,044 | | Total Current Liabilities | $143,498 | $166,589 | | Total Liabilities | $168,512 | $197,465 | | Total Stockholders' Equity | $134,086 | $137,579 | - Total assets decreased from **$335,044 thousand** at December 31, 2019, to **$302,598 thousand** at June 30, 2020[5](index=5&type=chunk) - Total liabilities decreased from **$197,465 thousand** at December 31, 2019, to **$168,512 thousand** at June 30, 2020[5](index=5&type=chunk) [Condensed Consolidated Statements of Comprehensive Loss](index=5&type=section&id=Condensed%20Consolidated%20Statements%20of%20Comprehensive%20Loss) Condensed Consolidated Statements of Comprehensive Loss (in thousands) | Metric (in thousands) | Three Months Ended June 30, 2020 | Three Months Ended June 30, 2019 | Six Months Ended June 30, 2020 | Six Months Ended June 30, 2019 | | :-------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Total Revenue | $14,115 | $17,274 | $33,061 | $37,684 | | Gross Profit | $8,107 | $10,215 | $19,213 | $24,371 | | Loss from Operations | $(3,581) | $(2,833) | $(6,026) | $(3,310) | | Net Loss | $(3,944) | $(4,967) | $(5,711) | $(7,861) | | Basic and Diluted Loss Per Share | $(0.25) | $(0.32) | $(0.36) | $(0.51) | - Total revenue decreased by **18.3%** for the three months ended June 30, 2020, and by **12.3%** for the six months ended June 30, 2020, compared to the prior year periods[7](index=7&type=chunk) - Net loss improved for both the three-month and six-month periods ended June 30, 2020, compared to the same periods in 2019[7](index=7&type=chunk) [Condensed Consolidated Statements of Changes in Stockholders' Equity](index=6&type=section&id=Condensed%20Consolidated%20Statements%20of%20Changes%20in%20Stockholders'%20Equity) Condensed Consolidated Statements of Changes in Stockholders' Equity (in thousands) | Equity Component (in thousands) | Balance at Dec 31, 2019 | Stock Issued (3M) | ESPP (3M) | Share-based Comp (3M) | Net Loss (3M) | Other Comp Income (3M) | Balance at Jun 30, 2020 | | :------------------------------ | :---------------------- | :---------------- | :-------- | :---------------------- | :------------ | :--------------------- | :---------------------- | | Common Stock Amount | $161 | $1 | $- | $- | $- | $- | $162 | | Additional Paid-in Capital | $396,102 | $301 | $157 | $588 | $- | $- | $397,692 | | Accumulated Deficit | $(253,642) | $- | $- | $- | $(3,944) | $- | $(259,353) | | Other Comprehensive Income | $(25) | $- | $- | $- | $- | $562 | $602 | | Total Stockholders' Equity | $137,579 | $302 | $157 | $588 | $(3,944) | $562 | $134,086 | - Total stockholders' equity decreased from **$137,579 thousand** at December 31, 2019, to **$134,086 thousand** at June 30, 2020[9](index=9&type=chunk) - The company recorded a net loss of **$3,944 thousand** for the three months ended June 30, 2020, contributing to the accumulated deficit[9](index=9&type=chunk) [Condensed Consolidated Statements of Cash Flows](index=7&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) Condensed Consolidated Statements of Cash Flows (in thousands) | Cash Flow Activity (in thousands) | Six Months Ended June 30, 2020 | Six Months Ended June 30, 2019 | | :-------------------------------- | :----------------------------- | :----------------------------- | | Net Cash (Used in) Operating | $(4,131) | $2,842 | | Net Cash Provided by Investing | $29,891 | $21,396 | | Net Cash Used in Financing | $(25,327) | $(25,042) | | Net Increase (Decrease) in Cash | $433 | $(788) | | Cash and Cash Equivalents at End | $29,259 | $14,656 | - Operating activities used **$4,131 thousand** in cash for the six months ended June 30, 2020, a significant change from **$2,842 thousand** provided in the prior year[10](index=10&type=chunk) - Investing activities provided **$29,891 thousand**, primarily due to changes in funds held for clients[10](index=10&type=chunk) - Cash and cash equivalents increased by **$433 thousand**, reaching **$29,259 thousand** at June 30, 2020[10](index=10&type=chunk) [Notes to Condensed Consolidated Financial Statements](index=8&type=section&id=Notes%20to%20Condensed%20Consolidated%20Financial%20Statements) [NOTE 1 – THE COMPANY AND BASIS OF PRESENTATION](index=8&type=section&id=NOTE%201%20%E2%80%93%20THE%20COMPANY%20AND%20BASIS%20OF%20PRESENTATION) - Asure Software, Inc. is a leading provider of Human Capital Management (HCM) solutions, including cloud-based Payroll & Tax, HR, and Time & Attendance software, and HR Services[11](index=11&type=chunk) - In December 2019, the company completed the sale of its Workspace Management business for approximately **$121,500 thousand** in cash, using proceeds to pay down debt[12](index=12&type=chunk) [NOTE 2 – SIGNIFICANT ACCOUNTING POLICIES](index=8&type=section&id=NOTE%202%20%E2%80%93%20SIGNIFICANT%20ACCOUNTING%20POLICIES) - The COVID-19 pandemic has negatively impacted the company's business, financial condition, results of operations, and growth prospects, particularly affecting small and medium-sized business customers[17](index=17&type=chunk) - The company adopted ASU No. 2018-13 (Fair Value Measurement) and ASU No. 2018-15 (Intangibles-Goodwill and Other-Internal-Use Software) on January 1, 2020, with no material impact on financial statements[19](index=19&type=chunk)[20](index=20&type=chunk) - ASU No. 2016-13 (Financial Instruments – Credit Losses) is effective for the company beginning **January 1, 2023**, and ASU No. 2019-12 (Simplifying the Accounting for Income Taxes) is effective for fiscal years beginning after **December 15, 2020**[21](index=21&type=chunk)[22](index=22&type=chunk) [NOTE 3 – INVESTMENTS AND FAIR VALUE MEASUREMENTS](index=10&type=section&id=NOTE%203%20%E2%80%93%20INVESTMENTS%20AND%20FAIR%20VALUE%20MEASUREMENTS) Investments and Fair Value Measurements (in thousands) | Investment Type (in thousands) | June 30, 2020 | December 31, 2019 | | :----------------------------- | :------------ | :---------------- | | Available-for-sale securities | $27,591 | $24,136 | | Money market funds | $47,694 | $48,500 | | Cash equivalents (money market)| $16,505 | Not material | - As of June 30, 2020, available-for-sale securities held for clients had aggregate estimated fair value of **$27,591 thousand**, with gross unrealized gains of **$602 thousand** and zero unrealized losses[27](index=27&type=chunk)[29](index=29&type=chunk) Expected Maturities of Available-for-Sale Securities (in thousands) | Expected Maturities (in thousands) | Amount | | :--------------------------------- | :----- | | One year or less | $4,823 | | After one year through five years | $22,768 | | Total | $27,591 | [NOTE 4 – GOODWILL AND OTHER INTANGIBLE ASSETS](index=12&type=section&id=NOTE%204%20%E2%80%93%20GOODWILL%20AND%20OTHER%20INTANGIBLE%20ASSETS) - Goodwill remained at **$68,697 thousand** as of June 30, 2020, with no impairment recognized during the six months ended June 30, 2020[34](index=34&type=chunk) Intangible Assets, Net (in thousands) | Intangible Asset (in thousands) | June 30, 2020 Net | December 31, 2019 Net | | :------------------------------ | :---------------- | :-------------------- | | Customer relationships | $56,458 | $58,801 | | Developed technology | $3,168 | $3,997 | | Trade names | $585 | $702 | | Total Intangible Assets, Net | $60,477 | $63,850 | Estimated Amortization Expense (in thousands) | Calendar Year | Estimated Amortization Expense (in thousands) | | :------------ | :-------------------------------------------- | | 2020 (rem.) | $5,374 | | 2021 | $10,548 | | 2022 | $10,015 | | 2023 | $8,889 | | 2024 | $8,662 | | Thereafter | $16,989 | | Total | $60,477 | [NOTE 5 – NOTES PAYABLE](index=14&type=section&id=NOTE%205%20%E2%80%93%20NOTES%20PAYABLE) Notes Payable (in thousands) | Debt Type (in thousands) | June 30, 2020 | December 31, 2019 | | :-------------------------------- | :------------ | :---------------- | | Subordinated Notes Payable | $5,276 | $7,185 | | Term Loan – Pinnacle (PPP Loan) | $8,856 | $- | | Term Loan – Wells Fargo Syndicate | $19,750 | $20,000 | | Total Notes Payable | $33,882 | $27,185 | - The company obtained an **$8,856 thousand** PPP Loan in April 2020, with a **1%** interest rate, potentially forgivable if used for qualifying expenses[47](index=47&type=chunk)[48](index=48&type=chunk)[49](index=49&type=chunk) - As of June 30, 2020, the company was not in compliance with its minimum EBITDA financial covenant due to COVID-19 impacts[51](index=51&type=chunk) [NOTE 6 – STOCKHOLDERS' EQUITY](index=16&type=section&id=NOTE%206%20%E2%80%93%20STOCKHOLDERS'%20EQUITY) - On May 28, 2020, authorized common stock shares increased from **22,000,000** to **44,000,000**[52](index=52&type=chunk) - A new stock repurchase program was authorized on March 10, 2020, allowing repurchases of up to **$5,000 thousand** of common stock, though no repurchases occurred in 2020 or 2019[53](index=53&type=chunk)[55](index=55&type=chunk) - The Employee Stock Purchase Plan (ESPP) shares reserved for issuance were increased by an additional **250,000 shares** on May 27, 2020[56](index=56&type=chunk) [NOTE 7 – CONTRACTS WITH CUSTOMERS AND REVENUE CONCENTRATION](index=17&type=section&id=NOTE%207%20%E2%80%93%20CONTRACTS%20WITH%20CUSTOMERS%20AND%20REVENUE%20CONCENTRATION) Customer Contracts and Revenue Concentration Metrics (in thousands) | Metric (in thousands) | June 30, 2020 | December 31, 2019 | | :-------------------------- | :------------ | :---------------- | | Accounts Receivable, net | $5,541 | $4,808 | | Deferred Commission Costs | $3,148 | $2,697 | | Deferred Revenue (current) | $3,766 | $5,500 | - As of June 30, 2020, one customer accounted for **13%** of net accounts receivable, but no single customer represented **10%** or more of consolidated revenue for the periods presented[58](index=58&type=chunk)[62](index=62&type=chunk) - Approximately **$27,272 thousand** of revenue is expected to be recognized from remaining performance obligations, with **65%** recognized over the next 12 months[61](index=61&type=chunk) [NOTE 8 – LEASES](index=17&type=section&id=NOTE%208%20%E2%80%93%20LEASES) Net Rent Expense (in thousands) | Lease Metric (in thousands) | Three Months Ended June 30, 2020 | Three Months Ended June 30, 2019 | Six Months Ended June 30, 2020 | Six Months Ended June 30, 2019 | | :-------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Net Rent Expense | $473 | $526 | $977 | $1,068 | - The weighted average discount rate for operating leases was **10%** at June 30, 2020, and the weighted average remaining lease term was **five years**[66](index=66&type=chunk) Future Minimum Lease Payments (in thousands) | Future Minimum Lease Payments (in thousands) | Amount | | :------------------------------------------- | :----- | | 2020 (remainder) | $1,129 | | 2021 | $2,354 | | 2022 | $1,837 | | 2023 | $1,142 | | 2024 | $1,022 | | Thereafter | $2,630 | | Total Lease Liabilities | $8,012 | [NOTE 9 – SHARE-BASED COMPENSATION](index=18&type=section&id=NOTE%209%20%E2%80%93%20SHARE-BASED%20COMPENSATION) - The company has one active equity plan, the 2018 Incentive Award Plan, with **1,096,104 shares** available for grant as of June 30, 2020[69](index=69&type=chunk)[73](index=73&type=chunk) - As of June 30, 2020, there were **1,366,692** outstanding options (weighted average exercise price **$7.77**) and **585,050** outstanding restricted stock units[70](index=70&type=chunk) Share-based Compensation Expense (in thousands) | Share-based Compensation (in thousands) | Three Months Ended June 30, 2020 | Three Months Ended June 30, 2019 | Six Months Ended June 30, 2020 | Six Months Ended June 30, 2019 | | :-------------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Expense | $588 | $392 | $1,026 | $1,003 | [NOTE 10 – DISCONTINUED OPERATIONS](index=19&type=section&id=NOTE%2010%20%E2%80%93%20DISCONTINUED%20OPERATIONS) - In December 2019, the Workspace Management business was sold for approximately **$121,500 thousand** in cash, allowing the company to focus on HCM solutions[75](index=75&type=chunk) Discontinued Operations Financials (in thousands) | Discontinued Operations (in thousands) | Three Months Ended June 30, 2019 | Six Months Ended June 30, 2019 | | :------------------------------------- | :------------------------------- | :----------------------------- | | Revenue | $7,567 | $13,917 | | Income from discontinued operations | $1,303 | $1,904 | | Income from discontinued operations, net of taxes | $1,331 | $1,874 | [NOTE 11 – NET LOSS PER SHARE](index=19&type=section&id=NOTE%2011%20%E2%80%93%20NET%20LOSS%20PER%20SHARE) Loss Per Share Data (in thousands, except per share data) | Loss Per Share (in thousands, except per share data) | Three Months Ended June 30, 2020 | Three Months Ended June 30, 2019 | Six Months Ended June 30, 2020 | Six Months Ended June 30, 2019 | | :--------------------------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Loss from continuing operations | $(3,944) | $(6,298) | $(5,711) | $(9,735) | | Net loss | $(3,944) | $(4,967) | $(5,711) | $(7,861) | | Basic and diluted loss per share | $(0.25) | $(0.32) | $(0.36) | $(0.51) | - Approximately **1,951,000** and **1,502,000** stock options and restricted stock units were excluded from diluted EPS computation for the three and six months ended June 30, 2020 and 2019, respectively, as their inclusion would have been anti-dilutive[79](index=79&type=chunk) [NOTE 12 – SUBSEQUENT EVENTS](index=20&type=section&id=NOTE%2012%20%E2%80%93%20SUBSEQUENT%20EVENTS) - On July 7, 2020, the senior lender identified events of default under the Third Restated Credit Agreement, primarily due to the company's failure to achieve Minimum EBITDA for **Q1 2020**, impacted by COVID-19[83](index=83&type=chunk) - On August 10, 2020, the company entered into a Fourth Amendment to the credit agreement, reducing the facility from **$30,000 thousand** to **$15,000 thousand** and requiring a **$9,750 thousand** principal payment[84](index=84&type=chunk)[86](index=86&type=chunk)[144](index=144&type=chunk) - The Fourth Amendment reset financial covenants, including a minimum EBITDA covenant and a new minimum recurring revenue covenant, and waived default interest[88](index=88&type=chunk)[89](index=89&type=chunk)[91](index=91&type=chunk) [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=22&type=section&id=Item%202.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) This section provides management's perspective on the company's financial condition and results of operations, including an overview of its business, recent developments, detailed analysis of revenues, expenses, and profitability, and a discussion of liquidity and capital resources It highlights the impact of the COVID-19 pandemic and the subsequent amendments to credit agreements [CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS](index=22&type=section&id=CAUTIONARY%20STATEMENT%20REGARDING%20FORWARD-LOOKING%20STATEMENTS) - The report contains forward-looking statements subject to known and unknown risks, uncertainties, and other factors that could cause actual results to differ materially[94](index=94&type=chunk) - Key risks include the impact of COVID-19 on the economy, employment, customer demand, and the company's ability to achieve profitability and retain customers[94](index=94&type=chunk) [OVERVIEW](index=22&type=section&id=OVERVIEW) - Asure is a leading provider of cloud-based Human Capital Management (HCM) software and services, focusing on Payroll & Tax, HR, and Time & Attendance[96](index=96&type=chunk)[97](index=97&type=chunk) - The company's strategy is to help small and mid-sized businesses (SMBs) grow by addressing HR complexity, capital allocation, and team building[96](index=96&type=chunk)[97](index=97&type=chunk) - Sales and marketing efforts utilize both direct channels (SMBs, advisors) and indirect channels (resellers) across North America[100](index=100&type=chunk) [Recent Developments](index=23&type=section&id=Recent%20Developments) - The COVID-19 pandemic is expected to negatively and materially impact revenues for the remainder of 2020, particularly in **Q2** and **Q3**[101](index=101&type=chunk) - The company implemented cost-saving initiatives and secured an **$8,856 thousand** Paycheck Protection Program (PPP) loan in April 2020[101](index=101&type=chunk) [RESULTS OF OPERATIONS](index=23&type=section&id=RESULTS%20OF%20OPERATIONS) [Revenue](index=24&type=section&id=Revenue) Revenue by Type (Three Months, in thousands) | Revenue Type (in thousands) | Three Months Ended June 30, 2020 | Three Months Ended June 30, 2019 | Change (%) | | :-------------------------- | :------------------------------- | :------------------------------- | :--------- | | Recurring | $13,733 | $16,624 | (17.4)% | | Professional services, etc. | $382 | $650 | (41.2)% | | Total Revenue | $14,115 | $17,274 | (18.3)% | Revenue by Type (Six Months, in thousands) | Revenue Type (in thousands) | Six Months Ended June 30, 2020 | Six Months Ended June 30, 2019 | Change (%) | | :-------------------------- | :----------------------------- | :----------------------------- | :--------- | | Recurring | $32,168 | $36,415 | (11.7)% | | Professional services, etc. | $893 | $1,269 | (29.6)% | | Total Revenue | $33,061 | $37,684 | (12.3)% | - The decrease in recurring revenue was primarily due to the impact of COVID-19, the loss of a major client, and lower interest rates[105](index=105&type=chunk)[106](index=106&type=chunk) [Gross Profit and Gross Margin](index=24&type=section&id=Gross%20Profit%20and%20Gross%20Margin) Gross Profit and Margin (Three Months, in thousands) | Metric (in thousands) | Three Months Ended June 30, 2020 | Three Months Ended June 30, 2019 | Change (%) | | :-------------------- | :------------------------------- | :------------------------------- | :--------- | | Gross Profit | $8,107 | $10,215 | (20.6)% | | Gross Margin | 57.4% | 59.1% | (1.7) pp | Gross Profit and Margin (Six Months, in thousands) | Metric (in thousands) | Six Months Ended June 30, 2020 | Six Months Ended June 30, 2019 | Change (%) | | :-------------------- | :----------------------------- | :----------------------------- | :--------- | | Gross Profit | $19,213 | $24,371 | (21.2)% | | Gross Margin | 58.1% | 64.7% | (6.6) pp | - The decline in gross margin is primarily attributed to lower sales volumes, increased investment in HCM service resources, migration to cloud hosting, and higher amortization of capitalized software costs[109](index=109&type=chunk)[110](index=110&type=chunk) [Sales and Marketing Expenses](index=24&type=section&id=Sales%20and%20Marketing%20Expenses) Sales and Marketing Expenses (Three Months, in thousands) | Metric (in thousands) | Three Months Ended June 30, 2020 | Three Months Ended June 30, 2019 | Change (%) | | :-------------------- | :------------------------------- | :------------------------------- | :--------- | | S&M Expenses | $2,769 | $3,058 | (9.4)% | | S&M as % of Revenue | 19.6% | 17.7% | 1.9 pp | Sales and Marketing Expenses (Six Months, in thousands) | Metric (in thousands) | Six Months Ended June 30, 2020 | Six Months Ended June 30, 2019 | Change (%) | | :-------------------- | :----------------------------- | :----------------------------- | :--------- | | S&M Expenses | $6,344 | $5,763 | 10.1% | | S&M as % of Revenue | 19.2% | 15.3% | 3.9 pp | - The three-month decrease was due to reduced travel expenses from COVID-19, while the six-month increase was driven by higher personnel costs for direct sales[112](index=112&type=chunk)[113](index=113&type=chunk) [General and Administrative Expenses](index=25&type=section&id=General%20and%20Administrative%20Expenses) General and Administrative Expenses (Three Months, in thousands) | Metric (in thousands) | Three Months Ended June 30, 2020 | Three Months Ended June 30, 2019 | Change (%) | | :-------------------- | :------------------------------- | :------------------------------- | :--------- | | G&A Expenses | $5,193 | $6,618 | (21.6)% | | G&A as % of Revenue | 36.8% | 38.3% | (1.5) pp | General and Administrative Expenses (Six Months, in thousands) | Metric (in thousands) | Six Months Ended June 30, 2020 | Six Months Ended June 30, 2019 | Change (%) | | :-------------------- | :----------------------------- | :----------------------------- | :--------- | | G&A Expenses | $11,646 | $14,807 | (21.4)% | | G&A as % of Revenue | 35.2% | 39.3% | (4.1) pp | - The decrease in G&A expenses was primarily due to reduced personnel costs, lower rent expenses from facility closures post-acquisition, and a reduction in professional fees[116](index=116&type=chunk)[117](index=117&type=chunk) [Research and Development Expenses](index=25&type=section&id=Research%20and%20Development%20Expenses) Research and Development Expenses (Three Months, in thousands) | Metric (in thousands) | Three Months Ended June 30, 2020 | Three Months Ended June 30, 2019 | Change (%) | | :-------------------- | :------------------------------- | :------------------------------- | :--------- | | R&D Expenses | $1,377 | $969 | 42.1% | | R&D as % of Revenue | 9.8% | 5.6% | 4.2 pp | Research and Development Expenses (Six Months, in thousands) | Metric (in thousands) | Six Months Ended June 30, 2020 | Six Months Ended June 30, 2019 | Change (%) | | :-------------------- | :----------------------------- | :----------------------------- | :--------- | | R&D Expenses | $2,551 | $2,290 | 11.4% | | R&D as % of Revenue | 7.7% | 6.1% | 1.6 pp | - The increase in R&D expenses was primarily due to increased personnel costs and COVID-19 related initiatives to comply with the CARES Act legislation[120](index=120&type=chunk)[121](index=121&type=chunk) - New product launches in **Q2 2020** included Simple Payroll Entry cloud solution, Essential HR product tier, and the Asure Mobile app for Mid-Market HCM[125](index=125&type=chunk) [Amortization of Intangible Assets](index=26&type=section&id=Amortization%20of%20Intangible%20Assets) Amortization Expense (in thousands) | Metric (in thousands) | Three Months Ended June 30, 2020 | Three Months Ended June 30, 2019 | Six Months Ended June 30, 2020 | Six Months Ended June 30, 2019 | | :-------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Amortization Expense | $2,349 | $2,403 | $4,698 | $4,821 | | As % of Revenue | 16.6% | 13.9% | 14.2% | 12.8% | - Amortization expense remained consistent year-over-year for both the three and six-month periods[126](index=126&type=chunk)[127](index=127&type=chunk) [Interest Expense and Other, net](index=26&type=section&id=Interest%20Expense%20and%20Other%2C%20net) Interest and Other, Net (in thousands) | Metric (in thousands) | Three Months Ended June 30, 2020 | Three Months Ended June 30, 2019 | Six Months Ended June 30, 2020 | Six Months Ended June 30, 2019 | | :-------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Interest & Other, net | $14 (gain) | $(3,069) (loss) | $710 (gain) | $(5,783) (loss) | | As % of Revenue | 0.1% | (17.8)% | 2.1% | (15.3)% | - The significant improvement from a net loss to a net gain was primarily due to income from the transition services agreement with FM:Systems following the Workspace business sale in 2019, offsetting interest expense on notes payable[128](index=128&type=chunk)[129](index=129&type=chunk) [Income Taxes](index=26&type=section&id=Income%20Taxes) Income Tax Expense (in thousands) | Metric (in thousands) | Three Months Ended June 30, 2020 | Three Months Ended June 30, 2019 | Six Months Ended June 30, 2020 | Six Months Ended June 30, 2019 | | :-------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Income Tax Expense | $377 | $396 | $395 | $642 | - Income tax expense decreased by **38.4%** for the six months ended June 30, 2020, primarily due to a reduction in deferred tax liabilities[130](index=130&type=chunk) [Loss From Continuing Operations](index=27&type=section&id=Loss%20From%20Continuing%20Operations) Loss from Continuing Operations (in thousands, except per share data) | Metric (in thousands) | Three Months Ended June 30, 2020 | Three Months Ended June 30, 2019 | Six Months Ended June 30, 2020 | Six Months Ended June 30, 2019 | | :-------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Loss from Operations | $(3,944) | $(6,298) | $(5,711) | $(9,735) | | Loss per Share | $(0.25) | $(0.41) | $(0.36) | $(0.63) | - Loss from continuing operations improved significantly for both the three-month and six-month periods ended June 30, 2020, compared to the prior year[132](index=132&type=chunk)[133](index=133&type=chunk) - The company plans to continue investing modestly in revenue-generating areas but acknowledges uncertainties, including COVID-19 effects, in achieving profitability in **fiscal year 2020**[134](index=134&type=chunk) [LIQUIDITY AND CAPITAL RESOURCES](index=27&type=section&id=LIQUIDITY%20AND%20CAPITAL%20RESOURCES) Working Capital and Cash & Equivalents (in thousands) | Metric (in thousands) | June 30, 2020 | December 31, 2019 | | :-------------------- | :------------ | :---------------- | | Working Capital | $10,513 | $17,854 | | Cash & Equivalents | $29,259 | $28,826 | - Working capital decreased by **$7,341 thousand**, primarily due to a **$9,750 thousand** reclassification of outstanding principal on the credit facility from current to short term[135](index=135&type=chunk) Cash Flow Activities (in thousands) | Cash Flow Activity (in thousands) | Six Months Ended June 30, 2020 | Six Months Ended June 30, 2019 | | :-------------------------------- | :----------------------------- | :----------------------------- | | Operating Activities | $(4,131) | $2,842 | | Investing Activities | $29,891 | $21,396 | | Financing Activities | $(25,327) | $(25,042) | - Principal sources of liquidity include **$29,259 thousand** in cash and cash equivalents, cash from operations, and **$9,500 thousand** available under the Wells Fargo revolver (before subsequent amendment)[141](index=141&type=chunk) - The company was not in compliance with its minimum EBITDA financial covenant as of **March 31, 2020**, and **June 30, 2020**, due to COVID-19 impacts, leading to a subsequent waiver and amendment of the credit agreement[142](index=142&type=chunk)[143](index=143&type=chunk)[144](index=144&type=chunk) [OFF-BALANCE SHEET ARRANGEMENTS](index=29&type=section&id=OFF-BALANCE%20SHEET%20ARRANGEMENTS) - As of June 30, 2020, the company did not have any off-balance sheet arrangements[148](index=148&type=chunk) [COMMITMENTS AND CONTINGENCIES](index=29&type=section&id=COMMITMENTS%20AND%20CONTINGENCIES) - There were no material commitments and contingencies as of June 30, 2020[149](index=149&type=chunk) [CRITICAL ACCOUNTING POLICIES](index=29&type=section&id=CRITICAL%20ACCOUNTING%20POLICIES) - Information regarding recent accounting pronouncements is incorporated by reference from Note 2, Significant Accounting Policies[150](index=150&type=chunk) [Item 3. Quantitative and Qualitative Disclosures About Market Risk](index=29&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) This section states that there have been no material changes to the company's exposure to market risks since its 2019 Annual Report on Form 10-K - No material changes to market risk exposure from those disclosed in the 2019 Annual Report on Form 10-K[151](index=151&type=chunk) [Item 4. Controls and Procedures](index=29&type=section&id=Item%204.%20Controls%20and%20Procedures) This section addresses the effectiveness of the company's disclosure controls and procedures and any changes in internal controls over financial reporting [Evaluation of Disclosure Control and Procedures](index=29&type=section&id=Evaluation%20of%20Disclosure%20Control%20and%20Procedures) - Management concluded that disclosure controls and procedures were not effective as of June 30, 2020, due to a material weakness in internal control over financial reporting reported in **Q4 2019**[152](index=152&type=chunk) [Change in Internal Controls over Financial Reporting](index=29&type=section&id=Change%20in%20Internal%20Controls%20over%20Financial%20Reporting) - No material changes in internal control over financial reporting occurred during the period ended June 30, 2020, except for remediation efforts related to the noted material weakness[153](index=153&type=chunk) PART II - OTHER INFORMATION [Item 1. Legal Proceedings](index=29&type=section&id=Item%201.%20Legal%20Proceedings) This section confirms that there are no material pending legal proceedings against the company as of June 30, 2020 - As of June 30, 2020, the company was not a party to any pending legal proceedings material to its business[153](index=153&type=chunk) [Item 1A. Risk Factors](index=30&type=section&id=Item%201A.%20Risk%20Factors) This section updates the risk factors, emphasizing the material impact and uncertainty of the COVID-19 pandemic on the company's business operations, customer demand, IT spending, and overall financial performance - The COVID-19 pandemic has materially affected business operations and customer behavior, with its duration and extent of impact remaining uncertain[155](index=155&type=chunk)[157](index=157&type=chunk) - Containment measures like shutdowns and travel restrictions have disrupted operations and could adversely affect customer purchasing decisions, payment terms, and attrition rates[157](index=157&type=chunk)[158](index=158&type=chunk) [Item 2. Unregistered Sales of Equity Securities and Use of Proceeds](index=30&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) This section states that there were no unregistered sales of equity securities or use of proceeds to report during the period - No unregistered sales of equity securities or use of proceeds to report[160](index=160&type=chunk) [Item 3. Defaults upon Senior Securities](index=30&type=section&id=Item%203.%20Defaults%20upon%20Senior%20Securities) This section details the events of default under the Third Amended and Restated Credit Agreement, primarily due to the failure to meet Minimum EBITDA, and the subsequent waiver and amendment that reset financial covenants and required a principal payment - On July 7, 2020, the senior lender identified events of default, mainly the failure to achieve Minimum EBITDA of **$3,750,000** for **Q1 2020**, due to COVID-19 impacts[160](index=160&type=chunk) - On August 10, 2020, a waiver and amendment to the Credit Agreement was executed, resetting financial covenants and waiving the default in exchange for a **$9,750 thousand** principal payment and a **$225 thousand** amendment fee[160](index=160&type=chunk) [Item 5. Other Information](index=31&type=section&id=Item%205.%20Other%20Information) This section reports the resignation of Kelyn Brannon as CFO and the appointment of James (Jay) A. Powers, detailing his background, compensation, and severance arrangements for both the new and outgoing CFOs - Kelyn Brannon resigned as CFO and secretary, effective August 10, 2020, with severance including **$131,968.36** and accelerated vesting of stock options and RSUs[161](index=161&type=chunk)[165](index=165&type=chunk) - James (Jay) A. Powers was appointed as the new CFO and secretary, effective August 11, 2020, with an initial annual base salary of **$260,000**, a target cash bonus of **50%** of salary, and grants of **10,000 RSUs** and options to purchase **75,000 shares**[161](index=161&type=chunk)[162](index=162&type=chunk)[163](index=163&type=chunk) [Item 6. Exhibits](index=32&type=section&id=Item%206.%20Exhibits) This section lists all exhibits filed with the Quarterly Report on Form 10-Q, including amendments to credit agreements, promissory notes, incentive plans, and certifications - Key exhibits include Certificate of Amendment to Certificate of Incorporation, Amendment No. 2, 3, and 4 to Third Amended and Restated Credit Agreement, Promissory Note dated April 15, 2020, 2018 Incentive Award Plan, and Employee Stock Purchase Plan[167](index=167&type=chunk) [Signatures](index=33&type=section&id=Signatures) This section contains the signatures of the Chief Executive Officer and Chief Financial Officer, certifying the report

Asure Software, Inc. (NASDAQ:ASUR) Q1 2020 Earnings Conference Call May 7, 2020 4:30 PM ET Company Participants Cheryl Trbula – Vice President-Human Resources Pat Goepel – Chief Executive Officer Kelyn Brannon – Chief Financial Officer Conference Call Participants Ryan MacDonald – Needham Vincent Colicchio – Barrington Research Derrick Wood – Cowen Operator Good afternoon and welcome to Asure’s First Quarter 2020 Earnings Conference Call. Joining us today for today’s call are Asure’s CEO, Pat Goepel; CFO, K ...

[PART I - FINANCIAL INFORMATION](index=4&type=section&id=PART%20I%20-%20FINANCIAL%20INFORMATION) This section presents the unaudited financial statements, management's discussion and analysis, market risk disclosures, and controls and procedures for Asure Software, Inc [ITEM 1. FINANCIAL STATEMENTS (Unaudited)](index=4&type=section&id=Item%201.%20Financial%20Statements%20(Unaudited)) This section presents the unaudited condensed consolidated financial statements for Asure Software, Inc., including the balance sheets, statements of comprehensive loss, changes in stockholders' equity, and cash flows, along with detailed notes explaining significant accounting policies, financial instruments, debt, equity, and recent events [Condensed Consolidated Balance Sheets](index=4&type=section&id=Condensed%20Consolidated%20Balance%20Sheets) This table provides a snapshot of Asure Software, Inc.'s financial position, detailing assets, liabilities, and stockholders' equity as of March 31, 2020, and December 31, 2019 | Metric (in thousands) | March 31, 2020 (Unaudited) | December 31, 2019 | Change (vs. Dec 31, 2019) | | :--------------------------- | :------------------------- | :---------------- | :------------------------ | | Total Assets | $300,138 | $335,044 | $(34,906) | | Total Liabilities | $163,717 | $197,465 | $(33,748) | | Total Stockholders' Equity | $136,421 | $137,579 | $(1,158) | | Cash and cash equivalents | $20,780 | $28,826 | $(8,046) | | Funds held for clients | $116,433 | $137,935 | $(21,502) | | Client fund obligations | $117,476 | $145,227 | $(27,751) | [Condensed Consolidated Statements of Comprehensive Loss](index=5&type=section&id=Condensed%20Consolidated%20Statements%20of%20Comprehensive%20Loss) This table outlines Asure Software, Inc.'s financial performance, showing revenue, expenses, and net loss for the three months ended March 31, 2020, and 2019 | Metric (in thousands) | Three Months Ended March 31, 2020 | Three Months Ended March 31, 2019 | Change (YoY) | | :-------------------------------------- | :-------------------------------- | :-------------------------------- | :----------- | | Total Revenue | $18,947 | $20,410 | $(1,463) | | Cost of Sales | $7,840 | $6,254 | $1,586 | | Gross Profit | $11,107 | $14,156 | $(3,049) | | Total Operating Expenses | $13,551 | $14,633 | $(1,082) | | Loss from Operations | $(2,444) | $(477) | $(1,967) | | Interest expense and other, net | $696 | $(2,714) | $3,410 | | Net Loss | $(1,767) | $(2,894) | $1,127 | | Basic and Diluted Loss Per Share | $(0.11) | $(0.19) | $0.08 | [Condensed Consolidated Statements of Changes in Stockholders' Equity](index=5&type=section&id=Condensed%20Consolidated%20Statements%20of%20Changes%20in%20Stockholders'%20Equity) This table details the changes in Asure Software, Inc.'s stockholders' equity from December 31, 2019, to March 31, 2020, including net loss and share-based compensation | Metric (in thousands) | December 31, 2019 | March 31, 2020 | Change | | :-------------------------------------- | :---------------- | :------------- | :----- | | Total Stockholders' Equity | $137,579 | $136,421 | $(1,158) | | Net Loss | N/A | $(1,767) | N/A | | Share-based compensation | N/A | $438 | N/A | | Stock issued upon option exercise | N/A | $106 | N/A | | Other comprehensive income | N/A | $65 | N/A | [Condensed Consolidated Statements of Cash Flows](index=7&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) This table summarizes Asure Software, Inc.'s cash inflows and outflows from operating, investing, and financing activities for the three months ended March 31, 2020, and 2019 | Cash Flow Activity (in thousands) | Three Months Ended March 31, 2020 | Three Months Ended March 31, 2019 | | :-------------------------------------- | :-------------------------------- | :-------------------------------- | | Net cash provided by (used in) operating activities | $(3,403) | $4,247 | | Net cash provided by investing activities | $24,806 | $3,313 | | Net cash used in financing activities | $(29,449) | $(6,402) | | Net increase (decrease) in cash and cash equivalents | $(8,046) | $1,147 | | Cash and cash equivalents at end of period | $20,780 | $16,591 | [Notes to the Condensed Consolidated Financial Statements](index=8&type=section&id=Notes%20to%20the%20Condensed%20Consolidated%20Financial%20Statements) This section provides detailed explanations and disclosures for the financial statements, covering accounting policies, financial instruments, debt, equity, and recent events [NOTE 1 – THE COMPANY AND BASIS OF PRESENTATION](index=8&type=section&id=NOTE%201%20%E2%80%93%20THE%20COMPANY%20AND%20BASIS%20OF%20PRESENTATION) Asure Software, Inc. is a leading provider of Human Capital Management (HCM) software solutions, including Payroll & Tax, HR, and Time & Attendance. The company divested its Workspace Management business in December 2019 to focus on HCM - Asure Software, Inc. focuses on Human Capital Management (HCM) solutions (Payroll & Tax, HR, Time & Attendance) after divesting its Workspace Management business in December 2019[13](index=13&type=chunk)[14](index=14&type=chunk) [NOTE 2 – SIGNIFICANT ACCOUNTING POLICIES](index=8&type=section&id=NOTE%202%20%E2%80%93%20SIGNIFICANT%20ACCOUNTING%20POLICIES) This note outlines the company's significant accounting policies, including the use of estimates, and discusses significant risks and uncertainties, particularly the impact of the COVID-19 pandemic, and recent and upcoming accounting pronouncements [USE OF ESTIMATES](index=8&type=section&id=USE%20OF%20ESTIMATES) This section highlights the key accounting estimates used in preparing the financial statements, such as valuation allowances and asset fair values - Key estimates include valuation allowance for deferred tax assets, useful lives of fixed assets, and fair value of long-lived assets and acquired assets/liabilities[18](index=18&type=chunk) [SIGNIFICANT RISKS AND UNCERTAINTIES](index=9&type=section&id=SIGNIFICANT%20RISKS%20AND%20UNCERTAINTIES) This section addresses the significant risks and uncertainties impacting the company, particularly the expected negative effects of the COVID-19 pandemic - The COVID-19 pandemic is expected to negatively impact business, financial condition, results of operations, and growth prospects due to economic slowdown, customer headcount reductions, and decreased demand[20](index=20&type=chunk)[21](index=21&type=chunk) [RECENT ACCOUNTING PRONOUNCEMENTS](index=9&type=section&id=RECENT%20ACCOUNTING%20PRONOUNCEMENTS) This section details recently adopted accounting standards and their financial impact, or lack thereof, on the company's financial statements - Adopted ASU 2018-13 (Fair Value Measurement) and ASU 2018-15 (Intangibles-Goodwill and Other-Internal-Use Software) on January 1, 2020, with no material financial impact[22](index=22&type=chunk)[23](index=23&type=chunk) - ASU 2020-04 (Reference Rate Reform) issued in March 2020, not expected to apply to current credit agreement[24](index=24&type=chunk) [STANDARDS YET TO BE ADOPTED](index=9&type=section&id=STANDARDS%20YET%20TO%20BE%20ADOPTED) This section identifies accounting standards issued but not yet adopted by the company and their potential future impact - Evaluating ASU 2016-13 (Credit Losses), effective January 1, 2023[25](index=25&type=chunk) - Evaluating ASU 2019-12 (Income Taxes), effective for fiscal years after December 15, 2020[26](index=26&type=chunk) [CONTINGENCIES](index=11&type=section&id=CONTINGENCIES) This section discloses any material pending legal proceedings or other contingent liabilities affecting the company's financial position - No material pending legal proceedings as of March 31, 2020[29](index=29&type=chunk) [NOTE 3 – INVESTMENTS AND FAIR VALUE MEASUREMENTS](index=11&type=section&id=NOTE%203%20%E2%80%93%20INVESTMENTS%20AND%20FAIR%20VALUE%20MEASUREMENTS) The company's funds held for clients include available-for-sale securities (government and commercial bonds) and money market funds. Fair value measurements are categorized into a three-tier hierarchy, with most assets classified as Level 1 or Level 2 | Investment Type (in thousands) | March 31, 2020 (Fair Value) | December 31, 2019 (Fair Value) | | :------------------------------ | :-------------------------- | :----------------------------- | | Funds Held for Clients: | | | | Available-for-sale securities | $26,885 | $24,136 | | Money market funds | $38,200 | $48,500 | | Cash Equivalents: | | | | Money market funds | $17,994 | Not material | - Fair value measurements are categorized into a three-tier hierarchy (Level 1: quoted prices in active markets for identical assets; Level 2: quoted prices for similar assets or observable inputs; Level 3: unobservable inputs)[34](index=34&type=chunk) [NOTE 4 – GOODWILL AND OTHER INTANGIBLE ASSETS](index=13&type=section&id=NOTE%204%20%E2%80%93%20GOODWILL%20AND%20OTHER%20INTANGIBLE%20ASSETS) Goodwill remained at $68,697 thousand as of March 31, 2020, with no impairment recognized during the quarter. Total net intangible assets decreased slightly to $63,223 thousand from $63,850 thousand at December 31, 2019, due to amortization | Metric (in thousands) | March 31, 2020 | December 31, 2019 | Change | | :-------------------------- | :------------- | :---------------- | :----- | | Goodwill | $68,697 | $68,697 | $0 | | Total Intangible Assets, net| $63,223 | $63,850 | $(627) | - No goodwill or intangible asset impairment was recognized for the three months ended March 31, 2020[36](index=36&type=chunk)[37](index=37&type=chunk) [NOTE 5 – NOTES PAYABLE](index=14&type=section&id=NOTE%205%20%E2%80%93%20NOTES%20PAYABLE) Total notes payable decreased to $25,688 thousand at March 31, 2020, from $27,185 thousand at December 31, 2019. The company entered into a Third Amended and Restated Credit Agreement in December 2019, providing for $20,000 thousand in term loans and a $10,000 thousand revolver, and was in compliance with all financial covenants as of March 31, 2020 | Debt Type (in thousands) | March 31, 2020 | December 31, 2019 | Change | | :-------------------------- | :------------- | :---------------- | :----- | | Subordinated Notes Payable | $5,813 | $7,185 | $(1,372) | | Term Loan – Wells Fargo | $19,875 | $20,000 | $(125) | | Total Notes Payable | $25,688 | $27,185 | $(1,497) | - The Third Restated Credit Agreement provides for **$20,000 thousand** in term loans and a **$10,000 thousand** revolver[45](index=45&type=chunk) - As of March 31, 2020, **$9,500 thousand** was available under the revolver, and the company was in compliance with all financial covenants[47](index=47&type=chunk) [NOTE 6 – STOCKHOLDERS' EQUITY](index=16&type=section&id=NOTE%206%20%E2%80%93%20STOCKHOLDERS'%20EQUITY) The Board of Directors authorized a new $5,000 thousand stock repurchase program on March 10, 2020, in addition to existing capacity, though no repurchases were made in Q1 2020 or 2019. Accumulated other comprehensive income (loss) primarily consists of net unrealized gains and losses on available-for-sale securities - New stock repurchase program authorized for up to **$5,000 thousand** on March 10, 2020[48](index=48&type=chunk) - No share repurchases made in 2020 or 2019[50](index=50&type=chunk) - Accumulated other comprehensive income (loss) comprises net unrealized gains/losses on available-for-sale securities[50](index=50&type=chunk) [NOTE 7 – CONTRACTS WITH CUSTOMERS AND REVENUE CONCENTRATION](index=16&type=section&id=NOTE%207%20%E2%80%93%20CONTRACTS%20WITH%20CUSTOMERS%20AND%20REVENUE%20CONCENTRATION) Receivables from customers increased slightly to $4,900 thousand at March 31, 2020. Deferred commission costs and deferred revenue also saw changes. Approximately $32,323 thousand of revenue is expected from remaining performance obligations, with 60% recognized over the next 12 months. No single customer accounted for 10% or more of consolidated revenue | Metric (in thousands) | March 31, 2020 | December 31, 2019 | Change | | :-------------------------------------- | :------------- | :---------------- | :----- | | Receivables from contracts with customers, net | $4,900 | $4,808 | $92 | | Deferred commission costs | $2,985 | $2,697 | $288 | | Deferred revenue (current) | $3,526 | $5,500 | $(1,974) | - Approximately **$32,323 thousand** of revenue is expected from remaining performance obligations, with **60%** to be recognized within the next 12 months[54](index=54&type=chunk) - No customer represented **10%** or more of consolidated revenue[55](index=55&type=chunk) [NOTE 8 – LEASES](index=16&type=section&id=NOTE%208%20%E2%80%93%20LEASES) The company has operating lease agreements for office space, with a weighted average remaining lease term of 6 years and a weighted average discount rate of 9%. Net rent expense for the three months ended March 31, 2020, was $504 thousand | Metric (in thousands) | Three Months Ended March 31, 2020 | Three Months Ended March 31, 2019 | | :-------------------------- | :-------------------------------- | :-------------------------------- | | Operating lease cost | $552 | $579 | | Sublease income | $(48) | $(37) | | Net rent expense | $504 | $542 | - Weighted average remaining lease term for operating leases is **6 years**, with a weighted average discount rate of **9%**[56](index=56&type=chunk) [NOTE 9 – SHARE-BASED COMPENSATION](index=18&type=section&id=NOTE%209%20%E2%80%93%20SHARE-BASED%20COMPENSATION) Share-based compensation expense for the three months ended March 31, 2020, was $438 thousand. The company granted 187,000 RSUs in January 2020 in exchange for the cancellation of 467,500 eligible stock options. As of March 31, 2020, 849,105 shares were available for grant under the 2018 Incentive Award Plan | Metric (in thousands) | Three Months Ended March 31, 2020 | Three Months Ended March 31, 2019 | | :-------------------------- | :-------------------------------- | :-------------------------------- | | Share-based compensation | $438 | $502 | - **187,000 RSUs** granted in January 2020 in exchange for **467,500** cancelled stock options[62](index=62&type=chunk) - **849,105 shares** available for grant under the 2018 Plan as of March 31, 2020[63](index=63&type=chunk) [NOTE 10 – DISCONTINUED OPERATIONS](index=18&type=section&id=NOTE%2010%20%E2%80%93%20DISCONTINUED%20OPERATIONS) In December 2019, the company sold its Workspace Management business for approximately $121,500 thousand in cash, allowing it to focus on HCM solutions. The operating results of the discontinued operations for the three months ended March 31, 2019, included revenue of $6,350 thousand and income from discontinued operations, net of taxes, of $659 thousand - The Workspace Management business was sold in December 2019 for approximately **$121,500 thousand** in cash, enabling a focus on HCM solutions[65](index=65&type=chunk) | Metric (in thousands) | Three Months Ended March 31, 2019 | | :-------------------------------------- | :-------------------------------- | | Revenue (Discontinued Operations) | $6,350 | | Income from discontinued operations, net of taxes | $659 | [NOTE 11 – NET LOSS PER SHARE](index=19&type=section&id=NOTE%2011%20%E2%80%93%20NET%20LOSS%20PER%20SHARE) Basic and diluted net loss per share for the three months ended March 31, 2020, was $(0.11), an improvement from $(0.19) in the prior year period. Stock options and restricted stock units totaling approximately 1,264,000 shares were excluded from diluted EPS calculation as they were anti-dilutive | Metric | Three Months Ended March 31, 2020 | Three Months Ended March 31, 2019 | | :-------------------------------------- | :-------------------------------- | :-------------------------------- | | Net Loss (in thousands) | $(1,767) | $(2,894) | | Weighted-average shares outstanding | 15,727,000 | 15,405,000 | | Basic and Diluted Loss Per Share | $(0.11) | $(0.19) | - Approximately **1,264,000** stock options and restricted stock units were excluded from diluted EPS calculation for Q1 2020 due to their anti-dilutive effect[70](index=70&type=chunk) [NOTE 12 – SUBSEQUENT EVENTS](index=19&type=section&id=NOTE%2012%20%E2%80%93%20SUBSEQUENT%20EVENTS) In April 2020, the company secured an $8,856 thousand loan under the Paycheck Protection Program (PPP Loan) from Pinnacle Bank, as part of the CARES Act. The proceeds are intended for payroll costs, rent, utilities, and interest on debt, with potential for forgiveness if used for permitted expenses, particularly payroll - Secured an **$8,856 thousand** PPP Loan in April 2020 under the CARES Act[73](index=73&type=chunk) - Loan proceeds are for payroll costs, rent, utilities, and debt interest, with potential for forgiveness based on usage, especially for payroll[74](index=74&type=chunk)[75](index=75&type=chunk) [ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS](index=21&type=section&id=Item%202.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) This section provides management's perspective on the company's financial condition and results of operations for the three months ended March 31, 2020, compared to the prior year. It covers revenue, expenses, net loss, liquidity, and the significant impact of the COVID-19 pandemic [CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS](index=21&type=section&id=CAUTIONARY%20STATEMENT%20REGARDING%20FORWARD-LOOKING%20STATEMENTS) This section advises readers that the report contains forward-looking statements subject to various risks, including the impact of COVID-19 and economic downturns - The report contains forward-looking statements, subject to risks including COVID-19 impact, economic downturns, market acceptance, competition, and regulatory changes[79](index=79&type=chunk) [OVERVIEW](index=21&type=section&id=OVERVIEW) This section provides a general description of Asure Software, Inc.'s business as a cloud-based HCM provider and its sales and marketing strategies - Asure is a leading cloud-based HCM provider (Payroll & Tax, HR, Time & Attendance) for SMBs, focusing on reducing HR complexity and optimizing capital[81](index=81&type=chunk)[82](index=82&type=chunk) - Sales and marketing strategy includes both direct channels (SMBs, CPAs, banks, benefits brokers) and indirect channels (licensing HCM software to resellers)[85](index=85&type=chunk) [RECENT DEVELOPMENTS](index=22&type=section&id=RECENT%20DEVELOPMENTS) This section highlights recent events, including the expected negative impact of the COVID-19 pandemic, cost-saving initiatives, and the securing of a PPP loan - COVID-19 pandemic is expected to negatively and materially impact revenues for the remainder of 2020, especially in Q2 and Q3[86](index=86&type=chunk) - Implemented cost-saving initiatives in Q1 2020 and secured an **$8,856 thousand** PPP loan in April 2020[86](index=86&type=chunk) - No asset impairments or bad debt reserves related to COVID-19 recorded in Q1 2020, but future charges are possible[86](index=86&type=chunk) [RESULTS OF OPERATIONS](index=22&type=section&id=RESULTS%20OF%20OPERATIONS) For the three months ended March 31, 2020, total revenue decreased by 7.2% year-over-year, and gross profit declined by 21.5%. Operating expenses, however, saw a slight decrease overall, and the net loss improved from the prior year | Metric | Three Months Ended March 31, 2020 | Three Months Ended March 31, 2019 | Change (YoY) | | :-------------------------------------- | :-------------------------------- | :-------------------------------- | :----------- | | Revenues | 100% | 100% | | | Gross margin | 59% | 69% | -10 pp | | Sales and marketing | 19% | 13% | +6 pp | | General and administrative | 34% | 40% | -6 pp | | Research and development | 6% | 6% | 0 pp | | Amortization of intangible assets | 12% | 12% | 0 pp | | Total operating expenses | 72% | 72% | 0 pp | | Interest expense and other, net | 4% | -13% | +17 pp | | Loss from continuing operations before income taxes | -9% | -16% | +7 pp | | Net loss | -9% | -14% | +5 pp | [Revenue](index=22&type=section&id=Revenue) This section analyzes the company's revenue performance, detailing recurring and professional services revenue for the three months ended March 31, 2020, and 2019 | Revenue Source (in thousands) | Three Months Ended March 31, 2020 | Three Months Ended March 31, 2019 | Change (Decrease) | % Change | | :---------------------------------- | :-------------------------------- | :-------------------------------- | :---------------- | :------- | | Recurring | $18,436 | $19,791 | $(1,355) | -6.8% | | Professional services, hardware and other | $511 | $619 | $(108) | -17.4% | | Total Revenue | $18,947 | $20,410 | $(1,463) | -7.2% | - Revenue decrease primarily attributed to higher client losses and lower volume on year-end processing fees[90](index=90&type=chunk) [Gross Profit and Gross Margin](index=23&type=section&id=Gross%20Profit%20and%20Gross%20Margin) This section examines the company's gross profit and gross margin, highlighting changes and underlying factors for the three months ended March 31, 2020, and 2019 | Metric | Three Months Ended March 31, 2020 | Three Months Ended March 31, 2019 | Change (Decrease) | % Change | | :-------------- | :-------------------------------- | :-------------------------------- | :---------------- | :------- | | Gross Profit (in thousands) | $11,107 | $14,156 | $(3,049) | -21.5% | | Gross Margin | 58.6% | 69.4% | -10.8 pp | | - Gross margin decreased due to growing investment in HCM service resources and migration to secure cloud hosting services[93](index=93&type=chunk) [Sales and Marketing Expenses](index=23&type=section&id=Sales%20and%20Marketing%20Expenses) This section details sales and marketing expenses, explaining the drivers behind changes for the three months ended March 31, 2020, and 2019 | Metric | Three Months Ended March 31, 2020 | Three Months Ended March 31, 2019 | Change (Increase) | % of Revenue 2020 | % of Revenue 2019 | | :-------------------------- | :-------------------------------- | :-------------------------------- | :---------------- | :---------------- | :---------------- | | Sales and marketing expenses (in thousands)| $3,575 | $2,705 | $870 | 18.9% | 13.3% | - Increase driven by focus on hiring direct sales personnel, expanding brand recognition, and lead generation[95](index=95&type=chunk) [General and Administrative Expenses](index=23&type=section&id=General%20and%20Administrative%20Expenses) This section analyzes general and administrative expenses, outlining the reasons for changes for the three months ended March 31, 2020, and 2019 | Metric | Three Months Ended March 31, 2020 | Three Months Ended March 31, 2019 | Change (Decrease) | % of Revenue 2020 | % of Revenue 2019 | | :---------------------------------- | :-------------------------------- | :-------------------------------- | :---------------- | :---------------- | :---------------- | | General and administrative expenses (in thousands) | $6,452 | $8,189 | $(1,737) | 34.1% | 40.1% | - Decrease due to efficiencies from the sale of the Workspace Management business and vendor rationalization[99](index=99&type=chunk) [Research and Development Expenses](index=23&type=section&id=Research%20and%20Development%20Expenses) This section reviews research and development expenses, discussing investment areas and changes for the three months ended March 31, 2020, and 2019 | Metric | Three Months Ended March 31, 2020 | Three Months Ended March 31, 2019 | Change (Decrease) | % of Revenue 2020 | % of Revenue 2019 | | :-------------------------- | :-------------------------------- | :-------------------------------- | :---------------- | :---------------- | :---------------- | | Research and development expenses (in thousands) | $1,174 | $1,321 | $(147) | 6.2% | 6.5% | - R&D expenses remained relatively flat due to restructuring after the Workspace Management business sale and consolidation into Amazon Web Services (AWS), with significant investments in compliance and certifications (SOC I Type 2, SOC II Type 2, FedRAMP)[98](index=98&type=chunk) - Q1 2020 development efforts included new Simple Payroll Entry cloud solution, QuickBooks online integration, improved facial recognition for AsureTime&Attendance, and immediate application changes for COVID-19 related legislation (PPP and CARES)[102](index=102&type=chunk) [Amortization of Intangible Assets](index=24&type=section&id=Amortization%20of%20Intangible%20Assets) This section presents the amortization expense for intangible assets for the three months ended March 31, 2020, and 2019 | Metric | Three Months Ended March 31, 2020 | Three Months Ended March 31, 2019 | % of Revenue 2020 | % of Revenue 2019 | | :-------------------------- | :-------------------------------- | :-------------------------------- | :---------------- | :---------------- | | Amortization expense (in thousands) | $2,349 | $2,418 | 12.4% | 11.8% | [Interest Expense and Other, net](index=24&type=section&id=Interest%20Expense%20and%20Other%2C%20net) This section details the company's interest expense and other net income/loss, explaining the factors contributing to changes for the three months ended March 31, 2020, and 2019 | Metric | Three Months Ended March 31, 2020 | Three Months Ended March 31, 2019 | Change (YoY) | % of Revenue 2020 | % of Revenue 2019 | | :------------------------------ | :-------------------------------- | :-------------------------------- | :----------- | :---------------- | :---------------- | | Interest expense and other, net (in thousands) | $696 | $(2,714) | $3,410 | 3.7% | -13.3% | - The shift to a gain was primarily due to income from the transition services agreement related to the Workspace business sale, offsetting interest expense on notes payable[104](index=104&type=chunk) [Income Taxes](index=24&type=section&id=Income%20Taxes) This section outlines the company's income tax expense for the three months ended March 31, 2020, and 2019, and any significant changes | Metric | Three Months Ended March 31, 2020 | Three Months Ended March 31, 2019 | Change (Decrease) | % Change | | :---------------------- | :-------------------------------- | :-------------------------------- | :---------------- | :------- | | Income tax expense (in thousands) | $19 | $246 | $(227) | -92.3% | [Net Loss](index=24&type=section&id=Net%20Loss) This section presents the company's net loss and net loss per share for the three months ended March 31, 2020, and 2019, highlighting year-over-year changes | Metric | Three Months Ended March 31, 2020 | Three Months Ended March 31, 2019 | Change (Improvement) | | :-------------------------- | :-------------------------------- | :-------------------------------- | :------------------- | | Net Loss (in thousands) | $(1,767) | $(2,894) | $1,127 | | Net Loss Per Share | $(0.11) | $(0.19) | $0.08 | | Net Loss as % of Revenue | 9.3% | 14.2% | -4.9 pp | [LIQUIDITY AND CAPITAL RESOURCES](index=24&type=section&id=LIQUIDITY%20AND%20CAPITAL%20RESOURCES) This section assesses the company's ability to meet its short-term and long-term obligations, detailing working capital, cash flows, and available credit facilities | Metric (in thousands) | March 31, 2020 | December 31, 2019 | Change | | :-------------------------------------- | :------------- | :---------------- | :----- | | Working capital | $14,483 | $17,854 | $(3,371) | | Cash and cash equivalents | $20,780 | $28,826 | $(8,046) | | Cash Flow Activity (in thousands) | Three Months Ended March 31, 2020 | Three Months Ended March 31, 2019 | | :-------------------------------------- | :-------------------------------- | :-------------------------------- | | Net cash provided by (used in) operating activities | $(3,403) | $4,247 | | Net cash provided by investing activities | $24,806 | $3,313 | | Net cash used in financing activities | $(29,449) | $(6,402) | - Principal liquidity sources include **$20,780 thousand** cash, future operating cash flows, **$9,500 thousand** available under Wells Fargo revolver, and an **$8,856 thousand** PPP Loan secured in April 2020[111](index=111&type=chunk) - The company believes it has sufficient cash for operational needs and debt payments for at least the next twelve months and expects to remain in compliance with financial covenants[112](index=112&type=chunk)[113](index=113&type=chunk) [OFF-BALANCE SHEET ARRANGEMENTS](index=26&type=section&id=OFF-BALANCE%20SHEET%20ARRANGEMENTS) This section discloses any off-balance sheet arrangements that could have a material effect on the company's financial condition or results of operations - No off-balance sheet arrangements as of March 31, 2020[113](index=113&type=chunk) [COMMITMENTS AND CONTINGENCIES](index=26&type=section&id=COMMITMENTS%20AND%20CONTINGENCIES) This section outlines any material commitments or contingencies that could impact the company's financial position or future performance - No material commitments or contingencies[114](index=114&type=chunk) [CRITICAL ACCOUNTING POLICIES](index=26&type=section&id=CRITICAL%20ACCOUNTING%20POLICIES) This section refers to the detailed discussion of critical accounting policies that require significant judgment and estimates in the financial statements - Critical accounting policies are detailed in Note 2 of the financial statements[115](index=115&type=chunk) [ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK](index=26&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) There have been no material changes to the company's exposure to market risks since the disclosures in its 2019 Annual Report on Form 10-K - No material changes to market risk exposure since the 2019 Form 10-K[116](index=116&type=chunk) [ITEM 4. CONTROLS AND PROCEDURES](index=26&type=section&id=Item%204.%20Controls%20and%20Procedures) Management concluded that disclosure controls and procedures were not effective as of March 31, 2020, due to a previously reported material weakness in internal control over financial reporting. No other material changes in internal controls occurred during the period [Evaluation of Disclosure Control and Procedures](index=26&type=section&id=Evaluation%20of%20Disclosure%20Control%20and%20Procedures) This section details management's evaluation of the effectiveness of the company's disclosure controls and procedures as of March 31, 2020 - Disclosure controls and procedures were not effective as of March 31, 2020, due to a material weakness in internal control over financial reporting reported in Q4 2019[117](index=117&type=chunk) [Change in Internal Controls over Financial Reporting](index=26&type=section&id=Change%20in%20Internal%20Controls%20over%20Financial%20Reporting) This section reports on any material changes in the company's internal control over financial reporting during the most recent fiscal quarter - No material changes in internal control over financial reporting during Q1 2020, other than remediation efforts for the previously noted material weakness[118](index=118&type=chunk) [PART II – OTHER INFORMATION](index=27&type=section&id=PART%20II%20%E2%80%93%20OTHER%20INFORMATION) This section provides additional information not covered in Part I, including legal proceedings, risk factors, equity sales, defaults, other disclosures, and exhibits [ITEM 1. LEGAL PROCEEDINGS](index=27&type=section&id=Item%201.%20Legal%20Proceedings) As of March 31, 2020, the company was not involved in any legal proceedings material to its business - No material pending legal proceedings as of March 31, 2020[120](index=120&type=chunk) [ITEM 1A. RISK FACTORS](index=27&type=section&id=Item%201A.%20Risk%20Factors) The primary new risk factor is the material impact of the COVID-19 pandemic on the company's operations and financial performance. The pandemic has disrupted business operations, customer demand, and could affect IT spending, purchasing decisions, and service delivery, with uncertain duration and extent of impact - The COVID-19 pandemic is a new material risk, affecting business operations, customer demand, IT spending, and service delivery, with uncertain future impact[122](index=122&type=chunk)[124](index=124&type=chunk)[126](index=126&type=chunk) [ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS](index=27&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) No unregistered sales of equity securities or use of proceeds were reported - None reported[127](index=127&type=chunk) [ITEM 3. DEFAULTS UPON SENIOR SECURITIES](index=27&type=section&id=Item%203.%20Defaults%20upon%20Senior%20Securities) No defaults upon senior securities were reported - None reported[127](index=127&type=chunk) [ITEM 5. OTHER INFORMATION](index=27&type=section&id=Item%205.%20Other%20Information) The company corrected an inadvertent error in its first-quarter Earnings Press Release regarding Total Liabilities and Shareholders' Equity as of March 31, 2020, stating the correct figure is $300,138 thousand, not $299,060 thousand - Corrected an error in the Q1 Earnings Press Release: Total Liabilities and Shareholders' Equity as of March 31, 2020, is **$300,138 thousand**, not **$299,060 thousand**[127](index=127&type=chunk) [ITEM 6. EXHIBITS](index=28&type=section&id=Item%206.%20Exhibits) This section lists the exhibits filed with the Form 10-Q, including amendments to the credit agreement, certifications, and XBRL formatted financial statements - Exhibits include amendments to the Third Amended and Restated Credit Agreement, Section 302 and 906 certifications, and XBRL financial statements[128](index=128&type=chunk) [SIGNATURES](index=29&type=section&id=SIGNATURES) This section contains the official signatures of the company's authorized officers, certifying the accuracy of the report - Report signed by CEO Patrick Goepel and CFO Kelyn Brannon on May 8, 2020[129](index=129&type=chunk)[130](index=130&type=chunk)