Asure Software(ASUR) - 2023 Q2 - Quarterly Report

PART I. FINANCIAL INFORMATION This section presents the unaudited financial statements and management's analysis of financial condition Item 1. Financial Statements (Unaudited) Unaudited financial statements show total assets decreased to $401.0 million and net loss improved to $3.4 million Condensed Consolidated Balance Sheets Total assets decreased to $401.0 million by June 2023, driven by reduced client funds, with equity slightly up Condensed Consolidated Balance Sheets (in thousands) | Account | June 30, 2023 | December 31, 2022 | | :--- | :--- | :--- | | Total current assets | $228,853 | $243,276 | | Total assets | $401,018 | $419,908 | | Total current liabilities | $215,270 | $235,183 | | Total liabilities | $254,204 | $274,842 | | Total stockholders' equity | $146,814 | $145,066 | Condensed Consolidated Statements of Comprehensive Loss Revenue increased 50% in Q2 and 42% for six months, with net loss significantly narrowing in both periods Financial Performance for the Three Months Ended June 30 (in thousands) | Metric | 2023 | 2022 | Change (%) | | :--- | :--- | :--- | :--- | | Total Revenue | $30,420 | $20,300 | 50% | | Gross Profit | $22,018 | $12,261 | 80% | | (Loss) from operations | $(1,452) | $(5,848) | 75% | | Net Loss | $(3,765) | $(5,860) | 36% | | Diluted Loss Per Share | $(0.18) | $(0.29) | 38% | Financial Performance for the Six Months Ended June 30 (in thousands) | Metric | 2023 | 2022 | Change (%) | | :--- | :--- | :--- | :--- | | Total Revenue | $63,484 | $44,633 | 42% | | Gross Profit | $46,418 | $27,725 | 67% | | Income from operations | $511 | $(8,019) | N/A | | Net Loss | $(3,426) | $(8,877) | 61% | | Diluted Loss Per Share | $(0.17) | $(0.44) | 61% | Condensed Consolidated Statements of Changes in Stockholders' Equity Stockholders' equity increased to $146.8 million by June 2023, driven by stock issuances and compensation, despite a net loss - Key changes in stockholders' equity for the six months ended June 30, 2023 include a net loss of $3.4 million, share-based compensation of $2.9 million, and $2.3 million in proceeds from stock issuances[16][77] Condensed Consolidated Statements of Cash Flows Operating cash flow was $6.1 million, with significant cash used in investing and financing activities Net Cash Flow for the Six Months Ended June 30 (in thousands) | Cash Flow Activity | 2023 | 2022 | | :--- | :--- | :--- | | Net cash provided by operating activities | $6,096 | $7,481 | | Net cash used in investing activities | $(17,266) | $(21,570) | | Net cash used in financing activities | $(15,602) | $(32,524) | Notes to Condensed Consolidated Financial Statements Notes detail HCM business, stable goodwill, and subsequent events like contingent consideration settlement and credit facility amendment - The company provides cloud-based Human Capital Management (HCM) software solutions for small and medium-sized businesses (SMBs), including payroll, tax, HR compliance, and time & attendance[26] - As of June 30, 2023, Goodwill remained unchanged at $86.0 million, and net intangible assets were $60.6 million[52][54] - In July 2023, the company settled an outstanding contingent purchase consideration of $2.3 million by issuing 214,000 shares of common stock[81] - On August 7, 2023, the company amended its Senior Credit Facility and settled the Final Payment Fee for $1.7 million in cash[82] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses 42% revenue growth, improved gross margin, increased operating expenses, and sufficient liquidity for the next twelve months Overview Asure provides cloud-based HCM solutions to over 100,000 SMBs across the U.S., targeting less densely populated metropolitan areas - The company's solutions serve more than 100,000 SMBs, with about 15,000 direct clients and 85,000 indirect clients via Reseller Partners[88] - Asure targets less densely populated U.S. metropolitan cities where competitive presence is lower[27][88] Results of Operations Total revenue grew 42% to $63.5 million, driven by recurring and professional services, improving gross margin to 73% and narrowing net loss Revenue by Source - Six Months Ended June 30 (in thousands) | Revenue Type | 2023 | 2022 | Variance ($) | Variance (%) | | :--- | :--- | :--- | :--- | :--- | | Recurring | $50,916 | $42,018 | $8,898 | 21% | | Professional services, hardware and other | $12,568 | $2,615 | $9,953 | 381% | | Total | $63,484 | $44,633 | $18,851 | 42% | - The significant increase in professional services revenue was primarily due to growth in non-recurring ERTC revenues, which are expected to wind down as the program expires in 2025[100] - Gross margin for the six months ended June 30, 2023, increased to 73% from 62% in the prior year, attributed to higher revenue and operational efficiencies[103] - The company plans to continue enhancing its products by leveraging Robotic Process Automation (RPA) and artificial intelligence (AI)[109] Liquidity and Capital Resources Working capital was $13.6 million and cash $21.6 million, providing sufficient liquidity for twelve months, with potential need for future capital Liquidity Overview (in thousands) | Metric | June 30, 2023 | December 31, 2022 | | :--- | :--- | :--- | | Cash, cash equivalents and restricted cash | $21,613 | $17,010 | | Working Capital | $13,583 | $8,093 | - Net cash provided by operating activities was $6.1 million for the first six months of 2023, compared to $7.5 million for the same period in 2022[117] - The company believes it has sufficient liquidity for at least the next twelve months but may need to raise additional capital for future growth or acquisitions[120] Item 3. Quantitative and Qualitative Disclosures About Market Risk No material changes to market risk exposure have occurred since the 2022 Annual Report on Form 10-K - There have been no material changes to the company's market risk exposure since the 2022 Annual Report on Form 10-K[122] Item 4. Controls and Procedures Disclosure controls and procedures were effective as of June 30, 2023, with no material changes in internal control over financial reporting - The CEO and CFO concluded that as of June 30, 2023, the company's disclosure controls and procedures were effective[123] - No changes in internal control over financial reporting occurred during the quarter that have materially affected, or are reasonably likely to materially affect, internal controls[124] PART II - OTHER INFORMATION Item 1. Legal Proceedings The company was not a party to any material legal proceedings as of June 30, 2023 - The company reports no material legal proceedings as of June 30, 2023[126] Item 1A. Risk Factors A new risk factor highlights potential reputational harm and liability from flawed AI algorithms or biased data - A new risk factor was disclosed regarding the use of Artificial Intelligence (AI), noting that flawed algorithms or data could result in reputational harm or liability[127][128] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds In July 2023, 214,000 shares were issued to settle a $2.3 million contingent purchase consideration from a 2020 acquisition - In July 2023, the company issued 214,000 shares of common stock to extinguish a $2,299,000 contingent purchase consideration from a 2020 acquisition[129] Item 3. Defaults upon Senior Securities No defaults upon senior securities were reported - No defaults upon senior securities were reported[129] Item 4. Mine Safety Disclosures No mine safety disclosures were reported - No mine safety disclosures were reported[129] Item 5. Other Information On August 7, 2023, the Senior Credit Facility was amended, and the $1.7 million Final Payment Fee was settled - On August 7, 2023, the company amended its Senior Credit Facility and settled the Final Payment Fee for $1,677,000[130] Item 6. Exhibits This section lists exhibits filed with Form 10-Q, including loan agreement amendments and certifications - Filed exhibits include Amendment No. 2 to the Loan and Security Agreement, Sarbanes-Oxley certifications, and Inline XBRL documents[133]