asur-20230331

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q


☒			Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the quarterly period ended March 31, 2023


☐			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 jurisdiction of incorporation)

(I.R.S. Employer Identification No.)

405 Colorado Street, Suite 1800, Austin, Texas

78701

(Address of principal executive offices)

(Zip Code)


512-437-2700
(Registrant’s Telephone Number, including Area Code)
None
(Former name, former address and former fiscal year, if changed since last report)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Common Stock, $0.01 par value

ASUR

The Nasdaq Capital Market

Series A Junior Participating Preferred Share Purchase Rights

N/A

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

☒

Yes

☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).

☒

Yes

☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer

☐

Accelerated filer

☐

Non-accelerated filer

☒

Smaller reporting company

☒

Emerging growth company

☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

☐

Yes

☒

As of May 5, 2023, 20,623,010 shares of the registrant’s Common Stock, $0.01 par value, were outstanding.

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TABLE OF CONTENTS


		Page
PART I. FINANCIAL INFORMATION
Item 1.	Financial Statements (Unaudited)	1
	Condensed Consolidated Balance Sheets as of March 31, 2023 and December 31, 2022	1
	Condensed Consolidated Statements of Comprehensive Income (Loss) for the Three Months Ended March 31, 2023 and March 31, 2022	2
	Condensed Consolidated Statements of Changes in Stockholders’ Equity for the Three Months Ended March 31, 2023 and March 31, 2022	3
	Condensed Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2023 and March 31, 2022	4
	Notes to Condensed Consolidated Financial Statements	6
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	17
Item 3.	Q uantitative and Qualitative Disclosures About Market Risk	23
Item 4.	Controls and Procedures	24

PART II - OTHER INFORMATION

Item 1.	Legal Proceedings	25
Item 1A.	Risk Factors	25
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	25
Item 3.	Defaults upon Senior Securities	25
Item 4.	Mine Safety Disclosures	25
Item 5.	Other Information	25
Item 6.	Exhibits	26

	Signatures	26

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PART I

ITEM 1. FINANCIAL STATEMENTS

ASURE SOFTWARE, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands, except per share amounts)


	March 31, 2023		December 31, 2022
	(unaudited)
ASSETS
Current assets:
Cash, cash equivalents, and restricted cash	$	21,438	$	17,010
Accounts receivable, net of allowance for doubtful accounts of $4,027 and $3,248 at March 31, 2023 and December 31, 2022, respectively	14,762		12,123
Inventory	218		251
Prepaid expenses and other current assets	5,075		10,304
Total current assets before funds held for clients	41,493		39,688
Funds held for clients	223,465		203,588
Total current assets	264,958		243,276
Property and equipment, net	11,944		11,439
Goodwill	86,011		86,011
Intangible assets, net	63,024		66,594
Operating lease assets, net	6,531		7,065
Other assets, net	6,376		5,523
Total assets	$	438,844	$	419,908
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Current portion of notes payable	$	5,418	$	4,106
Accounts payable	1,744		2,194
Accrued compensation and benefits	4,391		5,791
Operating lease liabilities, current	1,671		1,860
Other accrued liabilities	5,013		3,728
Contingent purchase consideration	2,886		2,955
Deferred revenue	4,182		8,461
Total current liabilities before client fund obligations	25,305		29,095
Client fund obligations	225,462		206,088
Total current liabilities	250,767		235,183
Long-term liabilities:
Deferred revenue	728		788
Deferred tax liability	1,430		1,503
Notes payable, net of current portion	30,478		30,795
Operating lease liabilities, noncurrent	6,098		6,459
Other liabilities	132		114
Total long-term liabilities	38,866		39,659
Total liabilities	289,633		274,842
Stockholders’ equity:
Preferred stock, $0.01 par value; 1,500 shares authorized; none issued or outstanding	—		—
Common stock, $0.01 par value; 44,000 shares authorized; 21,003 and 20,628 shares issued, 20,619 and 20,244 shares outstanding at March 31, 2023 and December 31, 2022, respectively	210		206
Treasury stock at cost, 384 shares at March 31, 2023 and December 31, 2022	(5,017)		(5,017)
Additional paid-in capital	436,907		433,586
Accumulated deficit	(280,887)		(281,226)
Accumulated other comprehensive loss	(2,002)		(2,483)
Total stockholders’ equity	149,211		145,066
Total liabilities and stockholders’ equity	$	438,844	$	419,908

The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.

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ASURE SOFTWARE, INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(in thousands, except per share amounts)


	Three Months Ended March 31,
	2023		2022
	(unaudited)
Revenue:
Recurring	$	27,956	$	23,004
Professional services, hardware and other	5,108		1,329
Total revenue	33,064		24,333
Cost of Sales	8,664		8,869
Gross profit	24,400		15,464
Operating expenses:
Sales and marketing	7,200		4,897
General and administrative	9,956		7,485
Research and development	1,979		1,821
Amortization of intangible assets	3,302		3,432
Total operating expenses	22,437		17,635
Income (loss) from operations	1,963		(2,171)
Interest expense, net	(1,944)		(820)
Other income, net	83		4
Income (loss) from operations before income taxes	102		(2,987)
Income tax (benefit) expense	(237)		30
Net income (loss)	339		(3,017)
Other comprehensive income (loss):
Unrealized income (loss) on marketable securities	481		(1,063)
Comprehensive income (loss)	$	820	$	(4,080)

Basic and diluted earnings (loss) per share
Basic	$	0.02	$	(0.15)
Diluted	$	0.02	$	(0.15)

Weighted average basic and diluted shares
Basic	20,347		20,041
Diluted	21,041		20,041

The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.

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ASURE SOFTWARE, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

(in thousands)

(unaudited)


	Common Stock Outstanding	Common Stock Amount		Treasury Stock		Additional Paid-in Capital		Accumulated Deficit		Other Comprehensive (Income) Loss		Total Stockholders’ Equity
Balance at December 31, 2022	20,244	$	206	$	(5,017)	$	433,586	$	(281,226)	$	(2,483)	$	145,066
Stock issued upon option exercise and vesting of restricted stock units	375	4		—		1,984		—		—		1,988
Share based compensation	—	—		—		1,337		—		—		1,337
Net income	—	—		—		—		339		—		339
Other comprehensive income	—	—		—		—		—		481		481
Balance at March 31, 2023	20,619	$	210	$	(5,017)	$	436,907	$	(280,887)	$	(2,002)	$	149,211


	Common Stock Outstanding	Common Stock Amount		Treasury Stock		Additional Paid-in Capital		Accumulated Deficit		Other Comprehensive Loss		Total Stockholders’ Equity
Balance at December 31, 2021	20,028	$	204	$	(5,017)	$	429,912	$	(266,760)	$	(99)	$	158,240
Stock issued upon option exercise and vesting of restricted stock units	43	1		—		—		—		—		1
Share based compensation	—	—		—		729		—		—		729
Net loss	—	—		—		—		(3,017)		—		(3,017)
Other comprehensive loss	—	—		—		—		—		(1,063)		(1,063)
Balance at March 31, 2022	20,071	$	205	$	(5,017)	$	430,641	$	(269,777)	$	(1,162)	$	154,890

The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.

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ASURE SOFTWARE, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)


	Three Months Ended March 31,
	2023		2022
	(unaudited)
Cash flows from operating activities:
Net income (loss)	$	339	$	(3,017)
Adjustments to reconcile income (loss) to net cash provided by operations:
Depreciation and amortization	4,789		4,754
Amortization of operating lease assets	307		430
Amortization of debt financing costs and discount	169		164
Non-cash interest expense	982		—
Net amortization of premiums and accretion of discounts on available-for-sale securities	(14)		118
Provision for doubtful accounts	652		(48)
Provision for deferred income taxes	(73)		22
Net realized losses on sales of available-for-sale securities	(453)		(203)
Share-based compensation	1,337		729
Loss on disposals of long-term assets	160		1
Change in fair value of contingent purchase consideration	(69)		—
Changes in operating assets and liabilities:
Accounts receivable	(3,290)		(1,252)
Inventory	33		(40)
Prepaid expenses and other assets	4,850		2,756
Operating lease right-of-use assets	—		2
Accounts payable	(450)		1,072
Accrued expenses and other long-term obligations	(123)		(345)
Operating lease liabilities	(219)		(476)
Deferred revenue	(4,339)		(2,137)
Net cash provided by operating activities	4,588		2,530
Cash flows from investing activities:
Acquisition of intangible asset	—		(1,970)
Purchases of property and equipment	(726)		(55)
Software capitalization costs	(1,158)		(691)
Purchases of available-for-sale securities	(10,189)		(4,504)
Proceeds from sales and maturities of available-for-sale securities	5,426		501
Net cash used in investing activities	(6,647)		(6,719)
Cash flows from financing activities:
Payments of notes payable	(232)		—
Net proceeds from issuance of common stock	1,988		—
Net change in client fund obligations	19,372		21,296
Net cash provided by financing activities	21,128		21,296
Net increase in cash, cash equivalents, restricted cash, and restricted cash equivalents	19,069		17,107
Cash, cash equivalents, restricted cash and restricted cash equivalents, beginning of period	164,042		198,743
Cash, cash equivalents, restricted cash and restricted cash equivalents, end of period	$	183,111	$	215,850

The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.

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ASURE SOFTWARE, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)

(in thousands)


	Three Months Ended March 31,
	2023		2022
	(unaudited)
Reconciliation of cash, cash equivalents, restricted cash, and restricted cash equivalents to the Condensed Consolidated Balance Sheets
Cash and cash equivalents	$	21,438	$	12,054
Restricted cash and restricted cash equivalents included in funds held for clients	161,673		203,796
Total cash, cash equivalents, restricted cash, and restricted cash equivalents	$	183,111	$	215,850

Supplemental information:
Cash paid for interest	$	1,038	$	684
Cash paid (refunded) for income taxes	$	82	$	(14)

Non-cash investing and financing activities:
Notes payable issued for acquisitions	$	—	$	411

The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.

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ASURE SOFTWARE, INC.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

(Amounts in thousands, except per share data unless otherwise noted)

NOTE 1 - THE COMPANY AND BASIS OF PRESENTATION

Asure Software, Inc., (“Asure”, the “Company”, “we” and “our”), a Delaware corporation, is a provider of cloud-based Human Capital Management (“HCM”) software solutions delivered as Software-as-a-Service (“SaaS”) for small and medium-sized businesses (“SMBs”). We offer human resources (“HR”) tools necessary to build a thriving workforce, provide the resources to stay compliant with dynamic federal, state, and local tax jurisdictions and their respective labor laws, freeing cash flows so SMBs can spend their financial capital on growing their businesses rather than administrative overhead that can impede growth. Our solutions also provide new ways for employers to connect with and to differentiate themselves with their employees in order to enhance their relationships with their talent. Asure’s HCM suite (“Asure HCM”) includes Payroll & Tax solutions, HR compliance and services, Time & Attendance software and data integrations that enable employers and their employees to enhance efficiencies and take advantage of value-added solutions, which we refer to as AsureMarketplace™. AsureMarketplace™ automates interactions between our HCM systems with third-party providers to enhance efficiency, improve accuracy and to extend the range of services offered to employers and their employees. We offer our services directly and indirectly through our network of Reseller Partners.

We strive to be the most trusted HCM resource to SMBs. We target less densely populated U.S. metropolitan cities where fewer of our competitors have a presence. Our solutions solve three primary challenges that prevent businesses from growing: HR complexity, allocation of human and financial capital, and the ability to build great teams. We have and will continue to invest in research and development to expand our solutions. Our solutions reduce the administrative burden on employers and increase employee productivity while managing the employment lifecycle. The Asure HCM suite includes five product lines: Asure Payroll & Tax, Asure Tax Management Solutions, Asure Time & Attendance, Asure HR Compliance, and AsureMarketplace™.

We develop, market, sell and support our offerings nationwide through our principal office in Austin, Texas and from our processing hubs in California, Florida, Nebraska, New Jersey, New York, Tennessee, and Vermont.

We have prepared the accompanying unaudited Condensed Consolidated Financial Statements in accordance with the rules and regulations of the Securities and Exchange Commission (the “SEC”) and accordingly, they do not include all information and footnotes required under U.S. generally accepted accounting principles (“U.S. GAAP”) for complete financial statements.

In the opinion of management, these interim financial statements contain all adjustments, consisting of normal, recurring adjustments, necessary for a fair presentation of our financial position as of March 31, 2023 and the results of operations, statements of changes in stockholders’ equity for the three months ended March 31, 2023 and March 31, 2022, and our statements of cash flows for the three months ended March 31, 2023 and March 31, 2022. Certain amounts in the prior period financial statements have been reclassified to conform to the presentation of the current period financial statements. These reclassifications had no effect on the consolidated financial position or consolidated results of operations of the Company.

These unaudited Condensed Consolidated Financial Statements should be read in conjunction with our audited Consolidated Financial Statements and notes thereto filed with the SEC in our annual report on Form 10-K for the fiscal year ended December 31, 2022 (our “2022 Annual Report on Form 10-K”). The results for the interim periods are not necessarily indicative of results for a full fiscal year.

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NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES

USE OF ESTIMATES

Preparation of the Condensed Consolidated Financial Statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of the assets and liabilities, the disclosure of contingent assets and liabilities at the date of the Condensed Consolidated Financial Statements and the reported amounts of revenues and expenses during the reporting period. These estimates are subjective in nature and involve judgments. The more significant estimates made by management include the valuation allowance for the gross deferred tax assets, the determination of the fair value of its long-lived assets, and the fair value of assets acquired and liabilities assumed during acquisitions. We base our estimates on historical experience and on various other assumptions management believes reasonable under the given circumstances. These estimates could be materially different under different conditions and assumptions.

CASH, CASH EQUIVALENTS, AND RESTRICTED CASH

The Company considers all highly liquid investments with an original maturity of 90 days or less at the time of purchase to be cash equivalents. Cash equivalents include investments in an institutional money market fund, which invests in U.S. Treasury bills, notes and bonds, and/or repurchase agreements, backed by such obligations. Carrying value approximates fair value. Restricted cash consists of cash balances which are restricted as to withdrawal or usage. As of December 31, 2022, the Company had a restricted cash balance of $500 related to the collateralization of a letter of credit issued by South State Bank in connection with its money transmission licenses, which was released in the first quarter of 2023. As of March 31, 2023, the Company had no restricted cash.

RECENT ACCOUNTING PRONOUNCEMENTS

In December 2019, the Financial Accounting Standards Board (the “FASB”) issued Accounting Standards Update (“ASU”) No. 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes, which simplifies the accounting for income taxes by removing certain exceptions to the general principles in Topic 740. The amendments also improve consistent application of and simplify GAAP for other areas of Topic 740 by clarifying and amending existing guidance. The standard became effective for interim and annual periods beginning after December 15, 2020, with early adoption permitted. We adopted ASU 2019-12 during the quarter beginning January 1, 2021, using the prospective approach except for hybrid tax regimes, which we adopted using the modified retrospective approach. The adoption of ASU 2019-12 resulted in no material impact to the Company’s financial statements.

In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments — Credit Losses (Topic 326): This update establishes a new approach to estimate credit losses on certain financial instruments. The update requires financial assets measured at amortized cost to be presented at the net amount expected to be collected. The amended guidance will also update the impairment model for available-for-sale debt securities, requiring entities to determine whether all or a portion of the unrealized loss on such securities is a credit loss. The standard became effective for interim and annual periods beginning after December 15, 2022. Effective January 1, 2023, the Company adopted the provisions of ASU No. 2016-13 and determined that adoption did not have a material impact on our consolidated financial statements.

ACCUMULATED OTHER COMPREHENSIVE LOSS

As of March 31, 2023 and December 31, 2022, accumulated other comprehensive loss consisted of net unrealized gains and losses on available-for-sale securities.

NOTE 3 - BUSINESS COMBINATIONS AND ASSET ACQUISITIONS

2022

Effective January 1, 2022, the Company acquired customer relationships of a payroll business for a cash payment of $1,970, which included $31 of transaction costs, and the delivery of a promissory note in the amount of $411. The acquired customer relationships are recorded as an intangible asset and are being amortized on a straight-line basis over eight years. See Note 11, Subsequent Events for information regarding payments made on this promissory note occurring after March 31, 2023.

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2021 and 2020

In September 2021, the Company acquired certain assets of two payroll businesses, which were used to provide payroll processing services. In connection with these acquisitions there are two outstanding promissory notes payable in the amounts of $2,223 and $4,080 as of March 31, 2023. One promissory note also includes contingent consideration for which we utilized a Monte Carlo simulation to determine the fair value of the contingent consideration as of March 31, 2023. For the quarter ended March 31, 2023, there was a measurement period adjustment to the fair value of a decrease in the contingent consideration of $69. For the three months ended March 31, 2023, the fair value of the contingent consideration was $587, which will be added to promissory note in the second quarter of 2023. See Note 11, Subsequent Events for information regarding an adjustment to the promissory note for additional contingent consideration occurring after March 31, 2023.

In July 2020, we acquired certain assets of a payroll tax business. The Asset Purchase Agreement set forth two subsequent purchase consideration payments, which are contingent on certain thresholds. The first contingent purchase consideration was paid in June 2021. The outstanding contingent purchase consideration of $2,299 was valued based on the trailing twelve-month revenue at October 31, 2021 and is due to be paid on July 1, 2023.

NOTE 4 - INVESTMENTS AND FAIR VALUE MEASUREMENTS

Accounting Standards Codification (ASC) 820 “Fair Value Measurement” (ASC 820) defines fair value, establishes a framework for measuring fair value under U.S. GAAP and enhances disclosures about fair value measurements. Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. Valuation techniques used to measure fair value must maximize the use of observable inputs and minimize the use of unobservable inputs. ASC 820 describes a fair value hierarchy based on the following three levels of inputs that may be used to measure fair value, of which the first two are considered observable and the last unobservable:


Level 1:						Quoted prices in active markets for identical assets or liabilities;

Level 2:						Quoted prices in active markets for similar assets or liabilities; quoted prices in markets that are not active for identical or similar assets or liabilities; and model-driven valuations whose significant inputs are observable; and

Level 3:						Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.

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The following table presents the fair value hierarchy for our financial assets and liabilities measured at fair value on a recurring basis as of March 31, 2023 and December 31, 2022, respectively (in thousands):


	Total Carrying Value		Level 1		Level 2		Level 3
March 31, 2023
Assets:
Funds held for clients
Money market funds	$	6,286	$	6,286	$	—	$	—
Available-for-sale securities	61,792		—		61,792		—
Total	$	68,078	$	6,286	$	61,792	$	—

Liabilities:
Contingent purchase consideration(1)	$	2,886	$	—	$	—	$	2,886
Total	$	2,886	$	—	$	—	$	2,886

December 31, 2022
Assets:
Funds held for clients
Money market funds	$	2,829	$	2,829	$	—	$	—
Available-for-sale securities	56,556		—		56,556		—
Total	$	59,385	$	2,829	$	56,556	$	—

Liabilities:
Contingent purchase consideration(1)	$	2,955	$	—	$	—	$	2,955
Total	$	2,955	$	—	$	—	$	2,955

(1)See Note 3 — Business Combinations and Asset Acquisitions for further discussion regarding the contingent purchase consideration.

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Restricted cash equivalents and investments classified as available-for-sale within funds held for clients consisted of the following (in thousands):


	Amortized Cost		Gross Unrealized Gains (1)		Gross Unrealized Losses (1)		Aggregate Estimated Fair Value
March 31, 2023
Restricted cash equivalents	$	6,297	$	—	$	(11)	$	6,286
Available-for-sale securities:
Certificates of deposit	980		3		(2)		981
Corporate debt securities	57,523		62		(1,685)		55,900
Municipal bonds	4,784		—		(330)		4,454
U.S. Government agency securities	500		—		(43)		457
Total available-for-sale securities	63,787		65		(2,060)		61,792

Total(2)	$	70,084	$	65	$	(2,071)	$	68,078

December 31, 2022
Restricted cash equivalents	$	2,829	$	—	$	—	$	2,829
Available-for-sale securities:
Certificates of deposit	983		4		(2)		985
Corporate debt securities	52,251		1		(2,023)		50,229

SEC Form 10-Q filed by Asure Software Inc