What changed in this filing

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Item 2. Management’s Discussion and Analysis

2021-11-08 compared with 2021-08-09 · 115 added, 105 removed, 138 unchanged (61% of the section changed)

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This Form 10-Q contains forward-looking statements about our financial results, which may include expected U.S GAAP and non-U.S.

GAAP financial and other operating and non-operating results, including revenue, net income, diluted earnings per share, operating cash flow growth, operating margin improvement, deferred revenue growth, expected revenue run rate, expected tax rates, stock-based compensation expenses, amortization of purchased intangibles, amortization of debt discount and shares outstanding.

GAAP financial and other operating and non-operating results, including revenue, net income, diluted earnings per share, operating cash flow growth, operating margin improvement, deferred revenue growth, expected revenue run rate, expected tax rates, share-based compensation expenses, amortization of purchased intangibles, amortization of debt discount and shares outstanding.

The achievement or success of the matters covered by such forward-looking statements involves risks, uncertainties and assumptions.

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breaches of the Company’s security measures;

domestic and international regulatory developments, including changes to or applicability to our business of privacy and data securities laws, money transmitter laws and anti-money laundering laws;

domestic regulatory developments, including changes to or applicability to our business of privacy and data securities laws, money transmitter laws and anti-money laundering laws;

the financial and other impact of any previous and future acquisitions;

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the emerging markets in which the Company operates;

unique aspects of entering or expanding in international markets, including the compliance with United States export control laws, the Company’s ability to hire, retain and motivate employees and manage the Company’s growth;

the Company’s ability to hire, retain and motivate employees and manage the Company’s growth;

changes in the Company’s customer base;

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unanticipated changes in the Company’s effective tax rate;

factors affecting the Company’s term loan and revolving credit facility;

regulatory pressures on economic relief enacted as a result of the COVID-19 pandemic that change or cause different interpretations with respect to eligibility for such programs;

factors affecting the Company’s term loan;

fluctuations in the number of Company shares outstanding and the price of such shares;

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Asure assumes no obligation and does not intend to update these forward-looking statements, except as required by law.

The following review of Asure’s financial position as of June 30, 2021 and December 31, 2020, and results of operations for the three and six months ended June 30, 2021 and 2020 should be read in conjunction with our 2020 Annual Report on Form 10-K filed with the SEC on March 11, 2021.

The following review of Asure’s financial position as of September 30, 2021 and December 31, 2020, and results of operations for the three and nine months ended September 30, 2021 and 2020 should be read in conjunction with our 2020 Annual Report on Form 10-K filed with the SEC on March 11, 2021.

Asure’s internet website address is www.asuresoftware.com.

Our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934 are available through the investor relations page of our internet website free of charge as soon as reasonably practicable after they are electronically filed, or furnished to, the SEC.

Asure’s internet website and the information contained in our website or connected to our website is not incorporated into this Quarterly Report on Form 10-Q.

Asure’s internet website and the information contained in our website or connected to our website are not incorporated into this Quarterly Report on Form 10-Q, however we do post information on the investor relations page of our website that we believe may be of interest to our investors.

Asure is a leading provider of cloud-based Human Capital Management (“HCM”) software and services.

We help small- and medium-sized businesses grow by offering the HR tools necessary to build a better workforce, providing the resources to stay compliant with ever changing federal, state, and local tax jurisdictions and labor laws, ultimately freeing their cash flows so they can spend their financial capital on growing their business rather than back-office overhead that suffocates growth.

Asure’s Human Capital Management suite, named AsureHCM, includes cloud-based Payroll & Tax, HR, and Time & Attendance software as well as HR Services ranging from HR projects to completely outsourcing payroll and HR staff.

We help small and medium-sized businesses grow by offering the HR tools necessary to build a better workforce, providing the resources to stay compliant with ever changing federal, state, and local tax jurisdictions and labor laws, ultimately freeing their cash flows so they can spend their financial capital on growing their business rather than back-office overhead that impedes growth.

Asure’s HCM suite, named AsureHCM, includes cloud-based Payroll & Tax, HR, and Time & Attendance software as well as HR Services ranging from HR projects to completely outsourcing payroll and HR staff.

We also offer these products and services through our network of Reseller Partners.

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Impact of the COVID-19 Pandemic

On March 11, 2020, the World Health Organization declared the COVID-19 outbreak to be a global pandemic.

In March 2020, the World Health Organization declared the COVID-19 outbreak to be a global pandemic.

In response, federal, state and local governments imposed various restrictions on social and commercial activity to promote social distancing in an effort to slow the spread of the disease, and certain restrictions remain in place.

Beginning in February 2020, we took various actions in order to minimize the risk of COVID-19 to our employees, our clients, and the communities in which we operate, and in March 2020, we prohibited all business-related travel until further notice and began transitioning our employees to work-from-home arrangements.

Beginning in February 2020, we took various actions in order to minimize the risk of COVID-19 to our employees, our clients, and the communities in which we operate, and in March 2020, we prohibited all business-related travel and began transitioning our employees to work-from-home arrangements.

As of June 1, 2021, we have opened our offices and resumed in person work.

We continue to take proactive measures, including regular cleaning of the offices, and monitoring of the Center for Disease Control guidelines for return to work.

We continue to take proactive measures, including regular cleaning of the offices, and monitoring of the Center for Disease Control guidelines for returning to work.

We will continue to actively monitor the situation and may take further actions that alter our business operations as may be required by federal, state or local authorities or that we determine are in the best interests of our employees and clients.

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Across many industries, temporary and permanent business closures as well as business occupancy limitations have resulted in significant layoffs and employee furloughs since late March 2020.

Because we charge our clients on a per-employee basis for certain services we provide, decreases in the headcounts of our clients as of the onset of the pandemic negatively impacted our recurring revenue during 2020, and we expect that our recurring revenue in future periods will continue to be negatively impacted by such headcount reductions until employment levels among such client base return to pre-pandemic levels.

Because we charge our clients on a per-employee basis for certain services we provide, decreases in the headcounts of our clients at the onset of the pandemic negatively impacted our recurring revenue during 2020.

We expect our recurring revenue in future periods to continue to be negatively impacted by headcount reductions until employment levels across our client base return to pre-pandemic levels.

Further, at the onset of the COVID-19 pandemic, a limited number of new clients temporarily delayed service implementation.

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We expect net income to be negatively affected by the impact of the pandemic on our recurring revenue and our deliberate, increased level of investment in sales and marketing and research and development to drive the growth of our business.

Prior to the COVID-19 pandemic, our sales force historically traveled frequently to market our solution set.

The current remote work environment presents a unique opportunity for our sales force because each sales employee is able to meet virtually with a greater number of client prospects in a given day than he or she would if conducting in-person meetings.

Prior to the COVID-19 pandemic, our sales force traveled frequently to market our solution set.

The current remote work environment presents a unique opportunity because each sales employee is able to meet virtually with a greater number of client prospects in a given day than they would if conducting in-person meetings.

Although we have not experienced such challenges to date, if clients and client prospects are not as willing or available to engage by video conference and teleconference, the shift from in-person to virtual sales meetings could negatively affect our sales efforts, impede client acquisition and lengthen our sales cycles, which would negatively impact our business and results of operations and could impact our financial condition in the future.

We are unable to estimate the full impact that the COVID-19 pandemic could have on our business and results of operations in the future due to numerous uncertainties, including the severity of the disease, the occurrence of variant strains, the duration of the outbreak, actions that may be taken by governmental authorities, the impact it may have on the business of our clients and other factors identified in Part I, Item 1A “Risk Factors” in our Form 10-K.

The employee retention tax credit (“ERTC”) for 2020 was established under the CARES Act and amended by the Taxpayer Certainty and Disaster Tax Relief Act of 2020 and provided for changes in the employee retention credit for 2020 and provided an additional credit.

The Company evaluated its eligibility for the ERTC for the three quarters lapsed in 2021.

It was determined that the Company qualified for the employee retention credit for each quarter ended in 2021.

As a result, as of September 30, 2021 approximately $10,533 was recognized in Interest (expense) income, net for the ERTC.

For further discussion, see Note 10 — Employee Retention Credit.

We are unable to estimate the full impact the COVID-19 pandemic could have on our business and results of operations in the future due to numerous uncertainties, including the severity of the disease, the occurrence of variant strains, the duration of the outbreak, actions that may be taken by governmental authorities, the impact it may have on the business of our clients and other factors identified in Part I, Item 1A “Risk Factors” in our 2020 Annual Report on Form 10-K.

As a result, the effect of the ongoing COVID-19 pandemic may not be fully reflected in our results of operations and overall financial performance until future periods.

RESULTS OF OPERATIONS

($ in thousands)

Three and Six Months Ended June 30, 2021 Compared to Three and Six Months Ended June 30, 2020

On September 30, 2021, our subsidiary, Evolution Payroll Processing LLC (“EPP”), acquired certain assets of a New Jersey corporation, which were used to provide payroll processing services.

The aggregate purchase price we paid for the assets was $24,150, including:

(i) $15,000 in cash at closing, (ii) the delivery of a promissory note of $4,350, and (iii) the delivery of 523 shares of the Company’s common stock which the parties agreed had an aggregate value of $4,800 as of September 30, 2021.

At closing, the face amount of the promissory note was adjusted to $4,318 to account for a shortfall in working capital.

The agreement is subject to future adjustments to the purchase price, including working capital and an earnout.

Also on September 30, 2021, EPP acquired certain assets of a Vermont corporation, which were used to provide payroll processing services.

The aggregate purchase price for these assets was $14,750, paid as follows:

(i) $10,325 in cash at closing, (ii) the delivery of a promissory note in the amount of $2,213, and (iii) the delivery of 244 shares of the Company’s common stock which the parties agreed had an aggregate value of $2,213 as of September 30, 2021.

The agreement is subject to a future working capital adjustment to the purchase price.

RESULTS OF OPERATIONS (in thousands)

Three and Nine Months Ended September 30, 2021 Compared to Three and Nine Months Ended September 30, 2020

The following table sets forth, for the fiscal periods indicated, the percentage of total revenues represented by certain items in the Company’s Condensed Consolidated Statements of Comprehensive Income (Loss):

Three Months Ended June 30, Six Months Ended June 30,

Three Months Ended September 30, Nine Months Ended September 30,

2021 2020 2021 2020

Revenues 100 % 100 % 100 % 100 %

Gross margin 58 % 57 % 61 % 58 %

Gross profit 60 % 57 % 61 % 58 %

Sales and marketing 22 % 22 % 20 % 20 %

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Total operating expenses 83 % 86 % 78 % 77 %

Interest expense and other, net (1) % — % (1) % 2 %

Gain on extinguishment of debt 50 % — % 23 % — %

Interest income (expense) and other, net (3) % (2) % (2) % (2) %

(Loss) gain on extinguishment of debt (2) % — % 15 % — %

Employee retention tax credit 59 % — % 19 % — %

Gain (loss) from operations before income taxes 31 % (32) % 15 % (21) %

Net gain (loss) from continuing operations 22 % (28) % 6 % (17) %

Net income (loss) 30 % (30) % 14 % (21) %

Revenues are comprised of recurring revenues, professional services, hardware, and other revenues.

We expect our revenues to increase as we introduce new applications, expand our client base and renew and expand relationships with existing clients.

As a percentage of total revenues, we expect our mix of recurring revenues, and implementation and other revenues to remain relatively constant.

As a percentage of total revenues, we expect our mix of recurring revenues, and professional services, hardware and other revenues to remain relatively constant.

While revenue mix varies by product, recurring revenue represented over 91% of total revenue in the third quarter.

Our revenue was derived from the following sources (in thousands):

Three Months Ended September 30, Variance

2021 2020 $ %

Recurring $ 16,374 $ 15,273 $ 1,101 7 %

Professional services, hardware and other 1,607 742 865 117 %

Total $ 17,981 $ 16,015 $ 1,966 12 %

Nine Months Ended September 30, Variance

2021 2020 $ %

Recurring $ 51,688 $ 47,442 $ 4,246 9 %

Professional services, hardware and other 3,263 1,635 1,628 100 %

Total $ 54,951 $ 49,077 $ 5,874 12 %

Revenue for the three months ended September 30, 2021, increased sequentially $813 or 5%, from $17,168 for the three months ended June 30, 2021 primarily due to increased demand of our ERTC service and underlying growth in our core business.

Recurring Revenues

Recurring revenues include fees for our payroll, payroll tax, time and labor management, and other Asure solutions as well as fees charged for form filings and delivery of client payroll checks and reports.

These revenues are derived from (i) fixed amounts charged per billing period plus a fee per employee or transaction processed or (ii) fixed amounts charged per billing period.

We do not require clients to enter into long-term contractual commitments with us.

These revenues are derived from fixed amounts charged per billing period and sometimes an additional fee per employee or transaction processed.

We do not require clients to enter into long-term contractual commitments for our services.

Our billing period varies by client based on when each client pays its employees, which may be weekly, bi-weekly, semi-monthly or monthly.

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Recurring revenues include revenues relating to the annual processing of payroll forms, such as Form W-2 and Form 1099, and revenues from processing unscheduled payroll runs (such as bonuses) for our clients.

Because payroll forms are typically processed in the first quarter of the year and many of our clients are subject to ACA form filing requirements in the first quarter, first quarter revenues and margins are generally higher than in subsequent quarters.

Because payroll forms are typically processed in the first quarter of the year and many of our clients are subject to form filing requirements mandated by the Affordable Care Act (“ACA”), first quarter revenues and margins are generally higher than in subsequent quarters.

We anticipate our revenues will continue to exhibit this seasonal pattern related to ACA form filings for so long as the ACA (or replacement legislation) includes employer reporting requirements.

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The amount of interest we earn from the investment of client funds is also impacted by changes in interest rates.

Revenue for the three months ended September 30, 2021 was $17,981, an increase of $1,966, or 12%, from $16,015 for the three months ended September 30, 2020.

The 12% growth was split between two-thirds organic and one-third inorgranic growth.

The inorganic growth was driven by an increase in clients from our acquisitions at the beginning of 2021.

Higher account balances in funds held for clients increased interest revenue compared to the prior year.

Revenue for the nine months ended September 30, 2021 was $54,951, an increase of $5,874, or 12%, from $49,077 for the nine months ended September 30, 2020.

Recurring revenue increased primarily due to an increase in clients due to our acquisitions at the beginning of 2021 and higher account balances in funds held for clients and correlated interest revenue.

Professional Services, Hardware and Other Revenues

Professional Services, Hardware and Other Revenues represents implementation fees, one-time consulting projects, on-premise maintenance, and hardware devices to enhance our software products.

Our revenue was derived from the following sources (in thousands):

Three Months Ended June 30, Variance

2021 2020 $ %

Recurring $ 16,072 $ 13,733 $ 2,339 17.0 %

Professional services, hardware and other 1,096 382 714 186.9 %

Total $ 17,168 $ 14,115 $ 3,053 21.6 %

Six Months Ended June 30, Variance

2021 2020 $ %

Recurring $ 35,314 $ 32,168 $ 3,146 9.8 %

Professional services, hardware and other 1,656 893 763 85.4 %

Total $ 36,970 $ 33,061 $ 3,909 11.8 %

Total revenue represents our consolidated revenues, including sales of our payroll and tax services, time and attendance and human resource software, as well as complementary hardware devices to enhance our software products.

Recurring revenue consists of cloud revenue, recurring HR consulting revenue, hardware as a service, maintenance and support revenue and interest earned on client funds.

Professional services, hardware and other revenue consists of hardware revenue, on-premise software license revenue as well as installation services and other professional services revenue.

While revenue mix varies by product, recurring revenue represented over 90% of total revenue in the second quarter.

Revenue for the three months ended June 30, 2021 was $17,168, an increase of $3,053, or 21.6%, from $14,115 for the three months ended June 30, 2020.

Revenue increased evenly, approximately, between organic and inorgranic growth.

The inorganic growth was driven by an increase in clients from our acquisitions in the second half of 2020.

Higher account balances in funds held for clients increased interest revenue compared to the prior year.

Professional services, hardware and other revenue increased $714, or 186.9%, for the three months ended June 30, 2021 from the similar period in 2020 due to the continued success of our Employee Retention Tax Credit (“ERTC”) service launch, which we anticipate to have a positive impact on our operating results through 2021.

Revenue for the three months ended June 30, 2021, decreased sequentially $2,634 or 13.3%, from $19,802 for the three months ended March 31, 2021 primarily due to year end W-2/ACA revenue that is recognized in the first quarter, offset by Professional services, hardware and other revenue.

Revenue for the six months ended June 30, 2021 was $36,970, an increase of $3,909, or 11.8%, from $33,061 for the six months ended June 30, 2020.

Recurring revenue increased primarily due to an increase in clients due to our acquisitions in 2020 and higher account balances in funds held for clients and correlated interest revenue.

Professional services, hardware and other revenue increased $763, or 85.4%, for the six months ended June 30, 2021 from the similar period in 2020, due to the implementation of our ERTC service in 2021.

Professional services, hardware and other revenue increased $865, or 117%, for the three months ended September 30, 2021 from the similar period in 2020 due to the continued success of our Employee Retention Tax Credit (“ERTC”) service launch, which we anticipate to have a positive impact on our operating results through 2021.

Professional services, hardware and other revenue increased $1,628, or 100%, for the nine months ended September 30, 2021 from the similar period in 2020, due to the implementation of our ERTC service in 2021.

Although our total customer base is widely spread across industries, our sales are concentrated in small to medium-sized businesses.

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Gross Profit and Gross Margin

Consolidated gross profit for the three months ended June 30, 2021 was $9,945, an increase of $1,838, or 22.7%, from $8,107 for the three months ended June 30, 2020.

Gross margin as a percentage of revenue was 57.9% for the three months ended June 30, 2021 as compared to 57.4% for the three months ended June 30, 2020.

Consolidated gross profit for the three months ended September 30, 2021 was $10,868, an increase of $1,795, or 20%, from $9,073 for the three months ended September 30, 2020.

Gross margin as a percentage of revenue was 60% for the three months ended September 30, 2021 as compared to 57% for the three months ended September 30, 2020.

Our increase in gross margin is primarily attributable to the increase in revenue and more efficient operations.

Consolidated gross profit for the six months ended June 30, 2021 was $22,437, an increase of $3,224, or 16.8%, from $19,213 for the six months ended June 30, 2020.

Gross margin as a percentage of revenue was 60.7% for the six months ended June 30, 2021 as compared to 58.1% for the six months ended June 30, 2020.

Consolidated gross profit for the nine months ended September 30, 2021 was $33,305, an increase of $5,018, or 18%, from $28,287 for the nine months ended September 30, 2020.

Gross margin as a percentage of revenue was 61% for the nine months ended September 30, 2021 as compared to 58% for the nine months ended September 30, 2020.

Our increase in gross margin is primarily attributable to the increase in revenue and more efficient operations.

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Sales and marketing expenses primarily consist of salaries and related expenses for sales and marketing staff, including stock-based expenses, commissions, as well as marketing programs, which include events, corporate communications and product marketing activities.

Selling and marketing expenses for the three months ended June 30, 2021 were $3,622, an increase of $853, or 30.8%, from $2,769 for for the three months ended June 30, 2020.

Selling and marketing expenses for the three months ended September 30, 2021 were $3,897, an increase of $324, or 9%, from $3,573 for the three months ended September 30, 2020.

The increase in sales and marketing is primarily due to increased personnel costs offset by lower discretionary marketing spend as we focus on hiring direct sales personnel.

Sales and marketing expenses as a percentage of revenue increased to 21.1% for the three months ended June 30, 2021 from 19.6% for the same period in 2020.

Selling and marketing expenses for the six months ended June 30, 2021 were $7,233, an increase of $889, or 14.0%, from $6,344 for the six months ended June 30, 2020, primarily due to increased personnel costs offset by lower discretionary marketing spend as we focus on hiring direct sales personnel.

Selling and marketing expenses as a percentage of revenue increased to 19.6% for the six months ended June 30, 2021 from 19.2% for the same period in 2020.

Sales and marketing expenses as a percentage of revenue remained flat at 22% for the three months ended September 30, 2021 from 22% for the same period in 2020.

Selling and marketing expenses for the nine months ended September 30, 2021 were $11,130, an increase of $1,213, or 12%, from $9,917 for the nine months ended September 30, 2020, primarily due to increased personnel costs offset by lower discretionary marketing spending as we focus on hiring direct sales personnel.

Selling and marketing expenses as a percentage of revenue remained flat at 20% for the nine months ended September 30, 2021 from 20% for the same period in 2020.

We continue to expand and increase selling costs as we focus on hiring direct sales personnel, expanding recognition of our brand, and lead generation.

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General and administrative expenses primarily consist of salaries and related expenses, including stock-based expenses for finance and accounting, legal, internal audit, human resources and management information systems personnel, legal costs, professional fees, and other corporate expenses such as transaction costs for acquisitions.

General and administrative expenses for the three months ended June 30, 2021 were $6,821, an increase of $1,628, or 31.3%, from $5,193 for the three months ended June 30, 2020, primarily attributable to increased personnel, contracting and placement costs.

General and administrative expenses as a percentage of revenue increased to 39.7% for the three months ended June 30, 2021 from 36.8% for the same period in 2020.

General and administrative expenses for the six months ended June 30, 2021 were $13,319, an increase of $1,673, or 14.4%, from $11,646 for the six months ended June 30, 2020, primarily attributable to increased personnel, contracting and placement costs.

General and administrative expenses as a percentage of revenue increased to 36.0% for the six months ended June 30, 2021 from 35.2% for the same period in 2020.

We continue to drive efficiencies within our payroll operations and continually reevaluate our vendor relationships.

General and administrative expenses for the three months ended September 30, 2021 were $7,005, an increase of $1,058, or 18%, from $5,947 for the three months ended September 30, 2020, primarily attributable to increased personnel, contracting and placement costs.

General and administrative expenses as a percentage of revenue increased to 39% for the three months ended September 30, 2021 from 37% for the same period in 2020.

General and administrative expenses for the nine months ended September 30, 2021 were $20,324, an increase of $3,840, or 23%, from $16,484 for the nine months ended September 30, 2020, primarily attributable to increased personnel, contracting and placement costs.

General and administrative expenses as a percentage of revenue increased to 37% for the nine months ended September 30, 2021 from 34% for the same period in 2020.

We continue to drive efficiencies within our payroll operations by continually reevaluating our vendor relationships.

Research and Development Expenses

Research and development (“R&D”) expenses consist primarily of salaries and related expenses, including stock-based expenses for employees supporting our R&D activities.

R&D expenses for the three months ended June 30, 2021 were $1,343, a decrease of $34, or 2.5%, from $1,377 for the three months ended June 30, 2020.

R&D expenses for the three months ended September 30, 2021 were $1,505, a decrease of $300, or 17%, from $1,805 for the three months ended September 30, 2020.

The decrease in R&D expense is primarily attributable to an increase in investment costs offset by an increase in capitalization costs.

R&D expenses as a percentage of revenues decreased to 7.8% for the three months ended June 30, 2021 from 9.8% for the same period in 2020.

R&D expenses for the six months ended June 30, 2021 were $2,467, a decrease of $84, or 3.3%, from $2,551 for the six months ended June 30, 2020.

R&D expenses as a percentage of revenues decreased to 8% for the three months ended September 30, 2021 from 11% for the same period in 2020.

R&D expenses for the nine months ended September 30, 2021 were $3,972, a decrease of $384, or 9%, from $4,356 for the nine months ended September 30, 2020.

The decrease in R&D expense is primarily attributable to an increase in investment costs offset by an increase in capitalization costs.

R&D expenses as a percentage of revenues decreased to 6.7% for the six months ended June 30, 2021 from 7.7% for the same period in 2020.

R&D expenses as a percentage of revenues decreased to 7% for the nine months ended September 30, 2021 from 9% for the same period in 2020.

We will continue to enhance our products and technologies through expansion of our technological resources by increasing headcount and development partnerships, as well as through organic improvements and acquired intellectual property.

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We believe we have the appropriate development team to design and enhance our solution suite and integrated platform.

We have also made significant investments outside of core R&D into compliance and certifications, including SOC I Type 1 and SOC II Type 2 certifications, GDPR, CCPA, and other initiatives.

We have also made significant investments outside of core R&D into compliance and certifications, including SOC I Type 2 and SOC II Type 2 certifications, BIPA, CCPA, and other initiatives.

Amortization of Intangible Assets

Amortization expense in operating expenses for the three months ended June 30, 2021 was $2,528, an increase of $179, or 7.6%, from $2,349 for the three months ended June 30, 2020.

Amortization expense as a percentage of revenue was 14.7% and 16.6% for the three months ended June 30, 2021 and 2020, respectively.

Amortization expense in operating expenses for the six months ended June 30, 2021 was $5,056, an increase of $358, or 7.6%, from $4,698 for for the six months ended June 30, 2020.

Amortization expense as a percentage of revenue was 13.7% and 14.2% for the six months ended June 30, 2021 and 2020, respectively.

Interest (Expense) Income and Other, Net

Interest (expense) income and other, net for the three months ended June 30, 2021 was a loss of $223 compared to a gain of $14 for the three months ended June 30, 2020.

Interest (expense) income and other, net as a percentage of revenue was at (1.3)% and 0.1% for the three months ended June 30, 2021 and June 30, 2020, respectively.

Interest (expense) income and other, net for the three months ended June 30, 2021 and 2020 is composed primarily of interest expense on notes payable.

Interest (expense) income and other, net for the six months ended June 30, 2021 was a loss of $447 compared to a gain of $710 for the six months ended June 30, 2020.

Interest (expense) income and other, net as a percentage of revenue was at (1.2)% and 2.1% for the six months ended June 30, 2021 and June 30, 2020, respectively.

Interest (expense) income and other, net for the six months ended June 30, 2021 and 2020 is composed primarily of interest expense on notes payable.

For the three months ended June 30, 2021 and 2020, we recorded an income tax expense attributable to continuing operations of $298 and $377, respectively, a decrease of $79 or 21.0%.

For the six months ended June 30, 2021 and 2020, we recorded an income tax expense attributable to continuing operations of $403 and $395, respectively, an increase of $8 or 2.0%.

Loss From Operations

We incurred a loss from operations of $4,369, or $0.23 per share, during the three months ended June 30, 2021, compared to a loss from operations of $3,581, or $0.25 per share, during the three months ended June 30, 2020.

Loss from continuing operations as a percentage of total revenues was 21.9% and 27.9% for the three months ended June 30, 2021 and 2020, respectively.

We incurred a loss from operations of $5,638, or $0.30 per share, during the six months ended June 30, 2021, compared to a loss from operations of $6,026, or $0.36 per share, during the six months ended June 30, 2020.

Loss from continuing operations as a percentage of total revenues was 5.9% and 17.3% for the six months ended June 30, 2021 and 2020, respectively.

Amortization expense in operating expenses for the three months ended September 30, 2021 was $2,534, an increase of $110, or 5%, from $2,424 for the three months ended September 30, 2020.

Amortization expense as a percentage of revenue was 14% and 15% for the three months ended September 30, 2021 and 2020, respectively.

Amortization expense in operating expenses for the nine months ended September 30, 2021 was $7,590, an increase of $468, or 7%, from $7,122 for the nine months ended September 30, 2020.

Amortization expense as a percentage of revenue was 14% and 15% for the nine months ended September 30, 2021 and 2020, respectively.

Other Income (Expense), Net

Other income (expense), net for the three months ended September 30, 2021 was a gain of $9,661 compared to a loss of $408 for the three months ended September 30, 2020.

The gain is attributed to $10,533 in Employee Retention Credits, discussed earlier in this Management’s Discussion and Analysis of Financial Condition and Results of Operations under Impact of the COVID-19 Pandemic.

Other income (expense), net as a percentage of revenue was income of 54% and an expense of 3% for the three months ended September 30, 2021 and September 30, 2020, respectively.

Interest expenses for the three months ended September 30, 2021 and 2020 are composed primarily of interest expense on notes payable.

Other income (expense), net for the nine months ended September 30, 2021 was a gain of $17,868 compared to a loss of $807 for the nine months ended September 30, 2020.

Other income (expense), net as a percentage of revenue was income of 33% and expense of 2% for the nine months ended September 30, 2021 and September 30, 2020, respectively.

Interest expenses for the nine months ended September 30, 2021 and 2020 is composed primarily of interest expense on notes payable.

For the three months ended September 30, 2021 and 2020, we recorded an income tax expense attributable to continuing operations of $260 and benefit of $325, respectively, an increase of $585 or 180%.

For the nine months ended September 30, 2021 and 2020, we recorded an income tax expense attributable to continuing operations of $663 and $71, respectively, an increase of $592 or 834%.

Income (Loss) From Operations

We generated income from operations of $5,328, or $0.28 per share, during the three months ended September 30, 2021, compared to a loss from operations of $4,759, or $0.30 per share, during the three months ended September 30, 2020.

Income and loss from operations as a percentage of total revenues was 30% and 30% for the three months ended September 30, 2021 and 2020, respectively.

We generated income from operations of $7,494, or $0.39 per share, during the nine months ended September 30, 2021, compared to a loss from operations of $10,470, or $0.66 per share, during the nine months ended September 30, 2020.

Income and loss from operations as a percentage of total revenues was 14% and 21% for the nine months ended September 30, 2021 and 2020, respectively.

We intend to continue to implement our corporate strategy for growing our software and services business by investing in areas that directly generate revenue and positive cash flows for the Company.

However, uncertainties and challenges remain, including the effects of COVID-19, and there can be no assurance that we can successfully grow our revenues or achieve profitability during the remainder of fiscal year 2021.

However, uncertainties and challenges remain, including the effects of COVID-19, inflation and supply chain disruptions, and there can be no assurance that we can successfully grow our revenues or achieve profitability during the remainder of fiscal year 2021.

LIQUIDITY AND CAPITAL RESOURCES (in thousands)

June 30, 2021 December 31, 2020

September 30, 2021 December 31, 2020

Cash and cash equivalents (1)

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Working Capital .

We had working capital of $14,836 at June 30, 2021, an increase of $6,630 from working capital of $8,206 at December 31, 2020.

Working capital as of June 30, 2021 and December 31, 2020 includes $1,279 and $4,343 of short-term deferred revenue, respectively.

We had working capital of $17,356 at September 30, 2021, an increase of $9,148 from working capital of $8,208 at December 31, 2020.

Working capital as of September 30, 2021 and December 31, 2020 includes $1,501 and $4,416 of short-term deferred revenue, respectively.

Deferred revenue is an obligation to perform future services.

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Operating Activities .

Net cash used in operating activities of $1,898 for the six months ended June 30, 2021 was primarily driven by changes in operating assets and liabilities, which resulted in a use of $5,645 in cash.

This was offset by non-cash adjustments to our net income of approximately $1,581, primarily due to depreciation and amortization, and net income of $2,166.

Net cash used in operating activities of $350 for the six months ended June 30, 2020 was primarily driven by our net loss of $5,711.

Non-cash adjustments to our net loss was approximately $8,935, primarily due to depreciation and amortization.

Net cash used in operating activities of $1,144 for the nine months ended September 30, 2021 was primarily driven by non-cash adjustments to our net income of approximately $7,026, primarily due to depreciation and amortization, and net income of $7,494.

This was offset by changes in operating assets and liabilities, which resulted in a use of $15,473 in cash.

Net cash provided by operating activities of $2,296 for the nine months ended September 30, 2020 was driven by non-cash adjustments to our net loss of approximately $14,017, primarily due to depreciation and amortization, offset by our net loss of $10,470.

Changes in operating assets and liabilities resulted in a use of $1,251 in cash.

Investing Activities .

Net cash provided by investing activities of $5,180 for the six months ended June 30, 2021 is primarily due to proceeds from sales and maturities of available-for-sale securities.

Net cash used in investing activities of $8,130 for the six months ended June 30, 2020 is primarily due to the purchase and sale of available-for-sale securities.

Net cash used in investing activities of $21,042 for the nine months ended September 30, 2021 is primarily due to our third quarter acquisitions totaling $25,526.

Net cash used in investing activities of $15,312 for the nine months ended September 30, 2020 is primarily due to the purchase and sale of available-for-sale securities.

Financing Activities .

Net cash used in financing activities was $117,657 for the six months ended June 30, 2021, which primarily consisted of a net decrease in client fund obligations of $113,251 and payments of notes payable of $3,090.

Net cash used in financing activities was $10,350 for the six months ended June 30, 2020, which primarily consisted of a net decrease in client fund obligations of $17,393.

Net cash used in financing activities was $133,990 for the nine months ended September 30, 2021, which primarily consisted of a net decrease in client fund obligations of $146,206 and payments of notes payable of $15,073.

These amounts were offset by proceeds from our notes payable of $29,425.

Net cash provided by financing activities was $65,494 for the nine months ended September 30, 2020, which primarily consisted of a net increase in client fund obligations of $68,441.

Sources of Liquidity .

As of June 30, 2021, the Company’s principal sources of liquidity consisted of approximately $20,292 of cash and cash equivalents, cash generated from operations of our business over the next twelve months, and $4,500 available for borrowing under our Wells Fargo revolver.

Furthermore, following the end of the quarter, we signed a commitment letter with Structural Capital Investments III, LP for a new credit facility, see Item 5.

Other Information.

As of June 30, 2021 and December 31, 2020, no amount was outstanding and $4,500 was available for borrowing under the revolver.

As of September 30, 2021, the Company’s principal sources of liquidity consisted of approximately $11,506 of cash and cash equivalents, cash generated from operations of our business over the next twelve months, and $20,000 available for borrowing under our credit facility with Structural Capital Investments III, LP, which is discussed in Note 5 — Notes Payable, to the Condensed Consolidated Financial Statements.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

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Such information is incorporated by reference herein.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

There have been no material changes to our exposure from market risks from those disclosed in our 2020 Annual Report on Form 10-K.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis