What changed in this filing

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Item 2. Management’s Discussion and Analysis

2022-08-08 compared with 2022-05-09 · 91 added, 50 removed, 175 unchanged (45% of the section changed)

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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 March 31, 2022 and December 31, 2021, and results of operations for the three months ended March 31, 2022 and 2021 should be read in conjunction with our 2021 Annual Report on Form 10-K filed with the SEC on March 14, 2022.

The following review of Asure’s financial position as of June 30, 2022 and December 31, 2021, and results of operations for the three and six months ended June 30, 2022 and 2021 should be read in conjunction with our 2021 Annual Report on Form 10-K filed with the SEC on March 14, 2022.

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

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As the COVID-19 pandemic continues to create uncertainty and the potential for ongoing business disruptions, we may experience similar client-driven delays in service implementation in the future.

In 2022, we continued to aggressively invest in sales and marketing and in research and development to drive future growth and expand our market share.

Lower headcount at our clients and the other pandemic-related factors described above, which had and may continue to have a negative impact on recurring revenue, combined with increased sales and marketing and research and development expenses, cumulatively had an adverse impact on our operating results for the quarter ended March 31, 2022.

In 2022, we continue to aggressively invest in sales and marketing and in research and development to drive future growth and expand our market share.

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.

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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.

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.

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

The Company evaluated its eligibility for the ERTC for the year ended December 31, 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.

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

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 2021 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.

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.

On September 30, 2021, our subsidiary, Evolution Payroll Processing LLC (“EPP”), acquired certain assets of a payroll business, 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.

(i) $15,000 in cash at closing, (ii) 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, and (iii) the delivery of a promissory note of $4,350.

The face amount of the promissory note was adjusted to $4,533 to account for post close and working capital adjustments.

Also on September 30, 2021, EPP acquired certain assets of a payroll business, 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.

(i) $10,325 in cash at closing, (ii) 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, and (iii) the delivery of a promissory note in the amount of $2,213.

The promissory note was adjusted to $2,223 to account for post close and working capital adjustments.

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

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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 Loss:

Three Months Ended March 31,

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

2022 2021 2022 2021

Revenues 100 % 100 % 100 % 100 %

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Total operating expenses 89 % 83 % 80 % 76 %

Interest expense and other, net (3) % (1) %

Interest expense (5) % (1) % (4) % (1) %

Other income(expense), net 6 % 50 % 3 % 23 %

Gain on extinguishment of debt 6 % 50 % 3 % 23 %

Loss from operations before income taxes (29) % 24 % (20) % 7 %

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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 94% of total revenue in three months ended March 31, 2022, compared to 97% in three months ended March 31, 2021.

While revenue mix varies by product, recurring revenue represented over 94% of total revenue in six months ended June 30, 2022, compared to 95% in six months ended June 30, 2021.

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

Three Months Ended March 31, Variance

Three Months Ended June 30, Variance

2022 2021 $ %

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Total 20,300 17,168 3,132 18 %

Six Months Ended June 30, Variance

2022 2021 $ %

Recurring $ 42,018 $ 35,314 $ 6,704 19 %

Professional services, hardware and other 2,615 1,656 959 58 %

Total $ 44,633 $ 36,970 $ 7,663 21 %

Recurring Revenues

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In addition, we often experience increased revenues during the fourth quarter due to unscheduled payroll runs for our clients that occur before the end of the year.

Therefore, we expect the seasonality of our revenue cycle to decrease to the extent clients utilize more of our non-payroll applications.

Over time, we expect the seasonality of our revenue cycle to decrease to the extent clients utilize more of our non-payroll applications, which tend to exhibit less sea

This revenue line also includes interest earned on funds held for clients.

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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 March 31, 2022 was $24,333, an increase of $4,531, or 23%, from $19,802 for the three months ended March 31, 2021.

Recurring revenue increased due to organic growth related to an uptick in year-end fees and acquisitions.

Revenue for the three months ended June 30, 2022 was $20,300, an increase of $3,132, or 18%, from $17,168 for the three months ended June 30, 2021.

Recurring revenue increased due to organic growth.

Revenue for the six months ended June 30, 2022 was $44,633, an increase of $7,663, or 21%, from $36,970 for the six months ended June 30, 2021.

Recurring revenue increased due to organic growth.

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.

Professional services, hardware and other revenue increased $769, or 137%, for the three months ended March 31, 2022 from the similar period in 2021, due to the implementation of our ERTC service during 2021.

Professional services, hardware and other revenue increased $190, or 17%, for the three months ended June 30, 2022 from the similar period in 2021, due to the implementation of our ERTC service during 2021.

Professional services, hardware and other revenue increased $959, or 58%, for the six months ended June 30, 2022 from the similar period in 2021, due to the implementation of our ERTC service during 2021.

Although our total customer base is widely spread across industries, our sales are concentrated in SMBs.

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Gross Profit and Gross Margin

Consolidated gross profit for the three months ended March 31, 2022 was $15,464, an increase of $2,972, or 24%, from $12,492 for the three months ended March 31, 2021.

Gross margin as a percentage of revenue was 64% for the three months ended March 31, 2022 as compared to 63% for the three months ended March 31, 2021.

Consolidated gross profit for the three months ended June 30, 2022 was $12,261, an increase of $2,316, or 23%, from $9,945 for the three months ended June 30, 2021.

Gross margin as a percentage of revenue was 60% for the three months ended June 30, 2022 as compared to 58% for the three months ended June 30, 2021.

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, 2022 was $27,725, an increase of $5,288, or 24%, from $22,437 for the six months ended June 30, 2021.

Gross margin as a percentage of revenue was 62% for the six months ended June 30, 2022 as compared to 61% for the six months ended June 30, 2021.

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

Our cost of sales relates primarily to direct product costs, compensation for operations and related consulting expenses, hardware expenses, facilities and related expenses and the amortization of our purchased software development costs.

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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 March 31, 2022 were $4,897, an increase of $1,286, or 36%, from $3,611 for the three months ended March 31, 2021, 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 increased to 20% for the three months ended March 31, 2022 from 18% for the same period in 2021.

Selling and marketing expenses for the three months ended June 30, 2022 were $4,589, an increase of $967, or 27%, from $3,622 for the three months ended June 30, 2021, primarily due to increased marketing spend.

Selling and marketing expenses as a percentage of revenue increased to 23% for the three months ended June 30, 2022 from 21% for the same period in 2021.

Selling and marketing expenses for the six months ended June 30, 2022 were $9,486, an increase of $2,253, or 31%, from $7,233 for the six months ended June 30, 2021, primarily due to increased marketing spend.

Selling and marketing expenses as a percentage of revenue increased to 21% for the six months ended June 30, 2022 from 20% for the same period in 2021.

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 March 31, 2022 were $7,485, an increase of $987, or 15%, from $6,498 for the three months ended March 31, 2021, primarily attributable to increased personnel, contracting and placement costs.

General and administrative expenses as a percentage of revenue decreased to 31% for the three months ended March 31, 2022 from 33% for the same period in 2021.

General and administrative expenses for the three months ended June 30, 2022 were $8,696, an increase of $1,875, or 27%, from $6,821 for the three months ended June 30, 2021, primarily attributable to increased personnel and contracting costs.

General and administrative expenses as a percentage of revenue increased to 60% for the three months ended June 30, 2022 from 58% for the same period in 2021.

General and administrative expenses for the six months ended June 30, 2022 were $16,181, an increase of $2,862, or 21%, from $13,319 for the six months ended June 30, 2021, primarily attributable to increased personnel and contracting costs.

General and administrative expenses as a percentage of revenue increased to 62% for the six months ended June 30, 2022 from 61% for the same period in 2021.

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

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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 March 31, 2022 were $1,821, an increase of $697, or 62%, from $1,124 for the three months ended March 31, 2021.

R&D expenses for the three months ended June 30, 2022 were $1,472, an increase of $129, or 10%, from $1,343 for the three months ended June 30, 2021.

The increase in R&D expense is primarily attributable to an increase in investment costs.

R&D expenses as a percentage of revenues increased to 7% for the three months ended March 31, 2022 from 6% for the same period in 2021.

R&D expenses as a percentage of revenue decreased to 7% for the three months ended June 30, 2022 from 8% for the same period in 2021.

R&D expenses for the six months ended June 30, 2022 were $3,293, an increase of $826, or 33%, from $2,467 for the six months ended June 30, 2021.

The increase in R&D expense is primarily attributable to an increase in investment costs.

R&D expenses as a percentage of revenue remained flat at 7% for the six months ended June 30, 2022 for the same period in 2021.

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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Amortization of Intangible Assets

Amortization expense in operating expenses for the three months ended March 31, 2022 was $3,432, an increase of $904, or 36%, from $2,528 for the three months ended March 31, 2021.

Amortization expense as a percentage of revenue was 14% and 13% for the three months ended March 31, 2022 and 2021, respectively.

Interest Expense and Other, Net

Interest expense and other, net for the three months ended March 31, 2022 was an expense of $816 compared to an expense of $224 for the three months ended March 31, 2021.

The increase in interest expense and other, net relative to the prior year is attributable to new borrowings under our credit facility with Structural Capital Investments III LP, which were used to fund the acquisitions of two of our payroll resellers in the third quarter of 2021.

Interest expense and other, net as a percentage of revenue was an expense of 3% and 1% for the three months ended March 31, 2022 and March 31, 2021, respectively.

Interest expenses for the three months ended March 31, 2022 and 2021 is composed primarily of interest expense on notes payable.

For the three months ended March 31, 2022 and 2021, we recorded an income tax expense attributable to continuing operations of $30 and $105, respectively, a decrease of $75 or 71%.

Amortization expense in operating expenses for the three months ended June 30, 2022 was $3,352, an increase of $824, or 33%, from $2,528 for the three months ended June 30, 2021.

Amortization expense as a percentage of revenue increased to 17% for the three months ended June 30, 2022 from 15% for the same period in 2021, respectively.

Amortization expense in operating expenses for the six months ended June 30, 2022 was $6,784, an increase of $1,728, or 34%, from $5,056 for the six months ended June 30, 2021.

Amortization expense as a percentage of revenue increased to 15% for the three months ended June 30, 2022 from 14% for the same period in 2021, respectively.

Interest Expense, Net

Interest expense, net for the three months ended June 30, 2022 was $1,085 compared to $223 for the three months ended June 30, 2021.

The change in interest expense and other is primarily attributed to the decrease in fair value of the seller notes from acquisitions.

Interest expense, net as a percentage of revenue was 5% for the three months ended June 30, 2022 compared to 1% for the three months ended June 30, 2021.

The increase in interest expense, net in the current period is primarily due to the senior credit facility signed in the third quarter of 2021 as discussed in Note 6 - Notes Payable.

Interest expense, net for the six months ended June 30, 2022 was $1,901 compared to $447 for the six months ended June 30, 2021.

The increase in interest expense, net relative to the prior year is attributable to new borrowings under our credit facility with Structural Capital Investments III LP as discussed in Note 6 - Notes Payable.

Interest expense, net as a percentage of revenue was 4% and 1% for the six months ended June 30, 2022 and June 30, 2021, respectively.

Other Income, Net

Other income, net for the three months ended June 30, 2022 was $1,147 compared to $8,654 for the three months ended June 30, 2021.

Other income, net as a percentage of revenue was 6% for the three months ended June 30, 2022 compared to 50% for the same period ended June 30, 2021.

For the three months ended June 30, 2022, the amounts in other income, net primarily consisted of contingent liability adjustments and debt extinguishment.

For the three months ended June 30, 2021, the amounts in other income, net consisted of debt extinguishment related to the Company’s Paycheck Protection Program loan.

Other income, net for the six months ended June 30, 2022 was $1,147 compared to $8,654 for the six months ended June 30, 2021.

Other income, net as a percentage of revenue was 3% and 23% for the six months ended June 30, 2022 and June 30, 2021, respectively.

For the six months ended June 30, 2022, the amounts in other income, net primarily consisted of contingent liability adjustments and debt extinguishment.

For the six months ended June 30, 2021, the amounts in other income, net consisted of debt extinguishment related to the Company’s Paycheck Protection Program loan.

For the three months ended June 30, 2022 and 2021, we recorded an income tax expense attributable to continuing operations of $74 and $298, respectively, a decrease of $224 or 75%.

For the six months ended June 30, 2022 and 2021, we recorded an income tax expense attributable to continuing operations of $104 and $403, respectively, a decrease of $299 or 74%.

Loss From Operations

We incurred a loss from operations of $3,017, or $0.15 per share, during the three months ended March 31, 2022, compared to a loss from operations of $1,598, or $0.08 per share, during the three months ended March 31, 2021.

Loss from operations as a percentage of total revenues was 12% and 8% for the three months ended March 31, 2022 and 2021, respectively.

We incurred a loss from operations of $5,848, or $0.29 per share, during the three months ended June 30, 2022, compared to income from operations of $4,369, or $0.20 per share, during the three months ended June 30, 2021.

Loss and income from operations as a percentage of total revenues was 29% and 22% for the three months ended June 30, 2022 and 2021, respectively.

We incurred a loss from operations of $8,019, or $0.44 per share, during the six months ended June 30, 2022, compared to income from operations of $5,638, or $0.11 per share, during the six months ended June 30, 2021.

Loss and income from operations as a percentage of total revenues was 20% and 6% for the six months ended June 30, 2022 and 2021, respectively.

LIQUIDITY AND CAPITAL RESOURCES (in thousands)

March 31, 2022 December 31, 2021

June 30, 2022 December 31, 2021

Cash and cash equivalents (1)

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Working Capital .

We had working capital of $15,832 at March 31, 2022, a decrease of $1,174 from working capital of $17,006 at December 31, 2021.

Working capital as of March 31, 2022 and December 31, 2021 includes $1,626 and $3,750 of short-term deferred revenue, respectively.

We had working capital of $14,451 at June 30, 2022, a decrease of $2,555 from working capital of $17,006 at December 31, 2021.

Working capital as of June 30, 2022 and December 31, 2021 includes $2,038 and $3,750 of short-term deferred revenue, respectively.

Deferred revenue is an obligation to perform future services.

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Operating Activities .

Net cash provided by operating activities of $2,530 for the three months ended March 31, 2022 was primarily driven by non-cash adjustments to our net loss of approximately $5,967, primarily due to depreciation and amortization.

This was offset by our net loss of $3,017 and changes in operating assets and liabilities, which resulted in a use of $420 in cash.

Net cash used in operating activities of $1,361 for the three months ended March 31, 2021 was driven by non-cash adjustments to our net loss of approximately $4,933, primarily due to depreciation and amortization, offset by our net loss of $1,598.

For the three months ended March 31, 2021, changes in operating assets and liabilities resulted in a use of $4,696 in cash.

Net cash provided by operating activities of $7,481 for the six months ended June 30, 2022 was primarily driven by non-cash adjustments to our net loss of approximately $12,013, primarily due to depreciation and amortization.

This was offset by our net loss of $8,877 and changes in operating assets and liabilities, which resulted in cash provided of $5,300.

Net cash used in operating activities of $1,898 for the six months ended June 30, 2021 was driven by non-cash adjustments to our net income of approximately $1,581, primarily due to depreciation and amortization, offset by our net income of $2,166.

For the six months ended June 30, 2021, changes in operating assets and liabilities resulted in a use of $5,645 in cash.

Investing Activities .

Net cash used in investing activities of $6,719 for the three months ended March 31, 2022 is primarily due to our first quarter acquisition totaling $1,970 and purchases of available-for-sale securities and maturities of $4,504.

Net cash provided by investing activities of $645 for the three months ended March 31, 2021 is primarily due to the proceeds from sales and maturities of available-for-sale securities of $1,926.

Net cash used in investing activities of $21,570 for the six months ended June 30, 2022 is primarily due to our first quarter acquisition totaling $2,039 and purchases of available-for-sale securities and maturities of $19,870.

Net cash provided by investing activities of $5,180 for the six months ended June 30, 2021 is primarily due to the proceeds from sales and maturities of available-for-sale securities of $1,926.

Financing Activities .

Net cash provided by financing activities was $21,296 for the three months ended March 31, 2022, which primarily consisted of a net increase in client fund obligations of $21,296 and payments of notes payable of $—.

Net cash used in financing activities was $68,415 for the three months ended March 31, 2021, which primarily consisted of a net decrease in client fund obligations of $66,337.

Net cash used in financing activities was $32,524 for the six months ended June 30, 2022, which primarily consisted of a net decrease in client fund obligations of $32,716.

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.

Sources of Liquidity .

As of March 31, 2022, the Company’s principal sources of liquidity consisted of approximately $12,054 of cash, cash equivalents and restricted cash, cash generated from operations of our business over the next twelve months, and Structural Capital Investments III, LP have committed to lend us up to $50,000 in term loan financing to support our growth needs (the “Facility”) until March 31, 2022 which was extended to June 30, 2022.

As of June 30, 2022, the Company’s principal sources of liquidity consisted of approximately $14,594 of cash, cash equivalents and restricted cash, together with cash generated from operations of our business over the next twelve months.

Structural Capital Investments III, LP had committed to lend us up to an additional $20,000 in term loan financing to support our growth needs (the “Facility”) until March 31, 2022 which was extended to June 30, 2022.

The Facility is discussed in Note 6 — Notes Payable, to the Condensed Consolidated Financial Statements.

We did not elect to take an additional advance from the facility.

We cannot assure that we can grow our cash balances or limit our cash consumption and thus maintain sufficient cash balances for our planned operations or future acquisitions;

however we do believe that we have sufficient liquidity to support our business operations for at least the next twelve months.

Future business demands may lead to cash utilization at levels greater than recently experienced.

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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