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Item 7. Management’s Discussion and Analysis

2024-02-26 compared with 2023-02-27 · 104 added, 74 removed, 170 unchanged (51% of the section changed)

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Actual results may differ materially from those contemplated by the forward-looking statements due to, among others, the risks and uncertainties described in this Report and in our other SEC filings.

We have attempted to identify these forward-looking statements with the words “believes,” “estimates,” “plans,” “expects,” “anticipates,” “may,” “will,” “could,” “should” and other similar expressions.

Although these forward-looking statements reflect management’s current plans and expectations, which we believe reasonable as of the filing date of this Report, they inherently are subject to certain risks and uncertainties.

We have attempted to identify these forward-looking statements with the words “believe,” “may,” “will,” “estimate,” “projects,” “anticipate,” “intend,” “expect,” “should,” “plan,” and similar expressions.

Examples of “forward-looking statements” include statements we make regarding our operating performance, future results of operations and financial position, revenue growth, earnings or other projections.

We have based these forward-looking statements largely on our current expectations and projections about future events and trends that we believe may affect our financial condition, results of operations, business strategy, short-term and long-term business operations and objectives, and financial needs.

The achievement or success of the matters covered by such forward-looking statements involves risks, uncertainties and assumptions, over many of which we have no control.

If any such risks or uncertainties materialize or if any of the assumptions prove incorrect, our results could differ materially from the results expressed or implied by the forward-looking statements we make.

Additionally, we are under no obligation to update any of the forward-looking statements after the date of this Annual Report on Form 10-K or to conform such statements to actual results.

We are a provider of Human Capital Management (“HCM”) solutions, delivered as software-as-a-service.

Our product suite manages the entire employment lifecycle, allowing our clients to better serve their employees by providing the tools necessary to field a human resources department without the traditional overhead costs.

We strive to be the most trusted HCM resource to small and medium-sized businesses (“SMBs”) and are focused on less densely populated U.S.

We are 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.

Our approach to HR compliance services incorporates artificial intelligence technology to enhance scalability and efficiency while prioritizing client interactions.

We offer our services directly and indirectly through our network of Reseller Partners.

We strive to be the most trusted HCM resource to SMBs and are focused on less densely populated U.S.

metropolitan cities where fewer of our competitors have a presence.

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Reseller Partners that white label our product s while providing value-added services to their clients (our indirect clients) and Referral Partners that provide us with SMB leads but do not resell our solutions.

As of December 31, 2022, Asure had more than 100,000 clients, split between approximately 15,000 direct and the remaining 85,000 indirect clients who have contracts with Reseller Partners.

As of December 31, 2023, Asure had more than 100,000 clients, with approximately 15% direct and the remaining clients indirect who have contracts with Reseller Partners.

We plan to continue to enhance our products and technologies by leveraging the latest technology stack, Robotic Process Automation (“RPA”), artificial intelligence (“AI”), and development partnerships.

We expect that our expanded investment in product, engineering, SaaS hosting, mobile and hardware technologies will lay the groundwork for broader market opportunities and represent a key aspect of our competitive differentiation.

We also plan to expand our technological resources through organic improvements and acquired intellectual property.

We expect to continue to expand the breadth of integration between our solutions, allowing direct clients and resellers the ability to easily add and implement components across our entire solution set.

Our initiatives include providing our customers with more accurate and efficient automation powered by an informed knowledge base.

Consistent with that effort, our engineering team utilizes an AI development Copilot to increase their productivity and efficiency.

Our operations team utilizes a digital assistant to allow for a more efficient and accurate way to automate repetitive tasks, which we believe will free up our time for more strategic work and reducing the risk of errors.

We are committed to providing the best-in-class solutions.

Our development efforts for future releases and enhancements are driven by feedback received from our existing and potential customers and by gauging market trends.

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 2 and SOC II Type 2 certifications, BIPA, CCPA, and other initiatives.

Asure has several forms of revenue that result from our business model:

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Professional services revenue is generated from our clients’ needs that would normally be fulfilled by an internal payroll system or human resources department.

Our tax management solutions revenue is derived from providing clients with innovative payroll tax processing software and service solutions and includes revenue generated from Employee Retention Tax Credit tax filing activity related to the CARES Act.

Our tax management solutions revenue is derived from providing clients with innovative payroll tax processing software and service solutions.

Interest from client funds is generated when we gain possession of funds intended to be disbursed based on the clients’ needs.

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• Consolidated revenue of $119,082 for 2023, representing a 24% increase over revenue in 2022.

• Launch of AsureMarketplace™, to automate interactions between Asure’s HCM systems with third-party providers to enhance efficiency, improve accuracy and to extend the range of services offered to employers and their employees.

• Recurring revenue of $99,734 for 2023, representing a 16% increase over recurring revenue in 2022.

• Net loss of $9,214 for 2023, an improvement of $5,252 from prior year loss of $14,466.

• Gross profit of $85,537 for 2023 versus $62,510 in 2022.

OPERATING SEGMENT

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Operating segments are defined as components of an enterprise for which the chief operating decision maker, who in our case is the Chief Executive Officer, in deciding how to allocate resources and assess performance, evaluates separate financial information regularly.

Over the last seven years, we have completed a number of acquisitions.

Over the last eight years, we have completed a number of acquisitions.

These acquisitions have allowed us to expand our offerings, presence and reach in various market segments of the human capital management market.

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RESULTS OF OPERATIONS (in thousands)

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

The following table sets forth, for the fiscal periods indicated, the percentage of total revenues represented by certain items in our Consolidated Statements of Comprehensive Loss:

Year Ended December 31,

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Total operating expenses 74 % 77 %

Interest expense and other, net (5) % (3) %

Gain on extinguishment of debt — % 11 %

Employee retention tax credit — % 14 %

Gain (loss) from operations before income taxes (15) % 5 %

Net income (loss) (15) % 4 %

Interest expense, net (4) % (5) %

Loss on extinguishment of debt (1) % — %

Other (expense) income, net — % 1 %

Loss from operations before income taxes (8) % (15) %

Net loss (8) % (15) %

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

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

We also generate recurring revenue from our Reseller Partners that license our solutions.

We also generate recurring revenues from our Reseller Partners that license our solutions.

Because recurring revenues are based, in part, on fees for use of our applications and the delivery of checks and reports that are levied on a per-employee basis, our recurring revenues increase as our clients hire more employees.

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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 form filing requirements mandated by the ACA, 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.

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.

This revenue line also includes interest earned on funds held for clients as well as revenues generated via fixed fee arrangements for provisioning and filing for ERTC credits.

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

This revenue line also includes interest earned on funds held for clients as well as revenues generated via fixed fee arrangements for provisioning and filing for Employee Retention Tax Credit (“ERTC”) credits.

Interest earned is generated from funds we collect from clients in advance of either the applicable due date for payroll tax submissions or the applicable disbursement date for employee payment services.

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

Asure also generates revenues from provisioning and filing for Earned Retention Tax Credits.

Asure also generates revenues from provisioning and filing for ERTC.

Revenue generated for such activity is based on multi-year contracts with volume commitments and is recorded as recurring revenues.

Refer to “Risk Factors” in Part I, 1A.

for more information about risks related to our ERTC business.

Recurring revenue for the year ended December 31, 2023 was $99,734, an increase of $13,512, or 16%, from $86,222 for the year ended December 31, 2022.

Recurring revenue increased due to organic growth within our client base, the impact of acquisitions, higher interest revenue and from the AsureMarketplace™.

The increase is primarily due to an increase of approximately $7,200 in HR compliance revenue, an increase of $6,500 in interest earned on funds held for clients, and an increase of $3,300 in revenue from AsureMarketplace™, offset by a decrease of $2,300 in ERTC revenue.

Professional Services, Hardware and Other Revenues

Professional Services, Hardware and Other Revenues represents implementation fees, one-time consulting projects, on-premise maintenance, hardware devices to enhance our software products as well as ERTC revenues that are transactional in nature.

Professional services, hardware and other revenue increased $4,620, or 93%, for the year ended December 31, 2022 from the similar period in 2021 , due to higher ERTC revenues.

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

Professional services, hardware and other revenue increased $9,742, or 101%, for the year ended December 31, 2023 from the similar period in 2022, primarily due to growth in non-recurring ERTC revenues.

ERTC revenues were originally expected to expire during 2024 and 2025;

however, it is possible that the government could make changes to or revoke the program prior to its scheduled expiration.

For example, in January 2024, the United States House of Representatives passed the Tax Relief for American Families Act of 2024, which sets an expiration date of January 31, 2024, on additional claims for ERTC that can potentially apply retroactively.

If approved by other branches of the government, this will have an effect on our ERTC revenues and cash collections.

Additionally, in September 2023, the IRS announced a moratorium through the end of the year on processing new ERTC claims due to concerns over questionable or fraudulent claims.

The moratorium may potentially delay the processing and collections of previously filed ERTC claims.

Refer to “Risk Factors” in Part I, 1A.

for more information about risks related to our ERTC business.

Although our total customer base is widely spread across industries, our sales are concentrated in small and medium-sized businesses (“SMBs”).

We continue to target SMBs across industries as prospective customers.

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Gross margin as a percentage of revenue was 72% for the year ended December 31, 2023 as compared to 65% for the year ended December 31, 2022.

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

The increase is primarily attributable to the increase in revenue in higher margin revenue streams and more efficient operations driven by consolidation and standardization efforts across the Company.

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 year ended December 31, 2022 were $20,260, an increase of $4,812, or 31%, from $15,448 for the year ended December 31, 2021, primarily due to increased personnel costs, higher sales commissions owing to increased revenues and higher advertising expense.

Selling and marketing expenses as a percentage of revenue increased to 21% for the year ended December 31, 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.

Sales and marketing expenses for the year ended December 31, 2023 were $28,734, an increase of $8,474, or 42%, from $20,260 for the year ended December 31, 2022, primarily due to an increase in direct sales personnel, higher sales commissions owing to increased revenues, and an increase in marketing initiatives.

Sales and marketing expenses as a percentage of revenue increased to 24% for the year ended December 31, 2023 from 21% for the same period in 2022.

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

General and Administrative Expenses

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 year ended December 31, 2022 were $33,924, an increase of $6,204, or 22%, from $27,720 for the year ended December 31, 2021, primarily attributable to increased personnel, contracting and bank charges.

General and administrative expenses for the year ended December 31, 2023 were $39,333, an increase of $5,409, or 16%, from $33,924 for the year ended December 31, 2022, primarily attributable to increased personnel, share-based compensation, and contracting costs.

General and administrative expenses as a percentage of revenue decreased to 33% for the year ended December 31, 2023 from 35% for the same period in 2022.

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

Research and Development Expenses

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R&D expenses for the year ended December 31, 2023 were $6,846, an increase of $699, or 11%, from $6,147 for the year ended December 31, 2022.

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

R&D expenses as a percentage of revenues decreased to 6% for the year ended December 31, 2022 from 7% 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.

We will continue to expand the breadth of integration between our solutions, allowing direct clients and resellers the ability to easily add and implement components across our entire solution set.

We believe that our expanded investment in product, engineering, SaaS hosting, mobile and hardware technologies lay the groundwork for broader market opportunities and represents a key aspect of our competitive differentiation.

Native mobile applications, common user interface, expanded web service integration and other technologies are all part of our initiatives.

Our development efforts for future releases and enhancements are driven by feedback received from our existing and potential customers and by gauging market trends.

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 2 and SOC II Type 2 certifications, BIPA, CCPA, and other initiatives.

The increase in R&D expense is primarily attributable to an increase in personnel costs, partially offset by an increase in capitalized software expenses driven by continued investments in development of our products.

R&D expenses as a percentage of revenues remained flat at 6% for the years ended December 31, 2023 and 2022.

Amortization of Intangible Assets

Amortization expense in operating expenses for the year ended December 31, 2023 was $13,623, an increase of $137, or 1%, from $13,486 for the year ended December 31, 2022.

Amortization expense as a percentage of revenue was 14% for the years ended December 31, 2022 and 2021, respectively.

Interest Expense and Other, Net

Interest expense and other, net for the year ended December 31, 2022 was an expense of $4,438 compared to an expense of $2,038 for the year ended December 31, 2021.

The increase in interest expense and other, net relative to the prior year is attributable to higher average borrowings under our credit facility with Structural Capital Investments III LP.

Interest expense and other, net as a percentage of revenue was an expense of 5% and 3% for the years ended December 31, 2022 and December 31, 2021, respectively.

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

Gain on Extinguishment of Debt

There was no gain on extinguishment of debt for the year ended December 31, 2022, compared with a gain of $8,312 for the year ended December 31, 2021.

The gain in 2021 was primarily related to the forgiveness of an unsecured Paycheck Protection Program (“PPP”) loan from Pinnacle Bank (the “Lender”) under the Coronavirus Aid, Relief and Economic Security Act.

In June 2021, we received notice from our Lender that the Small Business Administration (“SBA”) had approved our application for forgiveness of our PPP loan.

The amount forgiven was $8,654.

Employee Retention Tax Credit

There was no Employee Retention Tax Credit (“ERTC”) recorded for the year ended December 31, 2022.

An ERTC of $10,533 was recorded in the year ended December 31, 2021.

The ERTC is a refundable tax credit against certain employment taxes provided under the CARES Act.

We qualified for the ERTC in 2021 and recorded an aggregate benefit of $10,533 in the third quarter of 2021.

Amortization expense as a percentage of revenue was 11% for the year ended December 31, 2023 from 14% for the same period in 2022.

Interest Expense, Net

Interest expense, net for the year ended December 31, 2023 was an expense of $4,297 compared to an expense of $4,438 for the year ended December 31, 2022.

The decrease in interest expense, net relative to the prior year is primarily attributable to our payoff of the outstanding debt under the credit facility with Structural Capital Investments II LP in 2023.

Interest expense, net as a percentage of revenue was an expense of 4% and 5% for the years ended December 31, 2023 and December 31, 2022, respectively.

Interest expenses for the years ended December 31, 2023 and 2022 are composed primarily of interest expense on notes payable.

Loss on Extinguishment of Debt

Loss on extinguishment of debt for the year ended December 31, 2023 was $1,517 compared to no loss for the year ended December 31, 2022.

Loss on extinguishment of debt as a percentage of revenue was 1% for the year ended December 31, 2023.

For the year ended December 31, 2023, the amount in loss on extinguishment of debt consisted of loss recognized as a result of the termination of our credit facility with Structural Capital.

Other (Expense) Income, Net

Other (expense) income, net for the year ended December 31, 2023 was an expense of $292 compared to income of $1,391 for the year ended December 31, 2022 .

Other (expense) income, net as a percentage of revenue was negligible for the year ended December 31, 2023 , and 1% for the year ended December 31, 2022 .

For the year ended December 31, 2023 , the amounts in other (expense) income, net primarily consisted of losses on disposal of assets.

F or the year ended December 31, 2022 , the amounts in other (expense) income, net primarily consisted of a fair value adjustment on contingent purchase consideration in connection with the acquisition of a payroll business in September 2021.

For the year ended December 31, 2023 and 2022, we recorded an income tax expense attributable to continuing operations of $109 and $112, respectively, a decrease of $3 or 3%.

Income (Loss) From Operations

We incurred a loss from operations of $(14,466), or $(0.72) per share, during the year ended December 31, 2022, compared to income from operations of $3,193, or $0.17 per share, during the years ended December 31, 2021.

Loss and income from operations as a percentage of total revenues was (15)% and 4% for the years ended December 31, 2022 and 2021, respectively.

Loss From Operations

We incurred a loss from operations of $9,214, or $(0.42) per share, during the year ended December 31, 2023, compared to a loss from operations of $14,466, or $(0.72) per share, during the year ended December 31, 2022.

Loss from operations as a percentage of total revenues was 8% and 15% for the years ended December 31, 2023 and 2022, respectively.

LIQUIDITY AND CAPITAL RESOURCES (in thousands)

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Working Capital .

We had working capital of $8,093 at December 31, 2022, a decrease of $8,913 from working capital of $17,006 at December 31, 2021.

We had working capital of $25,880 at December 31, 2023, an increase of $17,787 from working capital of $8,093 at December 31, 2022.

Working capital as of December 31, 2023 and December 31, 2022 includes $6,853 and $8,461 of short-term deferred revenue, respectively.

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Operating Activities .

Net cash provided by operating activities of $13,674 for the year ended December 31, 2022 was primarily driven by non-cash adjustments to our net loss of approximately $22,875.

This was offset by changes in operating assets and liabilities, which resulted in cash provided of $5,265.

Net cash provided by operating activities of $1,378 for the year ended December 31, 2021 was driven by non-cash adjustments to our net income of approximately $12,975, primarily due to depreciation and amortization, offset by our net income of $3,193.

For the year ended December 31, 2021, changes in operating assets and liabilities resulted in a use of $14,790 in cash.

Net cash provided by operating activities of $18,900 for the year ended December 31, 2023 was driven by non-cash adjustments to our net loss of approximately $29,530, primarily due to depreciation and amortization.

Net cash provided by operating activities of $13,674 for the year ended December 31, 2022 was driven by non-cash adjustments to our net loss of approximately $22,875, primarily due to depreciation and amortization, offset by our net loss of $14,466.

For the year ended December 31, 2022, changes in operating assets and liabilities resulted in cash provided of $5,265.

Investing Activities .

Net cash used in investing activities of $35,999 for the year ended December 31, 2022 is primarily due to purchases of available-for-sale securities of $37,232.

Net cash used in investing activities of $36,970 for the year ended December 31, 2021 is primarily due to the purchase and sale of available-for-sale securities as well as acquisitions.

Net cash used in investing activities of $29,525 for the year ended December 31, 2023 is primarily due to purchases of available-for-sale securities of $27,647, partially offset by proceeds from sales and maturities of available-for-sale securities of $14,385.

Net cash used in investing activities of $35,999 for the year ended December 31, 2022 is primarily due to the purchase of available-for-sale securities of $37,232.

Financing Activities .

Net cash used in financing activities was $12,376 for the year ended December 31, 2022, which primarily consisted of a net decrease in client fund obligations of $11,055 and payments of notes payable of $1,688.

Net cash provided by financing activities was $24,205 for the year ended December 31, 2023, which primarily consisted of net proceeds from the issuance of common stock of $46,800, a net increase in client fund obligations of $13,931, offset by payments of notes payable of $35,627.

Net cash used in financing activities was $12,376 for the year ended December 31, 2022, which primarily consisted of a net decrease in client fund obligations of $11,055.

On August 16, 2023, we entered into an underwriting agreement (the “Underwriting Agreement”) with Stifel, Nicolaus & Company, Incorporated and Craig-Hallum Capital Group LLC, as representatives of the several underwriters named therein (collectively, the “Underwriters”), relating to a firm commitment offering of 3,333 newly issued shares of our common stock at a public offering price of $12.00 per share (the “2023 Offering”).

On August 21, 2023, we completed the 2023 Offering, and realized net proceeds of $37,395, after deducting underwriting discounts and offering expenses of $2,605.

Additionally, on August 30, 2023, the Underwriters exercised their option to purchase an additional 500 shares of our common stock, and we realized net proceeds of $5,507, after deducting underwriting discounts and offering expenses of $493.

On September 12, 2023, we terminated the Loan and Security Agreement (the “Loan Agreement”) dated September 10, 2021, with Structural, and Ocean II PLO LLC, as administrative and collateral agent for the Lenders (“Agent”), and repaid the secured promissory note (the “Note”) with Agent evidencing our obligations under the Loan Agreement.

In connection with the termination, we paid an aggregate amount of $30,927 (the “Payoff Amount”) in full payment of the outstanding obligations under the Loan Agreement and Note.

The Payoff Amount represented $30,617 of outstanding principal and interest on the unpaid principal balance, a prepayment fee in the amount of $306 and an immaterial amount of fees and other expenses due to Agent.

We have an outstanding promissory note in connection with a payroll business acquired in September 2021 in the amount of $4,200 as of December 31, 2023.

The outstanding promissory note matures on September 30, 2026.

We also have an outstanding promissory note in connection with a payroll business acquired in October 2023 in the amount of $1,500 as of December 31, 2023.

The outstanding promissory note matures on October 1, 2025.

Sources of Liquidity .

As of December 31, 2022, the Company’s principal sources of liquidity consisted of approximately $17,010 of cash, cash equivalents and restricted cash, and cash generated from operations of our business over twelve months, and $3,457 of Employee Retention Tax Credit cash recei ved as of December 31, 2022.

Additionally, $7,076 of Employee Retention Tax Credit cash was received subsequent to December 31, 2022.

As of December 31, 2023, our principal sources of liquidity consisted of approximately $30,317 of cash, cash equivalents and restricted cash, and cash generated from operations of our business over twelve months .

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.

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A SaaS/software subscription arrangement may also include hardware, setup and implementation services.

Revenue allocated to the SaaS/software subscription performance obligations are recognized on an output basis ratably as the service is provided over the non-cancellable term of the SaaS/subscription service and are reported as Recurring revenue on the Consolidated Statements of Comprehensive Income (Loss).

Revenue allocated to the SaaS/software subscription performance obligations are recognized on an output basis ratably as the service is provided over the non-cancellable term of the SaaS/subscription service and are reported as recurring revenue on the Consolidated Statements of Comprehensive Loss.

Revenues generated via fixed fee arrangements for provisioning and filing for Employee Retention Tax Credits with referral partners are also recorded as recurring revenue.

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Revenue allocated to hardware under a HaaS arrangement are recognized on an output basis, recorded ratably as the service is provided over the non-cancellable term of the HaaS arrangement, typically one year.

Revenue recognized from hardware devices sold to customers via either of the two above types of arrangements are reported as Hardware revenue on the Consolidated Statements of Comprehensive Income (Loss).

Revenue recognized from hardware devices sold to customers via either of the two above types of arrangements are reported as Hardware revenue on the Consolidated Statements of Comprehensive Loss.

Our professional services offerings typically include data migration, set up, training, and implementation services.

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Revenues generated for provisioning and filing for ERTC credits that are based on percentage of recovery are recorded as professional services revenues.

Revenue recognized from professional services offerings are reported as Professional service revenue on the Consolidated Statements of Comprehensive Income (Loss).

Revenue recognized from professional services offerings are reported as Professional service revenue on the Consolidated Statements of Comprehensive Loss.

We recognize allocated revenue for maintenance and support on an output basis ratably over the non-cancellable term of the support agreement.

Initial maintenance and support terms are typically one to three years and are renewable on an annual basis.

Revenue recognized from maintenance and support are reported as Maintenance and support revenue on the Consolidated Statements of Comprehensive Income (Loss).

Revenue recognized from maintenance and support are reported as Maintenance and support revenue on the Consolidated Statements of Comprehensive Loss.

We do not recognize revenue for agreements with rights of return, refundable fees, cancellation rights or substantive acceptance clauses until these return, refund or cancellation rights have expired or acceptance has occurred.

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The transaction prices of our contracts do not include consideration amounts that are variable and do not include noncash consideration.

Deferred revenue includes amounts invoiced to customers in excess of revenue we recognize, and is comprised of deferred SaaS/software, HaaS, Maintenance and support, Professional services revenue and ERTC revenue.

Deferred revenue includes amounts invoiced to customers in excess of revenue we recognize and is comprised of deferred SaaS/software, HaaS, maintenance and support, and professional services revenue.

We recognize deferred revenue when we complete the service and over the terms of the arrangements, primarily ranging from one to three years.

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We must amortize all other intangible assets over their useful lives.

We currently amortize our acquired intangible assets with definite lives over periods ranging from one to nine years.

We have assessed the fair value of our customer relationship intangible assets as of December 31, 2022, we do not believe these to be impaired, as the carrying value of the customer relationship intangible assets are recoverable through the associated project cash flows.

We currently amortize our acquired intangible assets with definite lives over periods ranging from two to fifteen years.

We have assessed the fair value of our customer relationship intangible assets as of December 31, 2023, and we do not believe these to be impaired, as the carrying value of the customer relationship intangible assets are recoverable through the associated projected cash flows.

Impairment of Intangible Assets and Long-Lived Assets

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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-K

Item 7. Management’s Discussion and Analysis