What changed in this filing

/stocks — the workspaceLOADING

Item 2. Management’s Discussion and Analysis

2024-10-31 compared with 2024-08-01 · 102 added, 98 removed, 165 unchanged (55% of the section changed)

9 unchanged sentences

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.

The risks and uncertainties referred to above include—but are not limited to— the expiration of major revenue streams such as Employee Retention Tax Credits (“ERTC”) and the impact of the Internal Revenue Service (“IRS”) recent measures regarding Employee Retention Tax Credits claims;

risks associated with breaches of the Company’s security measures;

7 unchanged sentences

issues in the use of artificial intelligence in our HCM products and services;

political unrest, including the current issues between Russia and Ukraine and the ongoing conflict between Israel and Hamas;

political unrest, including the current conflict between Russia and Ukraine and the ongoing conflict involving Israel in the Middle East;

reductions in employment and an increase in business failures, specifically among our clients;

19 unchanged sentences

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, 2024 and December 31, 2023, and results of operations for the three and six months ended June 30, 2024 and 2023 should be read in conjunction with our 2023 Annual Report on Form 10-K filed with the SEC on February 26, 2024.

The following review of Asure’s financial position as of September 30, 2024 and December 31, 2023, and results of operations for the three and nine months ended September 30, 2024 and 2023 should be read in conjunction with our 2023 Annual Report on Form 10-K filed with the SEC on February 26, 2024.

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, as amended (the “Exchange Act”) 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.

2 unchanged sentences

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

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.

All financial information, including shares, is reported in thousands, except for per share amounts.

We are a provider of cloud-based Human Capital Management (“HCM”) software solutions delivered as Software-as-a-Service (“SaaS”) for small, medium-sized and enterprise-level businesses.

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 these businesses can spend their financial capital on growing their business rather than administrative overhead that can impede growth.

Our solutions also provide new ways for employers to connect 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™.

Asure’s HCM suite (“Asure HCM”) includes Payroll & Tax solutions, Recruiting, 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.

In addition to our current Asure HCM suite, we are in the process of launching our AsurePay™ product which is a new innovative online banking solution which will offer debit cards, paycheck advances, and fee-free ATM withdrawal.

Our approach to HR compliance services leverages technology and on-demand content to enhance scalability and efficiency while prioritizing client interactions.

We offer our services directly and indirectly through our network of reseller partners.

From recruitment to retirement, our solutions help more than 100,000 SMBs across the United States.

From recruitment to retirement, our solutions help more than 100,000 businesses across the United States.

Approximately 15,000 of our clients are direct and the 85,000 remaining clients are indirect, as they have contracts with reseller partners who white label our solutions.

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.

We strive to be the most trusted HCM resource to small, medium-sized (“SMBs”) and enterprise-level businesses.

We target SMBs through less densely populated U.S.

metropolitan cities where fewer of our competitors have a presence and have begun expansion of certain product lines to enterprise-level businesses.

Our solutions solve three primary challenges that prevent businesses from growing:

3 unchanged sentences

We have two types of partners:

reseller partners that white label our products while providing value-added services to their clients (or indirect clients) and referral partners that provide us with SMB leads but do no resell our solutions.

reseller partners that white label our products while providing value-added services to their clients (or indirect clients) and referral partners that provide us with business leads but do no resell our solutions.

We have and will continue to invest in research and development to expand our solutions.

Our solutions reduce the administrative burden on employers and increase employee productivity while managing the employment lifecycle.

On July 11, 2024, we acquired certain assets of an applicant tracking technology company, which were used to provide hiring solutions to small and medium-sized businesses .

The aggregate purchase price that we paid for these assets was $15,250, consisting of $8,000 paid in cash on hand, 525 shares of Asure common stock, having an agreed value of $4,250, and the remaining $3,000 in the form of a promissory note with the principal balance due on July 1, 2029.

As part of our acquisition strategy, we purchase various assets or businesses that are commonly immaterial to our financial statements as a whole (and individually) and not considered significant under applicable SEC rules.

None of the acquisitions listed below are material, either individually or in the aggregate, but reflect the larger transactions we closed during the periods presented.

On July 11, 2024, we acquired certain assets of an applicant tracking technology company that provided hiring solutions to small and medium-sized businesses, in a business combination transaction .

The aggregate purchase price that we paid for these assets was $15,162, consisting of $7,900 paid in cash on hand, 525 shares of Asure common stock, having a fair value of $4,262, and the remaining $3,000 in the form of a promissory note.

As of September 30, 2024, the promissory note had an outstanding principal balance of $3,000 and matures July 1, 2029.

On April 30, 2024, we acquired certain assets of a reseller partner, which were used to provide payroll processing services.

1 unchanged sentence

The aggregate purchase price that we paid for these assets was $3,000, consisting of $2,300 paid in cash on hand, and $700 in the form of a promissory note, plus 50 shares of Asure common stock.

As of June 30, 2024, the promissory note had an outstanding principal balance of $700 and matures October 30, 2025.

As of September 30, 2024, the promissory note had an outstanding principal balance of $700 and matures October 30, 2025.

On February 22, 2024, we acquired certain assets of a payroll processing and benefits brokerage servicer based in New Jersey.

The aggregate purchase price paid for the acquisition of these assets was $6,000, consisting of $500 paid in cash on hand, 450 shares of Asure common stock, having an agreed value of $4,500, and the remaining $1,000 in the form of a promissory note.

As of June 30, 2024, the promissory note had an outstanding principal balance of $963 and matures on February 22, 2026.

As of September 30, 2024, the promissory note had an outstanding principal balance of $963 and matures on February 22, 2026.

On October 1, 2023, we acquired certain assets of an Alabama based reseller partner, which were used to provide payroll processing services.

The aggregate purchase price paid for these assets was $8,391, consisting of $6,891 in cash of which $6,545 was paid at closing and the delivery of a promissory note in the amount of $1,500.

As of June 30, 2024, the promissory note had an outstanding principal balance of $1,500 and matures on October 1, 2025.

As of September 30, 2024, the promissory note had an outstanding principal balance of $1,500 and matures on October 1, 2025.

RESULTS OF OPERATIONS (in thousands)

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

Six Months Ended June 30,

Nine Months Ended September 30,

Revenue 100 % 100 %

13 unchanged sentences

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

While revenue mix varies by product, recurring revenue represented over 96% of total revenue in six months ended June 30, 2024, compared to 80% in six months ended June 30, 2023.

While revenue mix varies by product, recurring revenue represented over 97% of total revenue in nine months ended September 30, 2024, compared to 81% in nine months ended September 30, 2023.

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

Three Months Ended June 30, Variance

Three Months Ended September 30, Variance

2024 2023 $ %

2 unchanged sentences

Total $ 29,304 $ 29,334 $ (30) — %

Six Months Ended June 30, Variance

Nine Months Ended September 30, Variance

2024 2023 $ %

3 unchanged sentences

Recurring Revenue

Recurring revenue includes fees for our payroll, payroll tax, tax management, time and labor management, HR compliance services, AsureMarketplace™ and other Asure solutions as well as fees charged for form filings and delivery of client payroll checks and reports.

Recurring revenue includes fees for our payroll, payroll tax, tax management, time and labor management, recruiting, HR compliance services, AsureMarketplace™ 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 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.

12 unchanged sentences

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

Recurring revenue for the three months ended June 30, 2024 was $27,051, an increase of $4,091, or 18%, from $22,960 for the three months ended June 30, 2023.

Recurring revenue for the three months ended September 30, 2024 was $28,626, an increase of $4,793, or 20%, from $23,833 for the three months ended September 30, 2023.

The increase is primarily due to an increase in payroll and tax management revenue driven by clients obtained through acquisitions, as well as an increase in revenue from AsureMarketplace™, and an increase in interest earned on funds held for clients.

Recurring revenue for the six months ended June 30, 2024 was $57,324, an increase of $6,408, or 13%, from $50,916 for the six months ended June 30, 2023.

Recurring revenue for the nine months ended September 30, 2024 was $85,950, an increase of $11,201, or 15%, from $74,749 for the nine months ended September 30, 2023.

Recurring revenue increase is primarily due to an increase in payroll and tax management revenue driven by clients obtained through acquisitions, an increase in HR compliance revenue, an increase in revenue from AsureMarketplace™, and an increase in interest earned on funds held for clients.

1 unchanged sentence

Professional services, hardware and other revenue represents implementation fees, one-time consulting projects, on-premise maintenance, hardware devices to enhance our software products as well as revenue generated for provisioning and filing for ERTC.

Professional services, hardw are and other revenue decreased $6,467, or 87%, for the three months ended June 30, 2024 from the similar period in 2023, primarily due to a decrease in non-recurring ERTC revenue.

Professional services, hardware, and other revenue decreased $10,196, or 81%, for the six months ended June 30, 2024 from the similar period in 2023 , primarily due to a decrease in non-recurring ERTC revenue.

Professional services, hardware and other revenue decreased $4,823, or 88%, for the three months ended September 30, 2024 from the similar period in 2023, primarily due to a decrease in non-recurring ERTC revenue.

Professional services, hardware, and other revenue decreased $15,019, or 83%, for the nine months ended September 30, 2024 from the similar period in 2023, primarily due to a decrease in non-recurring ERTC revenue.

ERTC revenue was originally expected to expire during 2024 and 2025;

6 unchanged sentences

Refer to “Risk Factors” previously disclosed in our Annual Report on Form 10-K, filed with the SEC on February 26, 2024, 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 SMBs.

We continue to target SMBs across industries as prospective customers.

Although our total customer base is widely spread across industries, our sales are concentrated in SMBs but are expanding to enterprise-level businesses for certain product lines.

While we continue to target SMBs across industries, our search for prospective customers includes both SMBs and enterprise-level customers.

Geographically, we sell our products primarily in the United States.

1 unchanged sentence

Gross Profit and Gross Margin

Consolidated gross profit for the three months ended June 30, 2024, was $18,868, a decrease of $3,150, or 14%, from $22,018 for the three months ended June 30, 2023.

Gross profit as a percentage of revenue was 67% for the three months ended June 30, 2024 as compared to 72% for the three months ended June 30, 2023.

The decrease is primarily attributable to the decrease in professional services revenue during the period.

Consolidated gross profit for the six months ended June 30, 2024, was $41,475, a decrease of $4,943, or 11%, from $46,418 for the six months ended June 30, 2023.

Gross profit as a percentage of revenue was 69% for the six months ended June 30, 2024 as compared to 73% for the six months ended June 30, 2023 .

The decrease is primarily attributable to the decrease in professional services revenue during the period.

Consolidated gross profit for the three months ended September 30, 2024, was $19,704, a decrease of $1,576, or 7%, from $21,280 for the three months ended September 30, 2023.

Gross profit as a percentage of revenue was 67% for the three months ended September 30, 2024 as compared to 73% for the three months ended September 30, 2023.

The decrease is primarily attributable to the decrease in ERTC related professional services revenue during the period.

Consolidated gross profit for the nine months ended September 30, 2024, was $61,179, a decrease of $6,519, or 10%, from $67,698 for the nine months ended September 30, 2023.

Gross profit as a percentage of revenue was 69% for the nine months ended September 30, 2024 as compared to 73% for the nine months ended September 30, 2023.

The decrease is primarily attributable to the decrease in ERTC related professional services revenue during the period.

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

2 unchanged sentences

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.

Sales and marketing expenses for the three months ended June 30, 2024 were $6,924, a decrease of $1,591, or 19%, from $8,515 for the three months ended June 30, 2023.

The decrease is primarily due to a decrease in referral fees associated with non-recurring ERTC revenue arrangements.

Sales and marketing expenses as a percentage of revenue decreased to 25% for the three months ended June 30, 2024 from 28% for the same period in 2023.

Sales and marketing expenses for the six months ended June 30, 2024 were $14,691, a decrease of $1,024, or 7%, from $15,715 for the six months ended June 30, 2023.

Sales and marketing expenses for the three months ended September 30, 2024 were $6,680, an increase of $83, or 1%, from $6,597 for the three months ended September 30, 2023.

The increase is primarily due to personnel expenses driven by merit increases and higher employee insurance premiums.

Sales and marketing expenses as a percentage of revenue increased to 23% for the three months ended September 30, 2024 from 22% for the same period in 2023.

Sales and marketing expenses for the nine months ended September 30, 2024 were $21,371, a decrease of $941, or 4%, from $22,312 for the nine months ended September 30, 2023.

The decrease is primarily due to a decrease in referral fees associated with non-recurring ERTC revenue arrangements.

Sales and marketing expenses as a percentage of revenue remained flat at 25% for the six months ended June 30, 2024 compared to the same period in 2023.

Sales and marketing expenses as a percentage of revenue remained flat at 24% for the nine months ended September 30, 2024 compared to the same period in 2023.

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.

1 unchanged sentence

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, 2024 were $10,118, a decrease of $218, or 2%, from $10,336 for the three months ended June 30, 2023.

The decrease is primarily attributable to a decrease in bonus expense in 2024 based on the performance towards the current year bonus plan, partially offset by increased personnel expenses driven by merit increases and higher employee insurance premiums.

General and administrative expenses as a percentage of revenue increased to 36% for the three months ended June 30, 2024 from 34% for the same period in 2023.

General and administrative expenses for the six months ended June 30, 2024 were $20,181, a decrease of $111, or 1%, from $20,292 for the six months ended June 30, 2023.

The decrease is primarily attributable to a decrease in bonus expense in 2024 based on the performance towards the current year bonus plan, and a decrease in facilities rent expense due to some office leases terminating in 2023 and early 2024.

These decreases were partially offset by increased personnel expenses driven by merit increases and higher employee insurance premiums.

General and administrative expenses as a percentage of revenue increased to 34% for the six months ended June 30, 2024 from 32% for the same period in 2023.

General and administrative expenses for the three months ended September 30, 2024 were $10,378, an increase of $1,084, or 12%, from $9,294 for the three months ended September 30, 2023.

The increase is primarily attributable to an increase in personnel expenses driven by merit increases and higher employee insurance premiums, partially offset by a decrease in bonus expense in 2024 based on the performance towards the current year bonus plan.

General and administrative expenses as a percentage of revenue increased to 35% for the three months ended September 30, 2024 from 32% for the same period in 2023.

General and administrative expenses for the nine months ended September 30, 2024 were $30,559, an increase of $973, or 3%, from $29,586 for the nine months ended September 30, 2023.

The increase is primarily attributable to an increase in personnel expenses driven by merit increases and higher employee insurance premiums.

These increases were partially offset by a decrease in bonus expense in 2024 based on the performance towards the current year bonus plan, and a decrease in facilities rent expense due to some office leases terminating in 2023 and early 2024.

General and administrative expenses as a percentage of revenue increased to 34% for the nine months ended September 30, 2024 from 32% for the same period in 2023.

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, 2024 were $1,962, an increase of $637, or 48%, from $1,325 for the three months ended June 30, 2023.

R&D expenses for the three months ended September 30, 2024 were $1,973, an increase of $170, or 9%, from $1,803 for the three months ended September 30, 2023.

The increase is primarily attributable to an increase in personnel expenses due to increased headcount from the prior period, partially offset by an increase in capitalized software expenses driven by continued investments in the development of our products.

R&D expenses as a percentage of revenue increased to 7% for the three months ended June 30, 2024 from 4% for the same period in 2023.

R&D expenses for the six months ended June 30, 2024 were $3,731, an increase of $427, or 13%, from $3,304 for the six months ended June 30, 2023 .

R&D expenses as a percentage of revenue increased to 7% for the three months ended September 30, 2024 from 6% for the same period in 2023.

R&D expenses for the nine months ended September 30, 2024 were $5,704, an increase of $597, or 12%, from $5,107 for the nine months ended September 30, 2023.

R&D expenses as a percentage of revenue increased to 6% for the six months ended June 30, 2024 from 5% for the same period in 2023.

R&D expenses as a percentage of revenue remained flat at 6% for the nine months ended September 30, 2024 from 6% for the same period in 2023.

Amortization of Intangible Assets

Amortization expense for the three months ended June 30, 2024 was $4,046, an increase of $752, or 23%, from $3,294 for the three months ended June 30, 2023.

Amortization expense as a percentage of revenue increased to 14% for the three months ended June 30, 2024 from 11% for the same period in 2023.

The increase in amortization expense in the three months ended June 30, 2024 is primarily due to new asset acquisitions in the fourth quarter of 2023 and in the second quarter of 2024.

Amortization expense for the six months ended June 30, 2024 was $7,495, an increase of $899, or 14%, from $6,596 for the six months ended June 30, 2023.

Amortization expense as a percentage of revenue increased to 13% for the six months ended June 30, 2024 from 10% for the same period in 2023 .

The increase in amortization expense in the six months ended June 30, 2024 is primarily due to new asset acquisitions in the fourth quarter of 2023 and in the first half of 2024.

Amortization expense for the three months ended September 30, 2024 was $4,295, an increase of $962, or 29%, from $3,333 for the three months ended September 30, 2023.

Amortization expense as a percentage of revenue increased to 15% for the three months ended September 30, 2024 from 11% for the same period in 2023.

The increase in amortization expense in the three months ended September 30, 2024 is primarily due to new asset acquisitions and business combinations in the fourth quarter of 2023 and throughout 2024.

Amortization expense for the nine months ended September 30, 2024 was $11,790, an increase of $1,861, or 19%, from $9,929 for the nine months ended September 30, 2023.

Amortization expense as a percentage of revenue increased to 13% for the nine months ended September 30, 2024 from 11% for the same period in 2023.

The increase in amortization expense in the nine months ended September 30, 2024 is primarily due to new asset acquisitions and business combinations in the fourth quarter of 2023 and throughout 2024.

Interest Income and Expense

Interest income for the three months ended June 30, 2024 was $261 compared to interest income of $230 for the three months ended June 30, 2023.

Interest income as a percentage of revenue was 1% for the three months ended June 30, 2024 and 2023 .

Interest expense for the three months ended June 30, 2024 was $208 compared to interest expense of $1,823 for the three months ended June 30, 2023.

Interest expense as a percentage of revenue was 1% for the three months ended June 30, 2024 compared to 6% for the three months ended June 30, 2023.

The decrease in interest expense in the three months ended June 30, 2024 is primarily due to our payoff of the outstanding debt under the credit facility with Structural Capital Investments II LP (“Structural”) in the third quarter of 2023.

Interest income for the six months ended June 30, 2024 was $597 compared to interest income of $578 for the six months ended June 30, 2023.

Interest income as a percentage of revenue was 1% for the three months ended June 30, 2024 and 2023 .

Interest expense for the six months ended June 30, 2024 was $388 compared to interest expense of $4,116 for the six months ended June 30, 2023.

Interest expense as a percentage of revenue was 1% for the six months ended June 30, 2024 compared to 6% for the six months ended June 30, 2023.

The decrease in interest expense in the six months ended June 30, 2024 is primarily due to our payoff of the outstanding debt under the credit facility with Structural in the third quarter of 2023.

Interest income for the three months ended September 30, 2024 was $165 compared to interest income of $437 for the three months ended September 30, 2023.

Interest income as a percentage of revenue was 1% for the three months ended September 30, 2024 and 2023.

Interest expense for the three months ended September 30, 2024 was $274 compared to interest expense of $1,219 for the three months ended September 30, 2023.

Interest expense as a percentage of revenue was 1% for the three months ended September 30, 2024 compared to 4% for the three months ended September 30, 2023.

The decrease in Interest expense in the three months ended September 30, 2024 is primarily due to our payoff of the outstanding debt under the credit facility with Structural Capital Investments II LP (“Structural”) in the third quarter of 2023.

Interest income for the nine months ended September 30, 2024 was $762 compared to interest income of $1,015 for the nine months ended September 30, 2023.

Interest income as a percentage of revenue was 1% for the three months ended September 30, 2024 and 2023.

Interest expense for the nine months ended September 30, 2024 was $662 compared to interest expense of $5,336 for the nine months ended September 30, 2023.

Interest expense as a percentage of revenue was 1% for the nine months ended September 30, 2024 compared to 6% for the nine months ended September 30, 2023.

The decrease in interest expense in the nine months ended September 30, 2024 is primarily due to our payoff of the outstanding debt under the credit facility with Structural in the third quarter of 2023.

Other (Expense) Income, Net

Other (expense) income, net for the three months ended June 30, 2024 was $0 compared to an expense of $93 for the three months ended June 30, 2023.

Other (expense) income, net as a percentage of revenue was negligible for the three months ended June 30, 2024 and 2023 .

Other (expense) income, net for the six months ended June 30, 2024 was $10 compared to $(9) for the six months ended June 30, 2023.

Other (expense) income, net as a percentage of revenue was negligible for the six months ended June 30, 2024 and 2023.

For the three months ended June 30, 2024 and 2023, we recorded income tax expense attributable to continuing operations of $231 and $627, respectively, a decrease of $396.

For the six months ended June 30, 2024 and 2023, we recorded income tax expense attributable to continuing operations of $264 and $390, respectively, a decrease of $126.

We incurred a loss of $4,360, or $0.17 per share, during the three months ended June 30, 2024, compared to a loss of $3,765, or $0.18 per share, during the three months ended June 30, 2023.

Loss as a percentage of total revenue was 16% and 12% for the three months ended June 30, 2024 and 2023, respectively.

We incurred a loss of $4,668, or $0.18 per share, during the six months ended June 30, 2024, compared to a loss of $3,426, or $0.17 per share, during the six months ended June 30, 2023.

Loss as a percentage of total revenue was 8% and 5% for the six months ended June 30, 2024 and 2023, respectively.

Other (expense) income, net for the three months ended September 30, 2024 was $0 compared to $283 of expense for the three months ended September 30, 2023.

Other (expense) income, net as a percentage of revenue was negligible for the three months ended September 30, 2024 and 2023.

Other (expense) income, net for the nine months ended September 30, 2024 was $10 of income compared to $291 of expense for the nine months ended September 30, 2023.

Other (expense) income, net as a percentage of revenue was negligible for the nine months ended September 30, 2024 and 2023.

For the three months ended September 30, 2024 and 2023, we recorded income tax expense attributable to continuing operations of $170 and income tax benefit of $123, respectively, an increase of $293.

For the nine months ended September 30, 2024 and 2023, we recorded income tax expense attributable to continuing operations of $434 and $267, respectively, an increase of $167.

We incurred a loss of $3,901, or $0.15 per share, during the three months ended September 30, 2024, compared to a loss of $2,206, or $0.10 per share, during the three months ended September 30, 2023.

Loss as a percentage of total revenue was 13% and 8% for the three months ended September 30, 2024 and 2023, respectively.

We incurred a loss of $8,569, or $0.33 per share, during the nine months ended September 30, 2024, compared to a loss of $5,632, or $0.27 per share, during the nine months ended September 30, 2023.

Loss as a percentage of total revenue was 10% and 6% for the nine months ended September 30, 2024 and 2023, respectively.

LIQUIDITY AND CAPITAL RESOURCES (in thousands)

June 30, 2024 December 31, 2023

September 30, 2024 December 31, 2023

Cash and cash equivalents $ 11,248 $ 30,317

(1) This balance excludes cash equivalents in funds held for clients.

(1) Amounts exclude cash and cash equivalents included in funds held for clients on our Condensed Consolidated Balance Sheets as of each date.

Working Capital .

We had working capital of $23,663 at June 30, 2024, a decrease of $2,217 from working capital of $25,880 at December 31, 2023.

Working capital as of June 30, 2024 and December 31, 2023 includes $3,030 and $6,853 of short-term deferred revenue, respectively.

We had working capital of $14,428 at September 30, 2024, a decrease of $11,452 from working capital of $25,880 at December 31, 2023.

Working capital as of September 30, 2024 and December 31, 2023 includes $3,029 and $6,853 of short-term deferred revenue, respectively.

Deferred revenue is an obligation to perform future services.

2 unchanged sentences

Operating Activities .

Net cash used in operating activities of $1,719 for the six months ended June 30, 2024 was primarily driven by changes in operating assets and liabilities, which resulted in a use of $10,677 in cash.

This was offset by non-cash adjustments to our net loss of approximately $13,626, primarily due to depreciation and amortization and share-based compensation.

Net cash provided by operating activities of $6,096 for the six months ended June 30, 2023 was driven by non-cash adjustments to our net loss of approximately $16,082, primarily due to depreciation and amortization and share-based compensation.

For the six months ended June 30, 2023, changes in operating assets and liabilities resulted in a use of $6,560 in cash.

Net cash used in operating activities of $394 for the nine months ended September 30, 2024 was primarily driven by changes in operating assets and liabilities, as noted in our Condensed Consolidated Statement of Cash Flows, which resulted in a use of $12,859 in cash.

This was offset by non-cash adjustments to our net loss of approximately $21,034, primarily due to depreciation, amortization, and share-based compensation, which is driven by acquisitions of intangible assets since the third quarter of 2023 and equity compensation arrangements granted in 2024, respectively.

Net cash provided by operating activities of $11,835 for the nine months ended September 30, 2023 was driven by non-cash adjustments to our net loss of approximately $23,483, primarily due to depreciation, amortization, and share-based compensation.

For the nine months ended September 30, 2023, changes in operating assets and liabilities resulted in a use of $6,016 in cash.

Investing Activities .

Net cash used in investing activities of $7,359 for the six months ended June 30, 2024 is primarily due to purchases of available-for-sale securities and maturities of $6,462 and software capitalization costs of $5,042, partially offset by proceeds from sales and maturities of available-for-sale securities of $8,617.

Net cash used in investing activities of $17,266 for the six months ended June 30, 2023 is primarily due to purchases of available-for-sale securities and maturities of $18,885.

Net cash used in investing activities of $18,209 for the nine months ended September 30, 2024 is primarily due to acquisitions of intangible assets in business combinations or asset acquisitions of $12,397, purchases of available-for-sale securities and maturities of $10,914, and software capitalization costs of $7,677, partially offset by proceeds from sales and maturities of available-for-sale securities of $13,325.

Net cash used in investing activities of $18,176 for the nine months ended September 30, 2023 is primarily due to purchases of available-for-sale securities and maturities of $21,513.

Financing Activities .

Net cash used in financing activities was $27,935 for the six months ended June 30, 2024, which primarily consisted of a net decrease in client fund obligations of $28,225.

Net cash used in financing activities was $15,602 for the six months ended June 30, 2023, which primarily consisted of a net decrease in client fund obligations of $17,225.

We have an outstanding promissory note in connection with a payroll business acquired in April 2024 in the amount of $700 as of June 30, 2024 .

The outstanding promissory note matures on October 30, 2025.

We also have an outstanding promissory note in connection with a payroll processing and benefits brokerage servicer acquired in February 2024 in the amount of $963 as of June 30, 2024 .

The outstanding promissory note matures on February 22, 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 June 30, 2024 .

The outstanding promissory note matures on October 1, 2025.

We also have an outstanding promissory note in connection with a payroll business acquired in September 2021 in the amount of $4,200 as of June 30, 2024.

The outstanding promissory note matures on September 30, 2026.

Net cash used in financing activities was $26,291 for the nine months ended September 30, 2024, which primarily consisted of a net decrease in client fund obligations of $26,068.

Net cash used in financing activities was $21,400 for the nine months ended September 30, 2023, which primarily consisted of payments of notes payable of $35,627 for the extinguishment of the structural debt and a net decrease in client fund obligations of $31,033.

These usages of cash were partially offset by net proceeds from issuance of common stock of $45,986.

We have outstanding promissory notes in connection with a business combination and multiple asset acquisitions executed between September 2021 and July 2024, all of which are immaterial individually and in the aggregate.

As of September 30, 2024, these promissory notes have a total outstanding balance of $9,943, have maturities ranging from October 1, 2025, to July 1, 2029, and carry interest ranging from 2% to 5%.

Sources of Liquidity .

As of June 30, 2024, the Company’s principal sources of liquidity consisted of approximately $20,736 of cash and cash equivalents, together with cash generated from operations of our business over the next twelve months.

As of September 30, 2024, the Company’s principal sources of liquidity consisted of approximately $11,248 of cash and cash equivalents, together with cash generated from operations of our business over the next twelve months.

As of December 31, 2023, the Company had cash and cash equivalents of $30,317.

These amounts do not include cash contained within client funds.

The decrease of cash and cash equivalents is primarily due to the Company’s investing activities of acquisitions and software capitalization.

We cannot ensure 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;

2 unchanged sentences

We may need to raise additional capital in the future in order to grow our existing software operations and to seek additional strategic acquisitions in the near future.

Currently, we do not have a credit facility or access to a line of credit.

Further, we cannot ensure that we will be able to raise additional capital on acceptable terms, or at all, or at the time we need it.

Currently, we do not have a credit facility or access to a line of credit as of September 30, 2024 and we may leverage these potential sources of liquidity to raise additional capital for the aforementioned purposes.

If we do leverage such sources, we cannot ensure that we will be able to raise additional capital on acceptable terms, or at all, or at the time we need it.

We also cannot ensure that we will be able to obtain financing through lending institutions when we need it or on acceptable terms.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

15 unchanged sentences

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