ASURE SOFTWARE INC 10-Q

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS This Quarterly Report on Form 10-Q contains certain statements made by management that may constitute “forward-looking” statements within the meaning of the safe harbor provisions of the U.S. Private Securities Litigation Reform Act of 1995. These forward-looking statements about our financial results may include expected or projected U.S GAAP and other operating and non-operating results. The words “believe,” “may,” “will,” “estimate,” “projects,” “anticipate,” “intend,” “expect,” “should,” “plan,” and similar expressions are intended to identify forward-looking statements. 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. 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 recent measures regarding ERTC claims; risks associated with breaches of the Company’s security measures; risks associated with the Company’s rate of growth and anticipated revenue run rate, including impact of the current economic environment; the Company’s ability to convert deferred revenue and unbilled deferred revenue into revenue and cash flow, and ability to maintain continued growth of deferred revenue and unbilled deferred revenue; privacy concerns and laws and other regulations may limit the effectiveness of our applications; the financial and other impact of any previous and future acquisitions; the Company’s ability to continue to release, gain customer acceptance of and provide support for new and improved versions of the Company’s services; successful customer deployment and utilization of the Company’s existing and future services; interruptions to supply chains and extended shut down of businesses; issues in the use of artificial intelligence in our HCM products and services; 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; possible fluctuations in the Company’s financial and operating results; regulatory pressures on economic relief enacted as a result of the COVID-19 pandemic that change or cause different interpretations with respect to eligibility for such programs; domestic and international regulatory developments, including changes to or applicability to our business of privacy and data securities laws, money transmitter laws and anti-money laundering laws; technological developments; the nature of the Company’s business model; interest rates; competition; various financial aspects of the Company’s subscription model; impairment of intangible assets; interruptions or delays in the Company’s services or the Company’s Web hosting; access to additional capital; the Company’s ability to hire, retain and motivate employees and manage the Company’s growth; litigation and any related claims, negotiations and settlements, including with respect to intellectual property matters or industry-specific regulations; volatility and weakness in bank and capital markets; factors affecting the Company’s deferred tax assets and ability to value and utilize them; volatility and low trading volume of our common stock; collection of receivables; and general developments in the economy, financial markets, credit markets and the impact of current and future accounting pronouncements and other financial reporting standards. Further information on these and other factors that could affect the Company’s financial results is included in the reports on Forms 10-K, 10-Q and 8-K, and in other filings we make with the Securities and Exchange Commission (the “SEC”) from time to time. These documents are available on the SEC Filings section of the Investor Information section of the Company’s website at investor.asuresoftware.com. Asure assumes no obligation and does not intend to update these forward-looking statements, except as required by law. 18 Table of Contents OVERVIEW 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. Asure’s internet website and the information contained in our website or connected to our website are not incorporated into this Quarterly Report on Form 10-Q. However, we do post information on the investor relations page of our website that we believe may be of interest to our investors. Asure’s internet website address is www.asuresoftware.com. All financial information, including shares, is reported in thousands, except for per share amounts. Our Business 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, 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 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 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: HR complexity, allocation of human and financial capital, and the ability to build great teams. We sell our solutions through both direct and partner channels. We supplement our direct sales efforts with partner programs that afford us access to opportunities in various geographic and industry niches. 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 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. 19 Table of Contents Acquisitions 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. The partner is located in Ohio. 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 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 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 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: Nine Months Ended September 30, 2024 2023 Revenue 100 % 100 % Gross profit 69 % 73 % Sales and marketing 24 % 24 % General and administrative 34 % 32 % Research and development 6 % 6 % Amortization of intangible assets 13 % 11 % Total operating expenses 78 % 72 % Interest income 1 % 1 % Interest expense (1) % (6) % Other (expense) income, net — % — % Loss from operations before income taxes (9) % (6) % Net loss (10) % (6) % 20 Table of Contents Revenue Revenue is comprised of recurring revenue, professional services, hardware, and other revenue. We expect our revenue to increase as we introduce new applications, expand our client base and renew and expand relationships with existing clients. 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 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 September 30, Variance 2024 2023 $ % Recurring $ 28,626 $ 23,833 $ 4,793 20 % Professional services, hardware and other 678 5,501 (4,823) (88) % Total $ 29,304 $ 29,334 $ (30) — % Nine Months Ended September 30, Variance 2024 2023 $ % Recurring $ 85,950 $ 74,749 $ 11,201 15 % Professional services, hardware and other 3,050 18,069 (15,019) (83) % Total $ 89,000 $ 92,818 $ (3,818) (4) % Recurring Revenue 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. 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. Because recurring revenue is 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 revenue increases as our clients hire more employees. Recurring revenue is recognized in the period services are rendered. Recurring revenue includes 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 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. 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. 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. These collections from clients are typically disbursed from one to 30 days after receipt, with some funds being held for up to 120 days. We typically invest funds held for clients in money market funds, demand deposit accounts, commercial paper, fixed income securities and certificates of deposit until they are paid to the applicable tax or regulatory agencies or to client employees. 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 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. 21 Table of Contents 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. Professional Services, Hardware and Other Revenue 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, 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; 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 set an expiration date of January 31, 2024, on additional claims for ERTC that can potentially apply retroactively. If approved by other branches of government, this will have an effect on our ERTC revenue and cash collections. Additionally, in September 2023, the IRS announced a moratorium through the end of 2023 on processing new ERTC claims due to concerns over questionable or fraudulent claims. In June 2024, the IRS posted a news release stating that the agency continues its review of previously filed claims and that it will consult with Congress before making a final decision on the future of the moratorium. The moratorium may potentially delay the processing and collections of previously filed ERTC claims. 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 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. In addition to continuing to develop our workforce solutions and release of new software updates and enhancements, we continue to actively explore other opportunities to acquire additional products or technologies to complement our current software and services. Gross Profit and Gross Margin 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. We include intangible amortization related to developed and acquired technology within cost of sales. Sales and Marketing Expenses 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. 22 Table of Contents 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 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. 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 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 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 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. 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 remained flat at 6% for the nine months ended September 30, 2024 from 6% for the same period in 2023. 23 Table of Contents Amortization of Intangible Assets 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 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 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. Income Taxes 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. Net Loss 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. 24 Table of Contents LIQUIDITY AND CAPITAL RESOURCES (in thousands) September 30, 2024 December 31, 2023 Cash and cash equivalents $ 11,248 $ 30,317 (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 $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. We expect that deferred revenue will convert to future revenue as we perform our services, but this does not represent future payments. Deferred revenue can vary based on seasonality, expiration of initial multi-year contracts and deals that are billed after implementation rather than in advance of service delivery. Operating Activities . 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 $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 $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 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; 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 or expected. 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 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. 25 Table of Contents CRITICAL ACCOUNTING POLICIES AND ESTIMATES We have prepared our Condensed Consolidated Financial Statements in accordance with U.S. generally accepted accounting principles and included the accounts of our wholly owned subsidiaries. We have eliminated all significant intercompany transactions and balances in the consolidation. Preparation of the Condensed Consolidated Financial Statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of the assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. These estimates are subjective in nature and involve judgments that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at fiscal year-end and the reported amounts of revenues and expenses during the fiscal year. The more significant estimates made by management include the valuation allowance for our gross deferred tax asset, the determination of the fair value of our long-lived assets. We base our estimates on historical experience and on various other assumptions that management believes are reasonable under the given circumstances. These estimates could be materially different under different conditions and assumptions. Additionally, the actual amounts could differ from the estimates made. Management periodically evaluates estimates used in the preparation of our financial statements for continued reasonableness. We prospectively apply appropriate adjustments, if any, to our estimates based upon our periodic evaluation. For a description of our critical accounting policies, see Management’s Discussion and Analysis in our Annual Report on Form 10-K for the year ended December 31, 2023. 26 Table of Contents ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK There have been no material changes to our exposure from market risks from those disclosed in our 2023 Annual Report on Form 10-K.