ASURE SOFTWARE INC 10-Q

ITEM 1. FINANCIAL STATEMENTS ASURE SOFTWARE, INC. CONDENSED CONSOLIDATED BALANCE SHEETS (in thousands, except per share amounts) (Unaudited) June 30, 2025 December 31, 2024 ASSETS Current assets: Cash, cash equivalents, and restricted cash $ 66,000 $ 21,425 Accounts receivable, net of allowance for credit losses of $ 7,279 and $ 6,328 at June 30, 2025, and December 31, 2024, respectively 13,623 18,154 Inventory 142 195 Prepaid expenses and other current assets 5,838 4,888 Total current assets before funds held for clients 85,603 44,662 Funds held for clients 213,972 192,615 Total current assets 299,575 237,277 Property and equipment, net 23,282 19,669 Goodwill 94,724 94,724 Intangible assets, net 69,596 69,114 Operating lease assets, net 4,748 4,041 Other assets, net 13,640 11,813 Total assets $ 505,565 $ 436,638 LIABILITIES AND STOCKHOLDERS ’ EQUITY Current liabilities: Current portion of notes payable $ 3,032 $ 7,008 Accounts payable 1,595 1,364 Accrued compensation and benefits 2,881 4,485 Operating lease liabilities, current 1,452 1,438 Other accrued liabilities 7,784 6,600 Deferred revenue 3,724 8,363 Total current liabilities before client fund obligations 20,468 29,258 Client fund obligations 214,839 194,378 Total current liabilities 235,307 223,636 Long-term liabilities: Deferred revenue 2,635 3,430 Deferred tax liability 3,746 2,612 Notes payable, net of current portion 64,350 5,709 Operating lease liabilities, noncurrent 4,200 3,578 Other liabilities 1,075 358 Total long-term liabilities 76,006 15,687 Total liabilities 311,313 239,323 Commitments and contingencies - Note 8 Stockholders’ equity: Preferred stock, $ 0.01 par value; 1,500 shares authorized; none issued or outstanding — — Common stock, $ 0.01 par value; 44,000 shares authorized; 27,365 and 26,671 shares issued, 27,365 and 26,671 shares outstanding at June 30, 2025, and December 31, 2024, respectively 274 267 Treasury stock at cost, zero (1) shares at June 30, 2025, and December 31, 2024 — — Additional paid-in capital 509,630 504,849 Accumulated deficit ( 315,747 ) ( 307,226 ) Accumulated other comprehensive income (loss) 95 ( 575 ) Total stockholders’ equity 194,252 197,315 Total liabilities and stockholders’ equity $ 505,565 $ 436,638 (1) The aggregate Treasury stock of prior repurchases of our own common stock was retired and subsequently issued effective January 1, 2024. See the Condensed Consolidated Statement of Changes in Stockholders' Equity for the impact of this transaction. The accompanying notes are an integral part of these Condensed Consolidated Financial Statements. 1 Table of Contents ASURE SOFTWARE, INC. CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS (in thousands, except per share amounts) (Unaudited) Three Months Ended June 30, Six Months Ended June 30, 2025 2024 2025 2024 Revenue: Recurring $ 28,596 $ 27,051 $ 61,783 $ 57,324 Professional services, hardware and other 1,528 993 3,195 2,372 Total revenue 30,124 28,044 64,978 59,696 Cost of Sales 10,213 9,176 20,459 18,221 Gross profit 19,911 18,868 44,519 41,475 Operating expenses: Sales and marketing 8,149 6,924 16,535 14,691 General and administrative 10,968 10,118 22,868 20,181 Research and development 1,273 1,962 3,302 3,731 Amortization of intangible assets 4,173 4,046 8,481 7,495 Total operating expenses 24,563 23,050 51,186 46,098 Loss from operations ( 4,652 ) ( 4,182 ) ( 6,667 ) ( 4,623 ) Interest income 277 261 448 597 Interest expense ( 809 ) ( 208 ) ( 1,260 ) ( 388 ) Other (expense) income, net ( 96 ) — 92 10 Loss from operations before income taxes ( 5,280 ) ( 4,129 ) ( 7,387 ) ( 4,404 ) Income tax expense 843 231 1,134 264 Net loss ( 6,123 ) ( 4,360 ) ( 8,521 ) ( 4,668 ) Other comprehensive income (loss): Unrealized income (loss) on marketable securities 228 9 670 ( 235 ) Comprehensive loss $ ( 5,895 ) $ ( 4,351 ) $ ( 7,851 ) $ ( 4,903 ) Basic and diluted loss per share Basic $ ( 0.22 ) $ ( 0.17 ) $ ( 0.31 ) $ ( 0.18 ) Diluted $ ( 0.22 ) $ ( 0.17 ) $ ( 0.31 ) $ ( 0.18 ) Weighted average basic and diluted shares Basic 27,237 25,840 27,100 25,587 Diluted 27,237 25,840 27,100 25,587 The accompanying notes are an integral part of these Condensed Consolidated Financial Statements. 2 Table of Contents ASURE SOFTWARE, INC. CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY (in thousands) (Unaudited) Common Stock Outstanding Common Stock Amount Treasury Stock Additional Paid-in Capital Accumulated Deficit Other Comprehensive Income (Loss) Total Stockholders’ Equity Balance at December 31, 2024 26,671 $ 267 $ — $ 504,849 $ ( 307,226 ) $ ( 575 ) $ 197,315 Stock issued upon option exercise and vesting of restricted and performance stock units 451 4 — 437 — — 441 Share-based compensation — — — 1,863 — — 1,863 Net loss — — — — ( 2,398 ) — ( 2,398 ) Other comprehensive income — — — — — 442 442 Balance at March 31, 2025 27,122 $ 271 $ — $ 507,149 $ ( 309,624 ) $ ( 133 ) $ 197,663 Stock issued upon option exercise and vesting of restricted and performance stock units 189 2 — 239 — — 241 Stock issued, ESPP 54 1 — 351 — — 352 Share-based compensation — — — 1,891 — — 1,891 Net loss — — — — ( 6,123 ) — ( 6,123 ) Other comprehensive income — — — — — 228 228 Balance at June 30, 2025 27,365 $ 274 $ — $ 509,630 $ ( 315,747 ) $ 95 $ 194,252 The accompanying notes are an integral part of these Condensed Consolidated Financial Statements. 3 Table of Contents ASURE SOFTWARE, INC. CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY (in thousands) (Unaudited) Common Stock Outstanding Common Stock Amount Treasury Stock Additional Paid-in Capital Accumulated Deficit Other Comprehensive Income (Loss) Total Stockholders’ Equity Balance at December 31, 2023 24,998 $ 254 $ ( 5,017 ) $ 487,973 $ ( 290,440 ) $ ( 1,115 ) $ 191,655 Stock issued upon option exercise and vesting of restricted stock units 301 3 — 173 — — 176 Stock issued for acquisitions 450 5 — 4,489 — — 4,494 Share-based compensation — — — 1,902 — — 1,902 Retirement and reissuance of treasury shares — ( 4 ) 5,017 — ( 5,013 ) — — Net income — — — — ( 308 ) — ( 308 ) Other comprehensive loss — — — — — ( 244 ) ( 244 ) Balance at March 31, 2024 25,749 $ 258 $ — $ 494,537 $ ( 295,761 ) $ ( 1,359 ) $ 197,675 Stock issued upon option exercise and vesting of restricted stock units 58 — — 63 — — 63 Stock issued, ESPP 61 1 — 332 — — 333 Stock issued for acquisitions 50 — — 323 — — 323 Share-based compensation — — — 1,488 — — 1,488 Net loss — — — — ( 4,360 ) — ( 4,360 ) Other comprehensive income — — $ — — — 9 9 Balance at June 30, 2024 25,918 $ 259 $ — $ 496,743 $ ( 300,121 ) $ ( 1,350 ) $ 195,531 The accompanying notes are an integral part of these Condensed Consolidated Financial Statements. 4 Table of Contents ASURE SOFTWARE, INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands) (Unaudited) Six Months Ended June 30, 2025 2024 Cash flows from operating activities: Net loss $ ( 8,521 ) $ ( 4,668 ) Adjustments to reconcile loss to net cash provided by (used in) operations: Depreciation and amortization 12,155 10,359 Amortization of operating lease assets 740 677 Amortization of debt financing costs and discount 537 302 Non-cash interest expense 724 — Net accretion of discounts on available-for-sale securities ( 236 ) ( 170 ) Provision for expected losses 20 107 Provision for deferred income taxes 1,134 255 Loss on extinguishment of debt 103 — Net realized gains on sales of available-for-sale securities ( 1,310 ) ( 1,294 ) Share-based compensation 3,754 3,390 Gain on disposals of long-term assets ( 7 ) — Changes in operating assets and liabilities: Accounts receivable 4,512 ( 2,178 ) Inventory 53 ( 108 ) Prepaid expenses and other assets ( 1,462 ) ( 1,636 ) Operating lease right-of-use assets 21 98 Accounts payable 232 ( 1,330 ) Accrued expenses and other long-term obligations ( 1,039 ) ( 1,858 ) Operating lease liabilities ( 825 ) ( 374 ) Deferred revenue ( 5,434 ) ( 3,291 ) Net cash provided by (used in) operating activities 5,151 ( 1,719 ) Cash flows from investing activities: Acquisition of intangible assets ( 6,346 ) ( 4,097 ) Purchases of property and equipment ( 393 ) ( 375 ) Software capitalization costs ( 6,470 ) ( 5,042 ) Purchases of available-for-sale securities ( 12,304 ) ( 6,462 ) Proceeds from sales and maturities of available-for-sale securities 7,699 8,617 Net cash used in investing activities ( 17,814 ) ( 7,359 ) Cash flows from financing activities: Proceeds from notes payable, net of issuance costs 57,982 — Payments of notes payable ( 5,000 ) — Debt extinguishment costs ( 100 ) — Payments made on amounts due for the acquisition of intangible assets ( 1,280 ) ( 236 ) Net proceeds from issuance of common stock 1,034 572 Capital raise fees — ( 46 ) Net change in client fund obligations 20,461 ( 28,225 ) Net cash provided by (used in) financing activities 73,097 ( 27,935 ) Net increase (decrease) in cash, cash equivalents, restricted cash, and restricted cash equivalents 60,434 ( 37,013 ) Cash, cash equivalents, restricted cash and restricted cash equivalents, beginning of period 145,712 177,622 Cash, cash equivalents, restricted cash and restricted cash equivalents, end of period $ 206,146 $ 140,609 The accompanying notes are an integral part of these Condensed Consolidated Financial Statements. 5 Table of Contents ASURE SOFTWARE, INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (continued) (in thousands) (Unaudited) Six Months Ended June 30, 2025 2024 Reconciliation of cash, cash equivalents, and restricted cash, and restricted cash equivalents to the Condensed Consolidated Balance Sheets Cash, cash equivalents, and restricted cash $ 66,000 $ 20,736 Restricted cash and restricted cash equivalents included in funds held for clients 140,146 119,873 Total cash, cash equivalents, restricted cash, and restricted cash equivalents $ 206,146 $ 140,609 Supplemental information: Cash paid for interest $ 498 $ — Non-cash investing and financing activities: Acquisition of intangible assets $ 1,884 $ 5,450 Notes payable issued for acquisitions $ 1,150 $ 1,423 Shares issued for acquisitions $ — $ 4,863 The accompanying notes are an integral part of these Condensed Consolidated Financial Statements. 6 Table of Contents ASURE SOFTWARE, INC. NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (Amounts in thousands, except per share data unless otherwise noted) NOTE 1 - THE COMPANY AND BASIS OF PRESENTATION Asure Software, Inc. (“Asure”, the “Company”, “we” and “our”), a Delaware corporation, is a provider of cloud-based Human Capital Management (“HCM”) software solutions delivered as Software-as-a-Service (“SaaS”) to businesses of all sizes. 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 businesses rather than administrative overhead that can impede growth. Our solutions also provide new ways for employers to connect with their employees and strengthen relationships with their talent. At the core of our offering is the Asure HCM platform—a SaaS-based system that includes Payroll & Tax filing, Recruiting, Time & Attendance software, HR management tools, and Benefits Administration. This platform serves as the foundation for delivering both our core software and a range of complementary, technology-enabled services. These include AsureMarketplace™, which automates data exchange between our HCM system and third-party providers to increase efficiency, accuracy, and breadth of services. Our HR Compliance services combine expert guidance with scalable digital delivery. AsurePay™, our payroll card, provides employees with fast, secure access to earned wages. Additionally, through our licensed brokerage, we offer Insurance Services that help employers manage benefits and reduce administrative costs. We deliver our solutions directly and through a national network of Reseller Partners. We strive to be the most trusted HCM resource. 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. Asure has two types of partners: 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 client leads but do not 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. The Asure HCM suite includes eight product lines: Asure Payroll & Tax, Asure Tax Management Solutions, AsureRecruiting™, Asure Time & Attendance, Asure HR Compliance, Asure Insurance and Benefits Administration, AsureMarketplace™, and AsurePay™. We develop, market, sell and support our offerings nationwide through our principal office in Austin, Texas and from our other office locations in Alabama, California, Florida, New Jersey, New York, North Carolina, Ohio, South Dakota, Tennessee, and Vermont. We have prepared the accompanying unaudited Condensed Consolidated Financial Statements in accordance with the rules and regulations of the Securities and Exchange Commission (the “SEC”) and accordingly, they do not include all information and footnotes required under U.S. generally accepted accounting principles (“U.S. GAAP”) for complete financial statements. In the opinion of management, these interim financial statements contain all adjustments, consisting of normal, recurring adjustments, necessary for a fair presentation of our financial position as of June 30, 2025, comprehensive loss and changes in stockholders’ equity for the three and six months ended June 30, 2025, and 2024 , and cash flows for the six months ended June 30, 2025, and 2024 . These unaudited Condensed Consolidated Financial Statements should be read in conjunction with our audited Consolidated Financial Statements and notes thereto filed with the SEC in our annual report on Form 10-K for the fiscal year ended December 31, 2024 (our “2024 Annual Report on Form 10-K”). Our results for any interim period are not necessarily indicative of results for a full fiscal year. 7 Table of Contents NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES REPORTABLE SEGMENTS Our chief operating decision maker is our Chairman and Chief Executive Officer, Patrick Goepel, who reviews financial information presented on a company-wide basis. Thus, in accordance with Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 280, we determined that we have a single reportable segment that primarily derives our revenue in the United States by providing payroll services to customers. USE OF ESTIMATES Preparation of the Condensed Consolidated Financial Statements in conformity with U.S. GAAP 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 Condensed Consolidated Financial Statements and the reported amounts of revenues and expenses during the reporting period. These estimates are subjective in nature and involve judgments. The more significant estimates made by management include the valuation allowance for the gross deferred tax assets, the determination of the fair value of our long-lived assets, and the fair value of assets acquired, and liabilities assumed during acquisitions. We base our estimates on historical experience and on various other assumptions management believes reasonable under the given circumstances. These estimates could be materially different under different conditions and assumptions. CASH, CASH EQUIVALENTS, AND RESTRICTED CASH We consider all highly liquid investments with maturity of 90 days or less to be cash equivalents. Cash equivalents include investments in an institutional money market fund, which invests in U.S. Treasury bills, notes and bonds, and/or repurchase agreements, backed by such obligations. Carrying value approximates fair value. Restricted cash consists of cash balances which are restricted as to their withdrawal or usage. As of June 30, 2025, we have $ 40,000 of restricted cash. Pursuant to the terms of our Credit, Security and Guaranty Agreement (as amended to date, the “Loan Agreement”) with MidCap Financial Trust (“MidCap”) we may only use these funds for Permitted Acquisitions (as defined in the Loan Agreement). See Note 6 — Notes Payable for information about the Loan Agreement. RECENT ACCOUNTING PRONOUNCEMENTS In December 2023, the FASB issued ASU No. 2023-09, Improvements to Income Tax Disclosures (Topic 740), which requires companies to disaggregate information about their effective tax rate reconciliation as well as information on income taxes paid. The standard applies to all entities subject to income taxes. The standard becomes effective for public entities for annual periods beginning after December 15, 2024. We are currently evaluating this standard and the potential effects of these changes to our consolidated financial statements. ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS) As of June 30, 2025, and December 31, 2024, accumulated other comprehensive income (loss) consisted of net unrealized gains and losses on available-for-sale securities. 8 Table of Contents NOTE 3 - BUSINESS COMBINATIONS AND ASSET ACQUISITIONS 2025 Asset Acquisitions During the six months ended June 30, 2025, we completed four customer relationship asset acquisitions. The total purchase price of these acquisitions was $ 8,086 , which consisted of $ 6,362 of cash paid during the six months ended June 30, 2025 , $ 574 of cash to be paid over the next 12 months, and the delivery of promissory notes in the amount of $ 1,150 , net of discounts. The acquired customer relationships are recorded as intangible assets and are being amortized on a straight-line basis over eight years . 2024 Business Combinations Effective July 11, 2024, we purchased substantially all the assets of an applicant tracking technology company based out of South Dakota for an innovative hiring solution designed to streamline the recruitment process for small and mid-sized businesses. This strategic acquisition reinforces Asure’s commitment to delivering comprehensive, user-friendly tools that simplify people management. The aggregate purchase price paid for the business was $ 15,162 , consisting of $ 7,900 paid in cash on hand, $ 3,000 in the form of a promissory note ($ 1,716 net of discount), and 525 shares of Asure common stock, which had a fair value of $ 4,262 on the day of acquisition. The purchase consideration was allocated among the acquired assets, which consist of a customer relationships intangible asset with fair value of $ 2,700 , and a developed technology intangible asset with a fair value of $ 3,200 . Additionally, we assumed $ 237 of deferred revenue and $ 498 of other accrued liabilities as part of the transaction. The intangible assets are being amortized on a straight-line basis over eight and five years , respectively. The remaining $ 8,713 of excess purchase consideration was allocated to goodwill, which is generally expected to be deductible for tax purposes. This represents the knowledge and experience of the employees retained as part of the transaction as well as the synergies and economies of scale expected from expanding the Midwest operating region to a national scale. Asset Acquisitions During the year ended December 31, 2024, we completed eleven customer relationship asset acquisitions. The total purchase price of these acquisitions was $ 15,202 , which consisted of $ 5,842 of cash paid during the year ended December 31, 2024, $ 1,280 of cash paid during the six months ended June 30, 2025 , $ 1,596 of cash to be paid over the next 12 months, $ 235 of cash to be paid thereafter, the delivery of promissory notes in the amount of $ 1,386 , net of discounts, and the delivery of 500 shares of Asure common stock, which had an aggregate fair value of $ 4,863 at the acquisition dates. The purchase price for certain acquisitions is subject to adjustments for contingent events to be resolved primarily over the next one to three years , including revenue generated from the acquired assets. The acquired customer relationships are recorded as intangible assets and are being amortized on a straight-line basis over eight years . See Note 6 — Notes Payable for information related to outstanding debt in connection with our business combinations and asset acquisitions. 9 Table of Contents NOTE 4 - INVESTMENTS AND FAIR VALUE MEASUREMENTS Accounting Standards Codification (ASC) 820 “Fair Value Measurement” (“ASC 820”) defines fair value, establishes a framework for measuring fair value under U.S. GAAP and enhances disclosures about fair value measurements. Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. Valuation techniques used to measure fair value must maximize the use of observable inputs and minimize the use of unobservable inputs. ASC 820 describes a fair value hierarchy based on the following three levels of inputs that may be used to measure fair value, of which the first two are considered observable and the last unobservable: Level 1: Quoted prices in active markets for identical assets or liabilities; Level 2: Quoted prices in active markets for similar assets or liabilities; quoted prices in markets that are not active for identical or similar assets or liabilities; and model-driven valuations whose significant inputs are observable; and Level 3: Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. The following table presents the fair value hierarchy for our financial assets and liabilities measured at fair value on a recurring basis for the periods presented below (in thousands): Total Carrying Value Level 1 Level 2 Level 3 June 30, 2025 Assets: Funds held for clients Money market funds $ 3,283 $ 3,283 $ — $ — Available-for-sale securities 73,826 — 73,826 — Total $ 77,109 $ 3,283 $ 73,826 $ — December 31, 2024 Assets: Funds held for clients Money market funds $ 8,105 $ 8,105 $ — $ — Available-for-sale securities 68,328 — 68,328 — Total $ 76,433 $ 8,105 $ 68,328 $ — 10 Table of Contents Cash equivalents and investments classified as available-for-sale within funds held for clients consisted of the following for the periods presented below (in thousands): Amortized Cost Gross Unrealized Gains (1) Gross Unrealized Losses (1) Aggregate Estimated Fair Value June 30, 2025 Cash equivalents $ 3,291 $ — $ ( 8 ) $ 3,283 Available-for-sale securities: Corporate debt securities 66,537 378 ( 244 ) 66,671 Municipal bonds 2,006 — ( 49 ) 1,957 U.S. Government agency securities 5,180 24 ( 6 ) 5,198 Total available-for-sale securities 73,723 402 ( 299 ) 73,826 Total (2) $ 77,014 $ 402 $ ( 307 ) $ 77,109 December 31, 2024 Cash equivalents $ 8,115 $ — $ ( 10 ) $ 8,105 Available-for-sale securities: Corporate debt securities 63,253 164 ( 619 ) 62,798 Municipal bonds 3,194 — ( 104 ) 3,090 U.S. Government agency securities 2,449 6 ( 15 ) 2,440 Total available-for-sale securities 68,896 170 ( 738 ) 68,328 Total (2) $ 77,011 $ 170 $ ( 748 ) $ 76,433 (1) Unrealized gains and losses on available-for-sale securities are included as a component of comprehensive loss. As of June 30, 2025, and December 31, 2024, there were 88 and 45 securities, respectively, in an unrealized gain position and there were 52 and 89 securities in an unrealized loss position, respectively. As of June 30, 2025, these unrealized losses were less than $ 24 individually and $ 299 in the aggregate. As of December 31, 2024, these unrealized losses were less than $ 38 individually and $ 738 in the aggregate. We invest in high quality securities with roughly 69 % of our portfolio made up of A ratings and above with unrealized losses primarily attributable to macroeconomic factors rather than credit related. We have no material individual securities that have been in a continuous unrealized loss position greater than twelve months. We do not intend to sell these investments and we do not expect to sell these investments before recovery of their amortized cost basis, which may be at maturity. We review our investments to identify and evaluate investments that indicate possible credit losses. Factors considered in determining whether a loss is a credit loss include the length of time and extent to which fair value has been less than the cost basis, the financial condition and near-term prospects of the investee, and our intent and ability to hold the investment for a period of time sufficient to allow for any anticipated recovery in market value. (2) At June 30, 2025 and December 31, 2024, none of these securities were classified as cash and cash equivalents on the accompanying Condensed Consolidated Balance Sheets. Funds held for clients represent assets that we have classified for use solely for the purposes of satisfying the obligations to remit funds relating to our payroll and payroll tax filing services, which are classified as client funds obligations on our Condensed Consolidated Balance Sheets. Funds held for clients have been invested in the following categories for the periods presented below (in thousands): June 30, 2025 December 31, 2024 Restricted cash and cash equivalents held to satisfy client funds obligations $ 140,146 $ 124,287 Restricted short-term marketable securities held to satisfy client funds obligations 14,033 5,273 Restricted long-term marketable securities held to satisfy client funds obligations 59,793 63,055 Total funds held for clients $ 213,972 $ 192,615 11 Table of Contents Expected maturities of available-for-sale securities are as of June 30, 2025, are as follows (in thousands): One year or less $ 14,033 After one year through five years 59,793 Total $ 73,826 NOTE 5 - GOODWILL AND OTHER INTANGIBLE ASSETS December 31, 2024 Acquisitions June 30, 2025 Goodwill $ 94,724 $ — $ 94,724 We believe significant synergies are expected to arise from our strategic acquisitions and their assembled work forces. This factor contributed to a purchase price that was in excess of the fair value of the net assets acquired and, as a result, we recorded goodwill for each acquisition. A portion of acquired goodwill will be amortizable for tax purposes. As of June 30, 2025, there has been no impairment of goodwill based on the qualitative assessments we have performed. Gross Intangible Assets December 31, 2024 Acquisitions June 30, 2025 Customer relationships $ 148,097 $ 9,383 $ 157,480 Developed technology 15,201 — 15,201 Trade names 880 — 880 Non-compete agreements 1,032 — 1,032 Total $ 165,210 $ 9,383 $ 174,593 The gross carrying amount and accumulated amortization of our intangible assets are as follows for the periods presented below (in thousands, except weighted average periods): Weighted Average Amortization Period (in Years) Gross Accumulated Amortization Net June 30, 2025 Customer relationships 8.5 $ 157,480 $ ( 91,548 ) $ 65,932 Developed technology 6.5 15,201 ( 11,621 ) 3,580 Trade names 4.3 880 ( 880 ) — Non-compete agreements 5.2 1,032 ( 948 ) 84 8.3 $ 174,593 $ ( 104,997 ) $ 69,596 December 31, 2024 Customer relationships 8.6 $ 148,097 $ ( 83,074 ) $ 65,023 Developed technology 6.5 15,201 ( 11,201 ) 4,000 Trade names 4.3 880 ( 880 ) — Non-compete agreements 5.2 1,032 ( 941 ) 91 8.3 $ 165,210 $ ( 96,096 ) $ 69,114 We record amortization expenses using the straight-line method over the estimated useful lives of the intangible assets, as noted above. Amortization expenses recorded in operating expenses were $ 8,481 and $ 7,495 for the six months ended June 30, 2025 and 2024, respectively. Amortization expenses recorded in cost of sales were $ 420 and $ 100 for the six months ended June 30, 2025 and 2024, respectively. There was no impairment of intangibles during the six months ended June 30, 2025, based on the qualitative assessment we performed. However, if market, political and other conditions over which we have no control continue to affect the capital markets and our stock price declines, we may experience an impairment of our intangibles in future quarters. 12 Table of Contents The following table summarizes the future estimated amortization expense relating to our intangible assets as of June 30, 2025 (in thousands): 2025 (Remaining) $ 9,024 2026 14,974 2027 12,780 2028 11,335 2029 9,172 2030 5,541 Thereafter 6,770 $ 69,596 NOTE 6 - NOTES PAYABLE The following table summarizes our outstanding debt as of the dates indicated (in thousands): Maturity Cash Interest Rate June 30, 2025 December 31, 2024 Notes Payable – Acquisitions (1) 10/01/25 - 07/01/29 2.00 % - 5.00 % $ 11,345 $ 9,943 Notes Payable – Other 11/01/25 10.00 % — 5,000 Notes Payable – MidCap 04/01/30 9.33 % 60,000 — Gross Notes Payable $ 71,345 $ 14,943 (1) See Note 3 — Business Combinations and Asset Acquisitions and Notes Payable - Acquisitions section below for further discussion regarding the notes payable related to acquisitions. The following table summarizes the debt issuance costs as of the dates indicated (in thousands): Gross Notes Payable Debt Issuance Costs and Debt Discount Net Notes Payable June 30, 2025 Current portion of notes payable $ 3,541 $ ( 509 ) $ 3,032 Notes payable, net of current portion 67,804 ( 3,454 ) 64,350 Total $ 71,345 $ ( 3,963 ) $ 67,382 December 31, 2024 Current portion of notes payable $ 7,578 $ ( 570 ) $ 7,008 Notes payable, net of current portion 7,365 ( 1,656 ) 5,709 Total $ 14,943 $ ( 2,226 ) $ 12,717 The following table summarizes the future principal payments related to our outstanding debt as of June 30, 2025 (in thousands): 2025 (Remaining) $ 2,578 2026 5,767 2027 — 2028 — 2029 48,000 2030 15,000 Total $ 71,345 13 Table of Contents Notes Payable - Acquisitions As of June 30, 2025, we have seven promissory notes related to acquisitions that occurred during the six months ended June 30, 2025, and prior years with a combined outstanding of principal balance of $ 11,345 and maturity dates ranging from October 1, 2025, to July 1, 2029. All of our promissory notes related to acquisitions are subordinated to our Loan Agreement with MidCap (defined below). See Note 2 — Business Combinations and Asset Acquisitions for further discussion regarding the issuance of notes payable related to acquisitions. Notes Payable - Other In November 2024, we delivered a promissory note to an unrelated third party in exchange for cash. As of December 31, 2024, the promissory note had an outstanding principal balance of $ 5,000 and would mature on November 1, 2025. On April 10, 2025, we opted to repay the outstanding balance on our unrelated third-party promissory note prior to its maturity using the proceeds of the Loan Agreement (described below). In connection with the extinguishment, we paid the lender an aggregate amount of $ 5,197 (the “Payoff Amount”) in full payment of our outstanding obligations under the Note. The Payoff Amount represented $ 5,097 of outstanding principal and interest on the unpaid principal balance and a $ 100 prepayment fee. Notes Payable - MidCap On April 10, 2025, we entered into a Loan Agreement with MidCap and the lenders from time to time party thereto (such lenders collectively with MidCap, the “Lenders”). Under the Loan Agreement, we may borrow up to $ 60,000 from the Lenders, all of which has been funded as of June 30, 2025. The first $ 20,000 was advanced on April 10, 2025, the closing date of the Loan Agreement. The remaining $ 40,000 was advanced on June 30, 2025, which funds may only be used for Permitted Acquisitions (as defined in the Loan Agreement). The maturity date of the loan as provided under the Loan Agreement is April 1, 2030 (the “Maturity Date”). See Note 12 — Subsequent Events for information regarding our use of these restricted funds in connections with an acquisition. Interest on the outstanding loan balance is payable monthly in arrears at an annual rate of Term SOFR plus 5.00 %, subject to a Secured Overnight Financing Rate (“SOFR”) floor of 2.00 %. This rate was 9.33 % as of June 30, 2025. Prior to April 1, 2029 (the “Amortization Start Date”), we must make interest-only payments on the outstanding loan balance. Commencing on the Amortization Start Date and continuing on the first day of each calendar month thereafter, we will pay an amount equal to the total principal of the outstanding loan balance divided by twelve ( 12 ), for a twelve ( 12 ) month straight-line amortization of equal monthly principal payments. Also on a monthly basis, we must pay an administrative agency fee to MidCap equal to 0.25 % of the average end-of-day principal balance outstanding during the immediately preceding month. At the time of final payment under the loan, we will provide a final payment fee of 1.00 % of the amount advanced thereunder except in the case of a refinance of the loan with MidCap and the Lenders We are subject to customary events of default as described in the Loan Agreement. In such event, and for so long as it continues, the outstanding loan balance will bear interest at 2.0 % per annum in excess of the rate otherwise payable. Under the Loan Agreement, we covenant to maintain a (1) Total Leverage Ratio (as defined in the Loan Agreement), as tested quarterly, no greater than 5.50 to 1.00, and (2) minimum liquidity threshold of 10.00 % of the outstanding principal amount of the Loans. As of June 30, 2025, we are in compliance with all covenants under the Loan Agreement. In connection with the Loan Agreement and subsequent draw, we incurred $ 2,025 of origination, legal, and other fees that represent debt financing costs to be deferred and amortized over the duration of the Loan Agreement, of which $ 7 was unpaid as of June 30, 2025. As a result, net proceeds of all borrowings under the Loan Agreement were $ 57,975 . See Note 12 — Subsequent Events for information related to amendments to our Loan Agreement. 14 Table of Contents NOTE 7 – CONTRACTS WITH CUSTOMERS AND REVENUE CONCENTRATION Receivables Receivables from contracts with customers, net of allowance for credit losses of $ 7,279 , w ere $ 13,623 at June 30, 2025. Receivables from contracts with customers, net of allowance for credit losses of $ 6,328 , were $ 18,154 at December 31, 2024. We had a provision for expected losses of $ 20 , write-offs charged against the allowance for credit losses of $ 69 , and recoveries on previously written off receivables of $ 1,000 during the six months ended June 30, 2025. We had a provision for expected losses of $ 107 , write-offs charges against the allowance for credit losses of $ 5 , and recoveries on previously written off receivables of $ 580 during the six months ended June 30, 2024. No customer represented more than 10% of our net accounts receivable balance as of June 30, 2025, and December 31, 2024. Contract Assets Costs to Fulfill Contracts Contract assets from contracts with customers were $ 2,885 and $ 1,712 at June 30, 2025 and December 31, 2024 , respectively . Costs to Obtain Contracts Deferred commission costs from contracts with customers w ere $ 13,317 and $ 12,351 at June 30, 2025 and December 31, 2024 , respectively. The amount of amortization recognized for the three and six months ended June 30, 2025 was $ 878 and $ 1,615 , respectively, and for the three and six months ended June 30, 2024 was $ 565 and $ 1,191 , respectively. Deferred Revenue During the three and six months ended June 30, 2025, revenue of $ 2,567 and $ 8,557 , respectively, and during the three and six months ended June 30, 2024, revenue of $ 888 and $ 6,007 , respectively, was recognized from the deferred revenue balance at the beginning of each period. Transaction Price Allocated to the Remaining Performance Obligations As of June 30, 2025, approximately $ 82,390 of revenue is expected to be recognized from remaining performance obligations. We expect to recognize revenue on approximately 27 % of these remaining performance obligations over the next twelve months, with the balance recognized thereafter. These amounts exclude remaining performance obligations related to contracts for professional services for tax and payroll offerings whose remaining contractual term is less than one year as of June 30, 2025. Revenue Concentration During the six months ended June 30, 2025 and 2024, there were no customers that individually represented 10% or more of consolidated revenue. NOTE 8 - COMMITMENTS AND CONTINGENCIES Lease Commitments We have entered into office space lease agreements, which qualify as operating leases under ASU No. 2016-02, “Leases (Topic 842)”. Under such leases, the lessors receive annual minimum (base) rent. The leases have original terms (excluding extension options) ranging from one to ten years . Our lease agreements do not contain any material residual value guarantees or material restrictive covenants. 15 Table of Contents We record base rent expense under the straight-line method over the term of the lease. In the accompanying Condensed Consolidated Statements of Comprehensive Loss, rent expense is included in operating expenses under general and administrative expenses. The components of the rent expense are as follows for the periods presented below (in thousands): Six Months Ended June 30, Six Months Ended June 30, 2025 2024 2025 2024 Operating lease cost $ 520 $ 507 $ 1,054 $ 953 Sublease income — — — ( 4 ) Net rent expense $ 520 $ 507 $ 1,054 $ 949 For purposes of calculating the operating lease assets and lease liabilities, extension options are not included in the lease term unless it is reasonably certain we will exercise the option, or the lessor has the sole ability to exercise the option. The weighted average discount rate of our operating leases is 10 % as of June 30, 2025, and December 31, 2024. The weighted average remaining lease term is four years as of June 30, 2025 and December 31, 2024. Supplemental cash flow information related to operating leases are as follows for the periods presented below (in thousands): Six Months Ended June 30, 2025 2024 Cash paid for amounts included in the measurement of lease liabilities: Operating cash outflows from operating leases $ 1,075 $ 1,022 Non-cash operating activities: Operating lease assets obtained or removed in exchange for new, modified or terminated operating lease liabilities $ 1,447 $ — Future minimum commitments over the life of all operating leases, which exclude variable rent payments, are as follows for the period presented below (in thousands): 2025 (Remaining) $ 992 2026 1,801 2027 1,588 2028 1,417 2029 879 2030 208 Thereafter 27 Total minimum lease payments 6,912 Less: imputed interest ( 1,260 ) Total lease liabilities $ 5,652 Contingencies Although we have been, are, and in the future may be, the defendant or plaintiff in various actions arising in the normal course of business, as of June 30, 2025 , we were not currently a party to any material legal proceedings. 16 Table of Contents NOTE 9 - SHARE-BASED COMPENSATION We have one active equity plan, the 2018 Incentive Award Plan (the “2018 Plan”). The 2018 Plan, approved by our stockholders, replaced our 2009 Equity Incentive Plan, as amended (the “2009 Plan”); however, the terms and conditions of the 2009 Plan will continue to govern any outstanding awards granted thereunder. The number of shares reserved for issuance under the 2018 Plan is 6,998 shares. We have an aggregate of 2,428 options, restricted stock units (“RSUs”) and performance stock units (“PSUs”) granted and outstanding pursuant to the 2018 Plan as of June 30, 2025. As of June 30, 2025, the number of shares available for future grant under the 2018 Plan is 2,602 . Share-based compensation for our stock option plans for the three and six months ended June 30, 2025, was $ 1,891 and $ 3,754 , respectively, and for the three and six months ended June 30, 2024, was $ 1,488 and $ 3,390 , respectively . Issuance of common stock related to the exercise of stock options and the vesting of restricted stock units (including restricted stock units that converted from performance stock units) are as follows for the period presented below (in thousands): Three Months Ended June 30, Six Months Ended June 30, 2025 2024 2025 2024 Common stock issued - options (1) 296 9 365 35 Common stock issued - RSU (1)(2) 73 49 455 324 (1) Included in these amounts are 180 shares withheld for taxes or for cashless exercise of options during the three and six months ended June 30, 2025. (2) Included in these amounts are 0 and 159 restricted stock units during the three and six months ended June 30, 2025, respectively, and 0 and 109 restricted stock units during the three and six months ended June 30, 2024, respectively, that were converted from performance stock units which vested during those periods. Effective January 1, 2025, the Compensation Committee approved the grant of PSUs pursuant to a PSU Award Grant Notice and PSU Award Agreement (the “2025 PSU Award Agreement”) under the 2018 Plan to our executive officers payable in the form of RSUs. The number of RSUs into which the PSUs convert for each executive officer is a sliding scale between 0 % to 200 % of the target amount based on our achievement of certain performance metrics tied to our recurring revenue and gross profit for 2025. NOTE 10 - NET LOSS PER SHARE We compute net income or loss per share based on the weighted average number of common shares outstanding for the period. Diluted net income per share reflects the maximum dilution that would have resulted from incremental common shares issuable upon the exercise of stock options or vesting of RSUs and in some cases PSUs. In periods of net income, we compute the adjustment to the denominator of our dilutive net earnings per share calculation to include these stock options, RSUs, and PSUs, as applicable, using the treasury stock method. Regardless of the period resulting in net income or net loss, we exclude the adjustment to the denominator of our dilutive net loss per share calculation to the extent that they are anti-dilutive. The following table sets forth the computation of basic and diluted net loss per common share for the periods presented below (in thousands, except per share amounts): Three Months Ended June 30, Six Months Ended June 30, 2025 2024 2025 2024 Basic: Net loss $ ( 6,123 ) $ ( 4,360 ) $ ( 8,521 ) $ ( 4,668 ) Weighted-average shares of common stock outstanding 27,237 25,840 27,100 25,587 Basic loss per share $ ( 0.22 ) $ ( 0.17 ) $ ( 0.31 ) $ ( 0.18 ) Diluted: Net loss $ ( 6,123 ) $ ( 4,360 ) $ ( 8,521 ) $ ( 4,668 ) Weighted-average shares of common stock outstanding 27,237 25,840 27,100 25,587 Diluted loss per share $ ( 0.22 ) $ ( 0.17 ) $ ( 0.31 ) $ ( 0.18 ) 17 Table of Contents NOTE 11 - SEGMENT INFORMATION We manage our business activities on a consolidated basis and operate as one reportable segment. Our chief operating decision maker (“CODM”) is the Chairman and Chief Executive Officer, who reviews financial information presented on a consolidated basis. The CODM uses consolidated net loss, as reported on our Consolidated Statements of Comprehensive Loss, to assess financial performance and allocate resources. These financial metrics are used by the CODM to make key operating decisions, such as the allocation of budget between cost of sales, sales and marketing, general and administrative, and research and development expenses. The CODM does not review assets in evaluating the results of the segment, and therefore, such information is not presented. The operating financial results of our single reportable segment for three and six months ended June 30, 2025 and 2024, are as follows (in thousands): Three Months Ended June 30, Six Months Ended June 30, 2025 2024 2025 2024 Total revenues $ 30,124 $ 28,044 $ 64,978 $ 59,696 Significant segment expenses Compensation 22,180 20,604 44,968 40,602 Non-compensation 8,560 7,734 18,172 15,968 Deferred software and commission costs ( 4,044 ) ( 3,108 ) ( 7,416 ) ( 6,024 ) Amortization, depreciation, and other noncash expenses 8,920 7,220 17,048 14,015 Other segment expenses (1) 631 ( 46 ) 727 ( 197 ) Total expenses 36,247 32,404 73,499 64,364 Net loss $ ( 6,123 ) $ ( 4,360 ) $ ( 8,521 ) $ ( 4,668 ) (1) Other segment expenses include interest expense (income) and other business expense (income) NOTE 12 - SUBSEQUENT EVENTS On July 1, 2025, we acquired 100 % of the membership interests of Lathem Time 2025 LLC (f/k/a Lathem Time Corporation, “Lathem”) , whose technology will be used to expand the capabilities of our broader suite of HR solutions, specifically in timekeeping systems. The aggregate purchase price that we paid for the membership interests was $ 39,500 , consisting of $ 37,500 paid in restricted cash on hand drawn from the MidCap Loan Agreement and the remaining $ 2,000 in the form of a promissory note ($ 1,803 net of discount) with the principal balance due on July 1, 2029. In connection with the acquisition, we recognized $ 733 of legal costs as General and Administrative expense. Due to the close proximity of the acquisition date and our filing of this Quarterly Report on Form 10-Q for the six months ended June 30, 2025, the initial accounting for the business combination is incomplete. Accordingly, we are unable to disclose the allocation of purchase consideration among the assets acquired and liabilities assumed as well as pro forma revenue and earnings information of the consolidated entity at this time. We will include relevant disclosures as required in the third quarter of 2025. During July 2025, we entered a Limited Consent, Amendment No. 1, and Joinder to the Loan Agreement and Amendment No. 2 of the Loan Agreement (the “Amendments”). The Amendments, collectively, resulted in an increase in our minimum liquidity threshold from $ 6,000 ( 10.00 % of the outstanding balance under the Loan Agreement) to $ 10,000 . In addition, we agreed with the Lenders to increase the final payment fee paid to the Lenders at the time of final payment under the loan from 1.00 % to 2.00 % of the amount advanced thereunder except in the case of a refinance of the loan with MidCap and the Lenders, in which case, the unaccrued portion of that fee would be waived. Furthermore, Lathem joined the Loan Agreement as Guarantor and the Lenders consented to the Lathem transaction. 18 Table of Contents