Item 1. Business
ITEM 1. BUSINESS
GENERAL
We are a leading provider of cloud-based Human Capital Management (HCM) solutions delivered primarily as Software-as-a-Service (SaaS). We facilitate the growth of small and mid-sized businesses ("SMBs") by helping them (i) stay compliant with ever changing federal, state, and local tax jurisdictions and labor laws, (ii) allocate more resources to support growth rather than back-office overhead that suffocates growth, and (iii) build better teams with skills that get them to the next level.
Our vision is to become the most trusted HCM resource to entrepreneurs and managers by helping SMBs grow their businesses. Our solution strategy is driven by three primary challenges that prevent businesses from growing: human resources (HR) complexity, allocation of both human and financial capital, and the ability to build great teams. Our HCM suite, named AsureHCM®, includes cloud-based Payroll & Tax, HR, a Time & Attendance software, and HR Services ranging from HR projects to completely outsourcing payroll to HR consulting services.
Support and professional services are key elements of our value proposition and overall solution. In addition to state-of-the-art cloud solutions, hosted in Amazon AWS, and regular upgrades and releases, we provide clients easy access to our skilled support team. Our services and support representatives are knowledgeable not just in Asure’s solutions, but also about best practices and change management strategies in the payroll and HCM industry. Many of our staff have professional certifications in payroll (Certified Payroll Professionals, CPPs) and human resources (Professional in Human Resources, PHR, and Senior Professional in Human Resource, SPHR, certifications). From installation to training and post-live support, our professional services team delivers a proficient client experience on a national scale.
Our sales and marketing strategy targets SMBs through both direct and indirect channels. We are focused on less densely populated U.S. metropolitan cities where fewer competitors have a presence. We market directly to SMBs and their “trusted advisors,” including CPAs, regional banks, and benefits brokers. Through an indirect model, Reseller Partners pay us recurring monthly license fees to white label our solutions while providing value-add HCM services to their clients (our indirect clients). Reseller Partners are comprised of pure-play payroll providers focused on a geographic or industry niches and SMB’s trusted advisors (typically CPAs, regional banks, and benefits brokers).
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We were incorporated in 1985 and our principal executive offices are located at 3700 N. Capital of Texas Highway, Suite 350, Austin, Texas 78746. Our telephone number is (888) 323-8835 and our website is www.asuresoftware.com. Information on our website is not part of this Annual Report on Form 10-K.
We make available free of charge, on or through our website, our annual report on Form 10-K, quarterly reports on Form 10-Q, and current reports on Form 8-K, and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act, as soon as reasonably practicable after we electronically file these materials or furnish them to the Securities and Exchange Commission.
SOLUTIONS
Our payroll and HCM solutions are designed to help companies grow. Companies use our solutions to more effectively address three primary challenges that prevent businesses from growing:
1. HR complexity - SMBs have a difficult time complying with the continually changing Federal, state and local tax, and labor laws. They also lack the technical staff and resources to maintain software, hosting, and integrations of proprietary payroll and HCM technology stacks. Most SMBs also need their human capital focused on growth (sales, marketing, product development, client service, etc.) rather than back-office staff that adds overhead and unnecessary complexity to running their business. Our solutions are primarily delivered in the cloud with no IT footprint or administrative back-office needed.
2. Allocation of human and financial capital - When it comes to growing a business, people and capital are scarce resources. We enable SMBs to allocate their headcount toward growth rather than IT or administrative back-office staff. Since Asure’s cloud solutions are primarily delivered as SaaS, clients are able to conserve cash by avoiding large upfront implementation and capital purchase expenses.
3. Building great teams - SMBs struggle to find and attract the talent needed to get to the next level because they lack the resources of large enterprises. Our HR solutions streamline the process of finding and onboarding employees. Furthermore, our HR Services help companies adopt the best practices in recruiting, developing, and retaining key staff.
With an emphasis on helping SMBs grow their businesses, our product team aims to create and deliver easy-to-use solutions that help simplify their business, better allocate resources, and build great teams. Our solutions are primarily recurring cloud-based solutions delivered as SaaS and HR services as well as professional services and hardware (time clocks and data collection devices).
Payroll and Tax. Asure Payroll & Tax is an integrated cloud-based solution that provides a foundation for our clients’ digital HR strategy. We automate all the complex and ever changing regulations associated with payroll and taxes in all U.S. jurisdictions - from wages, benefits, overtime, and garnishments to tips, direct deposits, Fair Labor Standard Act and federal, state, and local payroll taxes. Key capabilities include:
• Compliant payroll taxes;
• Maintain federal, state, and local tax rate tables;
• File taxes on client’s behalf timely and accurately according to agency regulations;
• File W-2 federal, states and local employer reporting timely and accurately in compliance with agency regulations;
• Affordable Care Act (ACA) compliance & reporting;
• General Ledger integration;
• Managed garnishments; and
• Employee self-service.
Human Resources. Asure HR’s cloud-based functionality handles HR complexities that SMBs face, including employee self-service so employees can access all their information (e.g., pay history and company documents). With Asure HR’s dashboard, clients have convenient single-system access to every facet of the employee’s lifecycle. This solution
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improves benefits management by syncing to carriers and integrating with employee self-managed enrollment and life-event change adjustments. Key capabilities include:
• Applicant tracking;
• Employee on-boarding;
• Benefits enrollment;
• Carrier feed connection; and
• Employee self-service.
Time and Attendance. Asure Time & Attendance is primarily cloud based and combines with our complementary hardware (time clocks and data collection devices) to provide cost savings and potential ROI gains in the form of a more strategic use of labor dollars and the elimination of time theft. Mobile time tracking helps executives better understand where and when their employees are working, providing insight into labor schedules and labor costs. With our mobile solution, employees can punch in and out from remote locations, as geo-positioning verifies the physical coordinates. Biometric time clocks, including facial recognition, reduce time theft and assists in the verification of the identities of workers. Automated system notifications, real-time dashboards, and flexible configuration options all work to streamline operations. Finally, employees, supervisors and executives have real-time access to data and business intelligence to optimize labor costing, improve labor scheduling, and control labor costs. Key capabilities include:
• FLSA and overtime compliance;
• Manage by exception;
• Time-off management;
• Error-Free Processing; and
• Time collection flexibility.
Human Resource Services. Asure provides three core levels of HR services, ranging from a cloud-based online compliance library, to on-demand call center for all HR questions, and to a fully outsourced HR function. Asure also supports discreet functions like payroll administration and the benefit enrollment process.
Data Integration. Asure’s solutions enable data integration with related third-party systems, such as 401(k), benefits, and insurance provider systems.
PRODUCT DEVELOPMENT
The HCM industry is characterized by continuing improvements in technology, resulting in the frequent introduction of new products, short product life cycles, changes in client needs, and continual improvement in product performance characteristics. We strive to be cost-effective and timely in enhancing our innovative, cloud-based solutions, developing new innovative software that address the increasingly sophisticated and varied needs of growing businesses and anticipating technological advances while adhering to payroll and HCM industry standards. First-to-market mobile applications are a testament to our success in innovation.
Our development teams work closely with clients and sales and marketing teams to build solutions based on market requirements and client feedback. We also garner inputs from clients, competitive comparisons, and relevant technology innovations. Development teams are staffed with software developers, quality assurance engineers and support specialists. Specific roles include product owners, solutions architects, software engineers, software engineers in test, quality assurance analysts, technical writers, scrum masters, and usability designers.
Our research and development strategies are based on agile methodologies that foster continuous innovation and improvement with collaboration with stakeholders. The development team enhances the functionality of our solutions through continual improvement and new feature releases, with a focus on cloud-based solutions delivered as SaaS for growing businesses that struggle with complexity and Reseller Partners that need powerful back-office tools and scalable infrastructure. We continue to evaluate opportunities for developing new solutions that enable organizations to further streamline and
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automate HR tasks associated with growing their businesses. We seek to simultaneously allow organizations to improve their productivity while reducing the costs associated with those tasks.
SALES AND DISTRIBUTION
We sell our solutions through both direct and partner models. Prospective clients learn about Asure in a variety of ways, including advertising, web site searches, sales calls, public relations, referral channels, direct marketing, and social media. When prospective clients show an interest in Asure, they are connected with a sales representative, who works to close the sale, via Asure’s web site, phone, or a face-to-face meeting by discussing solutions that meet their needs. We track our marketing and sales activities to provide immediate insights into activities, leads and pipeline opportunities. Our account management teams also work with clients to promote and sell additional solutions that are relevant for each client. We supplement our direct sales efforts with partner programs. By working with partners, we gain access to opportunities in various geographic and industry niches.
Asure has two distinct levels of partners: Reseller Partners and Referral Partners.
Reseller Partners. Reseller Partners pay us recurring license fees to white label our solutions and then they focus on providing value-add services to their clients (our indirect clients). There are generally two types of Reseller Partners: regional payroll providers and SMB trusted advisors (CPA, regional banks, and benefit brokers). Regional payroll providers typically focus on a specific geographic area or industry. They have proven to be attractive alternatives for SMBs’ payroll and HCM needs versus national payroll companies that do not necessarily understand local needs of many businesses. Since trusted advisors are relied on by entrepreneurs and executives at SMBs to advise on payroll and HR decisions, white labeling our solutions allows them to provide additional solutions directly to their clients. This deepens their client relationships and grows their revenue.
Asure’s Reseller Partners are also the primary source of Asure’s acquisitions. Since they already white label Asure’s solutions, technology integration risk is lessened. By acquiring Reseller Partners, we gain a presence in specific geographic (typically less densely populated U.S. metropolitan cities) and industry niches. These acquisitions help Asure gain scale by assuming all of the Reseller Partner's revenue instead of just a recurring licensing fee (which is typically a small percentage of their total revenue). Reseller Partners can continue to license our solutions with the opportunity to expand their available solutions, or they can come under the Asure umbrella.
Referral Partners. Referral Partners are typically the aforementioned trusted advisors (e.g., regional banks, CPAs, and benefit brokers) that provide us with SMB leads but do not resell our solutions. Since SMBs rely on their trusted advisors to guide them in selecting payroll and HCM solutions, we have found this to be a fruitful source of leads. Referral Partners provide qualified leads that convert to clients at a higher rate than non-referral leads. We have been successful in nurturing some Referral Partners to become Reseller Partners over time as the referral relationships develop and they become more comfortable in the HCM space.
COMPETITION
The market for HCM solutions is rapidly evolving, highly competitive and subject to evolving technology, shifting client needs, and frequent introduction of new products and services. Our competitors range from regional payroll companies to large, well-established companies with multiple product offerings.
Competition in the HCM market is primarily based on product and service quality and reputation, scope of service, application offering and price. Price tends to be the most important factor of competition for our small business clients with fewer employees, while the range of features, implementation, and scalability is more important to our larger businesses.
We compete with companies that provide HCM solutions by various means. Many providers continue to deliver legacy enterprise software, but there is increased competition in the delivery of HCM cloud-based solutions by other Saas providers. Competitors in the HCM market tend to fluctuate, however, Asure’s main competitors are ADP, Paychex, Kronos, Paylocity, Paycor, Paycom, Ceridian, Namely, and Gusto. Primary competitors to Asure Time & Attendance include Kronos, Paychex, ADP, Replicon and Time Simplicity.
While Asure has the advantage of a flexible, easy to use, cloud-based, SaaS-delivered model, affordability and proven deployment methodology, Asure faces several competitive challenges:
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• Vendors with face-to-face sales contact. In this highly relationship-based sales process, vendors with large, dispersed field-based sales teams who meet and consult with prospects have an advantage. Vendors that approach the market in this manner include ADP, Paychex, Kronos, and Paylocity.
• National payroll processors with loss-leader products. Large brand and market share payroll processing vendors (such as ADP and Paychex) offer equivalent point solutions at little or no cost to prospects when they sign up for the first few months when in a competitive engagement because the short-term lost revenue is inconsequential compared with the long-term revenue they expect to receive over the next 8 to 10 years with that same client.
Some of our competitors, both current and future, may have greater financial, technical and marketing resources than us and therefore may be able to respond more quickly to new or emerging technologies and changes in client requirements. As a result, they may compete more effectively on price and other terms. Additionally, those competitors may devote greater resources in developing products or in promoting and selling their products to achieve greater market acceptance. We are actively taking measures designed to address competitive challenges, and clients tend to recognize the benefits of working with an established and publicly-traded partner versus a start-up or transitional vendor. However, we cannot ensure that we will be able to achieve or maintain a competitive advantage with respect to any of the competitive factors.
MARKETING
Our marketing strategy relies on a comprehensive integrated plan rooted in our business objectives. Our marketing plan includes four primary objectives: 1) build brand awareness, 2) develop lead generation programs that drive revenue, 3) launch products in a meaningful way, and 4) develop an infrastructure that supports and measures marketing activities. We deploy multi-faceted, omni-channel direct marketing programs to drive awareness, interest and revenue. Marketing vehicles include our web site, organic and paid search, advertising, public relations, direct marketing, events, social media, content marketing, reputation management, and other digital marketing tactics. Our marketing plan addresses growth and retention goals for key target audiences throughout the United States.
SALES ENABLEMENT
We continue to invest in sales enablement tools, processes, and best-practice training of our sales organization. We have implemented and continue to optimize an end-to-end lead generation process that generates leads from marketing activities, captures and tracks all digital click behavior of the lead in our marketing automation software and CRM, follow-up and take all leads through a qualification and disposition process that ends in a closed loop of either won/lost opportunities or leads that get passed back to marketing for further nurturing. Sales Enablement staff support sales with product training, client and prospect demonstrations, and marketing webinars as well as best practices in modern selling that leverages email, social media, and online video.
INDUSTRY REGULATION
Our business and solutions are subject to a wide range of complex laws and regulations. In addition, many of our solutions are designed to assist clients with their compliance with certain U.S. laws and regulations that apply to them, particularly in their capacity as employers under state and federal laws. Failure to comply with existing laws or regulations or anticipate and incorporate into our services new laws and regulations so that our services remain compliant could have a materially adverse effect on our reputation, results of operations or financial condition, or have other adverse consequences.
Data privacy and security of data is subject to strict regulatory oversight and the laws governing the collection, processing and storage of personal and sensitive data differs from jurisdiction to jurisdiction and even differs based on the type of data collected, such as biometric data. We collect and process the personal and sensitive information of clients, clients of our Reseller Partners, employees of our clients and Reseller Partners, vendors and our own employees. Data that we process and store includes personally identifying information such as names, addresses, social security numbers, bank account information, and in the case of our time and attendance products, biometric data. We are therefore subject to compliance obligations under federal, state and foreign privacy and data security-related laws. For instance, in the United States, the Health Insurance Portability and Accountability Act of 1996, including the related security provisions, applies to our flexible spending account services. We are also subject to federal and state security, privacy and security breach notification laws with respect to personal and sensitive data as defined under such laws. Such state and federal laws include laws such as the California Consumer Privacy Act of 2018, as amended and the Illinois Biometric Information Privacy Act and rules and regulations promulgated under the Federal Trade Commission. We have a small number of end user clients located in the European Union using our time and attendance software and accordingly, the EU’s General Data Protection Regulation applies to the collection, processing and storage of applicable sensitive and personal data. In some instances, laws provide for civil penalties for violations as well as private rights of action for data breaches or other violations of the law. Moreover, enforcement actions and
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investigations by regulatory authorities related to data security incidents and privacy violations continue to increase. The future enactment of more restrictive laws, rules or regulations and/or future enforcement actions or investigations could have a materially adverse impact on us through increased costs or restrictions on our businesses and noncompliance could result in regulatory penalties and significant legal liability. Failure to comply with data privacy laws and regulations could have a materially adverse effect on our reputation, results of operations or financial condition, or have other adverse consequences.
As part of our payroll and payroll tax solutions, we move funds from clients’ accounts to employees, taxing authorities and other payees. Certain state regulators have recently expanded their interpretation of state money transmission and money service business statutes to include these standard payroll processing activities necessitating our registering in certain jurisdictions as a money transmitter. In addition, we are licensed as a payroll processor in jurisdictions requiring licensing of payroll processors. Our activities under these money transmission statutes are subject to the anti-money laundering and reporting provisions of The Bank Secrecy Act of 1970, as amended by the USAPATRIOT Act of 2000, including the know-your-client due diligence requirements and related reporting of suspicious activities to applicable authorities.
Many of our solutions assist clients in complying with certain U.S. laws and regulations that apply to them particularly in the human resources and employment law areas such as wage payment laws, state payroll tax filing and reporting, employee onboarding, and compliance with the IRS rules governing employers including tax withholdings, payroll tax filing and the preparation of Form W-2’s. Additionally, our HCM solutions help clients manage their compliance other laws including, most recently, the new Families First Coronavirus Response Act of 2020 and rules and regulations promulgated pursuant to The Coronavirus Aid, Relief, and Economic Security Act (Cares Act) of 2020. Additionally, our solutions help clients meet their obligations as a plan sponsor under COBRA, and sponsor and administer compliant Flexible Spending Account Plans and compliant Consumer Health Care Plans such as Health Savings Accounts and Health Reimbursement Accounts.
TRADEMARKS
We have registered Asure Software® as a federal trademark with the U.S. Patent and Trademark Office. Asure’s other core federally registered trademarks include AsureForce®, AsureHCM® and Evolution®.
EMPLOYEES
As of December 31, 2020, we had a total of 482 employees (471 of which are full-time employees) in the following departments:
FUNCTION NUMBER OF
EMPLOYEES
Research and development 70
Sales and marketing 98
Customer service and technical support 221
Finance, human resources and administration 93
Total 482
We continually evaluate and adjusts the size and composition of our workforce. We also periodically retain contractors to support our sales and marketing, information technology and administrative functions. None of our employees are represented by a collective bargaining agreement. We have not experienced any work stoppages. Additionally, we augment our workforce capacity in research and development and client service and technical support by contracting for services through third parties.
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