ASURE SOFTWARE INC 10-Q

ITEM 1. FINANCIAL STATEMENTS ASURE SOFTWARE, INC. CONDENSED CONSOLIDATED BALANCE SHEETS (in thousands, except per share amounts) (Unaudited) September 30, 2025 December 31, 2024 ASSETS Current assets: Cash and cash equivalents $ 21,520 $ 21,425 Accounts receivable, net of allowance for credit losses of $ 7,625 and $ 6,328 at September 30, 2025, and December 31, 2024, respectively 14,563 18,154 Inventory 2,304 195 Prepaid expenses and other current assets 6,368 4,888 Total current assets before funds held for clients 44,755 44,662 Funds held for clients 148,338 192,615 Total current assets 193,093 237,277 Property and equipment, net 25,740 19,669 Goodwill 115,759 94,724 Intangible assets, net 92,231 69,114 Operating lease assets, net 5,626 4,041 Other assets, net 14,627 11,813 Total assets $ 447,076 $ 436,638 LIABILITIES AND STOCKHOLDERS ’ EQUITY Current liabilities: Current portion of notes payable $ 6,213 $ 7,008 Accounts payable 2,567 1,364 Accrued compensation and benefits 3,401 4,485 Lease liabilities, current 1,871 1,438 Other accrued liabilities 8,240 6,600 Deferred revenue 7,090 8,363 Total current liabilities before client fund obligations 29,382 29,258 Client fund obligations 148,873 194,378 Total current liabilities 178,255 223,636 Long-term liabilities: Deferred revenue 2,267 3,430 Deferred tax liability 4,115 2,612 Notes payable, net of current portion 64,157 5,709 Lease liabilities, noncurrent 4,925 3,578 Other liabilities 270 358 Total long-term liabilities 75,734 15,687 Total liabilities 253,989 239,323 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; 27,727 and 26,671 shares issued, 27,727 and 26,671 shares outstanding at September 30, 2025, and December 31, 2024, respectively 277 267 Treasury stock at cost, zero (1) shares at September 30, 2025, and December 31, 2024 — — Additional paid-in capital 513,587 504,849 Accumulated deficit ( 321,109 ) ( 307,226 ) Accumulated other comprehensive income (loss) 332 ( 575 ) Total stockholders’ equity 193,087 197,315 Total liabilities and stockholders’ equity $ 447,076 $ 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 September 30, Nine Months Ended September 30, 2025 2024 2025 2024 Revenue: Recurring $ 31,841 $ 28,626 $ 93,624 $ 85,950 Professional services, hardware and other 4,411 678 7,606 3,050 Total revenue 36,252 29,304 101,230 89,000 Cost of Sales 13,110 9,600 33,569 27,821 Gross profit 23,142 19,704 67,661 61,179 Operating expenses: Sales and marketing 9,043 6,680 25,578 21,371 General and administrative 11,655 10,378 34,523 30,559 Research and development 1,174 1,973 4,476 5,704 Amortization of intangible assets 4,769 4,295 13,250 11,790 Total operating expenses 26,641 23,326 77,827 69,424 Loss from operations ( 3,499 ) ( 3,622 ) ( 10,166 ) ( 8,245 ) Interest income 250 165 698 762 Interest expense ( 1,966 ) ( 274 ) ( 3,226 ) ( 662 ) Other income, net 220 — 312 10 Loss from operations before income taxes ( 4,995 ) ( 3,731 ) ( 12,382 ) ( 8,135 ) Income tax expense 367 170 1,501 434 Net loss ( 5,362 ) ( 3,901 ) ( 13,883 ) ( 8,569 ) Other comprehensive income: Unrealized gain on marketable securities 237 1,340 907 1,105 Comprehensive loss $ ( 5,125 ) $ ( 2,561 ) $ ( 12,976 ) $ ( 7,464 ) Basic and diluted loss per share Basic $ ( 0.19 ) $ ( 0.15 ) $ ( 0.51 ) $ ( 0.33 ) Diluted $ ( 0.19 ) $ ( 0.15 ) $ ( 0.51 ) $ ( 0.33 ) Weighted average basic and diluted shares Basic 27,566 26,429 27,257 25,870 Diluted 27,566 26,429 27,257 25,870 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 Stock issued upon option exercise and vesting of restricted stock units 100 1 — ( 24 ) — — ( 23 ) Stock issued for acquisitions 124 1 — 956 — — 957 Stock issued for debt payment 138 1 1,058 — — 1,059 Share-based compensation — — — 1,967 — — 1,967 Net loss — — — — ( 5,362 ) — ( 5,362 ) Other comprehensive income — — — — — 237 237 Balance at September 30, 2025 27,727 $ 277 $ — $ 513,587 $ ( 321,109 ) $ 332 $ 193,087 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 Stock issued upon option exercise and vesting of restricted stock units 97 1 — 329 — — 330 Stock issued for acquisitions 525 5 — 4,257 — — 4,262 Share-based compensation — — — 1,591 — — 1,591 Net loss — — — — ( 3,901 ) — ( 3,901 ) Other comprehensive income — — $ — — — 1,340 1,340 Balance at September 30, 2024 26,540 $ 265 $ — $ 502,920 $ ( 304,022 ) $ ( 10 ) $ 199,153 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) Nine Months Ended September 30, 2025 2024 Cash flows from operating activities: Net loss $ ( 13,883 ) $ ( 8,569 ) Adjustments to reconcile loss to net cash provided by (used in) operations: Depreciation and amortization 19,337 16,200 Amortization of operating lease assets 1,137 1,025 Amortization of debt financing costs and discount 926 531 Non-cash interest expense 2,300 — Net accretion of discounts on available-for-sale securities ( 332 ) ( 273 ) Provision for expected losses 1,121 111 Provision for deferred income taxes 1,503 388 Gain on extinguishment of debt ( 119 ) — Net realized gains on sales of available-for-sale securities ( 2,068 ) ( 1,929 ) Share-based compensation 5,721 4,981 Changes in operating assets and liabilities: Accounts receivable 4,490 ( 3,142 ) Inventory 1,272 ( 78 ) Prepaid expenses and other assets ( 1,147 ) ( 1,656 ) Operating lease right-of-use assets 14 — Accounts payable 729 ( 1,253 ) Accrued expenses and other long-term obligations ( 2,918 ) ( 1,052 ) Lease liabilities ( 1,236 ) ( 1,139 ) Deferred revenue ( 5,923 ) ( 4,539 ) Net cash provided by (used in) operating activities 10,924 ( 394 ) Cash flows from investing activities: Business combination consideration, net of cash acquired ( 37,500 ) ( 7,900 ) Acquisition of intangible assets ( 14,967 ) ( 4,497 ) Purchases of property and equipment ( 515 ) ( 546 ) Software capitalization costs ( 10,271 ) ( 7,677 ) Purchases of available-for-sale securities ( 36,655 ) ( 10,914 ) Proceeds from sales and maturities of available-for-sale securities 21,738 13,325 Net cash used in investing activities ( 78,170 ) ( 18,209 ) Cash flows from financing activities: Payments of finance lease principal ( 5 ) — Proceeds from notes payable, net of issuance costs 57,982 — Payments of notes payable ( 5,000 ) ( 420 ) Debt extinguishment costs ( 100 ) — Payments made on amounts due for the acquisition of intangible assets ( 1,381 ) ( 658 ) Net proceeds from issuance of common stock 1,011 902 Capital raise fees — ( 47 ) Net change in client fund obligations ( 45,506 ) ( 26,068 ) Net cash provided by (used in) financing activities 7,001 ( 26,291 ) Net decrease in cash, cash equivalents, restricted cash, and restricted cash equivalents ( 60,245 ) ( 44,894 ) 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 $ 85,467 $ 132,728 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) Nine Months Ended September 30, 2025 2024 Reconciliation of cash, cash equivalents, and restricted cash, and restricted cash equivalents to the Condensed Consolidated Balance Sheets Cash and cash equivalents $ 21,520 $ 11,248 Restricted cash and restricted cash equivalents included in funds held for clients 63,947 121,480 Total cash, cash equivalents, restricted cash, and restricted cash equivalents $ 85,467 $ 132,728 Supplemental information: Cash paid for interest $ 1,720 $ — Cash paid for income taxes $ — $ 15 Non-cash investing and financing activities: Acquisition of intangible assets $ 1,603 $ 6,918 Notes payable issued for acquisitions $ 5,078 $ 3,138 Shares issued for acquisitions $ 956 $ 9,125 Shares issued for debt payments $ 1,059 $ — 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 (Amounts in thousands, except per share data unless otherwise noted) (Unaudited) 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, which we provide in association with our partners, offers employees 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, Georgia, New Jersey, New York, North Carolina, Ohio, South Dakota, Tennessee, Texas, Virginia, 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 September 30, 2025, comprehensive loss and changes in stockholders’ equity for the three and nine months ended September 30, 2025, and 2024 , and cash flows for the nine months ended September 30, 2025, and 2024 . Certain amounts in the prior period financial statements have been reclassified to conform to the presentation of the current period financial statements. These reclassifications had no effect on the consolidated financial position or consolidated results of operations of the Company. 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 AND CASH EQUIVALENTS 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. INVENTORIES Our inventories consist primarily of finished goods and are stated at the lower of cost or net realizable value with cost determined on an average cost basis. Items included in costs of inventory consist of labor, material, overhead costs, freight in, and additional transactions costs such as taxes and tariffs. Provisions are made if the cost of inventories exceeds their net realizable value and is charged to cost of sales. We did not recognize any provision for the three and nine months ended September 30, 2025 and 2024. 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. In July 2025, the FASB issued ASU No. 2025-05, Measurement of Credit Losses for Accounts Receivable and Contract Assets, which provides a practical expedient to assume that, for estimating expected credit losses, current conditions as of the balance sheet date will remain constant through the remaining life of the assets. The practical expedient is available to all entities. The standard becomes effective for all entities for annual periods beginning after December 15, 2025. 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 September 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 Business Combinations Effective 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 $ 39,497 , consisting of $ 37,500 paid in cash on hand and the remaining $ 2,221 in the form of a promissory note ($ 1,997 net of discount). The following table summarizes the amounts of assets acquired and liabilities assumed at the acquisition date, valued at their estimated acquisition-date fair value: Acquisition Date Fair Value Accounts receivable $ 2,020 Inventory 3,380 Prepaid expenses and other current assets 177 Property and equipment, net 185 Intangible assets, net 16,500 Operating lease assets, net 826 Other assets, net 777 Total assets acquired 23,865 Accounts payable 474 Operating lease liabilities, current 826 Other accrued liabilities 615 Deferred revenue 3,488 Total liabilities assumed 5,403 Total net assets acquired 18,462 Goodwill 21,035 Total purchase price $ 39,497 The goodwill of $ 21,035 arising from the acquisition consists largely of the synergies and economies of scale expected from combining our operations with Lathem and is expected to be deductible for tax purposes. Lathem contributed net revenues of $ 4,631 , of which $ 2,710 are recurring revenues, and net income of $ 708 to our consolidated total operating activity from the acquisition date of July 1, 2025, through September 30, 2025. The following unaudited pro forma financial information presents combined results of operations for each of the periods presented as if the transaction had occurred as of January 1, 2024, prepared in accordance with ASC 805: Pro Forma (Unaudited) Three Months Ended September 30, Nine Months Ended September 30, 2025 2024 2025 2024 Total revenue $ 36,252 $ 33,936 $ 110,608 $ 102,797 Net loss $ ( 5,174 ) $ ( 4,923 ) $ ( 13,682 ) $ ( 12,622 ) Pro forma earnings for the nine months ended September 30, 2025, were adjusted to exclude $ 733 of legal costs associated with the acquisition that were recognized in general and administrative expense. Pro forma earnings for the nine months ended September 30, 2024, were adjusted to include these charges. 9 Table of Contents Asset Acquisitions During the nine months ended September 30, 2025, we completed six customer relationship asset acquisitions. The total purchase price of these acquisitions was $ 19,363 , which consisted of $ 14,990 of cash paid during the nine months ended September 30, 2025 , $ 371 of cash to be paid over the next 12 months, the delivery of promissory notes in the amount of $ 3,046 , net of discounts, and the delivery of 124 shares of Asure common stock, which had an aggregate fair value of $ 956 at the acquisition dates. The purchase prices for certain of these acquisitions are subject to adjustments for contingent events which are generally expected to occur over the next one to two years following September 30, 2025, 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 . 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 seven 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 $ 15,206 , which consisted of $ 5,842 of cash paid during the year ended December 31, 2024, $ 1,381 of cash paid during the nine months ended September 30, 2025 , $ 1,462 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 $ 1,423 , 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 prices for certain of these acquisitions are subject to adjustments for contingent events which are generally expected to occur over the next one to three years following September 30, 2025, 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. 10 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 September 30, 2025 Assets: Funds held for clients Money market funds $ 1,250 $ 1,250 $ — $ — Available-for-sale securities 84,391 — 84,391 — Total $ 85,641 $ 1,250 $ 84,391 $ — 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 $ — 11 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 September 30, 2025 Cash equivalents $ 1,251 $ — $ ( 1 ) $ 1,250 Available-for-sale securities: Corporate debt securities 78,556 461 ( 118 ) 78,899 Municipal bonds 2,004 — ( 33 ) 1,971 U.S. Government agency securities 3,498 23 — 3,521 Total available-for-sale securities 84,058 484 ( 151 ) 84,391 Total (2) $ 85,309 $ 484 $ ( 152 ) $ 85,641 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 income (loss). As of September 30, 2025, and December 31, 2024, there were 122 and 45 securities, respectively, in an unrealized gain position and there were 30 and 89 securities in an unrealized loss position, respectively. As of September 30, 2025, these unrealized losses were less than $ 18 individually and $ 151 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 76% 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 September 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): September 30, 2025 December 31, 2024 Restricted cash and cash equivalents held to satisfy client funds obligations $ 63,947 $ 124,287 Restricted short-term marketable securities held to satisfy client funds obligations 11,376 5,273 Restricted long-term marketable securities held to satisfy client funds obligations 73,015 63,055 Total funds held for clients $ 148,338 $ 192,615 Expected maturities of available-for-sale securities are as of September 30, 2025, are as follows (in thousands): One year or less $ 11,376 After one year through five years 73,015 Total $ 84,391 12 Table of Contents NOTE 5 - GOODWILL AND OTHER INTANGIBLE ASSETS December 31, 2024 Acquisitions September 30, 2025 Goodwill $ 94,724 $ 21,035 $ 115,759 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 September 30, 2025, there has been no impairment of goodwill based on the qualitative assessments we have performed. Gross Intangible Assets December 31, 2024 Acquisitions September 30, 2025 Customer relationships $ 148,097 $ 32,850 $ 180,947 Developed technology 15,201 4,300 19,501 Trade names 880 — 880 Non-compete agreements 1,032 — 1,032 Total $ 165,210 $ 37,150 $ 202,360 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 September 30, 2025 Customer relationships 8.5 $ 180,947 $ ( 96,313 ) $ 84,634 Developed technology 6.6 19,501 ( 11,985 ) 7,516 Trade names 4.3 880 ( 880 ) — Non-compete agreements 5.2 1,032 ( 951 ) 81 8.2 $ 202,360 $ ( 110,129 ) $ 92,231 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 $ 13,250 and $ 11,790 for the nine months ended September 30, 2025 and 2024, respectively. Amortization expenses recorded in cost of sales were $ 783 and $ 150 for the nine months ended September 30, 2025 and 2024, respectively. There was no impairment of intangibles during the nine months ended September 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. 13 Table of Contents The following table summarizes the future estimated amortization expense relating to our intangible assets as of September 30, 2025 (in thousands): 2025 (Remaining) $ 5,368 2026 18,522 2027 16,328 2028 14,883 2029 12,719 2030 9,089 Thereafter 15,322 $ 92,231 NOTE 6 - NOTES PAYABLE The following table summarizes our outstanding debt as of the dates indicated (in thousands): Maturity Cash Interest Rate September 30, 2025 December 31, 2024 Notes Payable – Acquisitions (1) 10/01/25 - 07/01/29 2.00 % - 4.00 % $ 14,475 $ 9,943 Notes Payable – Other 11/01/25 10.00 % — 5,000 Notes Payable – MidCap 04/01/30 9.66 % 60,000 — Gross Notes Payable $ 74,475 $ 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 September 30, 2025 Current portion of notes payable $ 6,784 $ ( 571 ) $ 6,213 Notes payable, net of current portion 67,691 ( 3,534 ) 64,157 Total $ 74,475 $ ( 4,105 ) $ 70,370 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 September 30, 2025 (in thousands): 2025 (Remaining) $ 2,200 2026 5,804 2027 3,471 2028 — 2029 48,000 2030 15,000 Total $ 74,475 14 Table of Contents Notes Payable - Acquisitions As of September 30, 2025, we have nine promissory notes related to acquisitions that occurred during the nine months ended September 30, 2025, and prior years with a combined outstanding principal balance of $ 14,475 and maturity dates ranging from October 1, 2025, to July 1, 2029. All of these promissory notes are subordinated to our Loan Agreement with MidCap (defined below). See Note 3 — Business Combinations and Asset Acquisitions for further discussion regarding the issuance of notes payable related to acquisitions. On August 13, 2025, we prepaid the outstanding balance on one of our acquisition-related promissory notes through the issuance of shares of our common stock. Prior to extinguishment, the promissory note had an outstanding principal balance of $ 1,000 and would mature on February 22, 2026. In connection with the extinguishment, the principal balance of the note was reduced by $ 118 for indemnifiable claims related to the acquisition. The remaining $ 956 of principal and accrued interest was repaid with 91 shares of common stock, having a fair value of $ 701 . See Note 12 — Subsequent Events for the details of an extinguishment of an acquisition-related promissory note through the issuance of shares of our common stock after the reporting period. 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 agreed 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 September 30, 2025. The maturity date of the loan as provided under the Loan Agreement is April 1, 2030 (the “Maturity Date”). Interest on the outstanding loan balance is payable monthly in arrears at an annual rate of Term Secured Overnight Financing Rate (“SOFR”) plus 5.00 %, subject to a SOFR floor of 2.00 %. This rate was 9.66 % as of September 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 2.00 % 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 $ 10,000 . As of September 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 September 30, 2025. As a result, net proceeds of all borrowings under the Loan Agreement were $ 57,975 . 15 Table of Contents NOTE 7 – CONTRACTS WITH CUSTOMERS AND REVENUE CONCENTRATION Receivables Receivables from contracts with customers, net of allowance for credit losses of $ 7,625 , w ere $ 14,563 at September 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 $ 1,121 , write-offs charged against the allowance for credit losses of $ 562 , and recoveries on previously written off receivables of $ 737 during the nine months ended September 30, 2025. We had a provision for expected losses of $ 111 , write-offs charges against the allowance for credit losses of $ 16 , and recoveries on previously written off receivables of $ 1,267 during the nine months ended September 30, 2024. The increase in provision for expected losses is primarily due to regulatory and legislative changes impacting our expectation on current and future credit losses related to professional service receivables associated with Employee Retention Tax Credits. No customer represented more than 10% of our net accounts receivable balance as of September 30, 2025, and December 31, 2024. Contract Assets Costs to Fulfill Contracts Contract assets from contracts with customers were $ 2,726 and $ 1,712 at September 30, 2025 and December 31, 2024 , respectively . Costs to Obtain Contracts Deferred commission costs from contracts with customers w ere $ 14,467 and $ 12,351 at September 30, 2025 and December 31, 2024 , respectively. The amount of amortization recognized for the three and nine months ended September 30, 2025 was $ 839 and $ 2,453 , respectively, and for the three and nine months ended September 30, 2024 was $ 689 and $ 1,548 , respectively. Deferred Revenue During the three and nine months ended September 30, 2025, revenue of $ 1,834 and $ 10,391 , respectively, and during the three and nine months ended September 30, 2024, revenue of $ 286 and $ 6,409 , respectively, was recognized from the deferred revenue balance at the beginning of each period. Transaction Price Allocated to the Remaining Performance Obligations As of September 30, 2025, approximately $ 84,701 of revenue is expected to be recognized from remaining performance obligations. We expect to recognize revenue on approximately 39 % 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 September 30, 2025. Revenue Concentration During the nine months ended September 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 ASC 842 (“Leases”). 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. 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. 16 Table of Contents We have entered into a software license agreement, which qualifies as a finance lease under ASC 842 (“Leases”). Under this lease, the lessor receives fixed payments over a period of four years , after which we take ownership of the software and source code. The resulting software asset is included in property and equipment, net, in the accompanying Condensed Consolidated Balance Sheets. We record amortization for the related asset over its useful life on a straight-line basis and recognize interest expense under the effective interest method over the term of the lease. In the accompanying Condensed Consolidated Statements of Comprehensive Loss, these expenses are included in general and administrative expenses and interest expense, respectively. The components of the lease-related expenses are as follows for the periods presented below (in thousands): Three Months Ended September 30, Nine Months Ended September 30, 2025 2024 2025 2024 Operating lease cost: Rent expense $ 577 $ 501 $ 1,631 $ 1,454 Sublease income — — — ( 4 ) Total operating lease cost $ 577 $ 501 $ 1,631 $ 1,450 Finance lease cost: Amortization of assets $ 5 $ — $ 5 $ — Interest on lease liabilities 2 — 2 — Total finance lease cost $ 7 $ — $ 7 $ — For purposes of calculating the 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 September 30, 2025, and December 31, 2024. The weighted average remaining lease term for our operating leases is three years and four years as of September 30, 2025 and December 31, 2024, respectively. The discount rate of our finance lease is 11 % as of September 30, 2025. The remaining lease term for our finance lease is four years as of September 30, 2025. Supplemental cash flow information related to leases are as follows for the periods presented below (in thousands): Nine Months Ended September 30, 2025 2024 Cash paid for amounts included in the measurement of operating lease liabilities: Operating cash outflows from operating leases $ 1,652 $ 1,560 Non-cash activities: Operating lease assets obtained or removed in exchange for new, modified or terminated operating lease liabilities $ 2,723 $ 419 Finance lease assets obtained or removed in exchange for new, modified, or terminated finance lease liabilities $ 284 $ — Future minimum commitments over the life of all operating and financing leases, which exclude variable rent payments, are as follows for the period presented below (in thousands): Operating Leases Finance Leases 2025 (Remaining) $ 613 $ 22 2026 2,258 88 2027 1,954 88 2028 1,787 87 2029 1,035 58 2030 208 — Thereafter 27 — Total minimum lease payments 7,882 343 Less: imputed interest ( 1,366 ) ( 63 ) Total lease liabilities $ 6,516 $ 280 17 Table of Contents 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 September 30, 2025 , we were not currently a party to any material legal proceedings. 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 2,341 options, restricted stock units (“RSUs”) and performance stock units (“PSUs”) granted and outstanding pursuant to the 2018 Plan as of September 30, 2025. As of September 30, 2025, the number of shares available for future grant under the 2018 Plan is 2,589 . Share-based compensation for our stock option plans for the three and nine months ended September 30, 2025, was $ 1,967 and $ 5,721 , respectively, and for the three and nine months ended September 30, 2024, was $ 1,591 and $ 4,981 , 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 September 30, Nine Months Ended September 30, 2025 2024 2025 2024 Common stock issued - options (1) 4 51 369 86 Common stock issued - RSU (1)(2) 100 46 555 370 (1) Included in these amounts are 4 and 184 shares withheld for taxes or in connection with a cashless exercise of options during the three and nine months ended September 30, 2025, respectively. (2) Included in these amounts are 159 restricted stock units during the nine months ended September 30, 2025, and 109 restricted stock units during the nine months ended September 30, 2024, that were converted from performance stock units which vested during those periods. There were no stock units converted from performance stock units during the three months ended September 30, 2025 and 2024. 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. 18 Table of Contents 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 September 30, Nine Months Ended September 30, 2025 2024 2025 2024 Basic: Net loss $ ( 5,362 ) $ ( 3,901 ) $ ( 13,883 ) $ ( 8,569 ) Weighted-average shares of common stock outstanding 27,566 26,429 27,257 25,870 Basic loss per share $ ( 0.19 ) $ ( 0.15 ) $ ( 0.51 ) $ ( 0.33 ) Diluted: Net loss $ ( 5,362 ) $ ( 3,901 ) $ ( 13,883 ) $ ( 8,569 ) Weighted-average shares of common stock outstanding 27,566 26,429 27,257 25,870 Diluted loss per share $ ( 0.19 ) $ ( 0.15 ) $ ( 0.51 ) $ ( 0.33 ) 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 nine months ended September 30, 2025 and 2024, are as follows (in thousands): Three Months Ended September 30, Nine Months Ended September 30, 2025 2024 2025 2024 Total revenues $ 36,252 $ 29,304 $ 101,230 $ 89,000 Significant segment expenses Compensation 22,926 20,950 67,894 61,553 Non-compensation 11,902 7,507 30,081 23,497 Deferred software and commission costs ( 4,233 ) ( 2,965 ) ( 11,649 ) ( 8,990 ) Amortization, depreciation, and other noncash expenses 9,518 7,604 26,566 21,619 Other segment expenses (income) (1) 1,501 109 2,221 ( 110 ) Total expenses 41,614 33,205 115,113 97,569 Net loss $ ( 5,362 ) $ ( 3,901 ) $ ( 13,883 ) $ ( 8,569 ) (1) Other segment expenses include interest expense (income) and other business expense (income) 19 Table of Contents NOTE 12 - SUBSEQUENT EVENTS Subsequent to September 30, 2025, but before the filing of the financial statements, we completed a customer relationship asset acquisition. The total purchase price of this acquisition was $ 1,146 , which consisted of $ 700 of cash paid at close and the delivery of a promissory note in the amount of $ 446 , net of discount. On October 30, 2025, we partially repaid the outstanding balance on one of our acquisition-related promissory notes through the issuance of shares of our common stock and cash payment of accrued interest. Prior to the transaction, the promissory note had an outstanding principal balance of $ 3,000 and would mature on July 1, 2029. In connection with the partial extinguishment, the holders of the promissory note agreed to reduce the principal balance of the portion of the note by $ 300 in consideration of the early repayment. The remaining $ 1,700 of principal was repaid with 201 shares of common stock, having an estimated fair value of $ 1,511 , and $ 20 of accrued interest was paid with cash. After the partial extinguishment, the outstanding principal balance of the note is $ 1,000 . 20 Table of Contents