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ASUR > SEC Filings for ASUR > Form 10-Q on 19-Nov-2012All Recent SEC Filings

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Form 10-Q for ASURE SOFTWARE INC


19-Nov-2012

Quarterly Report


ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following review of Asure's financial position as of and for the three and nine months ended September 30, 2012 and 2011 should be read in conjunction with the Company's 2011 Annual Report on Form 10-K filed with the Securities and Exchange Commission. Asure's internet website address is http://www.asuresoftware.com. The Company's annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934 are available through the investor relations page of the Company's internet website free of charge as soon as reasonably practicable after they are electronically filed, or furnished to, the Securities and Exchange Commission. Asure's internet website and the information contained therein or connected thereto are not intended to be incorporated into this Quarterly Report on Form 10-Q.

The Company offers intuitive and innovative workplace management technology solutions that enable companies of all sizes and complexities to operate more efficiently and proactively manage costs associated with two of an organization's most expensive assets: real estate and labor. The company provides solutions to more than 11,000 clients worldwide and currently offers two main product lines: AsureSpace™ workplace management solutions and AsureForce™ time and labor management solutions. The AsureSpace product line provides simple and affordable solutions to common office administration problems. AsureSpace solutions (including the recent addition of PeopleCube solutions and Meeting Room Manager) automate the entire facility scheduling process: reserving rooms, requesting equipment, ordering food, sending invitations, reporting on the meeting environment and more. As a result, customers can more effectively manage scheduling processes, increase utilization of corporate assets, improve workplace productivity and control real estate costs. AsureForce time and labor management solutions help simplify the HR process and improve employee productivity by managing and communicating human resources, employee benefits and payroll information. Web-based solutions include time & attendance, timesheets, human resource benefits, expenses and others.

On March 27, 2012, the Board of Directors declared a 3 for 2 stock split, payable April 30, 2012 to the holders of record of the Company's common stock as of the close of business on April 23, 2012. The Company will make cash payments based upon the closing price of the Company's shares on the record date in lieu of the issuance of fractional shares. Share and per share information in these financial statements reflect the impact of the 3 for 2 stock split.

CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

Certain statements in this Report represent forward-looking statements. These statements involve known and unknown risks, uncertainties and other factors that may cause actual results of operations, levels of activity, economic performance, financial condition or achievements to be materially different from future results of operations, levels of activity, economic performance, financial condition or achievements as expressed or implied by such forward-looking statements.

Asure has attempted to identify these forward-looking statements with the words "believes," "estimates," "plans," "expects," "anticipates," "may," "could" and other similar expressions. Although these forward-looking statements reflect management's current plans and expectations, which are believed to be reasonable as of the filing date of this report, they inherently are subject to certain risks and uncertainties. Additionally, Asure is under no obligation to update any of the forward-looking statements after the date of this Form 10-Q to conform such statements to actual results.

RESULTS OF OPERATIONS

The following table sets forth the percentage of total revenues represented by
certain items in Asure's Consolidated Statements of Operations for the fiscal
periods indicated:

                                                FOR THE THREE           FOR THE NINE
                                                MONTHS ENDED            MONTHS ENDED
                                                SEPTEMBER 30,          SEPTEMBER 30,
                                              2012         2011       2012        2011
       Revenues                                  100 %       100 %       100 %      100 %
       Gross margin                             83.5        80.6        78.8       81.3
       Selling, general and administrative      70.2        61.0        60.2       59.5
       Research and development                 14.3        14.6        14.2       15.8
       Amortization of intangible assets        10.1         6.0         8.3        6.2
       Total operating expenses                 94.6        81.6        82.7       81.4
       Other (Expense), net                    (10.0 )       2.6       (11.8 )      0.5
       Net income (loss)                       (21.7 )       1.2       (17.1 )     (0.1 )


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THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2012 AND 2011

Revenues

Consolidated revenues of the Company and its subsidiaries, include sales of the Company's scheduling software, human resource and time and attendance software, complementary hardware devices to enhance its software products, software maintenance and support services, installation and training services and other professional services.

Revenues for the three months ended September 30, 2012 were $5,659, an increase of $3,157 or 126.2%, from the $2,502 reported for the three months ended September 30, 2011. The increase was primarily due to $1,754 of revenues generated by PeopleCube acquired July 1, 2012 and $1,522 was due to acquisition of ADI Time and Legiant in the fourth quarter of 2011.

Revenues for the nine months ended September 30, 2012 were $14,017, an increase of $6,724 or 92.2%, from the $7,293 reported for the nine months ended September 30, 2011. The increase was primarily due to $4,995 of revenues generated by ADI Time and Legiant, acquired during the fourth quarter of 2011 and $1,754 of revenues generated by PeopleCube acquired on July 1, 2012.

Asure plans to continue to target small and medium businesses and divisions of enterprises. In addition to continuing to develop its workforce management solutions and release new software updates and enhancements, the Company is actively exploring other opportunities to acquire additional products or technologies to complement its current software and services. In 2011, the Company acquired ADI Time and Legiant to enhance both its channel delivery capabilities and its time and labor management technology.

The acquisition of PeopleCube on July 1, 2012 expands the AsureSpace product portfolio to bring customers global workspace management solutions uniquely designed to help customers manage complex scheduling and real estate needs. The software helps customers drive integrated facility management of offices, conference rooms, video conferencing, events & training, alternative workspaces and lobby use. Features such as office hoteling management solutions, real estate management and rooms and resource management solutions are designed to enable to customers manage needs specific to their work environments.

Asure also is implementing marketing initiatives, including tailoring its solutions to provide increased value and a simplified purchasing model to targeted customers. As the overall workforce management solutions market continues to experience significant growth in related to software as a service ("SaaS") products, Asure intends to continue to focus on sales of its MRM, PeopleCube, iEmployee and ADI SaaS -based products.

Gross Margin

Gross margins for the three months ended September 30, 2012 were $4,723, an increase of $2,707, or 134.3%, from the $2,016 reported for the three months ended September 30, 2011. Gross margins as a percentage of revenues were 83.5% and 80.6% for the three months ended September 30, 2012 and 2011, respectively. The increase in gross margins of $2,707 is attributable to the acquisition of ADI Time and Legiant in the fourth quarter 2011 and PeopleCube at beginning of July 2012.

Gross margins for the nine months ended September 30, 2012 were $11,044, an increase of $5,114 or 86.2%, from the $5,930 reported for the nine months ended September 30, 2011. Gross margins as a percentage of revenues were 78.8% and 81.3% for the nine months ended September 30, 2012 and 2011, respectively.

Selling, General and Administrative

Selling, general and administrative ("SG&A") expenses for the three months ended September 30, 2012 were $3,975, an increase of $2,449 or 160.5%, from the $1,526 reported for the three months ended September 30, 2011. SG&A expenses as a percentage of revenues were 70.2% and 61.0% for the three months ended September 30, 2012 and 2011, respectively. The increase of $2,449 was also driven by increase of $397 due to acquisition of ADI Time and Legiant in the fourth quarter of 2011 and $1,906 due to the acquisition of PeopleCube acquired on 1st July, 2012.

SG&A expenses for the nine months ended September 30, 2012 were $8,443, an increase of $4,103 or 94.5%, from the $4,340 reported for the nine months ended September 30, 2011. SG&A expenses as a percentage of revenues were 60.2% and 59.5% for the nine months ended September 30, 2012 and 2011, respectively. The increase of $4,103 was driven by the acquisition of ADI Time and Legiant in the fourth quarter of 2011 and the acquisition of PeopleCube on July 1, 2012. The remaining increase in SG&A year over year is related to the increases in headcount, merit raises, and onetime acquisition costs related to professional and legal services.

Throughout its operations, Asure continues to evaluate any unnecessary SG&A expenses and plans to further reduce expenses as appropriate.


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Research and Development

Research and development ("R&D") expenses for the three months ended September 30, 2012 were $809, an increase of $443, or 121.0%, from the $366 reported for the three months ended September 30, 2011. R&D expenses as a percentage of revenues were 14.3% and 14.6% for the three months ended September 30, 2012 and 2011, respectively. Of the total increase in R&D expenses, $614 was driven by the acquisition of ADI Time and Legiant in the fourth quarter of 2011 and the acquisition of PeopleCube in July 2012 which was offset by decrease in salaries and rent expenses due to closure of India and Canada operations in 2012.

R&D expenses for the nine months ended September 30, 2012 were $1,991, an increase of $841, or 73.1%, from the $1,150 reported for the nine months ended September 30, 2011. Research and development expenses as a percentage of revenues were 14.2% and 15.8% for the nine months ended September 30, 2012 and 2011, respectively. The $1,240 of the increase was due to acquisition of ADI Time and Legiant in the fourth quarter of 2011 and PeopleCube in July 2012 which was offset by decrease in salaries and rent expenses due to closure of India and Canada operations in 2012.

Asure continues to improve its products and technologies through organic improvements and through acquired intellectual property. The workforce product line continued to innovate by adding mobile solutions, world class SaaS hosting infrastructure and a proprietary time clock product set. The proprietary time clock product set includes multiple models which incorporate keypad and touch screen user interfaces, as well as proximity card, bar code card, and biometric data input. The workforce software product lines continued to evolve through quarterly feature releases and monthly maintenance releases. These product releases continued to serve client requests, and maintain in management's view a technological edge with competition.

Additionally, Asure continues to develop Meeting Room Manager and released in June 2012 a new version that enhanced the Microsoft Outlook Plug-in, Web and Interactive LCD interfaces, allowed assigned delegates the ability to schedule meetings on behalf of others, and provided more sophisticated conflict resolution options for scheduling recurring meetings via Microsoft Outlook

Asure's development efforts for future releases and enhancements are driven by feedback received from its existing and potential customers and by gauging market trends. Management believes it has the appropriate development team to design and further improve its workforce management solutions.

Amortization of Intangible Assets in Operating Expenses

Amortization expenses for the three months ended September 30, 2012 were $573, an increase of $423 or 282.0% from the $150 reported for the three months ended September 30, 2011. Amortization expenses as a percentage of revenues were 10.1% and 6.0% for the three months ended September 30, 2012 and 2011, respectively.

Amortization expenses for the nine months ended September 30, 2012 were $1,158, an increase of $709 or 157.9% compared to $449, reported for the nine months ended September 30, 2011. Amortization expenses as a percentage of revenues were 8.3% and 6.2% for the nine months ended September 30, 2012 and 2011, respectively. The increase in amortization expense relate to the acquisition of ADI Time and Legiant in the fourth quarter of 2011 and PeopleCube in July 2012.

Income Tax Expense

Income tax expense for the three months ended September 30, 2012 was $30, an increase of $21 from the $9 reported for the three months ended September 30, 2011, respectively. The increase in income tax expense is due primarily to the tax effect of amortization of tax deductible goodwill.

Income tax expense for the nine months ended September 30, 2012 was $196, an increase of $166 from the $30 reported for the nine months ended September 30, 2011, respectively. The increase in income tax expense is due primarily to tax effect of amortization of goodwill and a one-time charge of $60 for income taxes associated with closing the Company's India operations.

Other Income and Expense

Other expense for the three months ended September 30, 2012 was $564, an increase of $628 from the $64 reported for the three months ended September 30, 2011. Other expense as a percentage of revenues was 10.0% and 2.6% for the three months ended September 30, 2012 and 2011, respectively. The increase is due to interest on the senior notes payable of $354 in the three months ended September 30, 2012.

Other expense for the nine months ended September 30, 2012 was $1,655, an increase of $1,690 from the $35 reported for the nine months ended September 30, 2011. Other expense as a percentage of revenues was 11.8% and 0.5% for the nine months ended September 30, 2012 and 2011, respectively.


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Net Loss

Asure generated a net loss of $1,228, or $(0.23) per share, during the three months ended September 30, 2012, compared to a net income of $29 or $0.01 per share reported for the three months ended September 30, 2011. Net loss as a percentage of total revenues were 21.7% for the three months ended September 30, 2012 compared to net income of 1.2% for the three months ended September 30, 2011. The net loss in Q3-12 was primarily to one-time expenses related to the acquisition of PeopleCube and Interest expenses of $520 on loans.

Asure generated a net loss of $2,399, or $(0.48) per share, during the nine months ended September 30, 2012, compared to a net loss of $4 or $(0.00) per share reported for the nine months ended September 30, 2011. Net loss as a percentage of total revenues were 17.1 % and 0.1% for the nine months ended September 30, 2012 and 2011, respectively.

Asure intends to continue to implement its corporate strategy for growing its software and services business by modestly investing in areas that directly generate revenue and positive cash flows for the Company. However, uncertainties and challenges remain, especially during this macroeconomic environment downturn, and there can be no assurance that the Company can successfully grow its revenues or achieve profitability during the remainder of fiscal year 2012.

LIQUIDITY AND CAPITAL RESOURCES

                                                        FOR THE NINE MONTHS ENDED
                                                              SEPTEMBER 30,
                                                          2012                2011
                                                              (in thousands)

  Working capital                                     $      (6,674 )       $  3,235
  Cash, cash equivalents and short-term investments           2,746            6,082
  Cash provided/(used) in operating activities                1,417            1,819
  Cash provided/(used) in investing activities               (9,411 )            (60 )
  Cash provided/(used) in financing activities                9,647            3,314

Working capital was ($6,674) on September 30, 2012, a decrease of $ 9,909 from $3,235 on September 30, 2011. The decrease was due to a decrease in cash $3,336 and an increase in deferred revenue $7,151 both attributable to the acquisition of ADI and Legiant in 2011 and PeopleCube in July 2012

Cash provided by operating activities was $1,417 for the nine months ended September 30, 2012 primarily due to non-cash loss on debt conversion of $198, depreciation and amortization of $1,574, interest expense on amortization of OID and derivative mark-to-market of $651, and an increase in deferred revenues of $1,184 on account of acquisitions. The increase was offset by a net loss of $2,399. Cash provided by operating activities was $1,819 for the nine months ended September 30, 2011 due to cash generated by operations of $3,007 offset primarily by a decrease of $1,199 in net loss, a decrease of lease liabilities of $758, an increase in the change in deferred revenue of $517, accrued expenses $120 and accounts payable $311.

Cash used in investing activities was $9,411 for the nine months ended September 30, 2012 due to acquisition of PeopleCube. Cash used in investing activities was $60 for the nine months ended September 30, 2011 due to net purchases of property and equipment.

Cash provided by financing activities was $9,647 for the nine months ended September 30, 2012, consisting principally of debt raised from the senior note payable for $14,500 million for the acquisition of PeopleCube in July, 2012 and to pay outstanding indebtedness under the 15% subordinated promissory notes due September 2014 (including partial interest and subordination consent payments of $134 to Patrick Goepel, our Chief Executive Officer, and $81 to Pinnacle Fund, which is controlled by David Sandberg, our Chairman of the Board of Directors) and the JPMorgan Chase Bank line of credit, and to pay transaction costs and expenses of the term loan and the acquisition. Cash provided by financing activities was $3,314 for the nine months ended September 30, 2011 primarily due to $2,850 debt issued for an acquisition and the $500 line of credit for working capital. Management believes it currently has sufficient cash and short-term investments on hand to fund its operations during the next twelve months and beyond without needing to obtain long-term financing. Therefore, the Company does not anticipate that it will be affected by any credit shortage in the current economic business environment.

The Company leases office space and equipment under non-cancelable operating leases that expire at various dates through 2015. Certain leases obligate Asure to pay property taxes, maintenance and insurance and include escalation clauses. Approximately $859 or 44.9% of the Company's total operating lease obligations relate to its corporate office facility at Wild Basin in Austin, Texas.


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Management continues to evaluate and reduce any unnecessary expenditure, while continuing to closely monitor all of its cash sources and uses as it manages its operations.

Pursuant to Asure's stock repurchase plan, the Company is allowed to repurchase up to 450 shares (adjusted for the 3 for 2 stock split) of the Company's common stock. In total, Asure has repurchased 384 shares for approximately $5,000 over the life of the plan, including 65 shares (adjusted for 3 for 2 stock split) for $110 in 2010. Management will periodically assess repurchasing additional shares, depending on the Company's cash position, market conditions and other factors.

As of September 30, 2012, Asure's principal source of liquidity consisted of $2,746 of current cash and cash equivalents as well as future cash generated from operations. The Company continues to make effort to reduce expenses and thus may utilize its cash balances in the short-term to reduce long-term costs. The Company expects that it will be able to generate positive cash flows from operating activities for the remainder of 2012.

Effective July 1, 2012, Asure acquired Meeting Maker US, Inc (d/b/a "Peoplecube"). Peoplecube was NetSimplicity's largest competitor in the Meeting Room management industry. Asure issued $14,500 in new debt to fund this acquisition, in combination with paying down existing Asure and Peoplecube debt and paying onetime costs related to the acquisition. Asure's management expects this acquisition will result in an increase in EBITDA (Net Income before Interest, Taxes, Depreciation and Amortization and Stock Compensation expense) and free cash flow perspective; excluding onetime costs related to the acquisition.

Management is focused on growing its existing software operations and looking to make strategic acquisitions in the near future. In the short-term, any acquisitions will be funded with equity, cash on the balance sheet, cash from operations, and cash or debt raised from outside sources.

There is no assurance that the Company will be able to grow its cash balances or limit its cash consumption and thus maintain sufficient cash balances, and it is possible that the Company's future business demands may lead to cash utilization at levels greater than recently experienced. Management believes that the Company has sufficient capital and liquidity to fund and cultivate the growth of its current and future operations for the next 12 months and thereafter. However, due to uncertainties related to the timing and costs of these efforts, Asure may need to raise additional capital in the future. Yet, there is no assurance that the Company will be able to raise additional capital if and when it is needed.

CRITICAL ACCOUNTING POLICIES

There were no material changes to our critical accounting policies and estimates since December 31, 2011. For additional information on critical accounting policies, refer to "Management's Discussion and Analysis" in our 2011 Annual Report on Form 10-K.

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