Asure Software Announces Third Quarter 2019 Results
AUSTIN, TX - November 11, 2019 – Asure Software, Inc. (NASDAQ: ASUR), the leading provider of dynamic cloud-based solutions that elevate how, when and where work gets done, reported results for the third quarter ended September 30,
2019.
Third Quarter 2019 Key HCM Financial Highlights
•
Asure will be a pure-play HCM SaaS vendor after the previously announced $120 Million sale of Workspace Management, which is expected to close in December 2019
•
Core HCM bookings increased 8% year-over-year
•
HCM
revenue of $17.9 million, above internal expectations
•
Interest on HCM client funds exceeded $450,000, up from $20,000 in the third quarter of 2018
•
Establishing HCM revenue guidance of $72.0-73.0 million for 2019 and $72.0-74.0 million for 2020
•
Establishing
HCM adjusted EBITDA guidance of $11.0-12.0 million for 2019 and $11.0-12.0 million for 2020
Third Quarter 2019 Financial Summary (HCM and Workspace Management)
* Non-GAAP
financial measures are reconciled to GAAP in the tables set forth in this release.
** Historical non-GAAP Net Earnings Per Share adjusted for 0% effective tax rate for comparison purposes.
Management Commentary
“Given the expected impact to our financial model resulting from the Workspace Management sale, once closed, this transaction allows Asure to be laser-focused on our award-winning Human Capital Management
Solutions to resellers and small and midsize businesses. Asure Software will be pure-play HCM and we will dedicate our product innovations decisively on HCM solutions,” stated Pat Goepel, CEO of Asure Software. “We plan to pay off the majority of our debt with the proceeds -- right sizing our capital structure for a company of our size. And we believe our financial predictability will be enhanced with the new Asure's recurring revenue mix exceeding 90% of total revenue.”
Asure delivered the following results (HCM and Workspace Management) for its third quarter ended September 30, 2019:
Revenue: Total revenue for the
third quarter of 2019 was $24.6 million, an increase of 5% from $23.5 million in the third quarter of 2018. Revenue mix for the third quarter of 2019 was comprised primarily of recurring revenue, which represented 86% of total revenue with professional services, hardware and other representing the remaining 14%. HCM revenue represented 73% of total and Workspace was 27%.
Gross Profit: GAAP gross profit for the third quarter of 2019 was $15.5 million (63.1% margin), a 3% increase from $15.0
million (63.9% margin) in the third quarter of 2018. Non-GAAP gross profit* was $16.1 million (65.6% margin), up 1% from $15.9 million (67.9% margin) in the year-ago quarter due to the increasing mix of HCM in our business.
Earnings (Loss) per Share: GAAP loss per share was $(0.22), compared with a net loss per share of $(0.24) in the third quarter of 2018. Non-GAAP earnings per share* was $0.11, as compared with $0.14
in the year-ago quarter.
Non-GAAP EBITDA*: Non-GAAP EBITDA was $5.3 million (21.8% margin), an increase of 0% from $5.4 million (22.9% margin) in the third quarter of 2018.
Recent Business Highlights
•
Announced that the
Company entered into an agreement to sell its Workspace Management business to FM:Systems in an asset and equity transaction valued at $120 million.
•
New HCM Wins: During the third quarter, Asure secured wins across a range of companies including, Megha Alliance, Startkleen Legacy, the minor league baseball team Florence Freedom, a multi-unit quick service restaurant franchise with 14 locations and Theoris Software. We also added 16 new Service Bureau Organizations to the Evolution family. Third quarter workspace wins included Whole Foods and TX Dot.
•
Asure
Consulting launched a comprehensive HR Training Courses Program, consisting of 47 modular segments based on trending operations and compliance topics to assist business professionals to optimize abilities and mitigate risk.
•
Appointed Charlie Lathrop, payroll processing veteran, to the company’s board of directors.
2019 Financial Guidance (HCM)
Given the impact to our financial model due to the timing of the Workspace
Management sale, Asure is issuing guidance based on HCM performance only. The fourth quarter will be impacted by a large capital gain at the time of closing which the Company expects to take in December 2019.
Asure is establishing the following guidance for HCM only, excluding Workspace Management given the pending disposition:
2019 Guidance
Range
Revenue
$
72.0
million
to
$
73.0
million
Non-GAAP
EBITDA
$
11.0
million
to
$
12.0
million
Additional
2019 Guidance
Range
Basic average shares outstanding
15.4
million
to
15.9
million
Non-GAAP
diluted shares outstanding
15.7
million
to
16.0
million
Non-GAAP Effective Tax Rate
0
%
2020
Financial Guidance (HCM)
Asure is establishing the following guidance for HCM only, excluding Workspace Management given the pending disposition:
2
2020 Guidance
Range
Revenue
$
72.0
million
to
$
74.0
million
Non-GAAP
EBITDA
$
11.0
million
to
$
12.0
million
Conference Call Details
Asure management will host a conference call today, Monday, November, 11, 2019 at 4:30 p.m. Eastern time (3:30 p.m. Central time)
to discuss these financial results and outlook. Asure CEO Pat Goepel and CFO Kelyn Brannon will host the presentation, followed by a question and answer period.
The conference call will be broadcast live and available for replay via the investor section of the company's website.
*Non-GAAP
Financial Measures: This press release includes information about non-GAAP diluted earnings per share, non-GAAP tax rates, non-GAAP net income, non-GAAP gross profit, and non-GAAP EBITDA (collectively the "non-GAAP financial measures"). These non-GAAP financial measures are measurements of financial performance that are not prepared in accordance with U.S. generally accepted accounting principles and computational methods may differ from those used by other companies. Non-GAAP financial measures are not meant to be considered in isolation or as a substitute for comparable GAAP measures and should be read only in conjunction with the company's consolidated financial statements prepared in accordance with GAAP.
Non-GAAP
EBITDA differs from GAAP net loss in that it excludes things such as interest, tax, depreciation, amortization, stock compensation, and one-time expenses. Asure Software is unable to predict with reasonable certainty the ultimate outcome of these exclusions without unreasonable effort. Therefore, Asure Software has not provided guidance for GAAP net loss or a reconciliation of the foregoing forward-looking Non-GAAP EBITDA guidance to GAAP net loss.
Management uses both GAAP and non-GAAP measures when planning, monitoring, and evaluating the company's performance.
The primary purpose of using non-GAAP measures is to provide supplemental information that may prove useful to investors and to enable investors
to evaluate the company's results in the same way management does.
Management believes that supplementing GAAP disclosure with non-GAAP disclosure provides investors with a more complete view of the company's operational performance and allows for meaningful period-to-period comparisons and analysis of trends in the company's business. Further, to the extent that other companies use similar methods in calculating non-GAAP measures, the provision of supplemental non-GAAP information can allow for a comparison of the company's relative performance
against other companies that also report non-GAAP operating results.
Specifically, management is excluding the following items from its non-GAAP earnings per share, as applicable, for the periods presented in the third quarter 2019 financial statements and for its non-GAAP estimates for the full fiscal 2019:
Stock-Based Compensation Expenses: The company's compensation strategy includes the use of stock-based compensation to attract and retain employees and executives. It is principally aimed at aligning their interests with those of our stockholders and at long-term employee retention, rather than to motivate or reward operational performance
for any particular period. Thus, stock-based compensation expense varies for reasons that are generally unrelated to operational decisions and performance in any particular period.
Amortization of Purchased Intangibles: The company views amortization of acquisition-related intangible assets, such as the amortization of the cost associated with an acquired company's research and development efforts, trade names, customer lists and customer relationships, and acquired lease intangibles, as items arising from pre-acquisition activities determined at the time of an acquisition. While these intangible assets are continually evaluated for impairment, amortization of the cost of purchased intangibles is a static expense, one that is not typically affected by operations during any
particular period.
Income Tax Effects and Adjustments: Beginning in first quarter 2018, the company started using a fixed projected non-GAAP tax rate in order to provide better consistency across the interim reporting periods by eliminating the effects of items such as changes in the tax valuation allowance and non-cash tax effects of acquired goodwill and amortization, since each of these can vary in size and frequency. This tax rate could be subject to change for a variety of reasons, such as significant changes in the acquisition activity or fundamental tax law changes in major jurisdictions where the company operates. The
company re-evaluates this tax rate on an annual basis or when any significant events that may materially affect this rate occur. The non-GAAP tax rate is currently projected to be approximately zero (0.0) percent.
3
Amortization of Capitalized Internal-Use Software, Acquisition-Related, and One-Time Expenses: The company’s non-GAAP financial measures exclude amortization of internal-use capitalized software costs and acquisition-related expenses as well as one-time expenses, such as material tax credits, material interest-expense credits, severance, recruitment, and relocation.
About
Asure Software
Asure Software, Inc. (NASDAQ: ASUR), headquartered in Austin, Texas, provides innovative and flexible SaaS-based cloud platforms that help clients worldwide elevate how, when, and where work gets done throughout the employee lifecycle. More than a Human Capital Management (HCM) software program, our Smart Office suite capitalizes on the intrinsic value between workforce and workspace so organizations of all sizes can better compete for talent, space, time, and capital assets. Asure Software’s offerings include a fully-integrated HCM platform, Time & Attendance, Talent Management, Employee Benefits, Benefits Administration, Payroll & Tax, Asset & Move Management, Full-Service Room Scheduling, Hoteling & Mobile Workforce and Workplace Occupancy Sensors. Visit us at www.asuresoftware.com.
"Safe
harbor" statement under the Private Securities Litigation Reform Act of 1995: This press release contains forward-looking statements about our financial results, which may include expected GAAP and non-GAAP financial and other operating and non-operating results, including revenue, net income, diluted earnings per share, operating cash flow growth, operating margin improvement, deferred revenue growth, expected revenue run rate, expected tax rates, stock-based compensation expenses, amortization of purchased intangibles, amortization of debt discount and shares outstanding. The achievement or success of the matters covered by such forward-looking statements involves risks, uncertainties and assumptions. If any such risks or uncertainties materialize or if any of the assumptions prove incorrect, the
company's results could differ materially from the results expressed or implied by the forward-looking statements we make.
The risks and uncertainties referred to above include -- but are not limited to -- risks associated with possible fluctuations in the company's financial and operating results; the closing of the company's sale of Workspace Management business; the company's rate of growth and anticipated revenue run rate, including the company's ability to convert deferred revenue and unbilled deferred revenue into revenue and cash flow,
and ability to maintain continued growth of deferred revenue and unbilled deferred revenue; foreign currency exchange rates; errors, interruptions or delays in the company's services or the company's Web hosting; breaches of the company's security measures; domestic and international regulatory developments, including the adoption of new privacy laws; the financial and other impact of any previous and future acquisitions; the nature of the company's business model, including risks related to government contracts; the
company's ability to continue to release, gain customer acceptance of and provide support for new and improved versions of the company's services; successful customer deployment and utilization of the company's existing and future services; changes in the company's sales cycle; competition; various financial aspects of the company's subscription model; unexpected increases in attrition or decreases in new business; the company's ability to realize benefits from strategic partnerships and strategic investments; the emerging markets in which the
company operates; unique aspects of entering or expanding in international markets, including the compliance with United States export control laws, the company's ability to hire, retain and motivate employees and manage the company's growth; changes in the company's customer base; technological developments; litigation and any related claims, negotiations and settlements, including with respect to intellectual property matters or industry-specific regulations; unanticipated changes in the company's effective tax rate; factors affecting the company's
outstanding convertible notes, term loan, and revolving credit facility; fluctuations in the number of company shares outstanding and the price of such shares; collection of receivables; interest rates; factors affecting the company's deferred tax assets and ability to value and utilize them; the potential negative impact of indirect tax exposure; the risks and expenses associated with the company's real estate and office facilities space; and general developments in the economy, financial markets, credit markets and the impact of current and future accounting pronouncements and other financial reporting standards.
Further information on these and other factors that could affect the
company's financial results is included in the reports on Forms 10-K, 10-Q and 8-K and in other filings we make with the Securities and Exchange Commission from time to time. These documents are available on the SEC Filings section of the Investor Information section of the company's website at investor.asuresoftware.com
Asure Software assumes no obligation and does not intend to update these forward-looking statements, except as required by law.
Total current assets before funds held for clients
36,273
37,709
Funds held for clients
88,210
122,206
Total
current assets
124,483
159,915
Property and equipment, net
10,636
8,948
Goodwill
115,957
111,387
Intangible
assets, net
72,472
76,760
Other assets, net
11,878
4,090
Total assets
$
335,426
$
361,100
Liabilities
and stockholders’ equity
Current liabilities:
Current portion of notes payable, net of debt issuance cost
$
4,220
$
4,733
Revolving
line of credit
4,000
—
Accounts payable
3,943
3,662
Accrued compensation and benefits
2,894
2,824
Other
accrued liabilities
4,965
2,234
Deferred revenue
12,362
11,849
Total current liabilities before client fund obligations
32,384
25,302
Client
fund obligations
88,470
123,170
Total current liabilities
120,854
148,472
Long-term liabilities:
Deferred
revenue
470
876
Deferred tax liability
1,965
1,566
Notes payable, net of current portion and debt issuance cost
112,473
107,229
Other
liabilities
6,015
439
Total long-term liabilities
120,923
110,110
Total liabilities
241,777
258,582
Commitments
Stockholders’
equity:
Preferred stock, $.01 par value; 1,500 shares authorized; none issued or outstanding
—
—
Common stock, $.01 par value;
22,000 and 22,000 shares authorized; 15,970 and 15,666 shares issued, 15,586 and 15,282 shares outstanding at September 30, 2019 and December 31, 2018, respectively
Adjustments to reconcile net loss to net cash provided by (used in) operations:
Depreciation
and amortization
11,594
9,100
Amortization of debt financing costs and discount
1,178
499
Provision for (recovery of) doubtful accounts
(414
)
496
Provision
for deferred income taxes
468
1,127
Share-based compensation
1,580
887
Release of contingent consideration
—
(489
)
Loss
on disposals of fixed assets
83
—
Changes in operating assets and liabilities:
Accounts receivable
2,930
(6,587
)
Inventory
(2,062
)
(137
)
Prepaid
expenses and other assets
16
(2,250
)
Accounts payable
(598
)
850
Accrued expenses and other long-term obligations
217
(449
)
Deferred
revenue
148
168
Net cash provided by (used in) operating activities
3,923
(6,062
)
Cash flows from investing activities:
Acquisitions
net of cash acquired
(7,443
)
(66,366
)
Purchases of property and equipment
(1,159
)
(1,503
)
Software capitalization costs
(3,207
)
(2,536
)
Net
change in funds held for clients
48,361
16,617
Net cash provided by (used in) investing activities
36,552
(53,788
)
Cash flows from financing
activities:
Proceeds from notes payable
8,000
36,750
Payments on notes payable
(4,638
)
(5,772
)
Proceeds
from revolving line of credit
8,000
4,540
Payments on revolving line of credit
(4,000
)
(4,540
)
Debt financing fees
(1,102
)
(1,693
)
Payments
on capital leases
(102
)
(124
)
Proceeds from issuance of common stock
496
39,156
Net change in client fund obligations
(49,964
)
(16,937
)
Net
cash provided by (used in) financing activities
(43,310
)
51,380
Effect of foreign exchange rates
(33
)
(128
)
Net decrease in cash and cash equivalents
(2,868
)
(8,598
)
Cash
and cash equivalents at beginning of period
15,444
27,792
Cash and cash equivalents at end of period
$
12,576
$
19,194
Supplemental
information:
Cash paid for:
Interest
$
6,581
$
5,605
Income
taxes
31
101
Non-cash Investing and Financing Activities:
Subordinated notes payable –acquisitions
2,000
7,592
Equity
issued in connection with acquisitions
555
4,493
7
Reconciliation of GAAP to Non-GAAP
(In thousands)
1Q17
2Q17
3Q17
4Q17
1Q18
2Q18
3Q18*
4Q18*
1Q19
2Q19
3Q19
Revenue
Recurring
$
8,769
$
9,991
$
12,255
$
12,704
$
17,485
$
17,749
$
19,561
$
19,397
$
23,561
$
20,433
$
21,220
Professional
Services, Hardware and Other
1,958
2,889
3,272
2,604
1,819
4,018
3,897
5,026
3,199
4,408
3,339
Total
Revenues
$
10,727
$
12,880
$
15,527
$
15,308
$
19,304
$
21,767
$
23,458
$
24,423
$
26,760
$
24,841
$
24,559
1Q17
2Q17
3Q17
4Q17
1Q18
2Q18
3Q18
4Q18
1Q19
2Q19
3Q19
Reconciliation
from GAAP gross profit to non-GAAP gross profit:
GAAP
Gross profit
$
8,289
$
10,054
$
12,131
$
11,349
$
13,747
$
14,547
$
14,987
$
14,841
$
18,062
$
14,990
$
15,507
Stock
compensation
2
4
4
—
4
4
12
12
15
10
16
Amortization
106
106
106
134
297
486
437
437
437
$
437
413
One
Time Inventory Adjustment
—
—
—
—
—
—
498
18
—
—
—
One
Time Travel Expense Adjustment
—
—
—
—
—
—
—
54
—
$
—
—
One
Time Product Royalties
—
—
—
—
—
—
—
81
189
188
168
Non-GAAP
gross profit
$
8,397
$
10,164
$
12,241
$
11,483
$
14,048
$
15,037
$
15,934
$
15,443
$
18,703
$
15,625
$
16,104
Non-GAAP
gross margin
78.3%
78.9%
78.8%
75.0%
72.8%
69.1%
67.9%
63.2%
69.9%
62.9%
65.6%
1Q17
2Q17
3Q17
4Q17
1Q18
2Q18
3Q18
4Q18
1Q19
2Q19
3Q19
Reconciliation
from net income to non-GAAP EBITDA:
GAAP
Net income (loss)
$
(1,059
)
$
(1,837
)
$
(1,281
)
$
(1,545
)
$
(1,925
)
$
(3,768
)
$
(3,584
)
$
1,729
$
(2,894
)
$
(4,967
)
$
(3,356
)
Stock
compensation
54
171
139
230
194
329
363
800
611
392
582
Amortization
953
1,148
1,449
1,380
1,895
2,481
2,884
3,090
3,218
3,200
2,962
Acquisition
costs and other one-time expenses
850
1,233
1,583
2,073
1,308
2,346
2,861
3,935
2,103
2,112
1,753
Taxes
based on a 0% tax rate
142
141
85
(272
)
184
408
(303
)
(7,518
)
304
367
(272
)
Interest
Expense One-Time Credit
—
—
—
(259
)
—
—
—
—
—
—
—
Depreciation
227
224
342
337
370
361
794
1,091
766
750
815
Interest
Expense & Other , Net
547
1,088
1,643
1,347
1,760
2,722
2,350
2,738
2,754
3,090
2,864
Non-GAAP
EBITDA
$
1,714
$
2,168
$
3,960
$
3,291
$
3,786
$
4,879
$
5,365
$
5,865
$
6,862
$
4,944
$
5,348
Non-GAAP
EBITDA margin
16.0%
16.8%
25.5%
21.5%
19.6%
22.4%
22.9%
24.0%
25.6%
19.9%
21.8%
1Q17
2Q17
3Q17
4Q17
1Q18
2Q18
3Q18
4Q18
1Q19
2Q19
3Q19
Reconciliation
from GAAP net income (loss) to non-GAAP net income
GAAP
Net income (loss)
$
(1,059
)
$
(1,837
)
$
(1,281
)
$
(1,545
)
$
(1,925
)
$
(3,768
)
$
(3,584
)
$
1,729
$
(2,894
)
(4,967
)
$
(3,356
)
One-time
depreciation adjustment
—
—
—
—
—
—
—
188
—
—
—
Stock
compensation
54
171
139
230
194
329
363
800
611
392
582
Amortization
953
1,148
1,449
1,380
1,895
2,481
2,884
3,090
3,217
3,200
2,962
Acquisition
costs and other one-time expenses
850
1,233
1,583
2,073
1,308
2,346
2,861
3,935
2,103
2,112
1,753
Taxes
based on a 0% tax rate
142
141
85
(272
)
184
408
(303
)
(7,518
)
304
367
(272
)
Interest
Expense One-Time Credit
—
—
—
(259
)
—
—
—
—
—
—
—
One
time tax penalty related to prior periods
—
—
—
—
—
—
—
—
—
86
—
Non-GAAP
net income
$
940
$
856
$
1,975
$
1,607
$
1,656
$
1,796
$
2,221
$
2,224
$
3,341
$
1,190
$
1,669
1Q17
2Q17
3Q17
4Q17
1Q18
2Q18
3Q18
4Q18
1Q19
2Q19
3Q19
Calculation
of non-GAAP net income per share
Non-GAAP
net income
$
940
$
856
$
1,975
$
1,607
$
1,656
$
1,796
$
2,221
$
2,224
$
3,341
$
1,190
$
1,669
Pro
forma diluted weighted-average shares
8,839
10,212
12,599
12,659
12,846
13,259
15,489
15,337
15,436
15,502
15,551
Non-GAAP
EPS
$
0.11
$
0.08
$
0.16
$
0.13
$
0.13
$
0.14
$
0.14
$
0.15
$
0.22
$
0.08
$
0.11
*
Adjusting for a revenue reclassification, 4Q18 recurring revenue would have been $20,127 and professional services, hardware and other would have been $4,296. In 3Q18 recurring revenue would have been $19,194 and professional services, hardware and other would have been $4,261.
