ASURE SOFTWARE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Amounts in thousands)(Unaudited)
|
|
|
|
|
|
|
|
|
|
For the Nine Months Ended September 30,
|
|
2019
|
|
2018
|
Cash flows from operating activities:
|
|
|
|
Net loss
|
$
|
(11,217
|
)
|
|
$
|
(9,277
|
)
|
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
|
|
The accompanying notes are an integral part of these condensed consolidated financial statements.
ASURE SOFTWARE, INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Amounts in thousands, except share and per share data unless otherwise noted)
NOTE 1 – THE COMPANY AND BASIS OF PRESENTATION
Asure Software, Inc., (“Asure”, the “Company”, “we” and “our”), a Delaware Corporation, is a leading provider of Human Capital Management (“HCM”) and Workspace Management, offering intuitive and innovative cloud-based solutions designed to help organizations of all sizes and complexities build companies of the future. Our cloud platform enables clients worldwide to better manage their people and space in a mobile, digital, multi-generational, and global landscape. Asure’s offerings include a fully-integrated HCM platform, flexible benefits and compliance administration, Human Resources (“HR”) consulting, and time and labor management as well as a full suite of workspace management solutions for conference room scheduling, desk sharing programs, and real estate optimization. We develop, market, sell and support our offerings worldwide through our principal office in Austin, Texas and additional offices in Alabama, California, Florida, Massachusetts, Michigan, Nebraska, New York, North Carolina, Tennessee, Vermont, Washington, and the United Kingdom.
Subsequent to September 30, 2019, we entered into an agreement to sell the assets of our workspace solution business. See Note 11- Subsequent Events, for further details.
We have prepared the accompanying unaudited condensed consolidated financial statements in accordance with the rules and regulations of the Securities and Exchange Commission 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. Certain reclassifications were made to conform to the current period presentation in the condensed consolidated statements of comprehensive loss. These reclassifications include a change in the presentation of revenues.
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, 2019, the results of operations and statements of changes in stockholders' equity for the three and nine months ended September 30, 2019 and September 30, 2018, and our statements of cash flows for the nine months ended September 30, 2019 and September 30, 2018.
These condensed consolidated financial statements should be read in conjunction with our audited consolidated financial statements and notes thereto filed with the Securities and Exchange Commission in our annual report on Form 10-K for the fiscal year ended December 31, 2018. The results for the interim periods are not necessarily indicative of results for a full fiscal year.
NOTE 2 – SIGNIFICANT ACCOUNTING POLICIES
USE OF ESTIMATES
Preparation of the 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 consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. These estimates are subjective in nature and involve judgments that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at fiscal year end and the reported amounts of revenues and expenses during the reporting period. The more significant estimates made by management include the valuation allowance for the gross deferred tax assets, useful lives of fixed assets, the determination of the fair value of its 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. Additionally, the actual amounts could differ from the estimates made. Management periodically evaluates estimates used in the preparation of the consolidated financial statements for continued reasonableness. We make appropriate adjustments, if any, to the estimates used prospectively based upon such periodic evaluation.
RECENT ACCOUNTING PRONOUNCEMENTS
Recently Adopted Standards
In February 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2016-02, “Leases (Topic 842)”. The core principle of the standard is that a lessee should recognize the assets and liabilities that arise from leases. A lessee should recognize in its statement of financial position a liability to make lease payments (the lease liability) and a right-of-use ("ROU") asset representing its right to use the underlying asset for the lease term. Additional qualitative and quantitative disclosures are also required. We adopted the standard on January 1, 2019, utilizing the cumulative-effect adjustment transition method,
ASURE SOFTWARE, INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Amounts in thousands, except share and per share data unless otherwise noted)
which applies the provisions of the standard at the effective date without adjusting the comparative periods presented. Upon adoption, we did not record an adjustment to our beginning accumulated deficit.
In addition, we adopted the following additional practical expedients available for implementation:
•An entity need not reassess whether any existing or expired contracts are or contain leases;
•An entity need not reassess lease classification for any existing or expired leases; and
•An entity need not reassess initial direct costs for any existing leases.
We recognized lease liabilities of approximately $8,900 on January 1, 2019. A right-of-use asset of approximately $8,200 was recognized based on the lease liability, adjusted for the reclassification of deferred rent and lease incentive of approximately $680. The standard did not materially impact our operating results or liquidity upon adoption. The standard has no impact on the timing or classification of our cash flows as reported in the Condensed Consolidated Statement of Cash Flows. Our accounting for finance leases remained substantially unchanged. Disclosures related to this standard are included in Note 7, Leases.
In February 2018, the FASB issued ASU No. 2018-02, “Income Statement - Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income”, which provides entities the option to reclassify tax effects stranded in accumulated other comprehensive income as a result of the 2017 Tax Cuts and Jobs Act (“the Tax Act”) to retained earnings. We adopted the standard effective January 1, 2019. The adoption of this accounting standard did not have a material impact on our financial position, results of operations, cash flows, or presentation thereof.
Standards Yet To Be Adopted
The FASB issued ASU No. 2018-13, Fair Value Measurement (Topic 820). The new guidance modifies disclosure requirements related to fair value measurement. The amendments in this ASU are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019. Implementation on a prospective or retrospective basis varies by specific disclosure requirements. Early adoption is permitted. The standard also allows for the early adoption of any removed or modified disclosures upon issuance of this ASU while delaying the adoption of the additional disclosures until their effective date. We plan to adopt this standard at the effective date and do not expect any material impact from adoption.
The FASB issued ASU No. 2018-15, Intangibles-Goodwill and Other-Internal-Use Software (Subtopic 350-40). The new guidance reduces complexity for the accounting for costs of implementing a cloud computing service arrangement and aligns the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software (and hosting arrangements that include an internal-use software license). For public companies, the amendments in this ASU are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019, with early adoption permitted. Implementation should be applied either retrospectively or prospectively to all implementation costs incurred after the date of adoption. The effects of this standard on our financial position, results of operations or cash flows are not expected to be material.
LEASES
At the commencement date of a lease, we recognize a liability to make lease payments and an asset representing the ROU underlying asset during the lease term. The lease liability is measured at the present value of lease payments over the lease term. As our leases typically do not provide an implicit rate, we use our incremental borrowing rate based on the information available at the commencement date taking into consideration necessary adjustments for collateral, depending on the facts and circumstances of the lessee and the leased asset, and term to match the lease term. The ROU asset is measured at cost, which includes the initial measurement of the lease liability and initial direct costs incurred by the Company and excludes lease incentives. Lease liabilities are recorded in other current liabilities and other non-current liabilities. ROU assets are recorded in other assets, net.
Lease terms may include options to extend or terminate the lease when it is reasonably certain that we will exercise that option. Operating lease costs are recognized on a straight-line basis over the lease term. Lease agreements that contain both lease and non-lease components are generally accounted for separately.
CONTINGENCIES
Although we have been, and in the future may be, the defendant or plaintiff in various actions arising in the normal course of business, as of September 30, 2019, we were not a party to any pending legal proceedings.
ASURE SOFTWARE, INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Amounts in thousands, except share and per share data unless otherwise noted)
NOTE 3 – INVESTMENTS AND FAIR VALUE MEASUREMENTS
As of September 30, 2019 and December 31, 2018, $18,806 and $4,256, respectively, of funds held for clients were invested in available-for-sale securities consisting of government and commercial bonds, including mortgage-backed securities. As of September 30, 2019 and December 31, 2018, we also had $23,508 and $0, respectively, of funds held for clients invested in money market funds and other cash equivalents. Additionally, at September 30, 2019 and December 31, 2018, we had $11,588 and $8,111, respectively, in money market funds, classified as cash equivalents.
Investments classified as available-for-sale consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortized
Cost
|
|
Gross
Unrealized
Gains (1)
|
|
Gross
Unrealized
Losses (1)
|
|
Aggregate
Estimated
Fair Value
|
September 30, 2019:
|
|
|
|
|
|
|
|
Funds Held for Clients (2)
|
|
|
|
|
|
|
|
Certificates of deposit
|
$
|
5,888
|
|
|
$
|
6
|
|
|
$
|
—
|
|
|
$
|
5,894
|
|
Municipal bonds
|
4,986
|
|
|
58
|
|
|
(43
|
)
|
|
5,001
|
|
Corporate debt securities
|
3,059
|
|
|
—
|
|
|
(3
|
)
|
|
3,056
|
|
US Government agency securities
|
2,262
|
|
|
27
|
|
|
(10
|
)
|
|
2,279
|
|
Asset-backed securities
|
1,557
|
|
|
50
|
|
|
(33
|
)
|
|
1,574
|
|
Other securities
|
1,030
|
|
|
$
|
—
|
|
|
$
|
(28
|
)
|
|
1,002
|
|
Total
|
$
|
18,782
|
|
|
$
|
141
|
|
|
$
|
(117
|
)
|
|
$
|
18,806
|
|
|
|
|
|
|
|
|
|
December 31, 2018:
|
|
|
|
|
|
|
|
Funds Held for Clients (2)
|
|
|
|
|
|
|
|
Corporate debt securities
|
$
|
4,334
|
|
|
$
|
21
|
|
|
$
|
(99
|
)
|
|
$
|
4,256
|
|
|
|
(1)
|
Unrealized gains and losses on available-for-sale securities are included as a component of comprehensive loss. At September 30, 2019 and December 31, 2018, there were 63 and 26 securities, respectively, in an unrealized gain position and there were 32 and 32 securities, respectively, in an unrealized loss position. As of September 30, 2019 and December 31, 2018, these unrealized losses were less than $30 individually and $117 in the aggregate. These securities have not been in a continuous unrealized gain or loss position for more than 12 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 other-than-temporary impairment. Factors considered in determining whether a loss is other-than-temporary 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, 2019 and December 31, 2018, none of these securities were classified as cash and cash equivalents on the accompanying condensed consolidated balance sheet.
|
Expected maturities of available-for-sale securities as of September 30, 2019 are as follows:
|
|
|
|
|
One year or less
|
$
|
3,681
|
|
After one year through five years
|
11,422
|
|
After five years through 10 years
|
234
|
|
After 10 years
|
3,469
|
|
|
$
|
18,806
|
|
ASURE SOFTWARE, INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Amounts in thousands, except share and per share data unless otherwise noted)
Accounting Standards Codification (“ASC”) 820, Fair Value Measurements and Disclosures defines fair value, establishes a framework for measuring fair value in U.S. generally accepted accounting principles and expands disclosures about fair value measurements.
ASC 820 establishes a three-tier fair value hierarchy, which is based on the reliability of the inputs used in measuring fair values. These tiers include:
|
|
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 measured at fair value on a recurring basis as of September 30, 2019 and December 31, 2018, respectively:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measure at September 30, 2019
|
|
Total Carrying Value at September 30, 2019
|
|
Quoted Prices in Active Market (Level 1)
|
|
Significant Other Observable Inputs (Level 2)
|
|
Significant Unobservable Inputs (Level 3)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets:
|
|
|
|
|
|
|
|
Cash equivalents:
|
|
|
|
|
|
|
|
Money market funds
|
$
|
11,588
|
|
|
$
|
11,588
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Funds held for clients
|
|
|
|
|
|
|
|
Money market funds
|
23,508
|
|
|
23,508
|
|
|
—
|
|
|
—
|
|
Available-for-sale securities
|
18,806
|
|
|
—
|
|
|
18,806
|
|
|
—
|
|
Total
|
$
|
53,902
|
|
|
$
|
35,096
|
|
|
$
|
18,806
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measure at December 31, 2018
|
|
Total Carrying Value at December 31, 2018
|
|
Quoted Prices in Active Market (Level 1)
|
|
Significant Other Observable Inputs (Level 2)
|
|
Significant Unobservable Inputs (Level 3)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets:
|
|
|
|
|
|
|
|
Cash equivalents:
|
|
|
|
|
|
|
|
Money market funds
|
$
|
8,111
|
|
|
$
|
8,111
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Funds held for clients
|
|
|
|
|
|
|
|
Money market funds
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Available-for-sale securities
|
4,256
|
|
|
—
|
|
|
4,256
|
|
|
—
|
|
Total
|
$
|
12,367
|
|
|
$
|
8,111
|
|
|
$
|
4,256
|
|
|
$
|
—
|
|
ASURE SOFTWARE, INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Amounts in thousands, except share and per share data unless otherwise noted)
NOTE 4 – GOODWILL AND OTHER INTANGIBLE ASSETS
The following table summarizes the changes in our goodwill:
|
|
|
|
|
Balance at December 31, 2018
|
$
|
111,387
|
|
Goodwill recognized upon acquisition
|
4,826
|
|
Adjustment to goodwill associated with acquisitions
|
(176
|
)
|
Foreign exchange adjustment to goodwill
|
(80
|
)
|
Balance at September 30, 2019
|
$
|
115,957
|
|
There has been no impairment of goodwill for the periods presented.
The gross carrying amount and accumulated amortization of our intangible assets as of September 30, 2019 and December 31, 2018 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2019
|
Intangible Assets
|
Weighted Average
Amortization
Period (in Years)
|
|
Gross
|
|
Accumulated
Amortization
|
|
Net
|
|
|
|
|
|
|
|
|
Developed Technology
|
6.0
|
|
$
|
14,744
|
|
|
$
|
(8,862
|
)
|
|
$
|
5,882
|
|
Customer Relationships
|
8.8
|
|
90,102
|
|
|
(27,640
|
)
|
|
62,462
|
|
Reseller Relationships
|
7.0
|
|
853
|
|
|
(853
|
)
|
|
0
|
|
Trade Names
|
12.0
|
|
5,299
|
|
|
(1,564
|
)
|
|
3,735
|
|
Noncompete Agreements
|
5.2
|
|
1,032
|
|
|
(639
|
)
|
|
393
|
|
|
8.5
|
|
$
|
112,030
|
|
|
$
|
(39,558
|
)
|
|
$
|
72,472
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2018
|
Intangible Assets
|
Weighted Average
Amortization
Period (in Years)
|
|
Gross
|
|
Accumulated
Amortization
|
|
Net
|
|
|
|
|
|
|
|
|
Developed Technology
|
6.0
|
|
$
|
14,805
|
|
|
$
|
(7,065
|
)
|
|
$
|
7,740
|
|
Customer Relationships
|
8.5
|
|
85,094
|
|
|
(20,601
|
)
|
|
64,493
|
|
Reseller Relationships
|
7.0
|
|
853
|
|
|
(853
|
)
|
|
—
|
|
Trade Names
|
12.2
|
|
5,187
|
|
|
(1,241
|
)
|
|
3,946
|
|
Noncompete Agreements
|
5.2
|
|
1,032
|
|
|
(451
|
)
|
|
581
|
|
|
8.3
|
|
$
|
106,971
|
|
|
$
|
(30,211
|
)
|
|
$
|
76,760
|
|
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 $2,375 and $2,447, for the three months ended September 30, 2019 and 2018, respectively. Amortization expenses recorded in Cost of Sales were $587 and $437 for the three months ended September 30, 2019 and 2018, respectively. Amortization expenses recorded in Operating Expenses were $7,918 and $6,038 for the nine months ended September 30, 2019 and 2018, respectively. Amortization expenses recorded in Cost of Sales were and $1,461 and $1,171 for the nine months ended September 30, 2019 and 2018, respectively.
ASURE SOFTWARE, INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Amounts in thousands, except share and per share data unless otherwise noted)
The following table summarizes the future estimated amortization expense relating to our intangible assets as of September 30, 2019:
|
|
|
|
|
Calendar Years
|
|
2019 (October to December)
|
$
|
2,952
|
|
2020
|
11,474
|
|
2021
|
10,983
|
|
2022
|
10,354
|
|
2023
|
9,140
|
|
2024
|
8,821
|
|
Thereafter
|
18,748
|
|
|
$
|
72,472
|
|
NOTE 5 – NOTES PAYABLE
The following table summarizes our outstanding debt as of the dates indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Maturity
|
|
Stated Interest Rate
|
|
Balance as of September 30, 2019
|
|
Balance as of December 31, 2018
|
Subordinated Notes Payable- acquisitions
|
10/1/2019 – 7/1/2021
|
|
2.00% - 3.00%
|
|
|
$
|
8,646
|
|
|
$
|
10,964
|
|
Term Loan – Wells Fargo Syndicate Partner
|
5/25/2022
|
|
10.74
|
%
|
|
55,683
|
|
|
52,106
|
|
Term Loan - Wells Fargo
|
5/25/2022
|
|
5.74
|
%
|
|
55,683
|
|
|
52,106
|
|
Total Notes Payable
|
|
|
|
|
120,012
|
|
|
115,176
|
|
Short-term notes payable
|
|
|
|
|
5,399
|
|
|
5,864
|
|
Long-term notes payable
|
|
|
|
|
$
|
114,613
|
|
|
$
|
109,312
|
|
The following table summarizes the debt issuance costs as of the dates indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
Notes Payable
|
Gross Notes Payable at September 30, 2019
|
|
Debt Issuance Costs and Debt Discount
|
|
Net Notes Payable at September 30, 2019
|
Notes payable, current portion
|
$
|
5,399
|
|
|
$
|
(1,179
|
)
|
|
$
|
4,220
|
|
Notes payable, net of current portion
|
114,613
|
|
|
(2,140
|
)
|
|
112,473
|
|
Total Notes Payable
|
$
|
120,012
|
|
|
$
|
(3,319
|
)
|
|
$
|
116,693
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Notes Payable
|
Gross Notes Payable at December 31, 2018
|
|
Debt Issuance Costs and Debt Discount
|
|
Net Notes Payable at December 31, 2018
|
Notes payable, current portion
|
$
|
5,864
|
|
|
$
|
(1,131
|
)
|
|
$
|
4,733
|
|
Notes payable, net of current portion
|
109,312
|
|
|
(2,083
|
)
|
|
107,229
|
|
Total Notes Payable
|
$
|
115,176
|
|
|
$
|
(3,214
|
)
|
|
$
|
111,962
|
|
ASURE SOFTWARE, INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Amounts in thousands, except share and per share data unless otherwise noted)
The following table summarizes the future principal payments related to our outstanding debt as of September 30, 2019:
|
|
|
|
|
Year Ended
|
Gross Amount
|
December 31, 2019 (October to December)
|
$
|
1,034
|
|
December 31, 2020
|
5,159
|
|
December 31, 2021
|
10,082
|
|
December 31, 2022
|
103,737
|
|
Gross Notes Payable
|
$
|
120,012
|
|
Term Loan - Wells Fargo
In March 2018, we entered into a second amended and restated credit agreement (the “Second Restated Credit Agreement”) with Wells Fargo, and the lenders that are parties thereto, amending and restating the terms of the Amended and Restated Credit Agreement dated as of May 2017, which had previously amended and restated our credit agreement from March 2014. The Second Restated Credit Agreement contains customary events of default, including, among others, payment defaults, covenant defaults, judgment defaults, bankruptcy and insolvency events, cross defaults to certain indebtedness, incorrect representations or warranties, and change of control. In some cases, the defaults are subject to customary notice and grace period provisions. We and our wholly-owned active subsidiaries are also parties to a Guaranty and Security Agreement with Wells Fargo Bank in connection with our Second Restated Credit Agreement (and earlier versions of the credit agreement). Under the Guaranty and Security Agreement, we and each of our wholly-owned active subsidiaries have guaranteed all obligations under the Credit Agreement and granted a security interest in substantially all of our and our subsidiaries’ assets.
The Second Restated Credit Agreement provides for a total of $175,000 in available financing consisting of (a) $105,000 in the aggregate principal amount of term loans; (b) a $5,000 line of credit; (c) a $25,000 delayed draw term loan commitment for the financing of permitted acquisitions; and (d) a $40,000 accordion. Financing under the delayed draw term loan commitment and accordion are subject to certain conditions as described in the Second Restated Credit Agreement.
The Second Restated Credit Agreement amends the applicable margin rates for determining the interest rate payable on the loans as follows:
|
|
|
|
|
|
|
|
Leverage Ratio
|
First Out Revolver Base Rate Margin
|
First Out Revolver LIBOR Rate Margin
|
First Out TL Base Rate Margin
|
First Out TL LIBOR Rate Margin
|
Last Out Base Rate Margin
|
Last Out LIBOR Rate Margin
|
≤ 3.25:1
|
4.25
percentage points
|
5.25
percentage points
|
1.75
percentage points
|
2.75
percentage points
|
6.75
percentage points
|
7.75
percentage points
|
> 3.25:1
|
4.75
percentage points
|
5.75
percentage points
|
2.25
percentage points
|
3.25
percentage points
|
7.25
percentage points
|
8.25
percentage points
|
LIBOR is expected to be discontinued after 2021. The Second Restated Credit Agreement provides procedures for determining a replacement or alternative rate in the event that LIBOR is unavailable. However, there can be no assurances as to whether such replacement or alternative rate will be more or less favorable than LIBOR. We intend to monitor the developments with respect to the potential phasing out of LIBOR after 2021 and will work with our lenders to ensure any transition away from LIBOR will have minimal impact on our financial condition. We however can provide no assurances regarding the impact of the discontinuation of LIBOR on the interest rate that we would be required to pay or on our financial condition.
The outstanding principal amount of the term loans is payable as follows:
|
|
•
|
$263 beginning on June 30, 2018 and the last day of each fiscal quarter thereafter up to March 31, 2020, plus an additional amount equal to 0.25% of the principal amount of all delayed draw term loans;
|
|
|
•
|
$656 beginning on June 30, 2020 and the last day of each fiscal quarter thereafter up to March 31, 2021, plus an additional amount equal to 0.625% of the principal amount of all delayed draw term loans; and
|
|
|
•
|
$1,313 beginning on June 30, 2021 and the last day of each fiscal quarter thereafter, plus an additional amount equal to 1.25% of the principal amount of all delayed draw term loans.
|
ASURE SOFTWARE, INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Amounts in thousands, except share and per share data unless otherwise noted)
The Second Restated Credit Agreement also:
|
|
•
|
amended our leverage ratio covenant;
|
|
|
•
|
amended our fixed charge coverage ratio to be not less than 1.25:1 at March 31, 2018 and each quarter-end thereafter; and
|
|
|
•
|
removed the TTM recurring revenue covenant.
|
In January 2019, we entered into a Consent and Amendment No. 2 to the Second Restated Credit Agreement (the “Consent and Amendment No. 2”), with Wells Fargo Bank, National Association and Goldman Sachs Specialty Lending Holdings, Inc. Under the terms and conditions of the Consent and Amendment No. 2, the agent and required lenders consented to our acquisition of Payroll Maxx LLC as a “permitted acquisition” and we borrowed a delayed draw term loan in the aggregate amount of $8,000. The Consent and Amendment No. 2 also amends, among other things, our leverage ratio covenant to increase the maximum ratio to 6.00:1 at March 31, 2019, June 30, 2019 and September 30, 2019 and then stepping down each quarter-end thereafter through December 31, 2020.
As of September 30, 2019 and December 31, 2018, $4,000 and $0 was outstanding and $1,000 and $5,000, respectively, was available for borrowing under the revolver.
As of September 30, 2019, we are in compliance with all terms of our credit agreement as our lenders have waived compliance with our leverage ratio covenant of 6.00 to 1:00 as of September 30, 2019, and further consented to advances made to our United Kingdom subsidiaries in excess of the $3,000 limit. The waivers were made conditional upon a number of factors related to the pending sale of our workspace solution business (see Note 11 -Subsequent Events). If we are unable to close on the sale of our workspace solution business by December 15, 2019, or close on the sale but otherwise fail to satisfy the conditions to the waiver, then the lenders' waiver will expire. We are also in the process of negotiating an amendment to our credit facility with our lenders. If we are unable to negotiate an amendment by the date we close on the sale of our workspace solution business, the lenders will modify our maturity date to March 13, 2020 to provide time for us to complete and enter an amendment with our lenders or to facilitate a credit facility with new lenders.
We expect to be in compliance with our debt agreements and related covenants over the next twelve months.
NOTE 6 – CONTRACTS WITH CUSTOMERS AND REVENUE CONCENTRATION
Receivables
Receivables from contracts with customers, net of allowance for doubtful accounts of $1,047 were $12,900 at September 30, 2019. Receivables from contracts with customers, net of allowance for doubtful accounts of $1,467, were $14,291 at December 31, 2018.
Deferred Commissions
Deferred commission costs from contracts with customers were $4,518 and $3,675 at September 30, 2019 and December 31, 2018, respectively and are included in other assets on the accompanying condensed consolidated balance sheet. The amount of amortization recognized for the three and nine months ended September 30, 2019 was $545 and $1,361, respectively.
Deferred Revenue
Revenue of $1,730 and $9,918 was recognized during the three and nine months ended September 30, 2019 that was included in the deferred revenue balance at the beginning of each period.
Transaction Price Allocated to the Remaining Performance Obligations
As of September 30, 2019, approximately $44,494 of revenue is expected to be recognized from remaining performance obligations. We expect to recognize revenue on approximately 64% of these remaining performance obligations over the next 12 months, with the balance recognized thereafter.
ASURE SOFTWARE, INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Amounts in thousands, except share and per share data unless otherwise noted)
Revenue Concentration
During the three and nine months ended September 30, 2019 and September 30, 2018, there were no customers that individually represented 10% or more of consolidated revenue.
NOTE 7 – LEASES
We have entered into eighteen office space lease agreements, which qualify as operating leases under Topic 842. Under such leases, the lessors receive annual minimum (base) rent. The leases have original terms (excluding extension options) ranging from one to ten years. Our lease agreements do not contain any material residual value guarantees or material restrictive covenants.
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 selling, general and administrative expenses. Total straight-line rent expense and deprecation of the ROU asset for the three and nine months ended September 30, 2019 was $409 and $1,223, respectively.
As of September 30, 2019, we had lease liabilities of $7,475, of which $1,628 are classified as other current accrued liabilities, and ROU assets of $6,895, which are included in other assets on the accompanying condensed consolidated balance sheet. The current and non-current portions of the lease liabilities are included in other accrued liabilities and other liabilities, respectively, on the accompanying condensed consolidated balance sheet. For purposes of calculating the ROU assets and lease liabilities for such leases, 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. Our incremental borrowing rate of 9.00% is estimated to approximate our interest rate on a collateralized basis with similar terms and payments, using a portfolio approach. The weighted average remaining lease term of leases with a lease liability as of September 30, 2019 is 6.0 years (excluding extension options).
Future minimum commitments over the life of all operating leases, which exclude variable rent payments, are as follows:
|
|
|
|
|
|
|
Total Operating Leases
|
|
2019 (remainder)
|
$
|
587
|
|
|
2020
|
2,100
|
|
|
2021
|
1,947
|
|
|
2022
|
1,417
|
|
|
2023
|
711
|
|
|
Thereafter
|
2,977
|
|
|
Total minimum lease payments
|
9,739
|
|
|
Less imputed interest
|
(2,264
|
)
|
|
Total lease liabilities
|
$
|
7,475
|
|
|
NOTE 8 – SHARE BASED COMPENSATION
We have one active equity plan, the 2018 Incentive Award Plan (the “2018 Plan”). The 2018 Plan, approved by our shareholders, replaced our 2009 Equity Incentive Plan, as amended (the “2009 Plan”), however, the terms and conditions of the 2009 Plan continues to govern any outstanding awards previously granted under the 2009 Plan.
The number of shares available for issuance under the 2018 Plan is equal to the sum of (i) 1,350,000 shares, and (ii) any shares subject to issued and outstanding awards under the 2009 Plan as of the effective date of the 2018 Plan that expire, are canceled or otherwise terminate following the effective date of the 2018 Plan. We have outstanding options to purchase 2,063,154 shares at a weighted exercise price of $9.11, of which options to purchase 600,500 shares at an exercise price of $6.39, exercisable over a three year period, were granted in the three months ended September 30,2019. As of September 30, 2019, we had 156,153 shares available for grant pursuant to the 2018 Plan. In May 2019, our shareholders approved a one-time program to exchange underwater options to purchase shares of our common stock held by eligible employees for a lesser number of restricted stock units under the 2018 Plan. We have twelve months from May 2019 to implement this one-time program.
ASURE SOFTWARE, INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Amounts in thousands, except share and per share data unless otherwise noted)
Share based compensation for our stock option plans for the three months ended September 30, 2019 and September 30, 2018 was $577 and $363, respectively, and $1,535 and $887 for the nine months ended September 30, 2019 and 2018, respectively. We issued 5,000 shares and 2,000 shares of common stock related to exercises of stock options for the three months ended September 30, 2019 and September 30, 2018, respectively. We issued 30,000 and no shares of common stock related to the issuance of vested restricted stock units for the three months ended September 30, 2019 and 2018, respectively.
NOTE 9 – OTHER COMPREHENSIVE LOSS
Comprehensive income (loss) represents a measure of all changes in equity that result from recognized transactions and other economic events other than those resulting from investments by and distributions to shareholders. Our other comprehensive loss includes foreign currency translation adjustments.
The following table presents the changes in each component of accumulated other comprehensive income (loss), net of tax:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign Currency Items
|
|
Accumulated Other
Comprehensive Loss Items
|
|
Total Accumulated Other
Comprehensive Loss Items
|
Beginning balance, December 31, 2018
|
$
|
(828
|
)
|
|
$
|
(78
|
)
|
|
$
|
(906
|
)
|
Foreign currency translation gains
|
(560
|
)
|
|
—
|
|
|
(560
|
)
|
Unrealized losses on marketable securities
|
—
|
|
|
22
|
|
|
22
|
|
Net current-period other comprehensive loss
|
(560
|
)
|
|
22
|
|
|
(538
|
)
|
Ending balance, September 30, 2019
|
$
|
(1,388
|
)
|
|
$
|
(56
|
)
|
|
$
|
(1,444
|
)
|
The following table presents the tax benefit (expense) allocated to each component of other comprehensive income (loss):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30, 2019
|
|
Before Tax
|
|
Tax Benefit
|
|
Net of Tax
|
Foreign currency translation adjustments
|
$
|
(560
|
)
|
|
$
|
—
|
|
|
$
|
(560
|
)
|
Unrealized loss on marketable securities
|
22
|
|
|
—
|
|
|
$
|
22
|
|
Other comprehensive loss
|
$
|
(538
|
)
|
|
$
|
—
|
|
|
$
|
(538
|
)
|
NOTE 10 – NET LOSS PER SHARE
We compute net loss per share based on the weighted average number of common shares outstanding for the period. Diluted net loss per share reflects the maximum dilution that would have resulted from incremental common shares issuable upon the exercise of stock options. We compute the number of common share equivalents, which includes stock options, using the treasury stock method. We have excluded stock options to acquire approximately 2,063,000 and 1,568,000 shares for the three and nine months ended September 30, 2019 and September 30, 2018, respectively, from the computation of the dilutive stock options because the effect of including the stock options would have been anti-dilutive.
The following table sets forth the computation of basic and diluted net income (loss) per common share for the three and nine months ended September 30, 2019 and September 30, 2018:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
September 30, 2019
|
|
Three Months Ended
September 30, 2018
|
|
Nine Months Ended
September 30, 2019
|
|
Nine Months Ended
September 30, 2018
|
Net loss
|
$
|
(3,356
|
)
|
|
$
|
(3,584
|
)
|
|
$
|
(11,217
|
)
|
|
$
|
(9,277
|
)
|
Weighted-average shares of common stock outstanding
|
15,565,000
|
|
|
15,223,000
|
|
|
15,472,000
|
|
|
13,591,000
|
|
Basic and diluted net loss per share
|
$
|
(0.22
|
)
|
|
$
|
(0.24
|
)
|
|
$
|
(0.73
|
)
|
|
$
|
(0.68
|
)
|
ASURE SOFTWARE, INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Amounts in thousands, except share and per share data unless otherwise noted)
NOTE 11 – SUBSEQUENT EVENTS
The Company evaluated subsequent events through the date of the filing of this Quarterly Report on Form 10-Q with the SEC, to ensure that this filing includes appropriate disclosure of events both recognized in the condensed consolidated financial statements as of September 30, 2019, and events which occurred subsequent to September 30, 2019 but were not recognized in the condensed consolidated financial statements.
On October 7, 2019, we entered into an Asset and Equity Purchase Agreement (the “Purchase Agreement”) with FM: Systems Group, LLC and FMS Bidco UK Limited (collectively, “Buyer”), pursuant to which, among other things, Buyer agreed to acquire all of the issued share capital of Asure Software UK Limited (UK) and OccupEye Limited (UK) (together, the “Purchased Subsidiaries”) and certain assets comprising our workspace solution business (“Purchased Assets”) and assume certain liabilities and obligations relating to the Purchased Assets or the workspace solution business, for an aggregate purchase price of $120,000 in cash. The purchase price is subject to a working capital adjustment.
The closing of the acquisition is subject to customary closing conditions, including (i) expiration or termination of any required waiting periods under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, (ii) the receipt of all required consents, (iii) the absence of any legal proceeding, law or governmental order that prevents the completion of the transactions contemplated by the Purchase Agreement and (iv) the accuracy of the representations and warranties of, and compliance with covenants by, each of the parties to the Purchase Agreement. The closing will occur on the later of (i) the second business day after satisfaction or waiver of all of the closing conditions or (ii) such other date as Seller and Buyer may mutually agree. However, closing may not occur prior to 35 business days following the date of the Purchase Agreement without the consent of Buyer and must be completed no later than sixty days following the date of the Purchase Agreement. The closing is not subject to a financing condition. An equity financing commitment for the full purchase price is in place and Seller has the right to enforce the equity financing commitment against the parties who are obligated to provide equity financing.