ASURE SOFTWARE INC Q1 FY2021 earnings

Asure Software's FY2021 Q1 revenue was $19.80 million, up 4.5% from the prior-year quarter. Recurring revenue accounted for more than 95% of the total. Management credited 2020 acquisitions and higher balances in funds held for clients, and said COVID-related headcount reductions at clients held the top line back. The first quarter also carries W-2 and ACA form processing, which lifts revenue and margins above later quarters. Management expects that seasonal pattern to hold for as long as the ACA keeps employer reporting requirements in place.

Gross profit for the quarter was $12.49 million, up 12.5%. Gross margin was 63.1%, up from the prior-year quarter, which management tied to higher revenue and more efficient operations. The company still posted an operating loss of $1.27 million, and that loss narrowed from a year earlier. Operating margin was -6.4%. Net loss was $1.60 million and also narrowed, while diluted loss per share was $0.08.

The expense line carried the weight. General and administrative costs rose, driven by income from a transition services agreement with FM:Systems tied to the 2019 sale of the Workspace business and by higher personnel costs. Sales and marketing edged up as the company hired direct sales staff and trimmed discretionary marketing spend. Research and development expense declined as more costs were capitalized. Amortization of intangible assets increased as well.

Net cash used in operating activities was $1.24 million for the quarter, up from the prior-year quarter. Capital expenditures were $48,000, down 80.1%. Deferred revenue, current portion only, was $1.60 million, down 54.5% from the prior-year quarter. Remaining performance obligations were $24.56 million, down 24.0%. Management said deferred revenue moves with seasonality, the expiration of initial multi-year contracts and deals billed after implementation rather than in advance. Asure ended the quarter with nothing outstanding under its Wells Fargo revolver and $4.5 million available to borrow. It filed its initial PPP forgiveness application in December 2020 and completed it in early February 2021. Management does not expect payments on that note before at least the second quarter of 2021, and then only for any portion the SBA does not forgive.

The company sells cloud-based human capital management software to small and midsized businesses. It serves more than 80,000 of them, about 10,000 as direct clients and roughly 70,000 through reseller partners that white label the products. More than 70% of employees were still working remotely as of March 31, 2021. Management flagged that per-employee billing ties recurring revenue to client headcount, so the layoffs and furloughs that hit clients since late March 2020 will keep weighing on that revenue until employment recovers to pre-pandemic levels. A handful of new clients also delayed service implementations at the onset of the pandemic, and similar delays could recur.

Guidance here covers the remainder of the full fiscal year 2021, not just the next quarter. Management expects revenues to increase as it introduces new applications and expands the client base, and it intends to keep investing in sales and marketing and in research and development. It also said there is no assurance that the company can grow revenue or reach profitability during the remainder of fiscal year 2021.

The named risks are broad. COVID-19 remains the headline: its duration, government travel restrictions, supply chain interruptions and extended business shutdowns all feed into client headcount and demand. Other risks include errors or interruptions in services or web hosting, security breaches, changes in PPP loan forgiveness provisions, privacy and data security laws, money transmitter and anti-money laundering laws, competition, changes in the sales cycle, unexpected attrition or weaker new business, the ability to realize benefits from partnerships and acquisitions, export control compliance, hiring and retention, litigation, the effective tax rate, the convertible notes, term loan and revolver, receivables collection, interest rates, deferred tax assets, indirect tax exposure and real estate costs.