Asure (NASDAQ:ASUR) Beats Q3 Sales Targets But Quarterly Guidance Underwhelms
Online payroll and human resource software provider Asure (NASDAQ:ASUR) announced better-than-expected results in Q3 FY2023, with revenue up 33.9% year on year to $29.33 million. On the other hand, next quarter's revenue guidance of $26 million was less impressive, coming in 10.4% below analysts' estimates. Turning to EPS, Asure made a GAAP loss of $0.10 per share, improving from its loss of $0.22 per share in the same quarter last year.
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Asure (ASUR) Q3 FY2023 Highlights:
Revenue: $29.33 million vs analyst estimates of $26.41 million (11.1% beat)
EPS: -$0.10 vs analyst estimates of -$0.16 (39% beat)
Revenue Guidance for Q4 2023 is $26 million at the midpoint, below analyst estimates of $29.01 million
Free Cash Flow of $3.67 million, up from $1.21 million in the previous quarter
Gross Margin (GAAP): 72.5%, up from 62.3% in the same quarter last year
“We are excited to have delivered another strong performance for our Company in the third quarter with 34% organic growth in revenues and robust gains in gross margins versus the same period a year ago, which are the primary result of increased revenues and more efficient operations driven by the consolidation and standardization efforts across the Company,” said Asure Chairman and CEO Pat Goepel.
Created from the merger of two small workforce management companies in 2007, Asure (NASDAQ:ASUR) provides cloud based payroll and HR software for small and medium-sized businesses (SMBs).
HR Software
Modern HR software has two powerful benefits: cost savings and ease of use. For cost savings, businesses large and small much prefer the flexibility of cloud-based, web-browser-delivered software paid for on a subscription basis rather than the hassle and complexity of purchasing and managing on-premise enterprise software. On the usability side, the consumerization of business software creates seamless experiences whereby multiple standalone processes like payroll processing and compliance are aggregated into a single, easy-to-use platform.
Sales Growth
As you can see below, Asure's revenue growth has been very strong over the last two years, growing from $17.98 million in Q3 FY2021 to $29.33 million this quarter.
Unsurprisingly, this was another great quarter for Asure with revenue up 33.9% year on year. However, its revenue actually decreased again in Q3 by $1.09 million, following the same pattern as its $2.64 million decrease in Q2 2023. While one-off fluctuations aren't always concerning, we have no doubt that shareholders would like to see its revenue rebound soon.
Next quarter, Asure is guiding for a 11.2% year-on-year revenue decline to $26 million, a further deceleration from the 38.7% year-on-year decrease it recorded in the same quarter last year. Looking ahead, analysts covering the company were expecting sales to grow 1% over the next 12 months before the earnings results announcement.
The pandemic fundamentally changed several consumer habits. There is a founder-led company that is massively benefiting from this shift. The business has grown astonishingly fast, with 40%+ free cash flow margins. Its fundamentals are undoubtedly best-in-class. Still, the total addressable market is so big that the company has room to grow many times in size. You can find it on our platform for free.
Profitability
What makes the software as a service business so attractive is that once the software is developed, it typically shouldn't cost much to provide it as an ongoing service to customers. Asure's gross profit margin, an important metric measuring how much money there's left after paying for servers, licenses, technical support, and other necessary running expenses, was 72.5% in Q3.
That means that for every $1 in revenue the company had $0.73 left to spend on developing new products, sales and marketing, and general administrative overhead. Trending up over the last year, Asure's gross margin is around the average of a typical SaaS businesses. Gross margin has a major impact on a company’s ability to develop new products and invest in marketing, which may ultimately determine the winner in a competitive market. This makes it a critical metric to track for the long-term investor.
Key Takeaways from Asure's Q3 Results
With a market capitalization of $206.4 million, Asure is among smaller companies, but its $32.79 million cash balance and positive free cash flow over the last 12 months give us confidence that it has the resources needed to pursue a high-growth business strategy.
We were impressed by how strongly Asure blew past analysts' revenue and EPS expectations this quarter. That stood out as a positive in these results. On the other hand, its EBITDA missed estimates and its revenue guidance for next quarter underwhelmed. The company also announced it raised $43 million of equity capital, which was mostly used to pay off $31 million of outstanding debt. Overall, the results could have been better. The stock is flat after reporting and currently trades at $8.6 per share.
So should you invest in Asure right now? When making that decision, it's important to consider its valuation, business qualities, as well as what has happened in the latest quarter. We cover that in our actionable full research report which you can read here, it's free.
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The author has no position in any of the stocks mentioned in this report.
