Asure Software, Inc. (NASDAQ:ASUR) Q4 2023 Earnings Call Transcript
Asure Software, Inc. (NASDAQ:ASUR) Q4 2023 Earnings Call Transcript February 27, 2024
Asure Software, Inc. isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).
Operator: Good afternoon, and welcome to Asure's Fourth Quarter and Full Year 2023 Earnings Conference Call. Joining us for today's call are Chairman and CEO, Pat Goepel; Chief Financial Officer, John Pence; and VP of Investor Relations, Patrick McKillop. Following the prepared remarks, there will be a question-and-answer session for the analysts and investors. I'll now turn the call over to Patrick McKillop for introductory remarks. Please go ahead, Patrick.
Patrick McKillop: Thank you, operator. Good afternoon, everyone, and thank you for joining us for Asure's fourth quarter and full year 2023 earnings results call. Following the close of the market, we released our financial results. The earnings release is available on the SEC's website and our Investor Relations website at investor.asuresoftware.com, where you can also find the investor presentation. During our call today, we will reference non-GAAP financial measures, which we believe to be useful to investors and exclude the impact of certain items. A description and timing of these items along with a reconciliation of non-GAAP measures to their most comparable GAAP measures can be found in our earnings release. Today's call will also contain forward-looking statements that refer to future events and as such, involve some risks.
We use the words such as expects, believes, and may to indicate forward-looking statements, and we encourage you to review our filings with the SEC for additional information on factors that could cause actual results to differ materially from current expectations. I will hand the call over to Pat in a moment, but I just wanted to take a moment to remind folks of our upcoming Investor Relations activities. On March 17 through the 19, we will attend the 36th Annual ROTH Conference in Dana Point, California. We also plan to do a few non-deal road shows later this spring as well. Investor outreach is very important to Asure, and I'd like to thank all of those that assist us in our efforts to connect with investors. Finally, I would like to remind everyone that this call is being recorded.
and it will be made available for replay via a link available on the Investor Relations section of our website. With that, I would now turn over the call to Pat Goepel, Chairman and CEO. Pat?
Pat Goepel: Thank you, Patrick, and welcome, everyone, to Asure Software's fourth quarter and full year 2023 earnings results call. I am joined on this call by our CFO, John Pence, and we'll provide a business update for our fourth quarter and full year 2023 results as well as our outlook for 2024. Following our remarks, we'll be available to answer your questions. As you can see from our reported results, our strong momentum continued during 2023, with strength coming from solid execution across the business. Our total revenue growth in 2023 was 24% up versus the prior year. Excluding ERTC, our revenues were up 19%. Our reoccurring revenues grew 16% versus the prior year. Excluding ERTC, our reoccurring revenues were up 19%.
Our net loss was $9.2 million, a $5.3 million improvement versus the prior year, and adjusted EBITDA was up 97% versus the prior-year period. Lastly, our cash from operations for 2023 was $18.9 million versus $13.7 million in 2022. We have multiple growth drivers in our business with HR Compliance, Asure Marketplace and our Payroll Tax Management solution showing very strong growth in 2023. We believe that over time, these business lines can become much larger contributors to our overall revenues, as our Payroll Tax Management offering continues to grow, it can contribute to our float balances growing as well. We continue to build on our momentum by advancing our technology through leading partnerships and launching strategic sales initiative, such as the bundling of our 401(k) products with payroll to drive new client additions.
This particular initiative was launched a short time ago and the reception we have received thus far has been very positive. Many small businesses traditionally have not had the resources to offer 401(k) retirement solutions, but around 20 or more states in the U.S. have mandated these plans and many more have introduced legislation mandating 401(k) plans for small businesses. The U.S. government's SECURE Act 2.0 aims to increase employee participation and retirement plans by providing tax credits to support the setup of employer-based retirement plans, and Asure has the solution they need to set up those plans. We continue to advance our technology with partnerships as evidenced by the recent invitation to join the SAP PartnerEdge Open Ecosystem.
The partnership with SAP will allow Asure to enhance its payroll tax engine by integrating with the SAP systems and streamline payroll tax processes for its existing SAP clients. Also, in today's press release, we mentioned we received Workday Global Payroll certification for integration into Workday HCM and Asure Payroll Tax Management. This solution helps large enterprises streamline processes, enhanced compliance accuracy and stay ahead of regulatory changes. The certification accelerates Asure's payroll tax business into the Workday Human Capital Management ecosystem. Our sales efforts during 2023 resulted in a 56% increase in new bookings versus the prior year, and we're pleased with the productivity per rep we're experiencing. We've expanded our sales force during the year to approximately 110 reps with plans to go about 130, and have been very pleased with the quality of new hires that we made.
We're supporting our sales efforts with digital marketing, which will drive higher levels of sales leads and productivity in 2024. Based on our current business trends, we're reiterating our full year 2024 revenue guidance of $125 million to $129 million, with EBITDA margins of between 20% and 21%. As a reminder, this '24 guidance excludes any potential contributions from ERTC filing, but does include our plan to resume acquisitions in earnest. We have signed agreements to purchase approximately $7 million of annual recurring revenue and the pipeline is very strong. As we look at the business excluding ERTC from 2023, our guidance for 2024 implies a 25%-plus growth rate, which is very positive. Additionally, reviewing our growth, excluding ERTC for the past few years, we're witnessing solid double-digit growth in the implied 25% growth rate in our guidance of 2024 would be an acceleration of the rates we saw in previous years.
Now, I would like to hand it off to John Pence to discuss our financial results in more detail as well as our quarter one guidance. John?
John Pence: Thanks, Pat. As Patrick mentioned at the beginning of this call, several of the financial figures discussed today are given on a non-GAAP or adjusted basis. You will find a description of these GAAP to non-GAAP reconciliations in the earnings release that was made available earlier today. The reconciliations themselves are also included in our most recent investor presentation posted in the Investor Relations section of our website at investor.asuresoftware.com. Now on to the fourth quarter and 2023 results. Fourth quarter total revenues were $26.3 million, decreasing by 10% relative to prior year. Excluding ERTC, total revenues were up 15% from the prior year. Full year 2023 total revenues grew by 24% to $119.1 million.
Excluding ERTC, total revenues were up 19% from the prior year. Recurring revenues for the fourth quarter grew 4% versus the prior year to $25 million. Excluding ERTC, revenues were up 15% from the prior year. Full year recurring revenues grew by 16% to $99.7 million year-over-year, and excluding ERTC, revenues were up 19% from the prior year. Full year and fourth quarter recurring revenues grew on the strength of HR Compliance solutions, Asure Marketplace and increased interest revenues with average client balances exceeding $200 million during the year. Net loss for the fourth quarter was $3.6 million versus $1.1 million during the prior year. Net loss for the full year 2023 was $9.2 million, an improvement of $5.3 million versus the prior year loss of $14.5 million.
Gross margins for the fourth quarter decreased to 68% from 72% in the prior year. Full year gross margins increased to 72% from 65% in the prior year. Non-GAAP gross margins for the fourth quarter decreased to 72% from 76% in the prior year. Non-GAAP gross margins for the full year increased to 76% from 70% in the prior year. The decline in margins during the fourth quarter were driven by lower revenues versus the prior year as a result of lower ERTC revenue. Margin expansion for the full year was driven by growing high-margin revenue streams, continued progress with our efficiency initiatives and scale benefits from our growth. We continue to believe there is substantial margin upside over the longer term as the business scales. EBITDA for the fourth quarter was $1.1 million, down from $5 million in the prior year.
EBITDA of $14.3 million for the full year was up 63% versus the prior year. Adjusted EBITDA for the fourth quarter decreased to $2.8 million from $6 million in the prior year, and adjusted EBITDA margin was 11% in the quarter compared with 21% in the prior year. Adjusted EBITDA of $23.3 million for the full year was up 97% versus the prior year. Adjusted EBITDA margin for the full year was 20% versus 12% in the prior year. Our cash from operations for 2023 was $18.9 million versus $13.7 million in 2022. We ended the year with cash and cash equivalents of $30.3 million, and we had debt of $4.3 million. Now in terms of guidance for the first quarter of 2024, we are guiding the first quarter revenues to be in the range of $30 million to $32 million.
Adjusted EBITDA for the first quarter is anticipated to be between $6 million and $7 million. We are reiterating our 2024 revenue guidance to be in the range of $125 million to $129 million, with adjusted EBITDA margins of between 20% to 21% at these revenue levels. As Pat mentioned in his comments earlier, these guidance figures exclude any contribution from ERTC revenues, but assume a resumption of acquisitions. We are excluding ERTC given the uncertainty about the future of the program. The growth from our HR Compliance, Asure Marketplace are expected to continue to be strong contributors going forward. Also during 2023, we saw very good growth from our standalone Payroll Tax Management product offering as well. Our Payroll Tax Management product has multiple short term goals with the platform being offered as a service to large enterprises as well as HCM vendors.
While the above mentioned are strong contributors to our growth, we also expect to drive growth through inorganic methods. We have signed agreements to purchase approximately $7 million of annual recurring revenue so far and the pipeline is strong. In conclusion, we are pleased with our performance in 2023 and the momentum we have built on the strength of private development, technology and sales. This gives us confidence in our forward-looking guidance. As we look at the business, excluding ERTC revenues in '23, we are generating approximately $100 million in revenues and the guidance we have given through 2024 implies 25%-plus growth for this year, which is a very healthy rate. If we look back, the core business grew 16% in 2021 to 2022 and 19% from 2022 to 2023.
And then we look to guidance for this year, and you can see the growth rate accelerating assuming we achieve our goals. We are excited about 2024 and look forward to it being a breakout year for Asure, and driving profitable growth and leveraging the initiatives we have implemented across the business to generate sustainable growth and create shareholder value. With that, I will turn the call back to Pat for closing remarks.
Pat Goepel: Thank you, John. We are pleased to deliver continued growth in 2023, achieving 24% total revenue growth. We remain committed to creating products and technologies that make a difference for our customers. The continued improvement of our solutions over the last few years is being reflected by our continued growth and we're elated to see positive impressions from our client base as we are creating valuable solutions, which will enable them to focus on their core business operations. Our business has multiple growth drivers in HR Compliance, Asure Marketplace, Payroll Tax Management and our new 401(k) offering, while business owners face an increasingly complex world to operate in, and we're offering multiple solutions to these business owners to ease the demands on their time so that they can focus on the things that are most important.
Our recent sales initiative in bundling 401(k) with payroll has gotten a positive reception thus far. The SECURE 2.0 Act give small businesses the funding they need to implement 401(k) plan, which many states are mandating now, and we expect more to pass mandates in the future. We also anticipate demand for our HR Compliance solution will continue to be healthy as businesses increasingly seek to supplement their internal capabilities with external experts who can help them navigate the increasing complexity of doing their business day-to-day. Asure Marketplace has been a strong contributor as well via our partnerships with Equifax, H&R Block and ZayZoon. Our Payroll Tax Management solution has had great potential with this solution being offered to large enterprise clients and human capital management vendors.
Our recent partnership announcement with Workday and SAP are great accomplishments for our payroll tax management business, and as John mentioned, we saw good growth for that product offering during 2023. We remain excited about what lies ahead for this business. Our guidance for 2024 reflects our expectations for continued growth, which will be delivered with a combination of organic and inorganic growth. We signed agreements to purchase approximately $7 million of annual reoccurring revenue so far and the pipeline is strong. Our margins and cash flow have continued to improve as the businesses scale, and we have focused on improving efficiency across the business. which helps improve the cost structure. As John mentioned earlier, when we view the business excluding ERTC, the core revenues continue to grow at a healthy double-digit rate, and our guidance for 2024 implies a 25%-plus potential growth rate.
While we're pleased to have been able to generate revenues from the ERTC program, we want to remind you that our core business continues to perform very well, and we hope that our discussion today helps illustrate our plans for the future as we move on from ERTC. During 2023, we have expanded the sales force as well as invested in marketing initiatives and we now feel the business is rightsized for future success as we enter the remainder of 2024. We will continue to provide innovative human capital management solutions that help small businesses thrive, human capital management providers grow their base and large enterprises streamline tax compliance. Thank you for listening to our prepared remarks. And so, with that, I'll send the call back to the operator for the question-and-answer session.
Operator?
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