Asure Software, Inc. (NASDAQ:ASUR) Q3 2023 Earnings Call Transcript
Asure Software, Inc. (NASDAQ:ASUR) Q3 2023 Earnings Call Transcript November 13, 2023
Asure Software, Inc. beats earnings expectations. Reported EPS is $0.14, expectations were $0.06.
Operator: Greetings. Welcome to Asure Software's Third Quarter Earnings Call. At this time, all participants are in listen-only mode. A question-and-answer session will follow the formal presentation. [Operator Instructions] As a reminder, this conference is being recorded. At this time, I'll now turn the conference over to Patrick McKillop, Vice President. Patrick, you may now begin your presentation.
Patrick McKillop: Thanks, operator. Good afternoon, everyone. And thank you for joining us for Asure's third quarter 2023 earnings call. Following the close of the markets, we released our financial results. The earnings release is available on the SEC's Web site and our Investor Relations Web site 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 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 our 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 some upcoming investor relations activities. We will be participating in the TD Cowen HCM Conference, tomorrow, November 14, with virtual one-on-one meetings. On November 15, we will be attending the ROTH MKM technology conference, in New York. And on November 16, we will be attending the 14th Annual Craig-Hallum Alpha Select Conference, in New York, plus participating in the 13th Annual Needham Virtual SaaS 1x1 Conference.
The management team will use a split squad to cover both events on November 16 to make sure we can accommodate all investors' meeting requests. This outreach is very important to Asure, and I would like to think all of those that assist us in our efforts to connect with our 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 Web site. With that, I would now like to turn the call over to Pat Goepel, Chairman and CEO. Pat?
Pat Goepel: Thank you, Patrick, and welcome, everyone, to the Asure Software's third quarter 2023 earnings call. I'm joined on this call by our CFO, John Pence. And we'll provide a business update for the quarter, and our outlook for the remainder of 2023, plus our guidance 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 into third quarter, with strength coming from solid execution across the business. Our revenue growth in the third quarter was 34% versus the prior year period, which was almost entirely organic. Reoccurring revenues grew 19% versus the prior-year period, and our non-reoccurring revenues were up by $3.6 million versus the prior-year period, once again driven by ERTC revenue strength.
We will discuss more detail on ERTC once we get to our updated guidance which we gave in today's press release. Our HR Compliance revenues and AsureMarketplace revenues both showed very strong growth during the quarter versus the prior-year period. And we're very excited about the future for these business lines. Over time, we believe that the AsureMarketplace could become 30%-plus of our total revenues. And it is a high-margin business, as is the HR Compliance business. Additionally, interest revenues contributed to the growth in the quarter, and we're able to benefit from the rise in the yield curve. Plus, we benefited from consolidation of bank accounts which drives higher investable balances. We continue to build on our momentum by advancing our technology through leading partnerships and launching strategic sales initiatives, such as the bundling of our 401(k) products with Payroll to drive new client addition.
This particular initiative was launched a short time ago, and the reception we have received thus far has been very enthusiastic. Many small businesses traditionally have not had the resources to offer 401(k) retirement solutions, but approximately 22 states in the United States have mandated 401(k) plans for small businesses. And we expect more to pass similar mandates. The U.S. Government SECURE Act 2.0 aims to increase employee participation in retirement plans by funding the setups of employer-based retirement plans while providing the funding they need to do so. And Asure has the solutions employers need to set up the plan. Our sales efforts in the third quarter produced a 26% increase in new sales bookings over and above the 91% increase we delivered last year.
We've expanded our sales force during the year, and been very pleased with the quality of the new hires we made. We're supporting our sales efforts with digital marketing, which is driving a higher level of sales leads and productivity in 2023. Based on our performance and our current expectations, we're guiding for fourth quarter revenues to be in the range of $25 million to $27 million, which excludes any potential revenues from ERTC filing. We are expecting our 2024 revenues to be in the range of $125 million to $129 million, with EBITDA margins between 20% and 21%. Our '24 guidance also excludes any potential contributions from ERTC filing, but does include our plan to resume acquisitions in earnest. As many of you are aware, the IRS placed a pause on the processing of ERTC claims, back in September, to clamp down on some bad actors that were filing claims which should not have been filed.
Asure is a processor of claims only, and we refer our clients to their tax advisors to see if they qualify for the ERTC credit. We continue to await further clarification from the IRS, and expect the program will likely be resumed. However, given the uncertainty, we want to be conservative in our assumptions on ERTC revenue going forward. Now, I would like to hand it off to John to discuss our financial results in more detail. John?
John Pence: Thanks, Pat. And 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. Reconciliations themselves are also included in our most recent investor presentation posted in the Investor Relations section of our Web site, at investor.asuresoftware.com. Now, on to the third quarter results, revenue reached $29.3 million in the third quarter, rising by 34% relative to prior-year period. Recurring revenues rose 19% relative to prior-year period, to $24 million. Third quarter recurring revenues grew on the strength of our HR Compliance solutions, AsureMarketplace, and increased interest revenues, with the average client balance exceeding $200 million in the quarter.
ERTC revenues were recorded in professional services, hardware, and other category in the current and prior year period. Non-recurring revenues saw an increase of $3.7 million on the strength of ERTC processing activity. Net loss for the third quarter was $2.2 million, a $2.3 million improvement over the prior year's loss of $4.5 million. Gross margins rose by 10 percentage points to 72% in the third quarter relative to the prior period, while non-GAAP gross margin rose 8 percentage points to 76%. EBITDA for the quarter was $3 million, up $1.7 million from prior year period. Adjusted EBITDA rose by $4.4 million relative to prior year to $6.2 million, and our adjusted EBITDA margin reached 21% in the quarter compared with 8% in the prior year period.
Margin expansion was driven by growing high margin revenue streams, continued progress with our efficiency initiatives, and scaled benefits from our growth. These gains more than offset the investments we are making in the expansion of our sales and marketing activities. We continue to believe there is substantial margin upside over the longer term as the business scales. We ended the quarter with cash and cash equivalence of $32.8 million. During the quarter, we completed an equity capital raise for net proceeds of $43 million. We also paid off $30.9 million, which we had with structural capital. This payoff substantially enhances Asure's cash flow, and is accretive to earnings, and creates financial flexibility as we execute our stated strategy to deliver double-digit revenue growth by growing both organically and inorganically.
Now in terms of guidance, for the fourth quarter 2023-2024, we are guiding fourth quarter revenues to be in the range of $25 million to $27 million, which at the midpoint of the range would equate to 19% growth year-over-year. Adjusted EBITDA for the fourth quarter is anticipated to be between $2 million to $3 million. Revenues for the full-year 2023 are still expected to be in the range of $118 million to $120 million with EBITDA margins between 19% to 20%. Moving on to the 2024 guidance, we expect revenues to be in the range of $125 million to $129 million with adjusted EBITDA margins up between 20% to 21%. As Pat mentioned in his comments earlier, each of these new guidance figures exclude any contribution from ERTC revenues, but assume a resumption of acquisitions.
We are awaiting further clarification from the IRS pause that was placed on processing claims in September, and we feel that being more conservative is the best approach. We believe that the program will resume with some modifications to make the application process more stringent, and so there is a possibility that ERTC will contribute to revenues in 2024. The growth from our HR compliance, AsureMarketplace, as well as flood revenues, and our newly introduced 401(k) solution are all expected to continue being strong contributors going forward. Additionally, our payroll tax management product has multiple shots on goal, 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 by acquiring businesses that we feel are attractive.
Our growth profile going forward will be a mix of both organic and inorganic, which with the recent capital raise and debt payoff, we have the flexibility to resume making smart profitable acquisitions. In conclusion, we are pleased with our performance in the third quarter. And the momentum we have built on the strength of product development, technology, and sales. This gives us confidence in our forward-looking guidance. We are excited about the remainder of 2023, and are looking forward to 2024 as a potentially breakout year for Asure, in driving profitable growth and leveraging the initiatives we have implemented across the business to drive sustainable growth and creating shareholder value. With that, I will turn the call back to Pat for closing remarks.
Pat Goepel: Thank you. Thanks, John. We are pleased to continue to deliver growth in the third quarter, achieving 34% revenue growth. We achieved this growth by investing in products and technologies that make a difference for our clients. It is really gratifying to see the positive reception by our clients to our solutions as it tells us we're creating value for them and enabling them to focus on their core businesses. AsureMarketplace is just getting rolling and it's expected to contribute to our growth for the longer term. Its results to date have been meaningful contribution to our overall performance and there's lots more to come. As I previously mentioned, the Secure Act 2.0 gives small businesses the funding they need to implement 401(k) plans which many states are mandating now and we expect more to pass mandates as well.
Our recent sales initiative in bundling 401 (k) with payroll has gotten enthusiastic reception thus far and it's only early days into that effort. We also anticipate demand for HR compliance solutions 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 business day-to-day. Our guidance in the fourth quarter in 2024 both reflect our expectations for continued growth which will be delivered with a combination of organic and or inorganic growth. Our margins have continued to improve as the business has scaled and we have focused on improving efficiency across the business which helps improve the cost structure. In 2023 we've expanded the sales force as well as invested in the marketing initiatives and we now feel the business is right size for future success as we enter 2024.
We'll continue to provide innovative 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 the prepared remarks. So with that, I will send the call back to the operator for the Q&A session. Operator?
Operator: Thank you. At this time, we'll be conducting a question-and-answer session. [Operator Instructions] Thank you. And our first question is from the line of Joshua Riley with Needham & Company. Please proceed with your questions.
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