8-K: Asure Software Reports Mixed Q2 Results: Recurring Revenue Up 18%, Overall Revenue Dips Due to ERTC Impact

Asure Software's second quarter results show a strong 18% growth in recurring revenue, but an overall revenue decrease of 8% due to a reduction in Employee Retention Tax Credit (ERTC) revenue.

Summary

• Asure Software reported its second quarter 2024 financial results, showing a mixed performance.
• Total revenue was $28 million, down 8% year-over-year, primarily due to a $6.5 million decrease in ERTC revenue.
• Excluding ERTC revenue, total revenue increased by 18% to $27.5 million.
• Recurring revenue grew by 18% year-over-year to $27.1 million.
• The company experienced a net loss of $4.4 million, compared to a $3.8 million loss in the same period last year.
• EBITDA was $1.3 million, down from $3.3 million year-over-year, while adjusted EBITDA was $4.1 million, compared to $6.1 million in the prior year.
• Gross profit was $18.9 million, down from $22.0 million year-over-year, and non-GAAP gross profit was $20.4 million with a margin of 73%.
• For the first half of 2024, total revenue was $59.7 million, a 6% decrease year-over-year, but excluding ERTC revenue, it increased by 13.5% to $58.2 million.
• Recurring revenue for the first half was $57.3 million, up 13% year-over-year.
• The net loss for the first half was $4.7 million, compared to a $3.4 million loss in the prior year.
• The company has updated its full-year 2024 revenue guidance to a range of $123 million to $129 million.

Sentiment

Score: 5

Explanation: The sentiment is neutral to slightly negative. While recurring revenue growth is positive, the overall revenue decline, increased net loss, and decreased profitability metrics temper the positive aspects. The company is facing challenges with the loss of ERTC revenue and needs to demonstrate consistent growth and profitability.

Positives

• Recurring revenue showed strong growth of 18% year-over-year, indicating a healthy core business.
• Excluding the impact of ERTC, revenue increased by 18%, demonstrating underlying growth.
• The company has secured new partnerships and made strategic acquisitions to enhance its product offerings.
• The backlog has more than doubled year-over-year, suggesting strong future demand.
• The company is seeing accelerated momentum with its Payroll Tax Management solution, winning enterprise-level deals.

Negatives

• Total revenue decreased by 8% year-over-year due to a significant reduction in ERTC revenue.
• The company reported a net loss of $4.4 million for the quarter, an increase from the $3.8 million loss in the same period last year.
• EBITDA and adjusted EBITDA decreased compared to the same period last year.
• Gross profit and non-GAAP gross profit decreased year-over-year.
• The company's first half net loss was $4.7 million, compared to a $3.4 million loss in the prior year.

Risks

• The expiration of major revenue streams like ERTC is impacting overall revenue.
• The company faces risks associated with security breaches and the current economic environment.
• There are risks related to converting deferred revenue into actual revenue and maintaining growth.
• The company's financial results are subject to fluctuations and regulatory pressures.
• The company faces competition and risks related to technological developments and the nature of its business model.

Future Outlook

The company has updated its full-year 2024 revenue guidance to a range of $123 million to $129 million, reflecting variability in the timing of closing and implementing large enterprise arrangements and anticipated acquisitions. Third quarter revenue is expected to be between $30 million and $33 million with adjusted EBITDA between $6 million and $7 million.

Management Comments

• Asure Chairman and CEO Pat Goepel stated he was pleased with the second quarter performance, highlighting the 18% growth in recurring revenue.
• He noted that demand for their products remains high and their go-to-market teams continue to bring on new customers.
• Management is focused on continuing the growth of the company through technology enhancements, partnerships, and acquisitions.
• Management believes the recent partnership with MyHRScreens and the acquisition of an applicant tracking technology strengthens their product solution suite.
• Management is pleased to see accelerated momentum with their Payroll Tax Management solution.

Industry Context

The company operates in the competitive Human Capital Management (HCM) software market, where cloud-based solutions are increasingly in demand. The company's focus on small and medium-sized businesses aligns with a significant market segment. The strategic partnerships and acquisitions are aimed at expanding their product offerings and market reach.

Comparison to Industry Standards

• While Asure's recurring revenue growth of 18% is strong, the overall revenue decline due to ERTC highlights a vulnerability to external factors, unlike companies with more diversified revenue streams.
• Companies like Paylocity (PCTY) and Workday (WDAY) in the HCM space have shown more consistent revenue growth, though they often target larger enterprises.
• Asure's adjusted EBITDA margin of 14.5% is lower than some of its larger competitors, indicating potential for improvement in operational efficiency.
• The acquisition of an applicant tracking system is a common strategy in the HCM space, with companies like iCIMS and Greenhouse also offering similar solutions.
• The partnership with MyHRScreens is similar to other HCM providers integrating background screening services, such as ADP and Paychex.

Stakeholder Impact

• Shareholders may be concerned about the decrease in overall revenue and increased net loss.
• Employees may be impacted by the company's performance and any potential restructuring.
• Customers may benefit from the enhanced product offerings through acquisitions and partnerships.
• Suppliers and creditors may be impacted by the company's financial performance.

Next Steps

• The company will continue to focus on growing its recurring revenue base.
• Asure will continue to integrate its recent acquisitions and partnerships.
• The company will work to close and implement large enterprise arrangements and anticipated acquisitions.
• Management will host a conference call to discuss the results and answer questions.

Key Dates

Keywords

Human Capital Management, HCM, Payroll, Tax Services, Time & Attendance, Recurring Revenue, ERTC, EBITDA, Applicant Tracking System, HR Benchmark Report, Acquisition, Partnership