Asure Software Q2 2023 Earnings Call Transcript

Quartr
Provided by Quartr
August 7, 2023

There are 11 speakers on the call.

Operator

Afternoon, and welcome to the Shure Second Quarter 2023 Earnings Conference Call. Joining us for today's call are Chairman and CEO, Ed Goepel, Chief Financial Officer John Entz and Head of Investor Relations, Randall Rudnisky. Following their prepared remarks, Management will hold a question and answer session for analysts and investors. I would now like to turn the call over to Randall Rudnisky for introductory remarks. Please go ahead.

Speaker 1

Thanks, operator, and good afternoon, everyone, and thank you for joining us for Assure's Q2 2023 earnings call. Following the close of markets, we released our financial results for the quarter. The earnings release is available on the SEC's website and our Investor Relations website at investor. Asuresoftware.com, where you can also find our 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.

Speaker 1

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. Finally, I'd like to remind everyone that this call is being recorded and it will be made available for replay via a link that can be found on the Investor Relations section of our website. With that, I would now like to turn the call over to Pat Geppel, Chairman and CEO.

Speaker 1

Pat?

Speaker 2

Thanks, Randall, Welcome everyone to the Asure Software's Q2 2023 earnings call. I'm joined on the call by our CFO, John Pentz. John and I will provide a business update for the quarter and our outlook for the remainder of 2023. Following our remarks, We'll be available to answer your questions. As you can see from the reported results, our strong momentum continued in the second quarter With strength coming from solid execution across the business, our revenue growth for the Q2 was 50%, all of which was organic with reoccurring revenues growing by 21% relative to the prior year and non reoccurring revenues up $6,200,000 on continued strong performance of our ERTC solutions.

Speaker 2

This top line growth also drove a significant increase in adjusted EBITDA, which reached $6,100,000 in the second quarter With an adjusted EBITDA margin of 20%. Through the first half of twenty twenty three, we've generated 20% more Adjusted EBITDA that we produced in all of 2022, showing a powerful operating leverage we have built in the business as we continue to grow revenues. Powering this performance is our focus on delivering a unique value proposition for our target market that addresses the needs of our clients. This approach starts with identifying impactful solutions that we believe will make a real difference to our clients and is supported by engaging and efficient technologies. It also involves mobilizing our sales teams to make sure that our message and value proposition is well understood and providing prompt and reliable customer service.

Speaker 2

Our sales efforts for the Q2 produced an 80% increase in new sales bookings, which also builds upon the 87 We achieved in the Q2 of last year. We continue to invest in the sales force expansion and been very pleased with the quality of new hires we're making. We're supporting our sales efforts with digital marketing, which is driving higher level of sales leads and productivity in 2023. In the Q2, our marketing source bookings increased by 2 27% relative to the prior year. Our selling and marketing activities have been underpinned by a focus on delivering excellent solutions that address specific client challenges and needs.

Speaker 2

In payroll, our focus has Ben on elevating the client experience by making enhancements to our platform and standardizing processes to produce efficiencies. This client focus combined with our increasingly effective marketing efforts produced an 86% increase in new payroll client revenues in the Q2 relative to the prior year. We've also had notable successes in the quarter with our HR compliance and marketplace solutions. HR compliance revenues more than doubled prior relative to the prior year without an increase in underlying costs as we have automated our solutions in a manner that is duly efficient for our employees and our clients. This efficiency has also met with opportunities for us to provide scalable solutions In the midst of an increasingly complex regulatory environment that poses new challenges for growing businesses, Yesure Marketplace, which was launched in the second half of last year, has contributed meaningful to our performance and we continue to believe this segment will represent 30% to 40% of our revenues over time.

Speaker 2

We're developing new solutions that we will introduce later in 2023 2024, which will address a wide range of business needs through targeted integrations and will meaningfully support the next level of growth for our company. I'll have more to say on that in a moment. Processing of employee retention tax credits drove upside in our non reoccurring revenues for the quarter. This activity is an example of effectively identifying and developing impactful solutions that make a real positive contribution to our client successes. Furthermore, ERTC solutions have also been a helpful contributor to our bundling success, particularly with HR compliance.

Speaker 2

Interest revenues were also an important contributor to revenue growth in the quarter with the rise in the yield curve along with our success in consolidating back office systems and bank accounts. We have the opportunity to support higher investable balances and revenues. In addition, We're continuing to invest in technology and product development to create new solutions for our clients and to proactively anticipate market opportunities in of the future. Our partnership with Amazon Web Services, Application Modernization Lab, which we announced During the Q2 is an important part of this commitment. This strategic initiative is designed to help spur innovation and to accelerate our platform development to ensure we can deliver the most secured advanced cloud platform in the industry.

Speaker 2

Our collaboration with AWS will speed development activity, while advancing our cloud optimization efforts and employing artificial intelligence to drive future efficiencies. Our technology investments will support the introduction of new solutions later in 2023 2024 that we expect to have meaningful impact on our top line performance. These new initiatives will enable us to further leverage our core capabilities to address our clients' pressing business needs in a dynamic of Business Environment. One other significant opportunity I'd like to highlight is the vast revenue generating opportunity that has come from last year's passing of the SECURE Act 2.0. The original SECURE Act made it easier for small businesses to set up Safe Harbor 401 plans and provide some tax credits to do so.

Speaker 2

Version 2.0 of the SECURE Act aims to increase employee participation in retirement plans with updated rules and dramatically expanding the tax credits available to employers for plan setup, administration and matching contributions. While the federal government is incentivizing small business Retirement Plans with the SECURE Act 2.0, a growing number of states are now mandating small businesses Offer retirement savings to their employees as well. Many small businesses traditionally have not had the resources to offer such of Retirement Programs, but now they have the mandate and the funding to move forward. Given our large base of small businesses, there is a unique and substantial opportunity to provide our clients with solutions that address these new business requirements. Just as legislation created an opportunity for us with ERTC processing, Secure Act 2.0 and the state mandates enable us to create compelling solutions to address this emerging area.

Speaker 2

We recently announced a partnership with Vesswell to use their advanced record keeping technology to help PowerAssure's new 401 ks offering. We're Excited to work with them and deliver a great solution for our clients. And because we've already developed scalable tax Credit Capabilities with ERTC, where we are uniquely positioned to help those same clients take advantage of the tax incentives available from Secure Act 2.0. Our efforts are focused on providing our clients with solutions that address the most pressing business challenges. In that light, We released our small business HR benchmark report in the Q2.

Speaker 2

This report identifies best practices in human resources based on a survey of more than 2,000 businesses across the United States. It also lays out a roadmap for success for businesses to address HR challenges and positioning themselves for enhanced growth and success. Our benchmark report identifies 8 areas in human resources across the employee lifecycle that are critical for success, Exposing areas where compliance with regulations is challenging or misunderstood, it also identifies ways of maximizing employee retention and satisfaction to help fuel organizational success. For small businesses, there is nothing more important than linking employees clearly to the drivers of organization success. Best in class businesses have best in class HR practices and Asure has the solutions to help.

Speaker 2

A copy of our small business benchmark report is available on our website at asuresoftware.com. In addition to the momentum we built with our HR compliance marketplace and ERT Solutions. We are working on strategic enhancements to our tax platform To capitalize on our unique position in the market, we're consolidating to a single tax engine, introducing a new tax portal and improving technology to facilitate integrations. We will have more to say about our development activity in the tax area in future calls, But we're very pleased about the unique and valuable asset and its ability to drive value for our clients and growth for us. In closing, I hope my comments give you a sense of the opportunities that are ahead for Asure in 2023 2024.

Speaker 2

Based on our performance and our current expectations, we're introducing revised higher 2023 financial guidance. We are now guiding for a full year revenues of $118,000,000 to $120,000,000 and adjusted EBITDA margin range of 19% to 20%. Our previous guidance was for revenues of $111,000,000 to $113,000,000 and an adjusted EBITDA margin of 17% to 18%. We're also introducing Q3 2023 guidance of revenues of $26,000,000 to $27,000,000 which is approximately 20% higher than the Q3 of 2022. For adjusted EBITDA, we're guiding to $3,500,000 to $4,500,000 in the Q3, which at the midpoint would mean adjusted EBITDA expected to more than double relative to the prior year.

Speaker 2

We expect 2023 will be a strong year for revenues and adjusted EBITDA margins. The midpoint of our revenue guidance range implies approximately 24% organic revenue growth and 19% to 20% adjusted EBITDA margins exceeding the rule of 40% for the year. We're also very tattered about the portfolio of solutions we are developing to drive value for our clients and grow for Asure in the long term. Now, I would like to hand off to John to discuss our financial results in more detail. John?

Speaker 2

Thanks, Pat. As Randall mentioned at

Speaker 3

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 website at investor. Asuresoftware.com. Now on to the 2nd quarter results.

Speaker 3

Revenues reached $30,400,000 in the 2nd quarter, rising by 50% relative to prior year, all of which was organic. Recurring revenues rose 21% relative to prior year to $23,000,000 2nd quarter recurring revenues grew on the strength of our HR compliance solutions, share marketplace and increased interest revenues with an average client balances exceeding $200,000,000 in the quarter. ERTC revenues We recorded in the professional services hardware and other category in both the current and comparable periods. Non recurring revenues saw an increase of $6,200,000 on the strength of ERTC processing activity. Relative to the Q1, revenues declined in the period.

Speaker 3

However, That is attributable to the normal seasonality of our business as recurring annual year end W2 and ACA revenue is recognized in the Q1. Net loss for the 2nd quarter was $3,800,000 a $2,100,000 improvement over prior year's loss of 5.9 Gross margins rose by 12 percentage points to 72% in the 2nd quarter relative to the prior period, while non GAAP gross margins rose 11 percentage points to 77%. It is notable that our revenues rose by 50% year over year In the quarter, our non GAAP cost of sales rose by only 2%, which allowed for almost 100% fall through of each dollar of revenue growth into the non GAAP gross margins. This operating leverage reflects the high margin mix of our growth and our continued impact of our standardization and consolidation efforts. EBITDA for the quarter was $3,300,000 a $3,400,000 improvement from prior year's quarter.

Speaker 3

Adjusted EBITDA rose by $5,500,000 relative to prior year to $6,100,000 and our adjusted EBITDA Margin reached 20% in the quarter compared with 3% in the prior period. In the quarter, we converted a little over half of each incremental dollar of revenue growth into adjusted EBITDA. Margin expansion was driven by growing high margin revenue streams, continued progress with our efficiency initiatives and scale 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 margin upside over the longer term as the business scales.

Speaker 3

We ended the quarter with cash and cash equivalents of $21,600,000 We also had $36,800,000 of debt, which is comprised of $32,000,000 drawn under our senior credit facility with the remainder made up of seller notes from acquisitions. Now in terms of our guidance for the Q3 and the full year of 2023, as Pat mentioned, we are raising our full year 'twenty three revenue guidance to the range of $118,000,000 to $120,000,000 including a 3rd quarter revenues of $26,000,000 to 27,000,000 Our full year guidance implies annual revenue growth of 24%, while the midpoint of our Q3 guidance would yield revenue growth of 21%. We expect our organic recurring revenue performance in the Q3 will be broadly in line with the results in the first half of twenty twenty three. HR Compliance, Assure Marketplace and float revenues are expected to continue to drive high margin performance. Our non recurring revenue performance year to date has been driven substantially by the success with our ERTC processing activity.

Speaker 3

While there's no sign of a significant slowdown in this area, our guidance reflects a modest expectation for this revenue stream given its transactional nature. We have also introduced 2023 adjusted EBITDA guidance for margins of 19% to 20% and Q3 adjusted EBITDA to be in the range of $3,500,000 to $4,500,000 Adjusted EBITDA performance is expected to be driven by continuing strong revenue performance, efficiency gains from our consolidation and efficiency programs, which will be partially offset by continued investment in sales and marketing activity. In terms of acquisitions, While nothing is currently imminent, we will continue to be prudent in evaluating targets and we'll execute if the right opportunity arises to create value for our stakeholders. In conclusion, we are pleased with our performance in the Q2 and the momentum we have built on the strength of our product development, technology and sales. Our year to date performance gives us confidence in our forward looking guidance.

Speaker 3

We think that we are continuing to build the foundation for driving sustainable profitable growth and value creation for the future. With that, I will turn the call back to Pat for closing remarks.

Speaker 2

Thanks, John. We achieved a new milestone in the Q2 achieving 50% revenue growth, all of which We achieved this growth by investing in products and technologies that will make a difference for our clients. It is very gratifying to see the positive reception to our solutions from our clients. The feedback It's our view that by enabling them to focus on their core businesses, we can create meaningful value for them. We're very encouraged by the early results of the Asure marketplace, which we think is a game changer for Asure.

Speaker 2

Its results to date have made a meaningful contribution to our overall performance and there are lots more to come. Earlier, I previewed our activity with Retirement Solutions Under the SECURE Act 2.0 and while we believe our initiatives here will be significant, They're just one example of the many ways we can leverage our systems and knowledge to create impactful solutions for our clients. We're also leveraging our strengths in areas such as HR compliance. Our solutions address real business challenges Facing Main Street America, we anticipate demand for our HR 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 today's HR. Investments in market leading technology that support our client solutions It's also a high priority at Asure.

Speaker 2

The partnership with AWS is an example of our focus on delivering compelling solutions. These efforts enable us to tackle the critical business issues our clients are facing and supports our efforts to maximize sales and cross sell our solutions. Supporting all of these initiatives are our efforts to improve our cost structure and efficiencies via our consolidation efforts. We continue to be on track to deliver annual savings of $5,000,000 annually once Its implementation is complete. Our upwardly revised revenue and adjusted EBITDA guidance reflects the positive momentum we achieved with our expanding portfolio of solutions and continued strong new sales performance.

Speaker 2

In conclusion, We're very excited about the performance of the business and the direction we're headed. We are focused on creating value for our clients and on delivering consistent positive results for our stakeholders. We look forward to speaking with you again next quarter. So with that, I'll send the call back to our operator for the Q and A. Operator?

Operator

Thank you. And at this time, we'll be conducting a question and Our first question comes from the line of Ryan Bergyan with TD Please proceed with your question.

Speaker 4

Hey, guys. Good afternoon. Thank you. I wanted to Start off with the demand question here. So just any comments, any measurable change in client demand that you've witnessed over the last 3 months, obviously, bookings strength seems to imply a healthy continuation, but we know you got a lot of moving pieces here as you're scaling a lot of the new offerings.

Speaker 4

So just really curious if you've seen any change to what clients are demanding in the current environment and nearly any change by client size that's worth calling out?

Speaker 2

No, Brian, thank you for the question. We do not see any demand changes. I mean, I think if you think about early in the quarter, The July 4th week is always a vacation week, etcetera. But bookings have been solid, demand Interest level has been really high. Leads have been flowing.

Speaker 2

We feel really good about our solution set.

Speaker 4

Okay. It's good to hear. My follow-up then to margin expansion. So can you talk about how you're feeling about a sustainable gross margin here. Just understanding you've had some higher margin revenue contributors like the nonrecurring, I believe, here that support to the second quarter strength.

Speaker 4

Can you kind of give us puts and takes in that second half margin outlook? And do we need to be mindful of potential grow over pressures as you get into next year is things like ERTC, SUNSET.

Speaker 3

Yes. Let me go out the first one, Brian, and then I'll let kind of Pat give his perspective on that. I mean, I think in general, what you can tell is that the cost of goods sold line is generally becoming relatively fixed. I mean, there's a little bit of variable component to it, like in the Q1, there's more shipping. But I would say, in general, it's fixed to going down just based on again the standardization and some arbitrage in terms of offshoring some of those positions.

Speaker 3

So I think that's the way to think about it. From my perspective is there's relatively kind of high fixed cost to doing business, but once we add that incremental revenues, that's where you see the margin. So that's the way I would think about it in the back half of the year. So how we're guiding revenues, think about cost of goods sold being relatively consistent. And then you can talk about the kind of year over year kind of forward issues.

Speaker 2

Yes, Brian, I think we've done an Good job with the cost structure. John has really done a nice job of budgeting that. And then our team has automated solutions in such a way where we can achieve those results where COGS is roughly flat. As we look and turn into Page 20 We'll probably share 'twenty four guidance next quarter. But just on a whole, the ERTC program, We put it in a one time item and we've done that all year.

Speaker 2

There's no question That ERTC as a program ends Q1 of 2025. So there'll be some headwinds in the 2020 But if you think about kind of what we've done as a business, we've got several early day products That we're working through that we're pretty proud of. The SECURE Act 2.0 with 401 will be a great Tension and we're launching that as we speak. So we think that'll be a good tailwind. HR compliance will be a good tailwind for us.

Speaker 2

The marketplace will be a tailwind. Our tax filing business in general will be a tailwind. And what I'm proud about the Sales organization as they've achieved some outstanding productivity. And what we've kind of locked into here If you think about small businesses in this environment, access to capital is probably their number one concern. And then Expertise around the changing compliance, whether it's HR, payroll or tax filing is number 2.

Speaker 2

So To have a partner to be able to solve their problems is really, really important. And that's really what we set out And we've automated the back end in such a way for that to be efficient. So there's no question there might be some one time Tailwind or excuse me headwinds going into 2024, but we have our share of tailwinds going into it and more to come next quarter when we announce 2024 guidance.

Operator

Our next question comes from the line of Eric Martinuzzi with Lake Street. Please proceed with your question.

Speaker 5

Yes. I wanted to go a layer deeper on the guidance for Q3. If I'm looking at and I know you Characterize the expectation for ERTC as modest, but I'm trying to put a finer point on that. If I take the growth rate that you just had in Q2 2 on the recurring rev side and I apply that to Q3, I'm backing into sort of a $2,300,000 number for non recurring and I want to know if that's In the ballpark.

Speaker 3

Yes, I think what we've been saying consistently is that's our typical range is in that if you try to put We're non recurring back to a norm without the last couple of quarters where we had the incremental success. I think that's what we've been kind of Contemplating in the guidance. So we've tried to put the non recurring as if we weren't having the extraordinary sales in the RTC. So that's kind of implicit in the guidance.

Speaker 5

Okay. And then the retention trends in the core HCM, just Curious to know if we've seen an improvement there. It feels like small business is doing better, but just wondering if you're what you're seeing in the retention trends?

Speaker 3

My perspective, they're trending up from where we have been. So Yes.

Speaker 2

I would say, Eric, just We've been 1% 2% up over the past year and it's been pretty consistent. I think we've had good accountability, good product rollout, good Solutions sat, good upsell capabilities. So if you think about we were probably at a low point around COVID, We've achieved improvement about 1% or 2% per year since COVID and feel like we have a good Momentum there, I would say small business formation looks pretty strong. Small business, I would say Access to capital is probably their number one need, but as far as continuation and growth, we feel really good about where we are.

Operator

Our next question comes from the line of Richard Baldry with ROTH Capital Partners LLC. Please proceed with your question.

Speaker 6

Thanks. If you look back a couple of quarters, it looks like the sales and marketing line is up maybe 50% in a pretty big hurry. Can you talk about how much of that is headcount resource expansion versus just commissions on faster sell throughs? And then you talked a little bit about that line continuing to grow and investing in that. Is there any way to sort of scale how much but that could argue that there's more to go after as well because of their successes.

Speaker 6

Thanks.

Speaker 2

Yes. No, I appreciate it, Rich. Just in general, we add headcount to our sales organization and we're somewhere around 100. I think If you play the tape forward, we'll be about 120. So we're going to continue to grow headcount.

Speaker 2

As far as cost Going up, some of its headcount commission, productivity has been very strong and so naturally commission is up. There's some referral dollars that are also up. And then as far as efficiency, we have a field sales organization and we have an inside sales organization. We've spent some more money on marketing leads and those leads have paid off very well. We've spent some money on internal tools To really automate inside sales and so that's an expenditure.

Speaker 2

We're really happy with the productivity of sales organization. In general, we'll continue to invest in sales. And if you think about our plan over the last couple of years, it's been to be more efficient operationally to automate, invest in some technology and then grow the feet on the street or the sales organization and it's really starting John, I don't know if you have color.

Speaker 3

No, I was thinking about the one slide that was in our board presentation from about a week ago. We were looking maybe at Same time horizon, you are Rich, but we were kind of an 18 month view and the shift was almost head for head from operations to sales and marketing. So again, you see the overall spend not going down, but it's really that composition of where it's landing on the P and L. And obviously, if we can take it out of cost to serve and put it into the tip of the spear, that's what we've been trying to do. So again, We've got that shift going on as well as again as Pat mentioned lead gen and commissions.

Speaker 3

And then again we intend to continue to try to add to that group

Speaker 6

And you've had a lot of new products launching, but you're still holding the R and D, I'd say first half of this year versus first half last year is also pretty flat. Are you seeing the composition of that changing some leverage points on that that are Do you think that that will have to start trending up closer to revenues over time? Just a little more color there.

Speaker 3

Yes, I think actually it's probably up if you were to look at how much has been capitalized versus prior years. So I think that in general, What you're seeing is the maintenance line is staying pretty steady if actually turning down maybe a little bit, which means that we're still spending more, But we're capitalizing because it's all new and an innovative investment versus just maintaining the old, which is kind of how it's Delineated in terms of how we account for it. So I would say we're investing, probably at a healthier rate than prior year. It's just not showing up in the P and L. It's getting hung up on the balance sheet.

Speaker 2

The other thing I'd add to that John is and Rich is our partnership development partnership with AWS where We really have a strong 5 year agreement and they've put some calories and money into our development effort around a Anurization effort of our payroll tax filing products. And so they're investing along with us in that case. And CEO. The spend is going up, but the nice thing about it's going up in new products and services and new development, which adds to the capital line.

Speaker 6

Thanks. Last for me, when you look at the marketplace side, you're obviously pretty happy with what's happening there. Could you maybe Break it into 2 pieces, sort of the successes you're having with people you've had as partners there for a couple of quarters and then maybe more recent activities, how you're feeling about newer partners being added that will be the fuel for the future? Thanks.

Speaker 2

Yes. I think from the marketplace, a couple of things. First of all, our ability to Find partners and have partners want to do business with us is high. So really feel good about that. I think The first partnerships that are alive, whether it's Equifax or H and R Block or Intuit, Those are really strong partnerships.

Speaker 2

What I would tell you, a lot of them are multi year in nature. We signed an agreement with 401 vendor, Vestwell. Clearly, the Zayzun partnership is Under way, you will see more partnerships being signed. I think all of them have a little bit of a different economics Around it and then a lot of them have different lead times where it might be a quarter, 6 months or a year as you layer Dan. So long term feel really good about the partnership opportunities.

Speaker 2

I feel good about the biz dev team and what they're putting together From a technology service organization, we kind of leg into each partnership in a different way. But Suffice to say, the future is bright in that area.

Operator

Our next question comes from the line of Josh Riley with Needham and Company. Please proceed with your question.

Speaker 7

Thanks, guys. Nice job on getting these ERTC deals through. We've discussed this a little bit, but maybe could we get some more Details on how the pipeline is shaping up for the rest of the year on the ERTC processing deals and obviously the guidance doesn't include much for Q3 or Q4 there. And then along with that, can we get some are there any proof points or commentary you can share with us about how the ERTC deals have been leading to cross selling of other Assure solutions.

Speaker 2

Yes. I think from 1st of all, from ERTC solutions, we have bundled with HR compliance and payroll and have some pretty good attach rates. Probably number 1 is HR compliance, second payroll, so that's been very, very strong. When we look at guidance for the rest of the year, We anticipate that ERTC backlog will turn into revenue and maybe not as faster pace as second Quarter, but we'll still be there. We talked a little bit about 2024, and we'll have more color next quarter.

Speaker 2

As far as Kind of our ability to execute. What I'm really excited about is now that we've connected small business owners of 2 government programs and access to capital. The SECURE Act 2.0, where you have Multiple states now requiring 401 plans and we sit on that data so we can tell if they're Compliant or not, we then have give them not only ability to set up 401s, but also allow them to get government credits on the matching and the matching of funds. So there again, we're not only helping them be Client, but we're also helping them get access to money to start the program to be compliant. So that's a very strong trend.

Speaker 2

There's other tax credits that Our tax engine can process on behalf of small businesses, so we'll keep connecting there. So we have a multiyear strategy We're just getting going. Clearly, ERTC in the Q2 probably over exceeded expectations a bit. But the way we're setting this up, we're early, early innings to a multiyear growth Blair?

Speaker 3

Well, I was going to add one thing too, just in terms of the mechanics. We don't have a lot of ERTC sits and languishes, right? Because of the nature of our engine and what we've built, we're very efficient. So once we've got it The closing, it turns around pretty quick in terms of our ability to process on behalf of the client. So that's one of the things I think our advantage is once they get into the funnel, They go through it pretty quick.

Speaker 7

Got it. That's helpful. And then on the digital marketing that you mentioned that you're doing a little bit more of now, What exactly are you doing differently there maybe and any proof points there on what that's been driving for you guys?

Speaker 2

Yes, a couple of things. First of all, our HR study that we announced, that's an example of our thought leadership. And even We have a study here and a survey and then we linked small business success with best in class HR practices. By the way, we can offer that. That gives us content for almost a year and it allows us to have the messaging.

Speaker 2

And then when you think back before 2023 here, our investment in SalesLoft, Salesforce, ZoomInfo, it gives us content, it gives us repeatable marketing. So now It's best in class content management. We also do some other MQL marketing or digital marketing based on Keywords, etcetera, but we're driving people to have engagement with Asure. The other day we had a sales kind of Quarter 2 in review and the average customer in some cases is engaging with us 6, 7, 8 times where they're looking and consuming our content and then making decisions to go with us around the program. So That's the kind of engagement we want.

Speaker 2

The old days, you were knocking on doors or you're doing telephone calls. Here, the client gets To try you out on various thought leadership pieces or the website. And then when they're ready to buy, We're there for them and we're there in an automated way. So we've just been more efficient in continuing to drive new And when you think about our productivity, in the quarter, we had a very strong quarter and that's coming And 87% compare, so I couldn't be more pleased with our marketing sales efforts.

Speaker 7

Got it. That's great. And then maybe one just last housekeeping question for me. How is the sales headcount trended year to date? I think you mentioned it's around 100 now.

Speaker 7

Is that 100 and

Speaker 2

40 reps? Yes, we're 90. Josh, I think we're 98 as we speak. Beginning of the year, Randall, maybe we were somewhere around 88 or so. So we probably trended up 10.

Speaker 2

I anticipate we'll be closer to 120 sometime in 2024. So we're continuing to look to hire and by the same token, we're not just chasing a number, we're chasing quality. And If we fall a little short in that area and get better quality, that's right where we want to be.

Speaker 7

Got it. Great. Thanks, guys. We'll see you.

Speaker 2

Thanks, Josh.

Operator

Our next question comes from the line of Jeff Van Rhee with Craig Hallum Capital Group. Please proceed with your question.

Speaker 8

Great. Thanks for taking my questions. Appreciate it and real nice quarter here guys. A few questions. Pat, on the unique tax ID numbers, just what are you growing there in terms of Tia Ann is on the payroll platform and then does that mark acceleration or steady growth over the maybe the past couple of quarters?

Speaker 2

Yes. We will publish unique identifiers I think once a year. What I would say is probably Steady growth. I think retention has been very positive. As far as new sales, I know we're adding more customers We're losing, which is a very positive side.

Speaker 2

And then we're getting better attach rates and HR compliance. Obviously, we've talked about tax, the marketplace, Etcetera. But I would say it's steady growth. I do think from a new product perspective, our partnership with AWS, etcetera, will But once a year we publish the EINs and I would say we'd have steady growth.

Speaker 8

Yes. Okay. Very helpful. And maybe just expand a second on HR compliance, a little surprised given the at least the manual component of that, that it levered to Degriet did. Maybe expand on that a second.

Speaker 8

And when I say leverage, I mean the operating leverage.

Speaker 2

Yes, Jeff, one of the things that I think is a misnomer is There's not a ton of manual effort. When you think about, let's say, a handbook, we automate best practices Within the handbook, so it is a lot of it's a rinse and repeat. Some of the government legislation, etcetera, is Pretty automated, some of the best practices are and then we have kind of a use it or lose it philosophy Where in some cases, it's almost an insurance policy, where you have small businesses that they want somebody in the huddle And it's a long way from HR professional to employment attorney. So what they're looking for is sometimes they get very sticky And if you think about even coming out of COVID, people working from home, hybrid, CEO. Do they have to come into work?

Speaker 2

How do what if they don't? Do I have separate rules for separate people? There's all kinds of complexity. Citi. And then some of it too is just if you think about minimum wage.

Speaker 2

10 years ago, we had 1 minimum wage and it was at the federal level. Well, now there's places in California, you have four levels of minimum wage, whether it's the city, the county, the state or the federal government. And the small business owner is throwing up his hands and saying, hey, help me. So we We have been able to automate in such a way where there's a lot of leverage to that model. We have pretty good pricing power, And we've set it up a way where we're very pleased with the results top and bottom line.

Speaker 8

Fair enough. One last one just on the competitive landscape. The Pays have talked a lot about coming down market. Is that are you seeing more of that group or any cheese in particular who you're seeing?

Speaker 2

No, we see Gusto, Paychex, ADP and occasionally we'll See the pace, but I don't see those companies on a regular basis.

Speaker 8

Okay, great. Thanks for taking my questions.

Speaker 2

Thank you, Jeff.

Operator

Our next question comes from the line of Vincent Colicchio with Barrington Research. Please proceed with your question.

Speaker 9

Yes. Nice quarter, Pat. Curious about the bookings growth breakdown between new and existing clients?

Speaker 2

We're pretty strong on new. We're probably about historically about sixtyforty. We are right in line with 60 new, 40 existing. So we've had some really good growth in new logos. We also had very strong growth in additional products and services, especially the introduction of some of the products I mentioned around Whether it's tax or marketplace or HR compliance.

Speaker 9

How is the tax product revenue versus And when do you expect to make the improvements you're currently working on? When do you expect to complete that?

Speaker 3

Yes. I don't think we had a ton built in up to this stage. I think that you'll start to see it become more meaningful 2nd, I mean probably Q4 2024. But again, we weren't playing a ton into this year, but trying to build of the foundation. So I think it really starts to kick in as we talk about next year.

Speaker 2

Yes. To John's point, Vince, A lot of I think you'll see very strong bookings in tax, but because of the nature, whether it's Workday or some of the books of business attacks, the install times are a little bit longer than a 10 employee payroll. So you'll see that play in, in a meaningful way on revenue in 2024, but we're really excited about marketing the booking potential.

Speaker 9

And then I was trying to what I was trying to ask is the current improvements you're making to the tax product, When will those be complete? And do you expect that to significantly improve traction?

Speaker 3

I don't think it's ever completed, right, because I mean, especially if you're going up Some of these enterprise accounts, you're always going to have to be investing in it. So I don't think it's a it's not a big bang. There's not like this one Dave that this thing is going to be completed. So it's just it's an ongoing process from my perspective.

Speaker 9

And then lastly on acquisitions, is this something we should see happen in the next 6 months or so?

Speaker 3

I think so. I mean, look, we've been pretty consistent on this one since the beginning of the year that we were going to take a hiatus, try to focus on the core business. But it's clearly part of our model. I mean, it's something that we think makes a lot of sense in terms of being very accretive From a cash generation perspective, so it's something that we think we've perfected. But I think We'll opportunistically look and see if we can find some stuff back half of this year and going into 'twenty four, but there's nothing imminent.

Speaker 3

We don't have anything under a letter of intent at this point.

Operator

Thank you.

Speaker 2

Thanks, Vince.

Operator

Our next question comes from the line of Greg Giles with Northland Securities. Please proceed with your question.

Speaker 10

Great. Hey, Pat and John. Thanks for taking the questions. Congrats on the strong results. Wanted to get a sense because I think the ERTC Solutions activity was provided some upside relative to expectations.

Speaker 10

And I guess just whether in your maybe full year outlook, just trying to get a sense of how much of that strength in the professional services and other Continues into the back half. What's kind of implied in your outlook for the year?

Speaker 3

Yes. I think what I was I think that was a question earlier. I try to answer it the same way. Hopefully, I'll answer it the same way. But I think when we look at kind of our guidance in the back half of the year, we look at it Being kind of back to normal in terms of that line item and historically it's been a couple of $1,000,000 over the last few years in that line.

Speaker 3

And so We didn't forecast in our implicit in our guidance huge numbers for that. But again, Just because of the nature of the pipeline and how quickly it turns through and the fact that it is non recurring in nature, it's just not as predictable as the recurring line item obviously.

Speaker 2

Yes. Greg, what I would say, 2nd quarter was 21% reoccurring. There's really no ERTC in that line. And we think we have the ability to keep going on the reoccurring line and in some of the products we talked about Give us reason for that conviction. So we'll continue to grow that.

Speaker 2

And then what I would tell you is The ability to sell kind of the processing of the ERTC credits, now we move that over time and 401 and tax credits around WOTCE, etcetera. And there's other things that we have the ability to go. I think you'll see some line extensions in that area that will bear fruit in 2024, but the reoccurring revenue of this business Being up 20%, both the Q1 and the Q2 year gives us pretty good optimism heading into the back half of 2023.

Speaker 10

Perfect. Very helpful. And I know you broke out, you said bookings growth was kind of sixty-forty new versus existing. Apologies if I missed it, but did you break out bookings growth in the quarter?

Speaker 2

Have we broken it out before?

Speaker 10

No, just wondering what it was sorry, in Q2 bookings growth?

Speaker 2

We're about I would tell you we've hovered between forty-sixty, fifty-fifty, sixty-forty depending on products And depending on kind of where we're at, our new logos has been particularly strong here the last 6 9 months and that is an investment in marketing and both the digital marketing As well as the content that we had in our HR survey, if you go to assuredsoftware.com, you can get a copy of that survey. But that's Some of the thought leadership that's been we've been able to monetize into new logos and that's been very successful. And then as far as the growth rate of some of the services and products that we offer, the attach rates have been up on the new logos, which is very, very Strong, but that's led to some of the new logo growth that's probably more so than we've had in past years.

Speaker 10

Okay, got it. Thank you.

Speaker 2

Greg, thank you. Operator, any more questions?

Operator

There are no further questions. Therefore, I'll turn it back over to you, Pat, for closing remarks.

Speaker 2

Well, great. Hey, I've been here, gosh, almost 14 years now, really proud of the staff. There's always 4 constituents Joanne. That I think of in running a business, it's the employees that we have and they've done an outstanding job. It's The clients we serve and on behalf of the 1,700,000 employees that we serve and 100,000 clients we serve, Really good to see the momentum.

Speaker 2

The investors are a big piece of we want to satisfy Financial return and year over year, we've had pretty strong stock performance. We're not satisfied. We want to Continue to improve that and it's the communities we serve. We have the good fortune of being in a Number of cities across the United States, and we always want to help in the community. Really positive of where we're I feel like we have a long way to go.

Speaker 2

We've not yet reached our potential and we'll do so over time. And this gives us a great jumping off point. Look forward to seeing you next time and appreciate your interest in Assure. Bye now.

Operator

And this concludes today's conference and you may disconnect your lines at this time. Thank you for your participation.

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Earnings Conference Call
Asure Software Q2 2023
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