Good afternoon, and welcome to Asure's First Quarter 2024 Earnings Conference Call. Joining us today are Chairman and CEO Pat Goepel, Chief Financial Officer John Pence, and Vice President of Investor Relations Patrick McKillop. I would now like to turn the call over to Patrick McKillop for introductory remarks. Please go ahead.

Thank you, operator. Good afternoon, everyone, and thank you for joining us for Asure's First Quarter 2024 Earnings Results Call. Following the close of the markets, 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 those 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 want to take a moment to remind folks of our upcoming Investor Relations activities. On May 15, we will attend the 19th Annual Needham Tech, Media, Consumer Conference in New York. On May 16, we will attend the Jefferies HCM Summit in New York. On May 29, we will attend the 21st Annual Craig-Hallum Conference in Minneapolis. And on May 30, we will attend the 52nd Annual TD Cowen Tech, Media, Telecom Conference in New York. On June 4, we will attend the Stifel Cross Sector Insight Conference in Boston. And finally, we will participate in the Northland Capital Markets Virtual Growth Conference on June 25. Investor outreach is very important to Asure, and I would like to thank all 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 like to turn the call over to Pat Goepel, Chairman and CEO. Pat?

Thank you, Patrick, and welcome, everyone, to Asure Software's First Quarter 2024 earnings results call. I am joined on this call by our CFO, John Pence, and we'll provide a business update for our first quarter 2024 results as well as our outlook for 2024. Following our remarks, we will be available to answer your questions. Our first quarter revenues were strong, coming in at $31.7 million. Our revenues were driven by our contributions from our core business, strategic initiatives, and acquisitions, including our Asure Marketplace offering, Payroll Tax Management, and interest earned from funds held for clients, which we refer to as float. We believe in 2024, our momentum will grow throughout the year, and we're off to a great start. Advancing our business through artificial intelligence, new technology enhancements, leading partnerships, and strategic sales initiatives such as bundling our 401(k) products with payroll to drive new client additions continues to be part of our strategy. Small businesses in the U.S. have traditionally not had the resources to offer 401(k) retirement solutions. The SECURE Act 2.0 from the U.S. government is legislation that aims to increase employee participation in retirement plans by offering tax credits to support the setup of employer-based retirement plans. Currently, there are around 20 or more states in the United States that have mandated these plans. Also, many more have introduced legislation mandating 401(k) plans for small businesses. Asure has the solutions they need to set up these plans. Our announcements with Workday and the certification with the SAP PartnerEdge Open Ecosystem are strong validations of advancing our technology, and these partnerships will help us with more enterprise-level clients. In today's press release, we highlighted that after receiving the Workday certification, we went live with our first client, which is a Major League Baseball team. This client exemplifies the complexity of multistate payroll, as the staff and team members incur Payroll Tax liabilities in multiple states each week. We're excited to win this business and look forward to achieving more opportunities with Workday. We also remain excited about our partnership with SAP, which allows us to enhance our Payroll Tax engine by integrating with the SAP system and streamlining Payroll Tax processes for our existing SAP clients. We have also recently formed a partnership with a tax credit firm, HR Logics, which will provide our small business clients access to capital. The partnership will help small business owners identify employer tax credits that many are unaware of, such as work opportunity tax credits and research and development credits. Our sales bookings helped drive growth and repetitive revenue for the quarter. Our pipeline is strong as we grow our product portfolio and enhance our technology. We are supporting our sales efforts with digital marketing, and we believe this will drive a higher level of sales leads and productivity in 2024. Based on our current business trends, we're reiterating our 2024 revenue guidance of $125 million to $129 million, with adjusted EBITDA margins of 20% to 21%. As a reminder, this guidance excludes any potential contribution from ERTC filings, but does include our plans to continue to make acquisitions and grow organically. Our guidance for 2024 implies a 25% growth rate if we exclude ERTC from 2023 revenues for comparison. Now I would like to hand it off to John to discuss our financial results in more detail as well as our Q2 guidance. John?

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. 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 first quarter results; first quarter revenues were $31.7 million, decreasing by 4% relative to the prior year. However, excluding ERTC, total revenues were up 10% from the prior year. Recurring revenues in the first quarter grew 8% versus the prior year to $30.3 million, and excluding ERTC, recurring revenues were up 9% from the prior year. First quarter recurring revenues grew on the strength of our HR compliance solutions, our tax solutions, Asure Marketplace, and increased interest revenues with the average client balances of approximately $240 million throughout the quarter. Net loss for the first quarter was $300,000 versus net income of $300,000 during the prior year. Gross margins for the first quarter decreased to 71% from 74% in the prior year. Non-GAAP gross margins for the first quarter decreased to 75% from 78% in the prior year. The decrease in gross margins for the first quarter is primarily attributable to a decrease in nonrecurring ERTC revenue. We continue to believe there is substantial margin upside over the longer term as the business scales. EBITDA for the first quarter was $4.4 million, down from $6.8 million in the prior year. Adjusted EBITDA for the first quarter decreased to $6.8 million from $8.2 million in the prior year, and our adjusted EBITDA margin was 22% in the quarter compared with 25% in the prior year. We ended the first quarter with cash and cash equivalents of $23.2 million and we have debt of $5.3 million. Now in terms of guidance for the second quarter of 2024, we are guiding second-quarter revenues to be in the range of $28 million to $29 million. Adjusted EBITDA for the second quarter is anticipated to be between $4 million and $5 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%. As Pat mentioned in his comments earlier, these guidance figures exclude any contribution from ERTC revenues, but assume a combination of organic and inorganic growth. Our pipeline of potential acquisitions remains strong, and we feel confident about reaching our objectives. We also remain excited about the outlook for our core products, such as our Payroll Tax offering, which brings additional client fund balances and the resulting float revenues as well as potential for numerous new initiatives we have recently launched, such as the 401(k) solution. In conclusion, we are excited about the remainder of 2024 and look forward to it as being a great year for Asure in driving profitable growth and leveraging the initiatives implemented across the business to drive sustainable growth and create shareholder value. With that, I will turn the call back to Pat for closing remarks.

Thanks, John. We're pleased to have delivered solid results in the first quarter of 2024. We remain committed to creating products and technologies that make a difference for our clients. The continuous improvement of our solutions over the last few years is being reflected by the growth of our business, and we're happy to see positive impressions from our client base. The improvement of our solutions is ongoing, and a few recent examples include launching a best-in-class employee self-service and role-based identity access software, embedding a new AI agent into our enterprise Payroll Tax Management platform, which will assist in complex multistate tax compliance inquiries is another example of our efforts. Our business has multiple growth drivers in our core payroll business, Asure Marketplace, Payroll Tax Management, and our 401(k) offering, in addition to tuck-in acquisitions. Small business owners in the U.S. are tasked with enormous challenges trying to navigate all the regulations that have been put in place over the years, and we're offering multiple solutions to these business owners to ease the demand on their time and resources. We anticipate demand for our 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 day-to-day business operations. We've added benefit and insurance capabilities in the Asure Marketplace, and we expect to grow going forward. Our Payroll Tax Management Solution also has great potential, as evidenced by the recent news of our first Workday client, a Major League Baseball team going live, and we remain excited about what lies ahead for this business. Our sales initiative in bundling 401(k) with payroll has received positive reception. The SECURE 2.0 Act will allow us to implement many more 401(k) plans, which the states are mandating now, and we expect more to pass mandates in the future. Our guidance for 2024 reflects our expectations for continued growth, and we expect to achieve that with a combination of organic and inorganic growth. When we view the business excluding ERTC, core revenues continue to grow at a very strong rate, and our guidance for 2024 implies over 25% potential growth. We hope that our discussion today helps illustrate our plans as we move on from ERTC. We now feel the business is rightsized for future success as we enter the remainder of 2024. In summary, we're pleased to have delivered another solid performance in Q1 against the backdrop of some unfavorable year-over-year comparisons, which we will be up against for the next few quarters. The unfavorable year-over-year comparisons will start to lift away in Q4, especially if we achieve our goals. The growth rates will be much healthier as we exit Q4 and enter into 2025. We'll continue to provide innovative human capital management solutions that help small businesses thrive and streamline tax compliance for larger enterprises. Thank you for listening to our prepared remarks. So with that, I'll send the call back to the operator for the Q&A session.

Thank you. Our first question comes from Joshua Reilly with Needham & Company.

All right. Nice job on the quarter here. Can you give us an update on how many acquisitions you've made now year-to-date, how valuations are trending? And where are you relative to the inorganic revenue assumptions that you laid out in the guidance initially for the year?

Yeah, Josh. By the way, we're fortunate enough to have Eyal Goldstein, our President and Chief Revenue Officer, with us as well to help answer questions. But as far as acquisitions, we made really good progress in the first quarter and anticipate making a very similar process in the second quarter. We have probably done about a handful of acquisitions here. I don't know if we want to get too much into the noise of what's closed and what's not. What I would suffice to say is I think we are absolutely on track, if not slightly ahead of our acquisition targets. Some of them need to implement quickly, and some may take a month or so. But we're right on track in doing that. What I would say on the purchase price, we're probably just slightly under 2x. We're thrilled with that kind of purchase price amount so far, and it's been a combination of either equity where we've done some small equity deals as well as cash and loans. Suffice to say, we're really bullish about our plan, not only for the year but the first half of the year, and the integration of those acquisitions has gone very well.

Got it. That's helpful. And then could we give some more details, what was interest income in the quarter and maybe compared to last year in the same quarter? And is the yield on the float balances up year-over-year, or is it consistent with what it was last year? Just some more details there would be helpful.

Josh, this is John. Last year, rough numbers, about 3.5% is what we earned on the client funds balances, this year, roughly 4.5%. The balances have ticked up a little bit, but that gives you a rough order of magnitude as to how that's progressed.

Got it. That's helpful. And then maybe just the last follow-up on that. Do you expect it to be 4.5% for the rest of the year, or is there more upside potential for the yield to increase?

Yes. So what we factored into our numbers, Josh, was a 0.5 point decrease midyear. Obviously, we don't know if that's going to happen or not. But when we came up with our forecast for the year, we were assuming a 0.5 point decrease. So there might be a little upside in our model depending on what happens with that balance.

Our next question comes from Bryan Bergin with TD Cowen.

So obviously, a big emphasis on your tax solutions in the prepared comments and good to hear about that first Workday client going live. Can you give us a sense of how you're thinking about the growth potential of the tax business and the potential scale as a mix of the overall company over the medium term?

From our perspective, these are enterprise deals with both SAP and Workday, and we also have opportunities in the reseller mix. When we acquired PTM, our payroll businesses accounted for roughly 40% of our float, leaving our standalone business at about 60%. Float and tax play a crucial role in our value proposition. Since that time, we have dedicated significant time and resources to growing the tax segment, and we're excited about partnering with these enterprise clients along with PEO partners and Prism, and we definitely plan to expand this business. Our guidance reflects an increase in repetitive revenue; last year, we were at approximately 84%, but we expect to end this year in the high 90s, with tax being a key contributor. It's both profitable and sticky. The book-to-bill cycle for some of these enterprise clients may take longer compared to our small business sector, but we believe we can substantially increase the tax segment over the next few years. This will involve a combination of fees and float, which is essential to our value proposition. As I reflect on our guidance, we started this quarter with a 10% growth in repetitive revenue, and we anticipate closing the year with even stronger numbers. Tax filing will be a leading element of that value proposition, presenting a significant multi-year opportunity for growth, as well as some immediate growth this year.

And I'll just put a finer point on what Pat just said to make sure it was clear. When we think about those client fund balances, probably about 60% are specific to this tax business. So it's a key part of the strategy. So it's part of how we price it as part of the recurring revenue because of that. That's a really important point that I think is a little nuanced relative to some other payroll companies that don't have that as part of their product and go-to-market strategy.

Right. That makes sense. Good detail. My follow-up here, so I guess, versus three months ago, how would you characterize the overall ACM demand environment as well as the competitive and pricing environment dynamics in the market?

Yes. I'll let Eyal jump in as well, but just in general, what I would say is we specifically pivoted from ERTC. We've leaned into some of the value proposition around access to capital, getting good people to work, as well as to be compliant. I think that value proposition has allowed us to pivot a bit away from ERTC, although that was always part of our approach. We've leaned into new products and services. What we're really thrilled about is this first-quarter payroll sales, which were up 68% over last year. It's evidence that if you have the right value proposition and bundling, you can grow. I mean it sounds easy for Eyal to execute. There's a lot of effort that goes into that, but Eyal, please share your comments on the market.

Yeah, thanks, Pat. So Bryan, specifically, we're not seeing any pricing pressures or issues regarding pricing for new deals and for upsells within our customer base. We are seeing great growth. Listen, many of our competitors have decided to continue moving up-market. So we continue to see an underserved market under the 200-employee range. This is helpful for us in terms of deal cycle time and the ability to win more deals, but we're not seeing any pressure specifically on pricing there.

Our next question is from Richard Baldry with ROTH MKM.

Maybe looking deeper at that 68% increase in payroll sales year-over-year. Can you talk about how comfortable you are with your sales capacity now, hiring plans, or goals throughout the year? How is the sales tenure trending? And maybe do you feel like that was geographically or vertically concentrated?

Yeah. From my perspective, I'm very pleased with the sales execution. I think the pivot took us about a quarter or so. In some areas, we referenced standalone tax, or the new 401(k), the book-to-bill is probably elongated by about a quarter. What I would say is our ability to hire, grow, and sell — Eyal's team has performed very well. But Eyal, maybe you want to discuss that further?

Sure. The goal is to get to about 130 quota carriers by the end of the year. I'm very happy with the pivot. As Pat mentioned, we enjoyed a 68% growth in payroll sales compared to last year. With respect to new payroll units, it's nearly 100% growth in that area. So these are great, healthy ARR bookings coming from tax, marketplace add-ons, and our additional 401(k) offering. Our reps are performing well in productivity, especially when leading with ERTC. They're on par this year from a productivity perspective, but accomplishing it without ERTC, focusing on good core payroll HCM ARR sales, which is fantastic. We expect this to grow as we get more individuals comfortable with the 401(k) and more familiar with some of the tax credit solutions we announced recently.

Maybe switch back to the tax side on the Workday and SAP area. With early wins, obviously, this builds some referenceability. How big can that space become with just those two significant end market players? Is there a way to think about the ARPU from your side to gauge potential deal sizes? What's your go-to-market ability to move the dial on those types of deals?

Yes. I think sometimes Eyal has a phrase for two-comma deals. In small business, where your average sale is somewhere a little over $3,000, you don't hear about two-comma deals. We're in two-comma pursuits, which is really exciting for us. Over time, this could become a $100 million business. And that doesn't mean you should spreadsheet that in '25. But I can confidently say we have opportunities here, both in treasury management, as well as tax filing. It’s not just the two enterprise partners; there's the PEO group and the software group. Interest levels are very high, and with the enhancements we've made, we feel positive about our bundling of treasury management and tax filings. This could be a $100 million business in the future, and we are just getting started. Eyal, did you want to add anything?

The pipeline is multiple times what we saw year-over-year. Our sales team is fully staffed with individual contributors, and we've got people that I am very confident have sold this type of sale before. We understand the competitive landscape extremely well, and we’re very excited about the modernization of the platform and what our CTO has done with the solution. We’re being pulled into a lot of opportunities rather than pushing our way in, which is refreshing. On deal sizes, as Pat mentioned, on the higher end, we have six-figure deals. On the lower end, we're typically seeing four to five times what a normal payroll direct deal looks like currently.

And we’ve also enhanced our operational team. We brought in a leader and staff that previously managed a $100 million-plus business in tax. We now have the right technology, operational, sales personnel, and the market is in a favorable position. This will be a foundational growth item, requiring some time due to book-to-bill and the nature of enterprise sales and growth, but we are extremely optimistic about this opportunity.

Because we're not aware of the internal base number, I'm curious without a lot of commitment, if payroll sales maintained the 68% year-over-year growth rate, does that imply a longer-term sustainability for the 25% organic growth rate, or is that number facing tougher comparisons in the future?

I'll give you my perspective, Rich. I don't think we've ever claimed that this is going to be a 25% organic business. We know that it's going to be a combination of that roll-up strategy and the organic growth that will get us to scale. So I would say we've been pretty consistent since I've been here; we think we'll be a double-digit organic grower. I'm not sure we'll be at the 25% level. But I think when you combine that with the inorganic side, I do think that's achievable.

And the only thing I'd add is implicit in the guidance is a mix of acquisitions and organic growth, clearly accelerating through the year. We'll be in a strong position, with high 90s repetitive growth heading into '25, which we’re planning for, and we’re setting up for that.

Our next question comes from Jeff Van Rhee with Craig-Hallum Capital Group.

Several, I just want to clarify, on the 68% payroll sales increase, is that a comparable number to what you typically quote as your total bookings year-over-year for the quarter?

Yeah, no, Jeff. We had some noise with ERTC and some of that — rather than parse everything out, we just said this year we're especially the first three quarters; we have all these comparisons with ERTC. We have some bundles, whatever. This is just — obviously, we're a payroll business, and it's a significant majority of our revenue. We wanted to highlight that because it's something we feel very good about, and it's clearly an emphasis with our bundles, whether through 401(k) or the new products we have.

Okay. And then on the prior acquired revenue target was $10 million to $15 million, I was unclear. It sounded like you said you're running a little bit ahead of where you thought you'd be. Are you still expecting to be in that $10 million to $15 million of annual acquired revenue?

Absolutely. I would say we've had a very strong first quarter and first half. If we didn't acquire anybody after that, we'd be very close to the low end of the range. So we'll continue to acquire into this. But yes, we're on pace.

I'll make a quick comment on this, and Pat and Eyal can add to it. I think we've discussed this on some of these calls previously. There's a unique situation in play in the industry right now, creating an opportunistic environment for us. With the changing regulatory landscape, many states now require payroll processing businesses to be regulated like banks. We decided several years ago to embrace that change, and we found a path to get licensed. This will be hard for smaller players, with compliance costs being high. That's why we launched the Treasury Management Solution. This should give us many opportunities to acquire in the coming months.

Yeah, definitely helpful, John. I was curious on that path. I know, obviously, the 401(k) SECURE Act has been an area of focus in treasury as well. Any other quantifications to give a sense of the ramp in deal counts and bookings pipeline in those two areas?

I'll speak to treasury, then let Pat address 401(k). We launched this with a partnership with J.P. Morgan. We have people who want to buy from us right now. We're just holding them off as we get everything set up. We want to ensure it's smooth before we onboard them. I anticipate good demand for that product; it’s almost unsolicited demand.

Regarding 401(k), we pivoted and launched relatively recently. I’d say we’re probably a couple of months behind where I'd like to be on the marketing and sales front, but we are really starting to gain momentum. In terms of book-to-bill, we're about three to four months behind at this time, but we want to grow the 401(k) sales our target number is around 60 — we need to speed that up, it's currently sitting at about 120.

Our next question comes from Vincent Colicchio with Barrington Research.

Yeah. Pat, curious, can you characterize your employee base? Are they hiring currently? What does that look like?

Our employee base, or our clients' employee base, I would say we're looking at numbers that are probably flat. In some areas, they are hiring, while in others, they're holding steady. Access to capital for small businesses remains a major issue. Many regional banks have tight lending standards and elevated interest rates impose challenges. However, finding quality employees also continues to be a concern. Overall, I would say it's flattish. I believe if we connect more people to small businesses, we could see a 1% or 2% bump due to high-demand challenges already facing them.

How did your bookings break down between new and existing clients?

Eyal, I will let you answer that, but I believe we were around 70% new business and 30% of the bookings represented cross-sell opportunities. Again, we have significant cross-sell potential, but the majority is still coming from new business.

Yes, we're still right around 70% new business and 30% cross-sell. This provides us a considerable opportunity for additional growth and revenue capture through cross-selling.

However, I’d like to highlight in our release around some of our technology initiatives. Our common user interface with Identity Access Management will be beneficial for us regarding the adoption of our marketplace products, as it allows us to effectively utilize event-driven marketing. We anticipate considerable growth over time from that front. We're currently rolling this out and will have learnings throughout this quarter and the next. However, we feel optimistic about where we sit presently, and new client acquisitions have also been quite strong as we enhance our offerings.

Our next question comes from Eric Martinuzzi with Lake Street.

Curious about the decline in cash balance from Q4 quarter-end to Q1 quarter-end, down $7.1 million. Can you help me bridge that?

Sure. A couple of things happened. As you know, the first quarter is always seasonally impacted by W-2 revenues. We collect these funds usually in December but defer the revenue recognition until the first quarter. Additionally, we pay — we have several annual events in the first quarter, whether that’s bonuses paid or our sales kickoff. Thus, there’s typically some abnormal spending that occurs in Q1. The fourth quarter tends to get inflated by W-2 cash coming in.

How much did you spend on the acquisitions in Q1?

I don’t have an exact number in front of me. I believe it was a couple of million dollars, if I recall correctly.

No, it was more than that combined due to the nature of the people strategy deal, which had an equity component. We also had some vendor spend, with annual renewals occurring in the first quarter. Specifically, we faced two events that occur normally with just one event. We are pleased with the cash position this quarter, but typically, we see a cash drain in the first quarter, and we typically recover as we progress through the rest of the year.

Last year, your cash was up $4 million between Q4 and Q1, and this year being down $7 million. I’m not following.

I believe there was a receivable, and ERTC payments may have come from the government last year but don’t quote me on that. My memory serves me correctly, that could've affected the quarters' numbers.

Yes, Eric, that’s a fair point.

Have we closed any acquisitions in Q2?

There’s one disclosed in the subsequent events that we closed yesterday.

We have reached the end of the question-and-answer session. I would now like to turn the call back over to Pat Goepel for closing comments.

Yeah, I appreciate everyone’s time today. There’s a lot going on at Asure, and it's a great time to be here. We appreciate all of you. As Patrick mentioned, we have extensive investor outreach activities scheduled for the upcoming quarter, and we hope to see you soon. Thank you.

This concludes today's conference. You may disconnect your lines at this time, and we thank you for your participation.