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

Thank you, operator. Good afternoon, everyone, and thank you for joining us for Asure Software, Inc.'s fourth quarter and full year 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 these items along with the reconciliation of non-GAAP measures to the 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 just wanted to take a moment to remind folks of some upcoming investor relations activities. On March 16th through the 18th, we will attend the 37th Annual ROTH Conference in Dana Point, California. We also plan to do some non-deal roadshows later this spring as well. Investor outreach is very important to Asure Software, Inc., and I would like to thank all of those that assist us in 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 a replay via a link 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, Inc.'s fourth quarter and full year 2024 earnings results call. I am joined on this call by our CFO, John Pence, and we will provide a business update for our fourth quarter and full year 2024 results as well as our outlook for 2025. Following our remarks, we'll be available to answer your questions. As you can see from our reported results, we executed quite well against the plan we laid out for 2024 and delivered strong results. Our total revenue increased modestly in 2024 to $119.8 million. Excluding ERTC revenues, total revenues were up 17%. Our recurring revenues for the full year 2024 grew 15% versus the prior year. And I would like to highlight that our recurring revenues, which carry higher value than one-time revenues as a percentage of total revenues, increased to 96% versus 84% in 2023. During 2024, we focused on the continued growth of our business and replacing one-time ERTC revenues with higher value recurring revenues through a combination of organic growth and acquisitions. The drivers of our success in 2024 were broad-based, with a strong contribution by our payroll tax management product as well as contributions from recent acquisitions. Over the past year, we added to our product portfolio with items such as employee recruiting technology, benefit brokerage capabilities, pretax and preventative health care solutions, and our 401(k) offering. Recently, we launched SurePay. This is an innovative alternative to online banking which we expect to help employers with retention, reduction in lost paper checks, and attract new employees. It provides employers with the ability to offer on-demand pay, also known as earned wage access. SurePay is delivered via an easy-to-use mobile app and offers debit card capabilities, free ATM withdrawal, plus more. We're in the early stages of the product rollout, with launches to strategic groups thus far. We made great strides with our acquisition strategy during 2024, primarily acquiring our payroll resellers. Under this approach, we're acquiring new clients and such transactions are not so much acquisitions in the traditional definition. We anticipated an acquisition during the fourth quarter which did not materialize. However, in the first quarter, we replaced the value of the deal with two additional acquisitions and our pipeline for future deals remains robust. These client acquisitions can be efficiently integrated into our existing business and we can cross-sell additional capabilities which we believe will drive future profitability as we achieve scale. As we continue our efforts to enhance client experience, we've been working to integrate all Asure Software, Inc. solutions in a common modern user interface. Additionally, we recently introduced Luna, the industry's first AI agent for payroll and HR. Unlike traditional generative AI chatbots, Luna is an advanced AI agent that understands Asure Software, Inc.'s suite of products and more importantly can act on behalf of both employees through self-service and business owners and administrators. Employees can simply ask Luna for help, and she can take care of items like updating personal details, changing benefits elections, and more. Recently, we've experienced momentum with new payroll units increasing at a strong rate during the fourth quarter, and that sets us up nicely for 2025. Also, our 401(k) product had strong business results in the fourth quarter as we look forward to seeing that trend continue during 2025. As you know, our 401(k) offering leverages the US government's Secure 2.0 Act, which provides funding and encourages adoption of the 401(k) plans by businesses in the US. Our sales efforts during the year 2024 resulted in an 86% increase in new bookings versus the prior year. Also, our contracted backlog is strong and has grown 17% since our third quarter earnings report. Based on our current business trend, we are reiterating our 2025 revenue guidance of $134 to $138 million, with EBITDA margins of between 23% and 24%. As a reminder, this 2025 guidance excludes any contribution from future potential acquisitions. As we look at the business plan for 2025, our guidance implies a mid-teens growth rate which is very positive. Finally, we're excited to share that we've signed a multiyear agreement with a firm that is the industry leader in audit, tax, consulting, and advisory services to resell our payroll and payroll tax management solutions. This agreement will enable the firm to deliver our comprehensive solutions to their firm's clients for the first time. Now I'd like to hand off to John to discuss our financial results in more detail as well as our quarter one guidance.

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 fourth quarter and 2024 results. Fourth quarter total revenues of $30.8 million grew by 17% relative to the prior year, while recurring revenue rose by 14%. Excluding nonrecurring revenue from ERTC, total revenue rose by 22%. For the full year, total revenue grew slightly to $119.8 million despite a $16.5 million decline in ERTC revenue. Recurring revenue for the full year rose by 15% relative to the prior year to $114 million. Fourth quarter recurring revenue growth was led by our payroll tax management business, where our enterprise solutions have gained great traction on the strength of our offering. We also grew revenue in payroll, time and attendance, and benefits groups. We are particularly excited about the future growth potential of our insurance offerings, which is a new business for us. We have had some challenges in our HR compliance group in 2024 related to ERTC upsell activity in 2023. We expect to overcome this issue this year. Despite rate reductions, our float revenue remained stable for the quarter relative to the prior year. Gross profit for the fourth quarter was unchanged at 68% compared to the prior year period despite the decline in ERTC revenue. Full year gross margins decreased to 69% from 72% in the prior year period. Non-GAAP gross margin for the fourth quarter was 73% versus 72% in the prior year period. Non-GAAP gross margin for the full year period decreased to 74% from 76% in the prior year. We continue to believe there is room for margin improvement over the longer term as the business scales. Net loss for the fourth quarter was $3.2 million versus $3.6 million during the prior year. The net loss for the full year was $11.8 million versus a prior year loss of $9.2 million. EBITDA for the fourth quarter was $3.4 million, up from $1.1 million in the prior year period, and EBITDA for the full year was $11.4 million versus $14.3 million in the prior year period. Adjusted EBITDA for the fourth quarter increased to $6.2 million from $2.8 million in the prior year period, and our adjusted EBITDA margin was 20% in the fourth quarter compared with 11% in the prior year period. Adjusted EBITDA for the full year was $22.5 million versus $23.3 million in the prior year period. Adjusted EBITDA margin for the full year was 19% versus 20% in the prior year period. Discussing adjusted EBITDA, we often get questions regarding our free cash flow. The way we think about it is essentially adjusted EBITDA minus software capitalization and net capitalized sales commissions. We ended the year with cash and cash equivalents of $21.4 million and we had debt of $12.7 million. As we have previously discussed, we are thinking about entering into a credit facility. The company has been in discussions with a number of lenders and based on these discussions, we are contemplating a facility between $20 million to $60 million with a rate of SOFR plus 4% to 7%. The company has agreed to negotiate exclusively with one lender until April 13, 2025. The company is in the very early stages of negotiating a credit agreement with this lender, and no definitive agreements have been reached. Accordingly, there can be no assurance about the timing or terms of a definitive credit agreement. Now in terms of guidance for the first quarter of 2025 and the full year 2025, our outlook is based on the strong momentum we have built in our sales organization, with a contracted backlog of $79 million, up from approximately $20 million at year-end 2023. About a third of this backlog is anticipated to be recognized in 2025. We expect to achieve growth relating to our customer acquisition activities. With our expanded product offerings, we also expect to accelerate our cross-selling activity success. This will be a strong focus in 2025. We anticipate revenue growth across the organization with continued challenges in our HR compliance group in the first half of the year. We are estimating the first quarter revenues to be in the range of $33 million to $35 million. Adjusted EBITDA for the first quarter is anticipated to be between $6 million to $7 million, roughly stable versus Q1 2024. We anticipate EBITDA growth will be more subdued consistent with the revenue profile in the first half of the year as we invest in infrastructure to support large enterprise deals, product, and technology. We are leaving our 2025 revenue guide unchanged with revenue in the range of $134 million to $138 million, with adjusted EBITDA margins of between 23% to 24% at these revenue levels. Also, as Pat mentioned in his comments earlier, these guidance figures exclude any contribution from future potential acquisitions. In summary, 2024 was a busy year. As we grew past the headwinds of ERTC, we are excited about the momentum we have entering into 2025.

Thanks, John. We are pleased to have executed well on our plan during 2024, which delivered strong results despite the challenges we faced in replacing one-time ERTC revenue. During the past year, we've invested in the business by expanding our product portfolio which will help drive new client additions as well as cross-selling within our existing client base. Our product additions in 2024, including a recruiting solution, benefit brokerage capabilities, 401(k), preventative and pretax health care offerings, plus SurePay, which began its launch in November 2024. We feel really good about our product portfolio and remain focused on executing on the opportunities that we have in front of us for 2025. In addition, our payroll tax management product experienced very strong momentum in 2024 with several major multiyear agreements signed such as Venture, Strata, The Grocery Store chain Kroger, and Nucor, just to name a few. We believe that the growth of the tax business will continue to be a driver for us in 2025. During 2024, we have invested in the business and while this partly impacted our margins, we believe that we have laid the foundation that over a medium time period, as revenues approach around $200 million, we can achieve 30% plus adjusted EBITDA margins which would be a significant improvement from current levels. We remain focused on achieving these goals and the combination of the investments we made plus the continued customer acquisition will help us achieve that goal. As we move into 2025, we're excited about the opportunities we have in front of us with all the new products we added, and we're looking to cross-sell and our attach rate is one of our measures of success. An increase of overall attach rates will yield increasing margins, which will translate to the benefits of scale in the business. We believe this will help develop a clearer understanding of our business and be more beneficial for investors. In summary, we've delivered strong results with recurring revenues, the most valuable part of the business, growing 15% during the year and becoming 96% of total revenues versus 84% in the prior year. Our bookings growth of 86% was very good. Our contracted backlog is very strong and grew from 2023 to 2024. Our guidance for 2025 of $134 to $138 million in revenue implies a mid-teens growth rate which is very attractive and the headwinds from ERTC are now gone. We'll continue to provide innovative human capital management solutions that help businesses thrive, human capital management providers grow their base and large enterprises streamline their tax compliance. Thank you for listening to our prepared remarks. And so with that, I will send the call back to the operator for a question and answer session.

Thank you. We now begin the question and answer session. Our first question is coming from Joshua Reilly from Needham and Company. Your line is now live.

Alright. Thanks for taking my questions. Maybe just starting off, how should we think about the progress you're making on the pipeline for enterprise payroll tax opportunities in 2025? We know there's a lot of opportunities there. You know. And then maybe along with that, like, how are you thinking about getting the salespeople who are focused on ERTC? Are they fully productive now? In terms of the enterprise payroll tax opportunity? Or, you know, what level of progress have you made there? Maybe an update there would be helpful as well.

Yeah. Josh, thank you for the question. And, you know, with me primarily answering questions today is myself, Pat Goepel, the chairman and CEO, John Pence, the CFO, and then with us, we have Eyal Goldstein, who is president and in charge of the sales organization. So I'll let him take some of those questions as well. But just on a whole, from an enterprise perspective and a tax perspective, we're making really good progress. You know, we've sold a couple of deals where we have licenses, and through the year, you're gonna see us have more and more volume and more and more customers on the platform. So you know, those are going along really, really well. We're really happy with that. You know, we have implementations now with an Oracle system, SAP system, a Workday system. So the interfaces are in place. The infrastructure is in place, and we're doing really well in that area. I think you will see, you know, kind of the fruits of the revenue be more consistent and the book to bill timing coming in. Where you may have a longer book to bill is if somebody is converting to an ERP solution or enterprise resource planning. We're not going to put that in an immediate background, because that contracted account is gonna take some time to get live with the enterprise resource planning software. And then install our tax filing. So that was the learning in 2023. And then as far as the salespeople moving past ERTC, I gotta tell you this year was a really good year. We did some acquisitions and, you know, we look at sales both from an organic sales perspective or a, you know, kind of one by one and partner-related system, but we also look at it with our client acquisition strategy of our resellers. And then what we do is really cross-sell and really look at, you know, how we drive the value of our attach rates, which start out at about 17%. And we'll continue to drive that in 2025 and 2026. And I'll let the conversation go to Eyal here for a second because Eyal's done a really nice job of top grading the sales staff. And, you know, as we moved on from ERTC, to selling the whole solution, perhaps, you know, you can expand on that.

Yeah. Hey, Josh. So a couple of things. Just to recap on the payroll tax management, that team is very well up to speed. We've got a really good marketing approach where we're driving demand for that group, both for enterprise pursuits as well as remarketers or other payroll platforms that are leveraging, and will be leveraging our tax platform. So that one is gonna continue to see tremendous growth. Pipeline is growing. And, like, Pat mentioned, we're in some really big implementations right now that will only continue to drive more referrals from the big tier one software players where we're integrating into those platforms. And then on the other, the sales team side outside of payroll tax management, we're probably a year in post ERTC where that was our sales motion. So we've upgraded a lot of talent on the leadership side. And one of the things we've done now that we've rounded out the solution set with retirement solutions, with SurePay, with HR compliance is we specialize as well. We've got some dedicated specialized sales groups that that is their sales focus. That is what retires their quota. That is what they get compensated on. And it was the right time for us to do that now that we've got, you know, some of these different solutions that we didn't have in the past. Where it'll give us great ability to have that focus to drive cross-sell into the customer base.

Got it. That's super helpful detail. And then maybe just one quick follow-up. How important is it to close the credit facility for you to do more M&A in 2025 and is the right way to think about it that you're kinda waiting to see how that financing works out before you were to do any more material-sized deals, whether it's a reseller or some other type of technology or functionality?

Yeah. Definitely. That's the main input as for doing the credit facility is to put the gas on the customer acquisition model that we've been doing for the last couple of years, I think. Was looking at the stats. We did four customer acquisitions in the last eighteen months, and we did two kind of technology extensions. So a total of sixteen deals, but, you know, the vast majority of them are customer acquisitions. And so yeah. Most of those sellers want a component of their proceeds upfront. Typically, you know, we've structured the seller notes to give us some protection on the back end. But in general, most of that is an upfront cash payment. And so to fund those upfront cash payments and continue that customer acquisition model, that's the main purpose of the facility. And, you know, we talk about it all the time, but we really feel like we've spent a lot of time and energy building out the back office and the infrastructure to accommodate really adding those those bugs very quickly and efficiently. So yeah, that's definitely one of the main thoughts behind considering that facility, assuming we can get it put together over the next couple of months.

The only thing Chad hit it on all the right points. The only key point though that I want to make sure that we reinforce is we're fine doing client acquisitions, you know, out of the business and out of run rate, if you will. The real impetus, though, for the facility is, you know, we look at scale in 2021. We were somewhere around $79 million or so of revenue at about 10%. This past year, close to $120 million and close to 20% as to EBITDA. Know, at $180 million to $200 million, we're at 30% adjusted EBITDA. We got the model right. We've really laid the foundation. And we wanna continue to go stronger. We also think from an equity perspective, you know, that, you know, we're not interested in raising money. So a proper kind of business line for us to go faster. But, you know, cash flow wise, we feel really good about the business and moves that we've done and laying the foundation, especially, you know, signing this other big deal. You know, when we look at this, you know, the ability to grow faster is something we're interested in, and this line gives us that flexibility. And then finally, we wanted to, you know, raise it on the call. We think we're gonna close it fairly soon if everything works out. And we didn't wanna have a call and not let investors know that this was in our thinking.

Got it. And then, actually, one last quick point. Just wanted to clarify. I think you said that you've done two customer acquisitions year to date. Are those, you know, I assume those are factored into the full year guidance, and was that a material amount, those two customer acquisitions in terms of revenue? Thanks.

Yeah. So rough order of magnitude, Josh. I think when we last spoke probably at the third quarter call, we mentioned that we had one acquisition under LOI. And, honestly, I think it's the first one that's fallen out, where we didn't close after we got to a letter of intent. We were anticipating that deal closing in November, and that was gonna be a contribution to the quarter of approximately, I'm gonna say, about a half million dollars. Is that right, Pat?

Yep. And so what we did is we replaced that revenue with these two. And so, again, I think it doesn't impact the current year guide because we kind of already have that in our mind when we were here in the third quarter. But yeah, that's the story on that.

Understood. That makes sense. Thanks, guys.

Thanks, Josh.

Thank you. Next question is coming from Bryan Bergin from TD Capital. Your line is now live.

Wanted to get a question in here on the demand environment just given all the volatility that is out there. Can you just comment on what kinda you're seeing out there on Main Street just amid everything being driven through DC? Has it changed any, you know, demand cadence in the SMP? Pipe? And, also, can you comment on just how client hiring has progressed in, you know, this year thus far?

Yeah. Bryan, that's a great question. And if I listen to CNBC, you know, the world's changing in the last, you know, whatever six weeks. But if you look at Main Street, you know, people really are continuing to hire. I do think that there's a divide. Pick your number if it's under $80,000 in salary versus over $80,000, I think you have, you know, more of your layoffs in a white-collar recession at this point in time than a blue-collar or gray-collar. There is just still, at this point, more jobs than people. And, you know, COVID took two kinda cohorts out of the workplace, the people that were fifty-five to sixty-four that had enough to owe that kinda said, hey, that's it. And then the second working spouse who, you know, had to home school to kids and or take care of the parents. And those folks still haven't quite yet gone back to the workplace. And then that and simple demographics. We watch the numbers pretty closely. Know, we modeled a flat employment kind of plan. We see no reason why we should, you know, kinda go away from that plan. The last couple weeks, we have daily calls every morning on employment. I would say in some industries that are tied to the government, or tied to, let's say, home building where you have, you know, lumber, there's people that may be a little bit cautious, but I do think there's a big divide of the stock market, let's say, or the news on, you know, kinda on TV versus Main Street. And right now, we're just not seeing, you know, that area, you know, that area of trepidation as much as, you know, you hear on TV. But I would tell you, we're watching it daily, and we wanna make sure. And then we model the pretty conservative flat growth. So we weren't expecting big changes.

Okay. That's helpful. And then as you look at 2025, can you put some finer points on how you're expecting the contribution revenue across, you know, the payroll tax management business and the marketplace? So really just any sense of scale you can share collectively between businesses like that versus, you know, your traditional SMB business?

Yeah. I think from the tax filing business, etcetera, we'll continue to grow. I mean, you know, we announced the deal app or we announced the deal. We can't give the name yet. But, you know, even after the quarter, you know, we have a number of different enterprise deals, and in some of them, you know, are licensed deals that then are going to, you know, bring on the customers over the next couple of years. So, you know, we have a feeder channel that's pretty strong. You know, I think order of magnitude, you know, we'll probably give that in the first quarter, you know, kinda more specifics. But, clearly, you know, we're growing at a very healthy rate in that tax area. Money movement area. And then, you know, as far as the core business, you know, we have some headwinds on, you know, the around interest rates, you know, potentially going down. I don't know if it'll go down. You know, we modeled at a 3.5 towards midyear with a couple of three cuts. I don't think, you know, that might be conservative, but that certainly, you know, on tax filing flow will be a little bit of a headwind that we modeled in that might be too conservative. But on the home buying of, let's say, the Equifax relationship, it's more less of a guarantee and more of a tied to mortgages. So, you know, that might be a little bit of a headwind. John mentioned the ERTC. Little bit of a headwind with human resource compliance. Now that being said, payroll units are off and we feel really good, and we think we'll grow, you know, in payroll in a meaningful way over from the start of the year to the final year, and that process has really been underway here. It'll last six months or so. So and then, obviously, the cross-sell component is huge for us. We believe that the work we did to integrate the technology as well as launch some of the new products and buy the new products. You know, we're gonna really focus on attach rates and it's gonna start out at a number, and we're gonna give you the progress each quarter. And I think you'll see that the contract.

Okay. Thank you.

Thank you. Next question is coming from Eric Martinuzzi from Lake Street. Your line is now live.

Yeah. I was wondering if you could bifurcate or pick apart the outlook for Q1 just between the recurring revs and the interest or sorry. The recurring revs and interest in the kinda seasonal parts of the business, the ACA and the W-2s.

Yeah. I would say, you know, I think last it would be pretty flat we think, to last year. I think roughly $5 million of that annual W-2 ACA and probably about the same this year.

Yeah. And one thing I would say, Eric, and one of the dynamic that we have both in our payroll business and our tax business is, you know, we're starting to, you know, price in kind of over an annual fee as opposed to having a one-time year-end fee, there's still a certain amount of clients that have that and but a lot of the newer deals are coming in with the per employee fee either quarterly or annually. So, you know, the flattish or so W-2 revenue is really, you know, is being masked by the pricing and of some of this new way of pricing where it's more a kind of a PEPM or kind of more repetitive pricing model. And some of our acquisitions are like that in addition to some of our go-forward business. So and then we have not modeled a ton of business in the first quarter around professional services. We did a lot of work and we will do a lot of work in professional services in the second, third, and fourth quarter. The first quarter, we may, and it some of it depends on mile billing, etcetera. We just have taken a very conservative stance in that area around the first quarter.

Okay. Just to follow-up. So at the midpoint, of the $34 million, we'd be talking about roughly $29 million on the recurring, and that would be up about a half million sequentially from Q4. Is that correct?

Yeah. I'm trying to think. What do we have in for fourth quarter and PS. Yeah. So I think fourth quarter, what I'm seeing is about $28.5 million is the recurring.

Right. That's the reported number. I'm saying based on what you just answered, my Yeah. It is. Answer to my question. Twenty about twenty-nine, but I would also tell you first quarter, a couple of things. Fourth quarter is sometimes a little bit stronger based on bonus and employment. Just because there's extra runs, etcetera. I mentioned, you know, kinda W-2 anomaly. And then I would say the first quarter usually, the checks are a little bit down in first quarter versus fourth quarter, and that coupled with growth leads us to a conservative guide. But I would tell you, I think, you know, there's probably more upside than downside.

Thanks, Eric.

Thank you. Next question is coming from Jeff Van Rhee from Craig Hallum Capital Group. Your line is now live.

Good evening, guys. This is Daniel on for Jeff. Just on the SurePay introduction, maybe you can just tell us a little bit more about the go-to-market there, you know, what the drivers are in terms of the end users and businesses adopting how that'll roll out? Just to how that'll look and ramp.

Yeah. Just from a SurePay, right now, we have approximately five hundred end clients on SurePay. And what we're doing is really testing the value proposition. We're, you know, going through, make sure the pipes are as advertised. Make sure, you know, everybody's got their system working. And then we already have taken quite a few sign-ups for people that wanna start here in the second early in the second quarter. So we'll roll that out. You know, we anticipate in a lot of areas that will replace card revenue that we already have and bring that in-house. We also believe that, you know, from a check revenue, this will be an excellent card for that. So we have some clients, some industries, we have people on the system today. And for us, you know, it's kind of an all-in-one card where they can use it as earned wage access. They can use it as a banking account. They can use it, you know, as a debit card. And then even, you know, a charge card that they can pay in the future, it might even be a credit card. So, you know, we think that this thing has a ton of legs and will be the way that, you know, people use this within the Assured Payroll family. But we're still early days. Five hundred are using it thus far. And then we'll, you know, kinda announce our progress each quarter and we feel pretty good about, you know, where we're going to be, but more to come here in the next quarter's earnings.

Okay. That helps. And then on the 401(k), in terms of, you know, the impression I think I got in was that the initial momentum there wasn't maybe as expected when it launched, but it sounds like it's accelerating there. Just help us know, what sort of the learnings are there? You know, where sort of the momentum's coming from? And what is it sort of that are the key drivers in terms of getting small businesses to wanna adopt the new plans?

Yeah. I'll let Eyal pack as well on this one. But, you know, first of all, you know, we pivoted from ERTC in the fourth quarter of 2023 now and really launched 401(k) right around the January timeframe. So it's been kind of a year with it. I would say interest level was super high. What I would say is, you know, our partner, Beth Well, is a really nice technology partner, and we've worked together well. What I would say we've had leads. We've had to learn how to sell it, and you have an admin component and you have a fund lineup component. You know, we had to learn the ins and outs of that. And then from an implementation or book to bill, we had to make sure that we really kinda locked in on a book to bill. And I will tell you, we've had a lot of interest from a compliance perspective on the Secure 2.0, you know, kind of rules. Some of that was changing in the first year where, you know, the ease of kinda compliance and maybe the carrot and the stick weren't quite well known. So we had to evangelize that. We found our rhythm here a little bit, and coming from, one of my past lives who said Fidelity, where we had a lot of 401(k) customers. It's just really a learning curve. But I will tell you, we're starting to get it, and, you know, we're starting to get book to build out. I think the admin piece, you know, we have a pretty good job. And then now as we move funds from the other providers, that'll start to pop revenue in the future. So it's just a learning curve. We have expanding now our sales motion in that area as well as our operational expertise. But, Eyal, maybe if you wanna jump in on that.

Yeah. I think anytime you roll out a financial product, I think it could probably took us a little bit longer than I would like. But just to piggyback what Pat was saying, we've got a dedicated retirement sales group now, that that is their sole focus. They've got the ability first of all, they've got experience selling retirement solutions, and so they're able to jump into the pursuits that were that we have referrals into the customer base and new deals. And transacting drive those value propositions much more effectively than we were a year ago when we rolled it out. So we're seeing the momentum in pipeline both in leads and conversion of the leads, and we'll have, you know, this month, more unit sales of 401(k) than we've had in the past. It'll be a record for us. So the momentum is just starting. I think we now have the value proposition sales teams that that is their sole focus. I think it's just gonna continue to drive the demand in our execution to add it not only to new deals coming in, but more penetration, like Pat mentioned, in the customer base.

Thanks, Pat. Thanks, Eyal.

Thank you. Next question is coming from Richard Baldry from Roth Capital Partners. Your line is now live. Rich? Hi. Roger phone is on mute.

Yep. When you look at the new bookings growth at last year, was that more a function of unit growth or ARPU? And the reason I'm asking is that feels like with your broadened offerings, that gives you an opportunity to go a little bit more upmarket, you know, larger numbers of employees because of the broadened suite that you've got is more complete now. So I'm just sort of curious how you think about that and how you think about that growth driver for 2025 and forward.

Rich, you could have been in our board meeting. So the real, you know, I would say first of all, a lot of progress, a lot of credit goes to Eyal. In 2024, you know, 86% up is, you know, what is about 86%, you know, like? If there's anything we didn't like, we thought it was a big deal, tax filing enterprise. We thought that had a disproportionate amount. And then on the small business side, we felt really good about the unit growth but now we have to expand our ARPU, add, you know, when we looked at the capability, we consciously went after the benefit area, the recruiting area, we really want to round out the solution. So now as we introduce, you know, kinda next year, we introduce product attachments and the overall attach rate that is the focus. And then, you know, we looked at an organization of reorganizing the because at the high level, we were driving really big deals. But now what we wanna do is bring along those multiproduct solutions to the company and really drive the value of the deals. And maybe, Eyal, you know, you've done a really nice job of hiring the right people to do that, but let's talk about that for 2025.

Yeah. And, Rich, that was a big reason for part of the reorganization of the sales team to some specialized sales groups. So, again, on the high end, we had, you know, two comma deals big six-figure deals on tax. That's continuing right now. In a big way. And then when I look at the pipeline, I actually, our units are up quite a bit, forty-something percent here. From a pipeline perspective. So we're getting the units. The big opportunity for us was, okay, now how do we attach all these other solutions that we have that we've rounded out as part of the offering to these payroll units. And that's the big piece for us. Right? Once that linkage happens now, if we can continue the pace of payroll units and continue to grow that, the way we have been and attach, you know, benefits, broker, 401(k), HR compliance and attendance, which we've done with some bundles. Now you'll really start to see kinda trade in the ARPU go up into the right in a big way.

The other aspect, Rich, that we're really working on just not only a sales and marketing function, but with our technology, introducing Luna. We're starting to introduce a venture of marketing and using our data. So if somebody, for example, you know, processes a termination, you know, they have the ability to use our COBRA services right away or, you know, they have a life event, we immediately can market to themselves. This is a strategy we've been working on for multiple years, and you know, we feel like, you know, sometimes luck is preparation meeting opportunity where prepared, and, you know, we're hoping for some real good luck here in the attach rates in 2025.

Okay. So the 86% increase in bookings is not luck. Right? You've done it pretty strong. It also seems to me you're guiding up on revenue seasonally just like you would in any other year, but you're holding, you know, their earnings out. So you've proactively decided you're gonna spend that to support what looks like an acceleration to your wins and stuff. Can you talk to maybe a little bit more specifically about where you've decided to spend that money what you think you get out of that increased sort of short-term investment?

Yeah. I think, Rich, from my perspective, we continue to invest in the technology. As Pat mentioned, I mean, we're really trying to unify the customer experience, so that's an ongoing spend. And, you know, we weren't we were in the payroll tax management business for a while, but we weren't in the big enterprise business. So I think we really tried to step up our game when you're dealing with Kroger's and Nucor's and Workday clients, you know, customers of that ilk, you really need a different kind of staff. So we put some dollars to work. We think, you know, it's gonna be money well spent. You know, we haven't been able to give you the name of this other large enterprise that was closed this quarter. But, again, we really need to have some good people to interface with them. So I think that's where we're putting a lot of our money.

And, Rich, just to give a finer point of that, we know, you know, we have some of the license revenue but we don't have all the clients there. And now the clients as they feather in, we've staffed ahead of some of that. And then the other thing, you know, I would say with some of the technology spend and, you know, we were historically a kinda point solution company that now is a total solution company. There's ability to really automate a lot of functions and then with AI, you know, we can now look at doing things quite a bit more efficiently where instead of setting up, you know, three products, we can set it up once. And some of those kind of investments have been made, but they start getting rolled out. And then things, you know, if you look at either, AssurePay, you know, that is something where the infrastructure's already there. It just comes almost really high margin revenue in the second half of the year, but that cost to get there, you know, really was born in the second half and the first quarter.

Thanks, and congrats on a great outlook.

Thank you.

Thank you. Next question is coming from Charles Nabhan from Stephens. Your line is now live.

Hi. Good afternoon and thank you for taking my question. Wanted to ask about the outlook for margin expansion through the year. I think you had indicated that there were some investments coming in the first half followed by some acceleration in revenue growth slash operating leverage as some of your new bookings go live. But just wanted to get a sense for as we model the year, should we think of margin expansion as being linear or could we expect any variability through the quarters? And then secondly, if you could talk about how much we could expect to come from OpEx versus gross margin, for modeling purposes.

Yeah. Real quick. So I think, you know, what we're trying to do is and it's in the it's in the 10-K. I think our headcount at year-end was roughly 635. I would say we're gonna try to hold, you know, that's a pretty good indicator for us in terms of our cost structure. So I would say we're gonna try to hold the line in that general vicinity for the year. There'll be some blends and flows to it. But I think that's what we're trying to do from that perspective. And so I think the from my perspective, the margins flow with the revenues. You think about that relatively flat cost structure for the year, as the revenues increase, you're gonna get that fall through. So that being said, I think it's more back-end loaded. In terms of it's not a linear progression because we'll be down more likely than not in Q2 versus Q1 just because of that normal year-end transition. For those year-end fees. So I think it'll be kind of more of a third fourth quarter margin. And that's where you're gonna get most of your lift. Is that fair, Pat?

Yeah. No. I think so. The only other thing I haven't say is if you think about sales headcount, you know, we really ramped up in the second half of the year and first quarter. So a lot of that, you know, kinda we ran into it. And the reason we did that, you know, all also from an implementation perspective, etcetera, we knew some of these deals were coming. That's the benefit of the enterprise deal. So, you know, as you get the license fees, but now you have a backlog that's $79 million versus a year ago, I think it was somewhere around $16 million or $19 million or something. End of the year. Twenty at the end of the year. You know, we just have a lot more visibility into the revenue and where what it's gonna be. And then we've also some of those partners have asked us to help them on, you know, some implementation pursuits and revenue, and you'll see that in the PS line. So, you know, it's almost kinda presold in some cases. So, you know, that was the thought process around it.

Got it. And just a quick follow-up on M&A. Could you talk about what you're seeing from a valuation or maybe, like, an inbound interest standpoint relative to where things have been over the past couple of years? And secondly, outside of the reseller acquisition, you maybe talk about what's on your road map or wish list from a product or solution standpoint?

I'll give you my perspective in impacting I think it just depends on honestly, if we're gonna fund it out of our cash flow, we'll be a lot more muted. If we get this credit facility done, we're gonna go a lot quicker. So I it's so I'm sorry to hedge, but it really depends on our capabilities. We can obviously do acquisitions on our own. We have to be a lot more our pace, and again, the past point, we're trying to get there quicker. So, again, that's the reason for the facility, and that's why I can't give you a definitive answer until we know that's a done deal.

Yeah. And I think from a pipeline perspective, first of all, you know, we view if you think if you step back from it, it's client acquisition both from a sales perspective as well as our reseller network. The value is scale. We wanna get to $180 million to $200 million, and we wanna drive 30% margins. So that kinda drives the opportunity. How we get there as clients and the best clients that we can get is either sell them or get them from the reseller network because it's the same technology. As we build around capability, when we're on a cross the heck out of it. And if we cross-sell the heck out of it and provide value to clients we already have, it's a lot easier and more profitable to sell cross-sell clients we already have than go out and getting the new. And then we wanna build on our, you know, kinda core competencies around money movement and tax filing, and we'll continue to drive that. And then finally, from a cost perspective, we've invested in technology, and we wanna make sure that we automate and drive efficiencies. And we're well on our way to do that and have identified areas where we can automate, including, you know, Luna and introducing AI. Finally, you know, from a capability perspective, I think you'll see us lean in and continue leaning in on the benefit area. There's some things that we wanna do there. And, you know, we look at things around build partner buy. And, you know, we prefer to partner to understand, and then over time, to buy. But, you know, I think right now, you know, we're gonna go vertical for scale and then horizontal. I think we have enough to sell. We just now wanna rinse and repeat and get to the, you know, $180 million to $200 million scale. But we'll look and be opportunistic around, you know, growth possibilities in the business because we believe as a public company, the highest best use from an investor perspective is to get scale.

Got it. Thanks again, guys. Appreciate all the color.

Thank you. Next question is coming from Greg Gibas from Northland Securities. Your line is now live.

Hey, great. Thanks for taking the questions, guys. You mentioned another large enterprise customer that you closed in Q1. I guess I wanted to get a sense of kind of how much sensitivity to maybe revenue performance in your guidance there is that kind of depends on the implementation of those deals? Just considering in the past, there's been a little bit of a challenge in terms of forecasting the timing of implementation.

Yeah. And I will say, Greg, we did close one in Q1. You know, we have, you know, a couple hundred thousand in license fees, you know, to out, let's say. And, you know, we know we're gonna be on pursuits. We don't have a ton modeled in. We have a little modeled in around the fourth quarter, but, really, that's a 2026 initiative. If we get it early, that's great. And we'll, you know, we'll let you know that. But, you know, we're relatively new into it. So when we set the guide, we didn't put a lot of dollars in it. You know, we were working with them, you know, over the last six months, so we had some visibility. But, you know, we're not counting a ton on that one. We're really just trying to we're really excited about it. We think, you know, that, you know, they have the ability to extend our reach and we're really positive about it. But we don't have a thought model then.

Great. That's helpful. I assume so. Pat, and nice to hear that you're kinda conservative in terms of that from, you know, a forecasting perspective. You know, wanted to follow-up on kinda commentary on the retailer acquisitions. Know, obviously, they're not included in the guidance this year, but wanted to get a sense of maybe what you're expecting in terms of acquired revenues or how active you expect to be in terms of reseller acquisitions this year?

I'll give you my perspective in impacting I think it just depends on honestly, if we're gonna fund it out of our cash flow, we'll be a lot more muted. If we get this credit facility done, we're gonna go a lot quicker. So I it's so I'm sorry to hedge, but it really depends on our capabilities. We can obviously do acquisitions on our own. We have to be a lot more our pace, and again, the past point, we're trying to get there quicker. So, again, that's the reason for the facility, and that's why I can't give you a definitive answer until we know that's a done deal.

Yeah. I would tell you, I think, the first quarter earnings call, I think we could be a little more definitive on that. But, you know, we're not lacking for things to do, and, you know, we wouldn't pursue this strategy if we didn't believe we had opportunity.

Got it. Thanks, guys.

Thank you.

Thank you. Next question is coming from Vincent Colicchio from Barrington Research. Your line is now live.

Yes, Pat. What was the bookings growth rate in Q4?

Q4 was we have that? You will? I apologize. We're so was it was 28%. We had, you know, as you know, some pretty big deals. In Q2 and Q3. Q4, 28%, and that was primarily in our core business. And then, obviously, we closed, you know, a really nice deal here in the first quarter. So 28% was good momentum at our core payroll business. We did not, you know, we had a couple outliers in Q2 and Q3.

And the partnership with the tax and audit firm, is that exclusive? And, also, what are your thoughts on when that may ramp?

You know, I think, you know, we're already in pursuits right now. It just by the nature of what, you know, what deals we're pursuing, you know, I think we'll give you updates as we go, but, you know, feel really, really strong about some of the deals we have and the partnership that we're putting together, more to come. I would like I said, it was probably more at 2026, but, you know, we certainly, by the pursuits that we have, know, there could be some second half or fourth quarter revenue, but, you know, right now, we're early days in it.

Thanks, Pat. Nice guidance.

Thank you.

Thank you. We reached the end of our question and answer session. I'd turn the floor back over for any further or closing comments.

Yeah. Pat Goepel here. Long and meaningful call. I'm sorry it took so long, but really had a lot to share. Know, again, scale, getting more clients, whether it's the reseller network or sales is important to us. Building on the capabilities that we work for so long in the making here. And the work we did in 2024, and we're gonna measure that by attach rates and cross-sell. You know, money movement and tax filing are gonna be important to us, and the SurePay we're pretty excited about launching that and already have five hundred cards in use. And then finally, you know, cost. We're gonna be important around automation some of the work we've done, and we think that allows us to scale. And then finally, from a depth perspective, we think that's the right capital call and, you know, we want a little bit more flexibility to go faster because scale is important to us. And from an investor perspective, you know, I see ten percent plus margin expansion as we get to the next scale. I've been here quite a while. I'm pretty excited about the business, and I really feel good about the people that work here, the executive team as well as management. We've upgraded our talent over the course of the last couple of years, and we think that talent matches this opportunity. So we hope you agree, and we appreciate your time today. Thank you.

Thank you. That does conclude today's teleconference and webcast. You may disconnect your line at this time and have a wonderful day. We thank you for your participation today.