Earnings Call Transcript - ASUR Q3 2022

Operator, Operator

Good afternoon, and welcome to Asure's Third Quarter 2022 Earnings Conference Call. Joining us for today's call are Asure's Chairman and CEO, Pat Goepel; Asure's Chief Financial Officer, John Pence; and Head of Investor Relations, Randal Rudniski. Following their prepared remarks, there will be a question-and-answer session for the analysts and investors. I would now like to turn the call over to Randal Rudniski for introductory remarks. Please go ahead.

Randal Rudniski, Head of Investor Relations

Thank you, operator. Good afternoon, everyone, and thank you for joining us for Asure's third quarter 2022 earnings call. Following the close of markets, we released our financial results. The earnings release is available on the SEC's website and on 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 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 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?

Patrick Goepel, Chairman and CEO

Thank you, Randall, and welcome, everyone to Asure's third quarter earnings call. I appreciate your interest, whether you're an employee, partner, investor, analyst, or another interested party. I will begin today's presentation with an update on our business highlights and strategy, and then I'll turn it over to our CFO, John Pence for a more detailed review of our financial results and outlook for the remainder of 2022 and the 2023 fiscal years. We had a real strong performance in the third quarter with results that showed improving levels of organic revenue growth as the many initiatives we have undertaken are beginning to see real progress. We grew our third quarter revenues by 22% relative to the prior year and adjusted EBITDA by 71%, with adjusted EBITDA margins rising by 280 basis points to 9.6%. Organic revenue growth in the quarter was 4%, and from our revised higher revenue guidance, you can see we expect organic revenue growth to come in at roughly 10% annually in the fourth quarter. Momentum is building nicely in the business, giving us confidence in our fourth quarter and 2023 guidance. Our new sales bookings have been strong all year and have accelerated as the year progressed. In the third quarter, new sales bookings grew by 91% relative to the prior year, including 200% growth in recurring new sales bookings with strength across many parts of the business, including HR compliance and tax solutions. Demand for our solutions remains strong in the current economic environment, and our pipeline and backlog are very healthy. We anticipate finishing 2022 with strong momentum that will carry through 2023 with continued double-digit organic revenue growth, driving strong adjusted EBITDA margin gains. Margin improvement in 2023 is expected to be driven by revenue growth, as well as efficiency improvements that will enable us to convert a high proportion of revenues to adjusted EBITDA. In 2022, we have focused our sales activities on bundled sales as well as introducing new products that we expect will add important revenue streams. These include the introduction of the integration marketplace, enhancements to our tax platform, as well as our enhanced HR compliance suite of solutions. I'll talk more about these initiatives in a moment, but we believe our efforts and our focus are really paying off. In the payroll segment, we recorded a 49% increase in new payroll logos added in the third quarter relative to the prior year and an increase in average payroll booking size in 2022. In HR compliance, demand has been very robust, driving over 30% growth in revenues relative to the prior year. There is a very good attachment and revenue enhancement unbundling HR compliance with payroll. We're also effectively utilizing earned retention tax credit to cross-sell payroll and other solutions. We are just scratching the surface in our bundling efforts and can generate more recurring revenue from our existing client base with HR compliance and tax solutions leading the way. New solutions such as our initiative to leverage our data with the integration marketplace are also expected to be important contributors to our sales growth. We believe the integration marketplace will be an increasing proportion of our revenue going forward and it could represent 30% to 40% of Asure's overall revenues over the next couple of years. The integration marketplace provides Asure's clients with integrations to complementary human capital management services and payroll and tax, time and attendance, retirement, and workers' compensation. Its launch was the culmination of efforts made in 2021 and 2022 to upgrade our technology. It enhances automation, reduces the cost of ownership, and allows us to capitalize on partnerships that will drive high-margin revenue streams. In October, we announced the new integration with Equifax to provide clients and their employees with quicker and more secure employment and income verification. This initiative will reduce clients' costs through automation and enable them to focus on their core businesses, which is a key part of our value proposition. In addition, with Equifax, we are actively working to expand our integrations to earned wage access, benefit reconciliation, retirement solutions, and tax preparation. We're very excited about the future of the integration marketplace and the benefits that can bring to clients while driving revenue growth for Asure. Another key initiative we've been working on is making enhancements to our tax platform to capitalize on our unique position in the marketplace. Efforts in this area include consolidating to a single tax engine, introducing a new tax portal, and enhancing technology to facilitate integrations. This will allow us to offer a centralized Human Capital Management ecosystem for clients and open up new market segments for our leading tax platform. These efforts are paying off and enabling us to deliver new solutions for clients. We recently introduced two new solutions that we're excited about. In October, we launched a new technology that automates back-office processes for tax professionals, enabling them to efficiently prepare amended tax returns for small businesses claiming ERTC stimulus. In August, we announced an agreement to be a preferred provider of payroll tax filing software and services for PrismHR, which is a leading provider of HR solutions primarily in the PEO market. We believe these initiatives highlight the increasing recognition by clients of the strength of our tax platform and demonstrate our ability to tap into new market segments in an efficient and flexible manner. We see other opportunities that will leverage our tax platform and look forward to discussing those in future quarters. I want to turn now to some of the enterprise efficiency initiatives we're working on. Our initiatives in this area are designed to enhance standardization and centralization of our operations while delivering exceptional client service. Our work plan is well underway and it's expected to be implemented through 2023, delivering approximately $5 million in annual savings once it's fully complete. Project streams for our centralization efforts include the development of a Human Capital Management platform to deliver state-of-the-art solutions and accelerate product development, driving robotic process automation through the organization to enhance efficiency, process standardization to give us greater flexibility and reduce costs, and upgrades to our communications infrastructure. These efforts are already producing efficiency gains across the business, enabling us to convert a higher proportion of revenue growth to adjusted EBITDA. These consolidation efforts also have benefits to our client fund operations providing us with increased leverage as we see increases in the Fed funds rate. Our efficiency initiatives also support our acquisition strategy and enable us to expedite synergies and timelines for integrating future assets. Turning to acquisitions, you may recall last October, we had two reseller businesses that we acquired last year, and they have delivered to our expectations. Their integrations are now complete on time and on budget. As those businesses were acquired in September 2021, they will not affect our year-over-year comparisons beginning in Q4, which essentially means that all activity will be organic. For 2023, we'll continue to evaluate acquisition opportunities with assets that fit within our M&A model and that drive value creation for our shareholders. None are imminent right now, and no additional revenue has been contemplated in our forward-looking guidance. To wrap up, momentum is really building strongly in the business. We can see the impact of that third quarter's new sales bookings up 91% year-over-year improvements and investment revenue, reflecting higher client balances and rates, as well as increased sales backlog, and increased retention across several product lines. Our performance today gives us confidence in our outlook for the remainder of 2022 and our preliminary guidance for 2023. For Q4 and 2023, we expect double-digit organic revenue growth driven by the initiatives we have discussed. We also believe we will deliver significantly expanded adjusted EBITDA margins in 2023 that reflect the impact of our efficiency efforts in a growing portfolio of revenue streams. 2022 has been a very active year for Asure, with strong investment in building strength in our business, in sales, product operations. We've introduced several new solutions, such as the integration marketplace, and we expect they will be important contributors to our performance going forward. We also made significant enhancements to our HR compliance and our tax solution businesses which are being well received by the market. Our commitment is to provide leading-edge solutions that drive value to our clients and to be the most trusted partner for small and mid-size businesses. Our innovative solutions help guide our customers through this dynamic environment so they can focus on their core business. Now, I'd like to hand off to John to discuss our financial results in more detail. John?

John Pence, Chief Financial Officer

Thanks, Pat. As Randall mentioned at the beginning of this call, several of the financial figures discussed today are given on a non-GAAP basis. You will find a description of these GAAP to non-GAAP reconciliations in the earnings release that was made available earlier today. The reconciliations themselves are also included on our most recent investor presentation posted in the investor relations section of our website at investor.asuresoftware.com. So with that, now onto the third quarter results, we are pleased with our financial performance in the third quarter. Here are some of the highlights. Revenues reached $21.9 million in the third quarter, rising by 22% relative to the prior year and 8% relative to the prior quarter. Acquisitions generated the majority of the year-on-year growth, but did not affect the sequential quarter-over-quarter comparisons; both recurring and non-recurring revenues had strong gains. As Pat discussed, we had good bundling success with clients as we saw strong demand for HR Compliance and tax processing solutions, as well as revenues from new product offerings such as the Integration Marketplace. ERTC is increasingly becoming a bundled sale that includes products such as HR Compliance and payroll processing. Overall, revenues grew by 4% organically relative to the prior year. Adjusted EBITDA rose by 71% relative to the prior year to $22.1 million, driven by revenue growth, operating efficiencies, and overall continued strong focus on cost. Our adjusted EBITDA margins reached 9.6% in the quarter, rising by 280 basis points relative to last year. We believe we have reached the point in the business where scale and technological improvements will enable a higher proportion of the revenue growth to flow to adjusted EBITDA margins. We ended the quarter with cash and cash equivalents of $10.9 million. We also had $34.4 million of debt, which is comprised of $30 million draw under our senior credit facility, with the remainder made up of seller notes from acquisitions. In the quarter, we paid down $1.7 million of seller notes. We also still have a $7 million tax receivable, which we hope to collect in the next few quarters. Turning now to guidance for the remainder of 2022 and our preliminary guidance for 2023, this guidance reflects our expectation for double-digit organic growth in revenues and adjusted EBITDA, which is bolstered by recent increases in interest rates. This guidance has been offered in the backdrop of some continued economic uncertainty and a dynamic labor market. Before I go into the guidance discussion, I want to mention that with the third quarter results, we made some changes to the presentation of our non-GAAP disclosures. Firstly, we relabeled what we previously called non-GAAP EBITDA and now call it adjusted EBITDA consistent with common industry practices. There have been no changes to the methodology of calculating adjusted EBITDA, it's simply a name change. Secondly, we are providing increased disclosure related to one-time expenses by breaking them out into discrete categories. Lastly, we are no longer including our calculation of non-GAAP net income and non-GAAP EPS as adjustments for taxes at a 0% rate due to conforming to more common industry practices. Now, back to guidance for 2022: we are raising our fourth quarter revenue guidance to a range of $23.5 million to $24 million for the full year, guidance to a range of $90 million to $90.5 million. For the fourth quarter, we anticipate revenue growth of between 11% and 14%, which is virtually all organic. We have seen growing momentum in the business directly in 2022. As we have introduced technical enhancements, introduced new products, and improved sales execution. We also anticipate higher levels of interest revenues as a result of both our efforts to consolidate our banking footprint and rising interest rates. We anticipate this will contribute positively to our fourth quarter performance and will give strong momentum heading into 2023. Our adjusted EBITDA guidance range implies fourth quarter adjusted EBITDA margins will be approximately 14%. While full quarter 2022 margins will be approximately 12%, both showing positive gains relative to the prior year. For 2023, we are introducing preliminary guidance for revenues to reach $98 million to $102 million, and for adjusted EBITDA margins to rise to a range of 14% to 16%. The midpoint of our 2023 revenue guidance calls for approximately 10% growth in revenues, all of which would be organic. Revenue growth in 2023 is anticipated to be driven primarily by a combination of gains in our HR Compliance and tax processing solutions, reflecting a strong differentiation we have in those segments. Improvements to our technology in 2022 and continued focus on new product introductions in 2023 to drive strong client demand. We are also pursuing numerous additional partnership opportunities with the integration marketplace, as we expect it to contribute meaningfully to our revenue profile in 2023 and beyond. Interest revenues are anticipated to increase in 2023 due to the increase in rates as well as our success in increasing our investable balances. For 2023, we anticipate the average for social balances of approximately $200 million and that model Fed fund rates rising to 4.5% in early 2023. We continue to consolidate our banking footprint and we expect higher investment returns in this area from our efforts and the rising interest rate environment. We also anticipate continued positive trends in revenue churn as a result of our continued focus on operational process improvement. We are also introducing adjusted EBITDA margin guidance for 2023, which calls for a range of 14% to 16%, which represents a significant expansion of margins relative to 2022, which is already a period where we delivered strong margin growth over the prior year. Margin expansion in 2023 is anticipated to be driven by the additional scale generated by our revenue growth and the impact of the efficiency initiatives that Pat spoke about. These items are anticipated to more than offset the continued investments in our technology platforms and the expansion of our Salesforce. When we look at the progress made across several parts of the business in '22, as well as the increasing momentum we have achieved, we anticipate 2023 will be a strong year from both a revenue and adjusted EBITDA perspective. With that, I will return the call back to Pat for closing remarks.

Patrick Goepel, Chairman and CEO

Thanks, John. In conclusion, I hope that today's call will give you a sense of the enthusiasm we have for the remainder of 2022 and 2023. On past calls, we've given you a sense of the many initiatives we're implementing. I believe that the business is positively responding to our efforts. We introduced several new solutions as well as enhancements that are beginning to generate revenues and are expected to be meaningful contributors to our revenues going forward. These include the launch of the integration marketplace, enhancements to our tax platform, and repositioning of HR compliance. These efforts have driven accelerating new sales bookings in the third quarter of 91% year-over-year, increases in new payroll logos added up 49% year-over-year, and a rising backlog up 180% year-over-year. We're also seeing the positive impact of our investment revenues from rising rates and higher investable assets. For 2023, we anticipate delivering double-digit organic revenue growth and strong adjusted EBITDA performance. Our revenue guidance anticipates solid momentum with our HR compliance and tax solutions, reflecting the upgrades we've made. Revenue contribution is also expected to come from new revenue solutions such as the integration marketplace. Interest revenues are also anticipated to increase meaningfully due to the rise in rates and investable balances. We also expect to improve our adjusted EBITDA margin significantly in 2023. This will be driven by organic revenue growth and a positive impact of our efficiency initiatives. These include driving process automation through the business to make operations much more efficient and to enable development of our new products and revenue streams, development of our human capital management platform, and our consolidation efforts. We're pleased about the progress we've made to create differentiation in our market using our unique collection of assets and we're excited about the year ahead for our clients, our business, and our stakeholders. So with that, I will send it back to the operator for the question-and-answer session. Operator?

Operator, Operator

Thank you, Pat. At this time, we will conduct the question-and-answer session. Our first question comes from Bryan Bergin of Cowen. Please proceed with your question.

Bryan Bergin, Analyst

Thank you. Hi, everyone. Good afternoon. I'll start with a broad question. Are you seeing any key performance indicators that might indicate recessionary trends or a potential slowdown? Pat, could you elaborate on the macroeconomic assumptions that you are considering in your 2023 outlook?

Patrick Goepel, Chairman and CEO

Brian, thanks for the question. Right now, we're not seeing any signs of a demand environment that is weak. We're monitoring this closely on our daily calls, including operational and management calls. Small business hiring is still robust, with more jobs than people available. Interest rates are obviously rising. The key drivers for us indicate that we're currently not seeing any recessionary behavior. As far as our assumptions, we're modeling around the current kind of Fed funds rate. We didn't model projected increases but we also factored in potential decreases should there be a recession. As far as the demand environment, we think it is pretty healthy. We're going to continue to monitor that, but we feel really confident regarding the visibility of our small business clients.

Bryan Bergin, Analyst

Okay, very good. And then from a margin standpoint, you did better across the board from a cost standpoint versus what we projected. Can you just talk about really the biggest drivers? I know there was a list of things you'd called out. What do you think is the single biggest? And if possible, can you kind of segregate the float contribution that you have in there?

John Pence, Chief Financial Officer

Yes. There's some incremental float obviously this quarter. We really didn't see a significant uplift until September when we negotiated better rates with one of our banks, and we do expect improved rates heading into Q4 and 2023 as well. But I would just tell you in general, our headcount was around 520 after the acquisitions last year. I think we're ending the quarter around 505. What we've been able to do is make those acquisitions, integrate them, add to the top line with the acquisitions, and maintain or reduce headcount. So, I think that's where you see the biggest contribution from my perspective in terms of the margin improvements. And I think as we think about next year in those EBITDA guidance, we're showing a pretty good fall-through for the incremental revenue.

Patrick Goepel, Chairman and CEO

Yes, the only thing I would add to John's commentary, which I think is spot on, is the incremental revenue streams—whether it's the marketplace, float, or consolidation of software instances—bring with them a higher flow-through margin. I'm not going to break that out specifically, but that's some of the reason why you're seeing the jump in margin. Additionally, we're just experiencing scale, and John discussed some initiatives that have led to this improvement. For instance, a year ago we had around 120 bank accounts. We're approaching less than 20 as we end the year. That type of scale is a winning scenario for us.

Bryan Bergin, Analyst

Okay. Thank you very much.

Operator, Operator

Thank you, Bryan. Our next question comes from Joshua Reilly of Needham. Josh, you have the floor.

Joshua Reilly, Analyst

All right. Thank you. Thanks for taking my questions. Nice job on the quarter here. How should we think about the relative focus of the sales organization today in terms of organic customer acquisition versus upselling the base? And then does that change at all going forward given you have all these kind of new products to up-sell? And what's the optimal mix going forward to kind of hit your growth targets of 10%?

Patrick Goepel, Chairman and CEO

Yes, I think Josh, good question. I mean, we'll continue to focus on, first of all, new logos have been really strong. Eyal and the team have done an outstanding job of targeting new logos. We're executing well in our bundling efforts, resulting in a 49% increase in new logos, which is positive news. We'll continue to drive cross-sell over time. We're confident we will see these sales flow through. If you look at our projection of recurring revenue bookings, they have gone from around 40% to 80% to now 91%. So, we feel like we have a good formula for success; we'll continue with our strategy. Right now we're hitting on all cylinders, and we'd like to increase our sales team by about 15% to 20% per year, but we're committed to quality in our sales headcount. We believe we have a solid plan going forward; our team is motivated and excited, and we foresee a halo effect into the next year.

John Pence, Chief Financial Officer

Yes, I think couple points. Some of the growth that we've got contemplated doesn't even require new sales, right. So if you think about the marketplace and the float, there are implicit uplift from these new revenue streams for incremental revenue, which gives us comfort about next year and about Q4.

Joshua Reilly, Analyst

Got it, that's helpful. And then maybe a follow-up, when you when you look at the new 2023 guidance here, how much of the difference in improved EBITDA margin versus kind of where consensus was, is due to now including the interest income in the model for a full year versus some of these internal efficiency improvements? And what did you say the timeline was on the $5 million – was it the end of 2023 or 2024? Thanks, guys.

John Pence, Chief Financial Officer

Yes, just in general, the $5 million improvement is planned to be realized over approximately 18 months. But I just want to caution you that we will likely invest some of that in additional sales personnel and developers to continue driving efficiency. The real flow-through will come from some of the cross-sell performance, recurring revenue, the float dollars, and the marketplace.

Joshua Reilly, Analyst

Thanks, guys.

Patrick Goepel, Chairman and CEO

Yes, Josh, we have a shout-out to a mutual friend, Frankie Stafford, who made a birdie on 18 to qualify for the Korn Ferry tour. So that was exciting for me to see.

Joshua Reilly, Analyst

Yes, we're very excited, awesome stuff great.

Patrick Goepel, Chairman and CEO

Thanks, Josh. Next question operator.

Operator, Operator

All right, our next question comes from Eric Martinuzzi of Lake Street Capital Markets. Eric, you have the floor.

Eric Martinuzzi, Analyst

Hi, it's Eric from Lake Street Capital Markets, wanted to look into the retention figures. You talked about them improving? Do you have a number as far as Q3 retention versus the prior quarters?

John Pence, Chief Financial Officer

Yes, year-to-date, Eric, what I would say is we're close to 90% in annualized retention, which represents a 1% or 100 basis point improvement over the last couple of years.

Eric Martinuzzi, Analyst

Okay, and then, are you getting the same message from your reseller partners that you're getting from your direct sales reps? Obviously, you know, the bookings being up 91%, I'm assuming the answer is yes. But just thought I'd get a feel for the smaller customers maybe versus the midsize customers on the new business bookings?

Patrick Goepel, Chairman and CEO

Yes, and the reseller – it's not a perfect correlation. First of all, the product service is good, and the resellers are certainly increasing. But in some cases, they are not devoting the resources that we are to an organic sale. So, to me, it's not a perfect correlation, but I have been very pleased that our resellers are starting to add more clients and employees as they come out of COVID and invest in the business, although they're trailing a little bit behind, they are making good progress.

Eric Martinuzzi, Analyst

Okay. And then - I was pleased to see the guidance here for double-digit growth in Q4 as well as FY '23. I'm not used to seeing that kind of foot on the accelerator as far as you know you talked about Q3 organic growth of 4%. And then here we're jumping up to or whatever it is 11% plus 12.8% the midpoint for Q4? What you know is there, are there one-time sales or a project worth professional services? Is there a lumpy number in there for Q4?

John Pence, Chief Financial Officer

Now, it's a combination of a lot of different things all kind of coming together. Pat mentioned that HR Compliance sales have been really strong. We've talked about float, again, visibility to the rise in interest rates, and then the integration marketplace just kicked off in earnest this quarter. There's a ramp to that, and we've got visibility regarding what that's going to look like. So it's not just one product or one stream, but many factors driving this growth.

Patrick Goepel, Chairman and CEO

Yes Eric, and I apologize, the only thing I would add is if you look at our ARR bookings or recurring bookings, it really was a 40% increase in the first quarter, 80% in the second, and 91% in the third. The marketplace, depending on when that was booked, was 90 days plus, although it did start in August, and it is increasingly going up. And then float, as John mentioned, was virtually non-existent a year ago, and now some of the float revenue is starting to hit at a higher percentage. So it's a combination; not every booking goes live right away. The organic growth was a little over zero in the first quarter, a little over zero in the second, and in the third quarter we see a jump to over four in the fourth quarter. We have really good visibility. So I don't view this as lumpiness at all, and our initial guidance is thoughtful about potential recessionary environments. By the same token, we see the momentum in the business and feel that our guidance is prudent going forward.

John Pence, Chief Financial Officer

And yes, I would say we talked about it on some of the prior calls. We haven't even touched on some of the tax processing work that we have; we believe there are interesting opportunities ahead of us. There is significant momentum with some of the tax processing and tax credit processing that we're doing, which we feel very excited about. But again, it's just a lot of different things all at once. It's like overnight success, right.

Patrick Goepel, Chairman and CEO

Yes, the overnight success sometimes takes years in the making.

Eric Martinuzzi, Analyst

Yes, no, I'm looking forward to seeing you guys ring the bell when you cross the $100 million mark. All right, thanks for taking my questions.

Patrick Goepel, Chairman and CEO

Thanks, Eric. Operator?

Operator, Operator

All right, next call comes from Richard Baldry of ROTH Capital. Richard, you have the floor.

Richard Baldry, Analyst

Thanks. One of your comments, I think that - you thought the integration marketplace could be as much as 30% to 40% of revenues over the next few years, which would obviously be a pretty fast ramp. Could you talk a little bit more about that sort of, you know, how many more opportunities you have for partners to go into that, sort of who spearheads attracting those, and how much you can push end-user adoption through either your own sales or marketing efforts, just to kind of flush out more about how that opportunity will work over the next few years.

Patrick Goepel, Chairman and CEO

Yes, Rich, it's a good question. We highlighted this in our investment deck, located on our IR website. First of all, take Equifax as an example, which is one of our partners spearheading the marketplace. Think about the value proposition for employees; they may require quick access to loans without involving their employer to intermediary. The employer appreciates the reduced burden on their time. Employees want quick access to data. This process typically involves opt-in and opt-out procedures benefiting both parties. You could also connect clients with services like W-2s, where companies like Intuit or H&R Block could simplify tax form processes for employees. We anticipate various categories benefiting from this. We have a well-structured strategy in place for this multiyear effort, with key individuals like our President Eyal Goldstein driving it and contributions coming from our CTO and operational teams. We are building a compelling growth strategy here.

John Pence, Chief Financial Officer

I'm not sure this is necessarily the primary buying decision for customers. However, it's a nice incremental revenue stream off our installed base. It's not something we expect to be the core reason for evaluation of payroll providers, but it could be wrong. I tend to think it's just incremental revenue from our existing customers.

Patrick Goepel, Chairman and CEO

Yes. And Rich, we have a deliberate strategy around this. We think we have great potential for growth and we're continuously monitoring developments. We're not rushing this, but we do foresee great growth opportunities ahead.

Operator, Operator

Thank you, Rich. Next question comes from Daniel Hichman of Craig Hallum Capital Group. Daniel, you have the floor.

Unidentified Analyst, Analyst

Hi, this is Daniel on for Jeff. Just a quick question for us on the timeline on marketplace. When we're talking about several year timeline to get to 30%, 40%. Just any ballparks around when you think in 2024, 2025 what this kind of several years means? And then just thoughts on incremental margins out of that business and how you're thinking about that affecting margins also where you're seeing that as a percent of bookings right now? Thanks.

Patrick Goepel, Chairman and CEO

Yes. Just on your first question, Dan, we're not going to get into '24, '25 right now. We will provide multi-year updates in the future. But right now, we're focused on initial guidance. We're telling you where it could go, but we will provide more color as we go on throughout the year. As far as the margin flow through, we do believe once you set up the technology and process, it will yield higher margins than our core business, but details will come later.

Operator, Operator

And our last question right now comes from Vincent Colicchio, and Vincent is from Barrington Research. Go ahead.

Vincent Colicchio, Analyst

Hi, Pat. Nice quarter.

Patrick Goepel, Chairman and CEO

Thanks.

Vincent Colicchio, Analyst

Yes, just a couple of questions here. I may have missed it, but did you break down your bookings growth between new and existing clients?

Patrick Goepel, Chairman and CEO

Yes, overall, we had 47% new logos, about 75% of our growth came from new logos versus existing. Good progress in ARR, which was up 180%. So good bookings across the board, really pleased with our bookings performance.

Vincent Colicchio, Analyst

And then, are you seeing any improvements in the labor market, wage inflation, attrition, is that trending in the direction you'd like to see?

Patrick Goepel, Chairman and CEO

Yes. Well, I'd say internally, our retention rates are improving which is always good to see. We feel like we're rewarding our employees appropriately. Success breeds success, which is a positive trend. As for the client retention, I believe the labor market is still tight, and some companies are nervous about a potential recession. However, from my perspective, unemployment remains low among small businesses.

Vincent Colicchio, Analyst

And how confident are you on the $5 million over the next 18 months? I'm just curious if some of the elements like automation are areas where you've had some disappointment in terms of hitting targets in the past.

Patrick Goepel, Chairman and CEO

No, I feel really confident in the team. We have a solid plan, and we've built a strong infrastructure. You can see the second, third, and fourth quarter guidance performance paving the way for our ability to predict the business moving forward. We've stacked several successes, and we shouldn't be uncertain about our ability to improve.

Vincent Colicchio, Analyst

Thanks, Pat. Nice quarter.

Patrick Goepel, Chairman and CEO

Thank you, Vince. I appreciate it.

Operator, Operator

Thank you, Vincent. Operator, any other questions?

Patrick Goepel, Chairman and CEO

Yes. I appreciate everybody's time today. We took a little bit longer today and want to make sure that you had good visibility and understanding of the story. I would say I'm very proud of the team and excited about our clients, stakeholders, and investors. I think the day marks an inflection point for quite some time. We pointed towards organic growth of over 10%. We have great line of sight into it and have talked about margin expansion, which we also see. I'm very proud of the team, and I believe the best days are ahead of us.

Operator, Operator

Thank you, guys. This does conclude the program. You may now feel free to disconnect.

Patrick Goepel, Chairman and CEO

Thank you.

John Pence, Chief Financial Officer

Thank you.