8-K: Asure Software Reports Strong Recurring Revenue Growth in Third Quarter 2024

Asure Software announced its third quarter 2024 results, highlighting a 20% year-over-year increase in recurring revenue and significant growth in new bookings.

Summary

• Asure Software reported third-quarter revenue of $29.3 million, which is nearly unchanged compared to the same period last year.
• Excluding Employee Retention Tax Credit (ERTC) revenue, revenue increased by 20% to $29.2 million from $24.4 million year-over-year.
• Recurring revenue grew by 20% year-over-year, reaching $28.6 million and representing 98% of total revenue, compared to 81% in the same quarter last year.
• The company experienced a net loss of $3.9 million, compared to a net loss of $2.2 million in the same period last year.
• EBITDA was $2.2 million, down from $3.0 million year-over-year, while adjusted EBITDA was $5.4 million, compared to $6.2 million in the prior year.
• For the first nine months of 2024, revenue was $89.0 million, a 4% decrease year-over-year, but excluding ERTC revenue, it increased by 15% to $87.4 million.
• The company's backlog has grown significantly, over 35% from Q2 2024 and over 250% from Q3 2023.
• Asure is launching a new financial services product called AsurePayTM in November 2024.

Sentiment

Score: 7

Explanation: The document presents a generally positive outlook with strong recurring revenue growth and new product launches, but the net loss and decreased EBITDA temper the overall sentiment. The company is making good progress but has some challenges to overcome.

Positives

• The company has successfully transitioned to a more valuable recurring revenue model.
• There is strong demand for the Payroll Tax Management product.
• The company is introducing new solutions and upgrading its technology.
• The company is making strategic acquisitions.
• The headwinds from replacing ERTC revenue have dissipated.
• The company has a strong backlog and is optimistic about future opportunities.

Negatives

• The company experienced a net loss of $3.9 million in Q3 2024, compared to a net loss of $2.2 million in the same period last year.
• EBITDA and adjusted EBITDA decreased compared to the same period last year.
• Gross profit and non-GAAP gross profit decreased compared to the same period last year.
• The pace of implementation for large enterprise tax product deals can vary.

Risks

• The company faces risks associated with breaches of security measures.
• The company's growth rate and revenue run rate are subject to the current economic environment.
• The company's ability to convert deferred revenue into actual revenue and cash flow is a risk.
• Privacy concerns and regulations may limit the effectiveness of the company's applications.
• The company faces risks related to previous and future acquisitions.
• The company's ability to release and gain customer acceptance of new services is a risk.
• Interruptions to supply chains and extended business shutdowns are potential risks.
• There are risks associated with the use of artificial intelligence in the company's products.
• Political unrest and conflicts could impact the company's business.
• Reductions in employment and business failures among clients are potential risks.
• Fluctuations in financial and operating results are possible.
• Regulatory pressures on economic relief programs could impact the company.
• Changes in privacy and data security laws are a risk.
• Technological developments could impact the company.
• Competition is a risk.
• The company's subscription model has various financial aspects that are a risk.
• Impairment of intangible assets is a risk.
• Interruptions or delays in the company's services are a risk.
• Access to additional capital is a risk.
• The company's ability to hire, retain, and motivate employees is a risk.
• Litigation and related claims are a risk.
• Volatility and weakness in bank and capital markets are a risk.
• Factors affecting the company's deferred tax assets are a risk.
• Volatility and low trading volume of the company's stock are a risk.
• Collection of receivables is a risk.
• General developments in the economy and financial markets are a risk.

Future Outlook

The company is providing Q4 2024 revenue guidance of $30M-$32M and full year 2025 revenue guidance of $134M-$138M. Management is optimistic about the opportunities ahead for the remainder of 2024 and into 2025.

Management Comments

• Our third quarter performance reflects strong, continued growth, with recurring revenue up 20% year-over-year.
• We've made great strides in transitioning to a more valuable revenue model, with 98% of our revenues now recurring, compared to 81% in the same quarter last year.
• Additionally, new bookings were up 141% year-over-year.
• Our backlog has grown significantly over 35% from Q2 2024 and over 250% from Q3 2023.
• While large enterprise tax product deals have contributed to our success, their pace of implementation can vary.
• We remain confident in our ability to maintain this positive trajectory.
• We're seeing strong demand for our Payroll Tax Management product, we're introducing new solutions, upgrading our technology, and making strategic acquisitions.
• Earlier in the year, we faced the challenge of replacing ERTC revenue, but those headwinds have now dissipated as we close out 2024, and this change in the composition of our revenues offers us strong momentum going into 2025.

Industry Context

The company's focus on recurring revenue and cloud-based HCM solutions aligns with the broader industry trend of businesses moving towards subscription-based software models. The introduction of AI-powered features also reflects the industry's increasing adoption of advanced technologies to enhance user experience and efficiency.

Comparison to Industry Standards

• Asure's 20% year-over-year recurring revenue growth is a strong indicator of its performance in the competitive HCM software market.
• Companies like Paylocity and Workday, which are also in the HCM space, have shown similar growth in recurring revenue, but Asure's growth rate is competitive.
• The shift to 98% recurring revenue is a significant improvement and puts Asure in a strong position compared to companies with a higher mix of professional services revenue.
• The launch of AsurePayTM is a unique offering that could differentiate Asure from competitors, as it combines banking and payroll services.
• The adoption of AI in their platform is in line with industry trends, but the success of their AI agent will be a key differentiator.

Stakeholder Impact

• Shareholders will be encouraged by the strong recurring revenue growth and new product launches.
• Employees may benefit from the company's growth and new initiatives.
• Customers will benefit from the enhanced HCM solutions and new financial services product.
• Suppliers and creditors will be impacted by the company's financial performance.

Next Steps

• The company will launch AsurePayTM in November 2024.
• The company will continue to focus on growing its recurring revenue base.
• The company will continue to develop and enhance its HCM software solutions.
• The company will continue to integrate AI into its products and services.

Key Dates

Keywords

HCM, Human Capital Management, Payroll, Tax Services, Recurring Revenue, EBITDA, Software, AsurePay, AI, Financial Services