ASURE SOFTWARE INC Q1 FY2022 earnings

Asure Software posted healthy top-line growth but a much weaker bottom line for the quarter ended June 30, 2022. Revenue was $20.3 million, an increase of 18.2% from $17.2 million in the prior-year quarter. Gross profit rose to $12.3 million, up 23.3%. Gross margin improved to 60.4% from 57.9%, a gain of 2.5 percentage points. Management attributed the margin improvement to higher revenue and more efficient operations.

The profit lines moved the other way. Operating loss widened to $5.85 million from $4.37 million in the prior-year quarter. Net loss was $5.86 million, compared with net income of $3.76 million in the prior-year quarter, a swing of $9.62 million. Diluted EPS was -$0.29, down from $0.20. The prior-year quarter carried a large other income benefit, mostly from extinguishment of the company's Paycheck Protection Program loan, which makes the comparison unflattering in the current period. Operating margin was -28.8%, down from -25.4%. Non-GAAP measures tell a steadier story. Non-GAAP EBITDA was $1.3 million, up 23% year over year, and Non-GAAP net loss was $0.7 million versus $0.1 million in the prior-year quarter.

Sales momentum was a bright spot. Total bookings rose 87% year over year. Recurring revenue was 94% of total revenue, consistent with the prior year. Asure launched a new Tax Portal, an Integration Marketplace with pre-built integrations to more than 125 vendors, and a treasury management system for daily cash reconciliation. It also added integrations with Automation Anywhere and Workato that bring robotic process automation to payroll, HR, tax management, and money movement workflows. The customer base covers more than 80,000 small and medium-sized businesses in the United States, about 15,000 of them direct and approximately 65,000 indirect through reseller partners. Backlog measures grew as well. Current deferred revenue was $2.04 million, up 59.3% from the prior-year quarter, and remaining performance obligations were $26.34 million, up 6.2%.

Guidance for the third quarter of 2022 calls for Non-GAAP EBITDA of $1.25 million to $1.75 million and Non-GAAP EPS of $(0.05) to $(0.02). For the fourth quarter of 2022, the company guides Non-GAAP EBITDA to $3.0 million to $3.5 million and Non-GAAP EPS to $(0.01) to $0.01. For the full fiscal year 2022, Asure reaffirmed its outlook, including Non-GAAP EBITDA of $8.5 million to $10.0 million and Non-GAAP EPS of $(0.05) to $0.02. Management said the outlook reflects its current view regarding the state of the economy.

Several risks deserve attention. The MD&A notes that the pandemic disrupted client operations, and because Asure charges on a per-employee basis for some services, headcount reductions at clients have hurt recurring revenue. Management expects recurring revenue to stay under pressure until employment levels across the client base return to pre-pandemic levels. It also expects net income to be negatively affected by its deliberate increase in sales and marketing and research and development spending. Named risks include the ability to convert deferred revenue and unbilled deferred revenue into revenue and cash flow, competition, changes in the sales cycle, government contracts, the subscription model, unexpected increases in attrition or decreases in new business, and interest rates tied to the term loan. Seasonality also matters. Payroll form processing lifts first-quarter revenue and margins, and that pattern should persist while employer reporting requirements remain in place. Asure may need to raise additional capital to fund growth or acquisitions on terms that may not be available.