ASURE SOFTWARE INC Q2 FY2024 earnings

Asure Software reported second quarter revenue of $28.04 million, down 7.8% from $30.42 million a year earlier. The decline came almost entirely from a $6.5 million reduction in ERTC revenue. Revenue excluding ERTC revenue grew 18% versus the prior-year quarter, and recurring revenue rose 18% to $27.1 million. Gross profit fell 14.3% to $18.87 million from $22.02 million, and gross margin slipped to 67.3% from 72.4%. The company posted an operating loss of $4.18 million, wider than the $1.45 million loss in the prior-year quarter. Net loss widened to $4.36 million from $3.76 million. Diluted loss per share narrowed to $0.17 from $0.18.

First half results followed a similar pattern. Revenue for the six months ended June 30, 2024 was $59.70 million, down 6.0% from $63.48 million. Gross profit was $41.48 million, down 10.6% from $46.42 million. Operating income swung to a loss of $4.62 million from income of $0.51 million in the prior-year period. Net loss widened to $4.67 million from $3.43 million. Diluted loss per share widened to $0.18 from $0.17. Recurring revenue represented over 96% of total revenue in the first half, up from 80% a year earlier. Non-GAAP adjusted EBITDA was $10.9 million in the first half, down from $14.3 million. EBITDA was $5.7 million versus $10.2 million. Non-GAAP gross profit was $44.2 million with a 74% margin versus $49.1 million and a 77% margin.

Cash generation was mixed. Operating cash flow was $2.23 million in the second quarter, up 47.7% from $1.51 million. For the first half, operating cash flow was -$1.72 million, down 128.2% from positive $6.10 million. Capital expenditures were $0.14 million in the quarter, down 54.1% from $0.29 million, and $0.38 million year to date, down 63.2% from $1.02 million. Deferred revenue, current portion, was $3.03 million, down 8.0% from $3.29 million. Remaining performance obligations jumped 112.6% to $49.16 million from $23.12 million. Management tied that gain to a backlog that more than doubled. Non-GAAP adjusted EBITDA for the quarter was $4.1 million versus $6.1 million. Non-GAAP gross profit was $20.4 million with a 73% margin versus $23.4 million and a 77% margin.

Guidance covers the third quarter and the full year 2024. Management set full year 2024 revenue guidance at $123.0 million to $129.0 million, widening the range because of variability in the timing of closing and implementing large enterprise arrangements and anticipated acquisitions. Third quarter adjusted EBITDA guidance is $6.0 million to $7.0 million, and third quarter revenue guidance was also issued. Full year adjusted EBITDA margin guidance is 20% to 21%. The company does not reconcile its GAAP guidance to adjusted guidance, saying it cannot predict non-recurring expenses without unreasonable effort. On the business side, Asure announced a payroll tax management agreement with Vensure Employer Solutions. The company acquired an applicant tracking system technology company on July 11, 2024 for $15.25 million. It also signed a partnership with MyHRScreens and released its annual HR Benchmark Report covering more than 1,000 small and medium-sized businesses. Earlier in 2024, Asure acquired a New Jersey payroll processing and benefits brokerage servicer for $6.0 million on February 22, 2024, and an Ohio reseller partner for $3.0 million on April 30, 2024.

Risks remain centered on ERTC. The program was expected to expire during 2024 and 2025, but the IRS has kept a moratorium on processing new claims and continues to review previously filed claims. That can delay collections. Asure also has no credit facility and funded recent acquisitions from cash on hand. The company lists other risks including reductions in employment, business failures among clients, competition, interest rates, security breaches, and the ability to convert deferred revenue into revenue and cash flow. Management said it believes liquidity is sufficient for its planned operations, but future acquisitions could require additional capital. Asure serves more than 100,000 small and medium-sized businesses, with about 15,000 direct clients and 85,000 indirect clients.