Asure Software, Inc. (ASUR) Q2 2025 Earnings Call Transcript
Access earnings results, analyst expectations, report, slides, earnings call, and transcript.
Overview
The earnings call presents a mixed picture. While there is revenue growth and positive developments like the Lathem acquisition, there are concerns about increased net loss and unclear guidance in some areas. The Q&A session reveals some uncertainties, particularly around specific revenue figures and organic growth expectations. The overall sentiment is balanced, with positive elements like cross-selling opportunities and strong demand, but offset by concerns about losses and guidance. Without the market cap, it's challenging to predict a strong reaction, leading to a neutral outlook.
Key Financial Performance
Total Revenue $30.1 million, an increase of 7% year-over-year. Excluding ERTC revenue, growth was 10%. The increase was driven by strong performance from payroll tax management and human capital management products.
Recurring Revenue $28.6 million, grew 6% year-over-year and accounted for 95% of total revenue. Growth was supported by payroll tax management and applicant tracking products.
Bookings Declined by 53% year-over-year due to large enterprise deals booked in Q2 2024. Excluding those deals, bookings increased by 15%.
Contracted Revenue Backlog $82 million, up 68% year-over-year, reaching record levels.
Gross Profit $19.9 million, up from $18.9 million in the prior year. Gross margins were 66%, slightly down from 67% in the prior year.
Net Loss $6.1 million, compared to a net loss of $4.4 million in the prior year. The increase in loss was not explicitly explained.
EBITDA $1.4 million, up slightly from $1.3 million in the prior year.
Adjusted EBITDA $5.2 million, up from $4.1 million in the prior year, with an adjusted EBITDA margin of 17%, compared to 15% in the prior year. The improvement was attributed to revenue growth and stable cost structure.
Cash and Cash Equivalents $66 million as of June 30, 2025.
Debt $67.4 million as of June 30, 2025.
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Operating Highlights
Payroll Tax Management product: Continued strong performance with improving attach rates of human capital management products.
AsurePay: A multiyear initiative with thousands of cards ordered and activated, showing good progress.
Human Capital Management Suite: Includes Payroll Tax, HR Compliance, insurance, 401(k), time and attendance, and is now stronger than ever.
Lathem Time Corporation acquisition: Acquired for $39.5 million, adding approximately 14,000 clients and enhancing time and attendance solutions.
Target customer base alignment: Lathem's customer base matches Asure's focus on growing companies, with a similar go-to-market strategy.
Revenue growth: Q2 revenue increased by 7% year-over-year to $30.1 million, with a 10% growth excluding ERTC impact.
Cross-selling efforts: Attach rates increased by 400 basis points year-over-year, showing effective cross-selling.
Contracted revenue backlog: Increased to $82 million, up 68% year-over-year, reaching record levels.
Integration of point solutions: Investing in consolidating point solutions to improve client experience and increase per employee per month revenue.
Focus on profitability: Targeting adjusted EBITDA margins of 30%+ at $180-$200 million revenue level, with potential GAAP profitability in Q4 2025.
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Risk or Challenges
HR Compliance Headwinds: The company faced challenges in HR Compliance due to ERTC-related bundling activity in 2023, negatively impacting growth in the second quarter of 2025. This issue caused a 4% downward pressure on organic growth.
Decline in Bookings: Bookings for the second quarter declined by 53% year-over-year, primarily due to large enterprise deals booked in the second quarter of 2024, which were not repeated in 2025.
Professional Service Revenue Weakness: Professional service revenue was weaker than forecasted, impacted by the timing of enterprise implementations.
Increased Debt and Interest Expense: The acquisition of Lathem Time Corporation added $37.5 million in debt, leading to higher interest expenses, which could impact profitability.
Integration Challenges: The company is investing in integrating acquired point solutions into a unified user experience, which requires increased capital spending and may pose operational challenges.
Economic Sensitivity: Float revenue was slightly down due to previous rate reductions in the federal funds rate, and the company is conservatively modeling for three more interest rate cuts in 2025, which could impact financial performance.
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Guidance & Outlook
Revenue Guidance for 2025: The company has increased its full-year 2025 revenue guidance to a range of $138 million to $142 million, up from the prior guidance of $134 million to $138 million. This includes the anticipated impact of the Lathem Time acquisition.
Adjusted EBITDA Margins for 2025: The adjusted EBITDA margins are expected to be between 22% and 24%, slightly revised from the prior guidance of 23% to 24%.
Third Quarter 2025 Revenue Guidance: The company expects third-quarter revenues to be in the range of $35 million to $37 million.
Third Quarter 2025 Adjusted EBITDA: Adjusted EBITDA for the third quarter is expected to be between $7 million and $9 million.
HR Compliance Headwinds: The company expects the HR Compliance-related headwinds to lessen in the second half of 2025, improving organic growth.
Capital Spending and Integration: Increased capital spending is planned to integrate acquired point solutions into a unified user experience, which is expected to enhance per employee per month revenue capabilities.
Long-Term Revenue and Profitability Goals: The company aims to achieve $180 million to $200 million in revenue with adjusted EBITDA margins of 30% or more over the medium term.
Cash Flow and Profitability: The business is expected to generate positive cash flow in 2025, with potential GAAP profitability and 30% adjusted EBITDA margins in the fourth quarter.
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Shareholder Return Plan
The selected topic was not discussed during the call.
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Key Q&A
Q:Where is the Payroll Tax Management business now in terms of revenue, and what is the status of big deals like Kroger and Nucor?
A:The Payroll Tax Management business has made good progress with phased installs, and no deals have been lost from the backlog. Some deals have experienced slippage, but the backlog is expected to be installed by the second half of the year. The tax business is increasingly contributing to revenue, though specific figures are not broken out.
Q:What is the growth rate of the Lathem business, and what is its expected impact on revenue for the second half of the year?
A:Lathem has been growing at about 10%. It is expected to contribute $7 million in revenue for the second half of the year and $8 million in the first half of next year. The acquisition opens cross-sell opportunities for payroll, HR, and other services.
Q:How does the Lathem acquisition affect the penetration of time and attendance solutions within Asure's existing customer base?
A:Lathem's self-install and same-day install capabilities are expected to increase attach rates for time and attendance solutions. The acquisition doubles the opportunity for Asure's direct clients, and attach rates have already increased from 25% to 29%.
Q:What is the core payroll unit growth over the last few quarters?
A:Core payroll units are growing at approximately 5% when adjusted for headwinds.
Q:What gives confidence that the HR Compliance headwind will lessen in the second half?
A:The ERTC-related cohort, which had lower renewal rates, is rolling off. Monthly sales are now exceeding losses, and the company is past the peak impact of this cohort.
Q:How quickly can revenue synergies with Lathem be realized, and are they included in guidance?
A:Integration is expected to be completed by the end of October, but significant revenue synergies are not included in the current guidance. Most synergies are expected to materialize in 2026 and 2027.
Q:What drove the organic revenue guide down for the second half?
A:The organic guide was reduced due to phased enterprise deals, the impact of the ERTC/HRC cohort, and a net margin revenue model for AsurePay.
Q:What is the overlap between Lathem's 14,000 customers and Asure's existing customer base?
A:There is very little overlap between Lathem's 14,000 customers and Asure's existing customer base, presenting significant cross-sell opportunities.
Q:What is the macro demand environment for core payroll and HCM suite?
A:The demand environment remains strong with a robust pipeline and record marketing qualified leads. Legislative changes are also driving demand.
Q:What are the cost synergies expected from the Lathem acquisition?
A:Cost synergies are expected to be realized over 18 months, with Lathem contributing significantly to adjusted EBITDA margins. Redundancies in back-office and support functions will be addressed.
Q:What are the steps involved in integrating Lathem and realizing revenue synergies?
A:The integration involves aligning payroll and time solutions, enabling self-install capabilities, and leveraging AsurePay and other products. Investments will be made to achieve these synergies, with significant results expected by 2026.
Q:What are the organic revenue growth expectations for the second half?
A:Organic revenue growth is expected to be in the single digits for the second half, with a focus on increasing attach rates and per employee per month (PEPM) revenue.
Q:What is the typical headcount of a Lathem client, and how does it compare to Asure's clients?
A:Lathem clients typically have headcounts in the low teens, which is very similar to Asure's client base.
Q:What is the near-term appetite for additional acquisitions following the Lathem deal?
A:Asure remains open to smaller acquisitions this year but will focus on integrating Lathem and rationalizing back-office expenses in the near term.
Q:Review of Unclear Management Responses
A:Management avoided providing specific revenue figures for the Payroll Tax Management business and did not break out the tax business revenue. They also did not provide detailed attach rate goals for Lathem's integration or specific organic growth percentages for the second half.
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Earnings Word Cloud
The most frequently occurring keywords in this quarter's earning call
Accounting Officer
Administration acquisition
America business
AsurePay example
AsurePay initiative
Baldry ROTH
Capital Markets
Conference New
HR Compliance
LLC Research
Lake Street
Lathem acquisition
New York
Payroll Tax
Relations section
Research Division
Results
Stephens
acquisition Lathem
attendance
balance sheet
basis point
capital product
client day
clock
comparison
family
form
issue
need
payroll
remainder
segment
software
workforce
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ASUR Slides
ASUR Report
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