Good afternoon and welcome to Asure’s First Quarter 2020 Earnings Conference Call. Joining us today for today’s call are Asure’s CEO, Pat Goepel; CFO, Kelyn Brannon; and Vice President of HR, Cheryl Trbula. With that, I would like to turn the call over to Cheryl for introductory remarks. Cheryl?

Thank you, operator. And good afternoon, everyone. Before we start, I’d like to mention that some of the statements made by management during today’s call might include projections, estimates and other forward-looking information. This will include any discussion of the company’s business outlook or guidance. These particular forward-looking statements and all of the statements that may be made on this call that are not historical are subject to a number of risks and uncertainties that could affect their outcome. You’re urged to consider the risk factors relating to the company’s business contained in our reports on file with the Securities and Exchange Commission. These risk factors are important, and they could cause actual results to differ materially from expected results. I would like to remind everyone that this call will be recorded and it will be made available on the Investor Relations section at www.asuresoftware.com. Finally, I would note that we have posted some slides on our Investor Relations website regarding our COVID response. Please refer to the Events and Presentations section on our IR website. With that, I would now like to turn the call over to Pat Goepel, CEO. Pat?

Thank you, Cheryl and thank you all for being on the call today. We’d like to welcome everyone for the first quarter 2020 earnings call. I appreciate your interest whether you’re an employee or a client, investment, analyst, or interested third party. First of all, our thoughts and prayers go out to those have been or know someone who has been impacted by COVID-19. We sympathize with the small businesses faced with unavoidable reductions in their workforces and the people who have lost their jobs. I would also like to recognize Asure employees for rising to the challenge and delivering exceptional service to our 60,000 small business clients despite the challenging circumstances they’ve had to face. To them, I want to say thank you. I do want to refer, and Cheryl mentioned it, that we have a COVID deck on our IR website. I’m going to spend the first part of the call talking about COVID and our business. At a macro level, the COVID-19 pandemic and stay-at-home government mandates caused the demand for products and services, offered by many small businesses, to decline. These unprecedented circumstances forced the small, medium-sized businesses to pause operations, reduce headcount, or go out of business. This has resulted in significant economic and operational headwinds, including higher unemployment and higher out of business rates, as well as lower same-store sales, lower client fund balances, and lower interest rates. We are making tactical adjustments to effectively navigate these challenging times. We remain optimistic about our long-term strategy and will be positioned well once the macro environment and our clients’ operations normalize. We took multiple decisive actions in response to these unprecedented circumstances and I’ll categorize our responses into three categories – people, clients, and financial. If you’re following along in the deck, particularly Slides four…

Thank you, Pat and good afternoon everyone. For comparison purposes, we have provided restated 2010 revenue numbers that exclude non-strategic customer contracts and non-core HCM businesses we exited in December 2019. As usual, all non-revenue financial figures I will discuss today are non-GAAP unless I state them as a GAAP measure. And you will find a reconciliation from GAAP to non-GAAP results and restated revenue numbers in today’s press release. During the quarter, bookings declined 2.7%. Our first quarter saw a ramp of 36% in direct sales representatives that will be impactful in the second half of the year. Prior to the impact of COVID-19, we saw strong year-over-year growth with bookings up 11.5% through February. However, bookings stalled in March with the advent of the pandemic. Revenue for the first quarter decreased 1.6% to $18.9 million from an adjusted $19.3 million in Q1 of last year. Recurring revenue declined 2.9% year-over-year and was 97% of total revenue in Q1 compared to an adjusted 99% in Q1 of 2019. Next, I’ll discuss our profitability metrics. Q1 non-GAAP gross profit was $12.1 million, equating to a non-GAAP gross margin of 64.1%. This compares to $15 million or a gross margin of 73.7% in Q1 of 2019. Gross margins decreased year-over-year by 9.6% due to accounting policy changes and re-classes from OpEx to COG as we focused on our HCM business, as well as higher SaaS hosting fees, as we move completely to AWS. Applying these changes to Q1 2019, gross margin would have been 68.5%. Having said that, taking COVID-19 aside, we are laser focused on gross margin and we are taking actions to drive improvement. Interest on client funds exceeded $330,000 in the first funds exceeded $100,000 in the first quarter, up from less than $100,000 in the first quarter…

Thanks, Kelyn and going forward, I just want to put it in perspective. This year, with the sale of the space business, we’re a small business helping small businesses. And there’s nothing more essential than providing them a payroll check. As with prior uncertain economic environments that I’ve experienced over my 39-year career in payroll and human capital management, have been much more abrupt than in the past. The buying behavior of our small business clients and prospects has changed as they became time has changed as they became time and resource constrained and became focused on maneuvering their own operations and survival. While our products are mission critical, making vendor change decisions and implementation, once the decision has been made, can both be delayed. As a result, we are withdrawing previously issued full year 2020 guidance in light of these macroeconomic uncertainties, particularly on employment and business reopenings, rising from the current COVID-19 crisis. Our large market opportunity, recurring business, and attractive value proposition will help us mitigate the pandemic impact of headcount and business reductions across our customer base. As more information becomes available, we plan to return to providing guidance. With that, I’ll open it up to questions. Operator?

Operator, we will take questions now.

[Operator Instructions] Our first question comes from Ryan MacDonald of Needham. Your line is open.

Good afternoon Pat and Kelyn, Thanks for taking my questions. I guess first off, I’d love to hear what you’re I guess first off, I’d love to hear what you’re seeing in terms of mix within your customer base of customers that are actually churning off the platform because of going out of business versus simply lower headcount with existing customers.

Yes, Ryan. We have daily call downs, both direct to our clients and then around our payroll schedule. And our direct segment of the marketplace and our daily call downs, we had about 1,000 delay or so. It’s too early to tell if they’re going out of business or what have you. Now, I would say in the last maybe eight days or nine days, there’s been about 16% that are returning and so some of that is due to either the PPP money, et cetera. Now, will there be another spike and once that money runs out, or is there another program, et cetera. And some of it is – it’s hard to predict the opening and stay-at-home for how long and how many. So we’re not in – that’s one of the reasons we pulled guidance. But I would give you a sense that 1,000 clients today in direct. About 16 have returned so far. We’ve heard some good rumblings that others will return. And as the local state and national governments kind of start to reopen or lift some of the shelter in place, we’ll have a lot more visibility. Anecdotally, maybe 20% would be challenged that they might be out of business. But really, that metric will evolve over time.

Excellent. I appreciate the color. In terms of the new bookings activity, thanks for sort of parsing our February versus March. Can you talk about what you’re seeing in April and if you’re seeing any pipelines start to build again through the month of April as maybe some of these businesses are looking for an opportunity to be better, more responsive within their own businesses on payroll? Thanks.

Yes. I think the first step of this process were businesses coming back to us and I think that’s been the first step. As far as new bookings, we’ve kind of internally, and we meet daily on this, are planning for about a 50% attainment of bookings. And I think the first phase is getting back to work and then the second phase will be buying more. And then the third phase will be changing providers. And it really appears to be in that order. What I would say is we’re teaching our sales people how to sell differently. We’ve gone to webinars and we’ve had over 5,000, actually tens of thousands of people attend webinars in total, well over 5,000 just on the PPP alone and looking for more information. So really, we’re fast-forwarding to an online experience, a website experience. We have a very quick kind of value proposition and getting started. And then we have some offers that targeted to what their needs are right now. And it’s a more direct offering because frankly, people don’t have as much time and they’re making a number of different decisions. So we’re encouraged that we’re doing the right things, but I would say, for planning on demand right now, we’re at about 50%.

Excellent. Thank you very much.

Our next question comes from Vincent Colicchio of Barrington Research. Your line is open.

Yes, Pat, could you give us color maybe on what portion of clients are looking for better financial terms, or maybe what overall pricing is looking like?

I think Vince, and Kelyn, feel free to chime in. From our perspective, they’re looking for a partner right now and they’re looking – we think this is a tremendous opportunity to build loyalty. We’re trying to make attractive offers. I don’t see a lot of renegotiation right now and we’re right now and we’re open to helping people whenever possible. But for us, it’s really about extending our personnel and really all hands on deck to help them. And that’s where we feel, over time, we’ll have a lot of loyalty with them. People – this is a mission critical, they’ve got to take care of their employees. We’ve offered some additional services at no charge but we’re approaching it with plenty of feet on the street to help people, really pivoting our development resources to make sure that they can respond to the changing compliance laws and the PPP laws, et cetera. And so we’re really trying to smother them and help them through a tough time. And we’ll figure it out. And really, we want to be partners for life. So that’s how we’ve approached it. Kelyn, I don’t know if you have anything to add.

No, I would agree with that comment. What we’re really saying is that as you think about cross-sell opportunities, this really isn’t the time to be doing that. But it’s been wonderful to see our HR consulting reach out and put their arms around our small business customers, helping them with PPP, with the changing rules. And what we look forward to, we’ve actually done that also with non-clients of ours to provide support. And what I would expect to see happen in the back half of the year as we kind of come out of this, that we’ve built some really strong relationships and we’ll start to see additional opportunities because of it.

And your sales ramp has been rapid since the beginning of the year. Are you going to – I know you said you’re going to continue to hire but are you going to slow on the sales side, or are you going to reset that goal for the year right now?

Vince, our plan all along is, over time, we believe that we’re in a big market opportunity and we believe we were underserved from a sales perspective, naturally, we’ll be cautious. But we’re going to – we believe that there’s an opportunity and we’ll be very opportunistic. One of the advantages, and it’s a tough environment, but the ability to attract the really strong people. We feel that we have some opportunities and in order to support our small business community and clients, when you have an opportunity to get people that can do that and do that well, we’re going to continue to take advantage of that. We’ll see how this plays out, and how long COVID lasts, and the impact. But we are planning to continue to grow, and hire, and be opportunistic through these uncertain times.

I would add to that that this has been a unique opportunity for our new sales representatives that’s been coming in to actually pivot. And we have contacted every one of our 10,000 direct customers and also called into our SBOs. So it’s allowed an opportunity for training versus just kind of dropping into the deep end. So we feel really good about this. And I think the fact that we had this sales organization and could find, when Joe’s Pizza Shop did not process in Santa Ana that someone reached out to Joe to find out what’s going on there and how we can help. So I actually think that it’s not a good thing but it’s been very effective for our sales organization.

Thanks for all the color.

Thanks, Vince.

Our next question comes from Derrick Wood of Cowen. Your line is open.

Good, thanks. Pat, can you talk about how much exposure you have to the retail, hospitality, travel. Maybe just how much of your business is exposed to some of the more distressed industries today and what areas may be doing better.

Yes. Just, so we have no really one area of the business from a DMB over 9%. So the base is pretty spread out. And then geography wise, 99% of our clients in the United States and they range from the East Coast to the West Coast, and pretty strong in the Heartland as well. We’ve approached all clients though our partner sources as well as direct and really reaching out to them and getting to know their areas of stress and kind of how they’re looking at things. And we’re really staying close to them. And then anybody specifically that pauses, really trying to stay to help them get the help they need to be successful. And then working with them on the local agency and local laws to kind of help them, guide them when the laws change that they can reopen, and what steps they need to do to get people paid. So a pretty diverse base. We are a small business and so from that perspective, but no one area has over 9%.

Okay. Do you have any sense as to how long companies can endure shelter in place, not much commerce going on? Is it when PPP runs out and maybe there’s additional headcount cuts? Do you have any timeframe where it could get could get worse if the economy doesn’t come back on?

Derrick, I’m know soothsayer. What I look at, I think it’s probably a Nike swoosh is kind of that it will improve slightly over time. Now, that being said, there may be Ws and Vs along the way depending on hot spots and if we open too quickly and all that. As far as the local business owner, it really varies wildly. Some are well capitalized and some not so much. What I would say from the daily call downs, when you look at it, we get into why companies pause. And if we were in Omaha, we had a referee kind of sports team outfit that pays referees, well, we knew they’re going to be out for a while. We had a restaurant, more of a formal dining. We know they were going to be closed for a period of time. And what I would say is the individual capitalization of the business varies quite wildly. I would say small business is looking for access to money and I think when we started, all of us started this, was it going to be a month or longer, or was it going to be a couple months. I think the situation keeps evolving. I would say from the daily call downs that 16% have returned in the last eight days or so. And I think there is, when we talk to people, a direct correlation that they got the money. So that’s helped them survive and then the shelter in place laws by state and local kind of reopening have a correlation When I’m Austin though, even though there was a limited though, even though there was a limited opening, not every business is opening. Is that health concerns or financial concerns, or somewhere in between? Those are individual decisions. What I would say is the small community, business community, I think could use help. And as the longer this thing goes, the folks that are under-capitalized would love the opportunity to continue to either hire, or continue to grow, or continue to help get funds.

Great. That’s great color. If I could squeeze one more in for Kelyn. You mentioned that you’re looking at doing things to improve the gross margin. Could you walk through a little bit more on what levers or what actions you could take?

I’d be really excited to, actually. So one of the things that we’ve been doing since the sale of the workspace business, we are really focused now on our payroll business, and we have daily call downs. So not only did we – we started the daily call downs in January prior to the concerns about the pandemic. And what we’re doing there is that we’re now taking it, with NetSuite in, and the details and Domo analytics, we’re able to go down to the client level. So we look at every day what payrolls are scheduled. We talk about freight. So one of the areas that we found with given all the acquisitions that we have made and the different disparate systems, and the contracts that are out there, that we have a real opportunity in shipping margin. And so we go down to the client level now, looking at do we have the best deal out of a FedEx and a UPS. Are we providing the right type of turnaround to our customers? Is our system set that we’re charging the appropriate amount. So those are some of the things that we’re doing to kind of focus on gross margin. There’s opportunity there. There’s opportunities as we think about AWS. When we spin up a new SBO, there’s an initial charge there. It may take them four or five months to really get up and running. But we’re incurring AWS hosting charges. So in those big buckets of areas within gross margin, we actually have task teams working to improve those costs.

And Derrick, just to add on the AWS, because I think it’s a great example. Our firs mission was really to have a quality back office for all our clients. Now, we’re working with our clients on do they need a dedicated backup recovery through AWS. How do we optimize AWS for the client experience but also use it in a cost effective way. There’s a whole team in place to really dial – make those dials effective for our end client, our reseller, as well as provide the right cybersecurity, and the right speed, and robustness of the data. And there’s opportunity there to provide that quality service at a very efficient price. So we’re going after those opportunities. And then some of the compare year-over- years, now that we’re focused on human capital management, we had some geography issues around the P&L that the costs are centered around that. Now, we’re really working on – and I think you’ll see improvement over time.

Great. Thanks guys.

[Operator Instructions]

Well, since there is no more questions today and I know it’s a busy Thursday with companies reporting. We want to, again, thank our employees for their exceptional efforts through a tough time with COVID, their dedication to our clients and the market, and Asure has been amazing and I want to thank them personally. As far as the investors, we realize that these are uncertain times. We wanted to give you a color on how we’re responding to COVID and how we’re looking forward to the business and what actions we’re taking. While we understand that, from a guidance perspective, we had to pull the guidance with the market uncertainty, I wanted to make sure you understood how we’re thinking about the business going forward and trying to mitigate and really thrive long-term. And then finally, to our clients and we thank them each and every day for their loyalty with us. And we think that there’s opportunities here as COVID mitigates a bit that our partnership will continue to thrive and look forward to having the conversations where we can all grow together. So thanks for your time. Look forward to speaking again soon.

Ladies and gentlemen, this concludes today’s conference. Thank you for your participation and have a wonderful day. You may all disconnect.