Good afternoon, and welcome to Asure's Third Quarter 2022 Earnings Conference Call. Joining us for today's call are Asure's Chairman and CEO, Pat Goepel; Asure's Chief Financial Officer, John Pence; and Head of Investor Relations, Randal Rudniski. Following their prepared remarks, there will be a question-and-answer session for the analysts and investors. I would now like to turn the call over to Randal Rudniski for introductory remarks. Please go ahead.

Thank you, operator. Good afternoon, everyone, and thank you for joining us for Asure's third quarter 2022 earnings call. Following the close of markets, we released our financial results. The earnings release is available on the SEC's website and on our Investor Relations website at investor.asuresoftware.com, where you can also find the investor presentation. During our call today, we will reference non-GAAP financial measures, which we believe to be useful to investors and exclude the impact of certain items. A description and timing of these items, along with the reconciliation of non-GAAP measures to their most comparable GAAP measures can be found in our earnings release. Today's call will also contain forward-looking statements that refer to future events and as such, involve some risks. We use words such as expects, believes and may to indicate forward-looking statements. And we encourage you to review our filings with the SEC for additional information on factors that could cause actual results to differ materially from our current expectations. Finally, I'd like to remind everyone that this call is being recorded, and it will be made available for replay via a link available on the Investor Relations section of our website. With that, I would now like to turn the call over to Pat Goepel, Chairman and CEO. Pat?

Thank you, Randall, and welcome, everyone to Asure's third quarter earnings call. I appreciate your interest whether you're an employee, partner, investor, analyst or other interested party. I will begin today's presentation with an update on our business highlights and strategy and then I'll turn it over to our CFO, John Pence for a more detailed review of our financial results and outlook for the remainder of 2022 and 2023 fiscal years. We will then conclude the session with time to answer your questions. We had a real strong performance in the third quarter with results that showed improving levels of organic revenue growth as the many initiatives we have undertaken are beginning to see real progress. We grew our third quarter revenues by 22% relative to prior year and adjusted EBITDA by 71% with adjusted EBITDA margins rising by 280 basis points to 9.6%. Organic revenue growth in the quarter was 4% and from our revised higher revenue guidance, you can see we expect organic revenue growth to come in at roughly 10% annually in the fourth quarter. Momentum is building nicely in the business giving us confidence in our fourth quarter and 2023 guidance. Our new sales bookings have been strong all year and have accelerated as the year progressed. In the third quarter new sales bookings grew by 91% relative to the prior year, including 200% growth in recurring new sales bookings with strength across many parts of the business, including HR compliance and tax solutions. Demand for our solutions remain strong in the current economic environment and our pipeline and backlog are very healthy. We anticipate finishing 2022 with strong momentum that will carry through 2023 with continued double digit organic revenue growth, driving strong adjusted EBITDA margin gains, margin improvement in 2023 is expected to…

Thanks, Pat. As Randall mentioned at the beginning of this call, several of the financial figures discussed today are given on a non-GAAP basis. You will find a description of these GAAP to non-GAAP reconciliations in the earnings release that was made available earlier today. The reconciliations themselves are also included on our most recent investor presentation posted in the investor relations section of our website at investor.asuresoftware.com. So with that now on to the third quarter results, we are pleased with our financial performance in the third quarter. Here are some of the highlights. Revenues reached $21.9 million in the third quarter rising by 22% relative to prior year and 8% relative to the prior quarter. Acquisitions generated the majority of the year-on-year growth, but did not affect the sequential quarter-over-quarter comparisons both recurring and non-recurring revenues had strong gains. As Pat discussed, we had good bundling success with clients as we saw strong demand for HR Compliance and tax processing solutions as well as revenues from new product offerings such as the Integration Marketplace. ERTC is increasingly becoming a bundle sale that includes products such as HR Compliance, and payroll processing. Overall revenues grew by 4% organically relative to prior year. Adjusted EBITDA rose by 71% relative to prior year to $22.1 million driven by revenue growth, operating efficiencies and overall continued strong focus on cost. Our adjusted EBITDA margins reached 9.6% in the quarter, rising by 280 basis points relative to last year. We believe we have reached the point in the business where scale and technological improvements will enable higher proportion of the revenue growth to flow to adjusted EBITDA margins. We ended the quarter with cash and cash equivalents of $10.9 million. We also had $34.4 million of debt, which is comprised of $30 million…

Thanks, John. In conclusion, I hope that today's call will give you a sense of the enthusiasm we have for the remainder of 2022 and 2023. On past calls, we've given you a sense of the many initiatives we're implementing. I believe that business is positively responding to our efforts. We introduced several new solutions as well as enhancements that are beginning to generate revenues and are expected to be meaningful contributors to our revenues going forward. These include launch of integration marketplace, enhancements to our tax platform, and repositioning of HR compliance. These efforts have driven accelerating new sales bookings in the third quarter of 91% year-over-year, increases in new payroll logos added up 49% year-over-year and a rising backlog up 180% year-over-year. We're also seeing the positive impact of our investment revenues from rising rates and higher investable assets. For 2023, we anticipate delivering double digit organic revenue growth and a strong adjusted EBITDA performance. Our revenue guidance anticipates solid momentum with our HR compliance and tax solutions, reflecting the upgrades we've made. Revenue contribution is also expected to come from new revenue solutions such as integrated marketplace. Interest revenues are also anticipated to increase meaningfully due to the rise in rates and investable balances. We also expect to improve our adjusted EBITDA margin significantly in 2023. This will be driven by organic revenue growth and a positive impact of our efficiency initiatives. These include driving process automation, through the business to make operations much more efficient and to enable development of our new products and revenue streams, development of our human capital management platform and our consolidation efforts. We're pleased about the progress we made to create differentiation in our market using our unique collection of assets and we're excited about the year ahead of our clients, our business and our stakeholders. So with that, I will send a callback to the operator for the question-and-answer session. Operator?

Thank you, Pat. At this time, we will conduct the question-and-answer session. [Operator Instructions] Our first question comes from Bryan Bergin of Cowen. Please proceed with your question.

Thank you. Hi, guys. Good afternoon. Maybe I'll start with just the macro one first. Are you -- doesn't sound like it, but are you seeing any KPIs that would suggest recessionary behavior or imminent slowdown? And Pat, can you just dig into what underlying macro assumptions you guys are making within that 2023 outlook?

Brian, thanks for the question. Right now, we're not seeing demand environment is strong. We're not frankly - I think we're watching on our daily calls. We have operational daily calls, as well as management daily calls. Small business hiring still people, there's more - more jobs than people right now. Interest rates obviously are going up. So the key drivers to us we're just not seeing any recessionary behavior at all. As far as we're going to keep a - on assumptions, but assumptions are on the float are around the current kind of Fed funds rate. We didn't model a projected increases but we also did model projected decreases should there be a recession. As far as the demand environment, we think is pretty healthy. We're going to continue to monitor that but as far as visibility for us, we feel really confident in the visibility of our small business, main street clients.

Okay, very good. And then from a margin standpoint, you did better across the board from a cost standpoint versus what we projected. Can you just talk about really the biggest drivers? I know there was a list of things you'd call that. What do you think is the single biggest? And if possible, can you kind of segregate the float contribution that you have in there?

Yes. There's some incremental float obviously this quarter. We really didn't get huge uplift kind of till September, we negotiated some better rates with one of our banks and we do expect better rates kind of going into the balance of Q4 in '23. So that's obviously a 100% follow through, so that helps. But I would just tell you in general, we rough numbers were kind of in 520-ish, 525 in terms of headcount after the acquisitions last year. I think we're ending the quarter kind of around 505, not precise, but kind of in that low 500. So what we've been able to do is make those acquisitions, get them integrated, obviously add to the top line with the acquisitions and these other initiatives and then keep our headcount not only steady, but actually reducing it. So I think that's where you see the biggest contribution from my perspective in terms of the margin improvements. And I think as we think about next year in those EBITDA guidance, we're kind of showing a pretty good fall through for the incremental revenue. It's kind of implicit. And so again, I think the idea is that we've got an operating model that we feel is pretty stable and that's really given us some comfort in terms of the cost structure.

Yes, the only thing I would add to John's commentary, I think he's spot on. Is some of the incremental revenue streams, whether it's the marketplace, whether it's float, whether it's some of the consolidation of instances of software, they bring with us a higher flow through margin. I'm not going to break that out specifically, but that's some of the reason why you're seeing the jump in margin and then also we're just getting the scale and John talked about some of the initiatives. I'll point out float a year ago we were about 120 bank accounts, we're probably approaching less than 20 here as we end the year. That kind of fall through as an example where we can get more scale on our float dollars as well as consolidation of costs internally. So it's a win-win for all of us. So that's just an example of it.

Okay. Thank you very much.

Thank you, Bryan. Our next question comes from Joshua Reilly of Needham. Josh, you have the floor.

All right. Thank you. Thanks for taking my questions. Nice job on the quarter here. How should we think about the relative focus of the sales organization today in terms of organic customer acquisition versus upselling the base? And then does that change at all going forward given you have all these kind of new products to up sell? And what's the optimal mix going forward to kind of hit your growth targets of 10%.

Yes, I think Josh, good question. I mean, we'll continue to focus on, first of all, new logo has been really strong. Eyal and the team have done an outstanding job of targeting new logo. We're doing a lot of good bundling. The increase of logos of 49% is really positive. We'll continue to drive cross-sell up over the time. I think we frankly feel really confident we're going to get those sales flow through. I mean, if you just look at our projection of sales reoccurring revenue, bookings have gone up from 40 odd percent to 80 odd percent to 91% and reoccurring bookings have increased through the year. So we feel like we have a good formula. We feel like we have success. We'll continue to bundle in some of the other rent revenue streams in addition to cross-sell and new logos will be a big part of the strategy. So right now we're hitting on all cylinders, we'll continue to grow out the sales team and invest in that. We'd like to see us go up about, 15% to 20% per year. Some of that though, we're not going to compromise from a sales headcount perspective on quality. We're going to continue to drive - that within the framework. So I feel we have a good plan going forward. We have a great execution plan so far this year. Our people are motivated, excited, and we think there's going to be a halo effect into the next year, Josh?

Yes, I think couple points, you know, some of the growth that we've got contemplated doesn't even require sale, right. So if you think about the marketplace, and you think about the float, just implicit in the model, we're going to start getting some uplift out of this new revenue stream for this incremental revenue stream, so that gets us some - comfort about next year and about Q4.

Got it, that's helpful. And then maybe a follow-up, when you when you look at the new 2023 guidance here, how much of the difference in improved EBITDA margin versus kind of where consensus was at, is due to now including the interest income in the model for a full year versus some of these internal efficiency improvements? And what did you say the timeline was on the $5 million was at the end of 2023 or 2024? Thanks, guys.

Yes, just in general, the $5 million improvement is plan that goes over, let's say, about 18 months, fully baked. But I just want to caution you what the $5 million does, will probably invest some of that and salespeople that we just talked about. We'll invest some of that in developers, we'll continue to drive efficiency, the real flow through we'll come through some of the cross- sell performance, the reoccurring revenue, the float dollars, as well as the marketplace dollars that really is kind of a touchless process. So those three are kind of already baked in the plan, some of these initiatives have been a year and a half in the making. They're starting to hit, for example, the marketplace start to went live in August, there'll be increasingly a bigger share. Obviously, the float dollars a year ago, the short-term Fed funds rate was zero. You know, now let's call it 3.75% to 4%, you know, so you could see that the momentum is already there. So it gives us a lot of confidence, Josh.

Thanks, guys.

Yes Josh, we have a shout out to a mutual friend, [Frankie Stafford], who had a birdie on 18 to make the Korn Ferry tour. So that was exciting for me to see.

Yes, we're very excited, awesome stuff great.

Thanks, Josh. Next question operator.

All right, our next question comes from Eric Martinuzzi of Lake Street Capital Markets. Eric, you have the floor.

Hi, it's Eric from Lake Street Capital Markets, wanted to look into the retention figures. You talked about them improving? Do you have a number as far as Q3 retention versus the prior quarters?

Yes, year-to-date, Eric, what I would say is we're going up and you know, we're providing let's say an annualized number close to 90%. And it's been a 1% or 100 basis point, improvement, and that's been year-over-year to last couple years. So, you know, it's not perfect science, but somewhere around, going from 89% to 90%.

Okay, and then, are you getting the same message from your reseller partners that you're getting from your direct sales reps? Obviously, you know, the bookings being up 91%? I'm assuming the answer is yes. But just thought I'd get a feel for the smaller customers maybe versus the midsize customers on the new business bookings?

Yes and the reseller - it's not a perfect correlation. First of all, the product service is good and the resellers are certainly increasing. But in some cases, they're not devoting the resources that we are to an organic sale. So to me, it's not a perfect correlation, but I am been very pleased that our resellers are starting to add more clients and more employees as well coming out of COVID and investing in the business, not all of them invest in top line quite as much as we have. So they're probably trailing a little bit, but certainly making really good progress.

Okay. And then - I was pleased to see the guidance here for double-digit in Q4 as well as double-digit growth in FY '23. I'm not used to seeing that kind of foot on the accelerator as far as you know you talked about Q3 organic growth of 4%. And then here we're jumping up to or whatever it is 11% plus 12.8% the midpoint for Q4? What you know is there, are there one-time sales is a project worth professional services? Is there a lumpy number in there for Q4?

Now, it's kind of what we were talking about. It's a combination of a lot of different things all kind of coming together all at once, right? So Pat mentioned, the fact that HR Compliance sales have been really, really strong. We've talked about float, again, we got some visibility to - rise in interest rates. And then the integration marketplace just kicked off in earnest this quarter, there's a ramp to that there's additional products and digital offerings coming into that. And we've got pretty good visibility as to what that's going to look like. So I think that's a lot of what's driving that. So it's not just one product or one stream, just a lot of them all kind of hitting all at once.

Yes Eric, and I apologize, the only thing I would add, if you look at our ARR bookings or reoccurring bookings, you know, it really was 40% increase in first quarter, 80s in the second 91 in the third, some of the small business churned or bookings turning into revenue is almost immediate to 90 days. The marketplace, depending when that was booked was 90 days plus, although it did start in August, and it's increasingly going up. And then float as John mentioned, was zero. And now some of the float revenue is starting to hit at a higher percentage. So it's a combination, not every booking goes live right away, you know, the organic growth was a little over zero in the first quarter, a little over zero in the second, third quarter, some of the revenue from different streams hit the beach, it was over four, fourth quarter, we have really good visibility. So I don't view this as a, lumpiness at all. And then our initial guidance, we want to be thoughtful about, potential recessionary environments, et cetera. By the same token, we see the momentum going on with the business, and we feel that that guide is a prudent guide going forward.

And yes, I would say, you know, we talked about it on some of the prior calls. We haven't even touched on some of the tax processing work that we have, we think, some interesting opportunities ahead of us. And then, you know, there's some significant momentum with some of the tax processing and the tax credit processing that we're doing, that we feel pretty excited about. But again, it's just a lot of different things all at once. You know, it's like overnight success, right.

Yes, the overnight success sometimes is years in the making.

Yes, no I'm looking forward to seeing and you guys ring the bell when you cross $100 million mark. All right, thanks for taking my questions.

Thanks, Eric. Operator?

All right, next call comes from Richard Baldry of ROTH Capital. Richard, you have the floor.

Thanks. One of your comments I think that - you thought the integration marketplace could be as much as 30% to 40% of revenues over the next few years, which is, would obviously be a pretty fast ramp. Could you talk a little bit more about that sort of, you know, how many more opportunities you have for partners to go into that sort of who spearheads attracting those, how much you can push sort of end user adoption, through either your own sales or marketing efforts, just to kind of flush out more about how that opportunity will work over the next few years.

Yes, Rich it's good question. And we kind of - we'll highlight this in our - we have an investment deck as well and - located on our IR website. So I encourage you to look at that as well and future iterations of that. Excuse me, but if you think about it, first of all, give you an example of Equifax which is one of our companies that spearheaded the marketplace. If you think about the value proposition, the employees sometimes, they want - they apply for a loan in this case, and they want to touch those process. They don't want necessarily their employer to have to get interviewed and then you know, their employer knows that they're applying for a loan. The employer doesn't want to take 20 minutes to 30 minutes outside of their day to field the employee loan questions, the data is available. And then we go through a process of opting-in and opting-out, but both at kind of company level as well as an employee process. And most people appreciate the time and they want data that's available and then Equifax doesn't have to do a phone call and then we get some money for monetizing that data. So that's kind of the process. Now if you think of the categories that have everybody's best interest in that. You could see W-2s, for example, where you have intuit or H&R block. They can [technical difficulty] get the actual W-2. The employees loves it because they don't have to kind of recreate the W-2 or put it, get more paperwork available. They can turn that into a personal tax return. So there's a number of different issues. You might see a sign-in a small business saying, hi, work today, get paid today. Millennials like the idea of, I'll take babysitting where the babysitting, they get paid right away. They sometimes don't understand the concept that they have to wait two to three weeks to get paid, especially in an environment where they might need money or not have a lot of savings. So there's a whole series of categories that we believe could be beneficial to us. Let's take a 401(k) provider. They would love the idea that they could help employees and clients alike that if somebody quits or leaves a company that they can roll over their 401(k) to the IRA and they don't have to find the paperwork to do that and they can talk to their trusted advisor being Putnam or Fidelity or whomever in human interest to be able to do that. So there's a series of opportunities. Eyal Goldstein, our President and his really spearheading this has done a nice job circling the wagons. Yasmine Rodriguez, our CTO; and [Tobblevsky] have done a really good job operationally and from a technology perspective providing this. So this will be a multiyear strategy, more to come on it, but we've add some really good proof points.

And do you think at all that these sort of broader features that are available then to your customer base. Does that help you start climbing higher on sort of new wins, average headcount? Or maybe into that lower middle market because that feature functionality they can extend sort of gets more competitive upmarket? Thanks.

I'm not sure that's necessarily in the buying decision for these people. I just think it's a nice incremental revenue stream off of our installed base. So I don't think that at least that's my impression is that this isn't necessarily something that somebody is looking at when they're trying to evaluate their payroll providers that they have these other opportunities, but that could be wrong. I tend to think it's just an incremental registering off that installed base.

Yes. And Rich, the only thing I'd say, we have kind of a strategy, a deliberate strategy around us. I think we'll continue to drive it over time. We'll get our market. We're not in a necessarily a rush to do that. We think we have really good line of sight to some really good growth. And -- but yes, over time, we'll increase our aperture, but right now we want to just stay focused.

Great. Thanks.

Thanks, Rich.

Thank you, Rich. Next question comes from [Daniel Hichman] of Craig Hallum Capital Group. Daniel, you have the floor.

Hi, this is Daniel on for Jeff. Just a quick question for us on the timeline on marketplace, when we're talking about several year timeline to get to 30%, 40%. Just any ballparks around we think in 2024, 2025, what this kind of several years mean? And then just thoughts on incremental margins out of that business and how you're thinking about that affecting margins also where you're seeing that as a percent of bookings right now? Thanks.

Yes. Just on your first question, Dan, we're not going to get into '24, '25 right now. We will provide multi-year kind of updates in the future. But right now, we're just focused on initial guidance. We're telling you kind of where it could go, but we'll provide more color as we go on throughout the year. As far as the margin flow through, once you set up the technology and the process, we do think it will be higher margin than our core business. But as far as breaking that stuff out right now, you'll see that more in time. But it does absolutely the guidance starts to reflect that going forward as well.

Okay. And then [technical difficulty].

And our last question right now comes from Vincent Colicchio. And Vincent is from Barrington Research. And go ahead.

Hi, Pat. Nice quarter.

Thanks.

Yes, just a couple of questions here. I may have missed it, but did you break down your bookings growth between new and existing clients?

Yes, I think overall we had 47% new logos, about 75% or so was new logos versus existing. Really good progress in ARR. I think was up 180%. So good bookings all the way around, very pleased with our bookings performance. I thought we did a nice job.

And then is there any -- are you seeing any improvements in the labor market, wage inflation, attrition, is that trending in direction we'd like to see?

Yes. Well, I'd say internally, our retention rates improving, which is always good to see. We feel like we're rewarding people appropriately. We're getting success. success breeds success. So that's always a positive thing. As far as the client retention, I think the labor market is still tight. I think some people are a little worried about, is there a recession coming. I'll tell you, Main Street America, from my perspective, unemployment is still low. I think it's a bigger company kind of potential layoff. I actually think a recession might bring some people that were out of the workforce due to COVID, due to homeschooling, due to kind of that preretirement. And their 401(k) is now a 301(k). It kind of drives them back to the workforce. So I actually think that will be a slight positive, but that's what we see today.

And how confident are you on the 5 million over the next 18 months? I'm just curious if some of the elements like the automation are areas that where you've had some disappointment in terms of hitting targets in the past?

No, I'd say, I feel really confident in the team. I think we got it. Certainly, when you're -- we weren't in this business six years ago or seven years ago, we're continuing to build up the infrastructure. We're hiring good people. We have the plans. You see it even in the second, third, fourth quarter guidance performance to flow through the fact that we have the initial guidance for next year, EBITDA going up. I think some maybe just the benefits of scale as we approach -- we sold out the space business, we hit COVID, now we're coming out of COVID. We feel like we have multi-year initiatives are starting to hit the ability to predict the business going forward. And more importantly, the improvement going forward, you see us stack up successes. We're not uncertain that we're going to improve.

Thanks, Pat. Nice quarter.

Thank you, Vince. Appreciate it.

Thank you, Vincent.

Operator, any other questions?

No. I believe at this time, we'd like to hand it back to you Pat Goepel for closing remarks.

Yes. I appreciate everybody's time today. We took a little bit longer today and want to make sure that you had good visibility and understanding in the story. I'd say I'm very proud of the team. I'm proud of our employees. I'm really excited about our clients, our stakeholders, our investors. I think we pointed to this day as an inflection point for quite some time. We're continuing to point towards organic growth of 10% plus. We have great line of sight into it. We talked about margin expansion. We have good line of sight into that. I'm just really, really proud of the team. And I think the best day [technical difficulty]. So thank you so much for your time today. And we'll talk to you next time.

Thank you, guys. This does conclude the program. You may now feel free to disconnect.

Thank you.

Thank you.