Q2 2021 Asure Software Inc Earnings Call
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Good afternoon, and welcome to assure second quarter 2021 earnings conference call joining us for today's call on assured chairman and CEO, Pat Jabil, John <unk>, and Vice President of HR share true Bola after the Speakers' remarks there'll be a.
And answer session I would now like to turn the call over to Cheryl for introductory remarks. Please go ahead.
Thank you operator, good afternoon, everyone and thank you for joining us for our second quarter of 2020.1 earnings call after.
After the market closed we released our financial results. The earnings release is available on the SEC's website and on Investor Relations website at Investor Day, a share software Dot Com, where you can also find the investor presentation.
Teleconference is also being broadcast over the internet and will be archived and available on our IR website. 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 a reconciliation of non-GAAP measures to their most campaign.
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 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 will be 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 Gaffle, Chairman and CEO, Pat. Thank you Cheryl and welcome everyone to insurers Software's second quarter earnings call I would make.
On today's presentation with an update on our business performance and strategy then we'll turn the call over to our CFO John patents for a more detailed review on our financial results on the outlook for the third quarter of 2021. We will then conclude the session with time to answer your questions in the second quarter share Dill.
Liver total revenues of $17.2 million and net income of $3.7 million, our revenues grew 22% versus prior year with recurring revenues rising by 17% importantly, our revenue growth was balance to nearly equal contributions.
Organic growth and acquisition related growth in line with our strategic aspirations.
He is to reaffirm our long term strategy to grow roughly 20% each year made up of 10% organic and 10% inorganic is unchanged.
A significant contributor to our inorganic growth in the quarter was the acquisition last July on specific or excuse me payroll tax management in.
In July the new tax platform has improved operational efficiency for our payroll operations and accelerates our ability to integrate our accretive acquisitions. It also expands our capabilities to new small business clients resellers and large brands, who have already big spread.
Net interest in using our tax engine to power their payroll and treasury departments, regardless of which payroll platform. They use the integration of a small northeast based reseller acquired in December 2020 is now complete this is important because it provides a positive.
Proof point regarding our acquisition model. The model, we developed enables us to acquire similar value added resellers integrate them quickly and then expand their revenues by more effectively delivering on our strength. This model works and it is highly accretive to customers.
Business on our shareholders, we will continue to be opportunistic and rolling up our reseller partners that white label on human capital Management solutions. This is in line with our strategy, where our partners are reselling our solutions and then joining via share family acquisitions of our resellers continues to be.
A part of the growth strategy and we will continue to be active in the marketplace. We're also pleased to announce that we've signed a commitment letter with structural capital investments. There are third party LP and want to express our thanks to Wells Fargo for their partnership over the years shifting now to organic.
Revenue growth same store sales was roughly tracks national unemployment rates was 7.
7% year over year for the second quarter of 2081 and.
<unk>, 5% sequentially compared to the first quarter of 'twenty 'twenty..1 this marks the first uptick since the start of Covid pandemic, both sequentially and year over year, pointing towards an improving environment for our clients and per share we've previously.
To you our plan to significantly increase the number of direct sales representatives across the United States. We continue to be active in this area at the end of the second quarter. We had 65 direct sales reps up slightly from 64 at the end of the first quarter and up significantly from the third.
31 at the start of 2020 debt.
Year end 2021, we expect to be about 75 to 80 direct sales professionals.
The investments in sales and marketing are paying off bookings were up 48% year over year, 51% sequentially. We'll continue to invest in this area and expect even more productivity from existing sales reps as their tenure increases.
Successes have been possible with our continuing focus on small business, which is where most of the sales efforts on this.
This is evident in our small business bookings, which increased more than 133% year over year as we previously discussed these new sales our bundled solutions.
As we've discussed in the past the previous 16 months or so have been different from any other time that we've experienced before we're encouraged by the early signs of the economy reopening is our small business clients are largely back to business yet uncertainty obviously remains with COVID-19.
And it's new variance that said, we're opportunistic about tailwind to our model it as employment levels rise clients and partners become more available for face to face meetings and the uncertainty that freezes buying decisions returns to normal I continue to be very proud of how the assurant team.
Embraced these challenges it took a leadership role through the pandemic for example.
As part of our efforts to support more than 80000 small business clients navigate the complex Covid regulations, we introduced an employee retention tax credit solution to help them efficiently.
Efficiently maximize this critical stimulus program I couldnt be more prouder of our team as they help their clients file for nearly.
$100 billion in tax credits in the second quarter. These stimulus dollars can help our customers higher staff and grow their business.
As in a central small business assure remains committed to helping more than 80000 small business clients navigate unprecedented compliant changes and grow on a very challenging environment. We're committed to ethical business practices a values based culture innovation social response.
Ability and leadership as well as our support for small businesses throughout the United States. Overall, we are pleased with our second quarter results. The business has returned to organic growth. Following the negative impacts of Covid and has allowed us to return on our employees.
Their traditional compensation structure, our acquisition model is delivering tangible positive results and created new areas of strength.
Sure we continue to.
To be built vigilant in managing expenses.
Improving our scale and ability so that future revenues can be effective in driving higher levels of EBITDA and cash flow now I would like to hand off to John to discuss our financial results in more detail John Thanks, Pat as Sheryl mentioned at the beginning of this call several financial figures discussed today are non-GAAP.
You will find a.
Description of our GAAP to non-GAAP reconciliations in the earnings release that was made available earlier today and the reconciliations themselves are included in our most recent investor presentation.
<unk> in the Investor Relations section of our website at assure software dot com before I get into the details of our second quarter results. It is important to remind you on our first quarter result feature a seasonal lift related to recurring revenue generated by annual preparation of federal reporting regarding employee employer reporting of W..2 income.
ACA compliance this lift happens each year on the first quarter and has a significant impact on our quarter over quarter comparisons in Q2, but does not affect year over year comparisons.
Now on to the results.
Excluding year on fees from the first quarter to second quarter sequential revenue comparison revenue was up 5.6% $17.2 million.
This first quarter, where we have a post COVID-19 post COVID-19 comparison for you our year results. When we look at that comparison on the top line, we were up a little over $3 million or nearly 22% from $14.1 million on the same quarter of the prior year.
Pat indicated on our revenue growth was well balanced with strong contributions both from organic and inorganic sources.
Recurring revenue represented approximately 94% of our total revenue for the quarter.
Interest on client funds was approximately 400000 in the second quarter flat from the first quarter and up from prior year of approximately 100000.
The average balance of funds held on behalf of our clients was approximately $203 million in the second quarter down from approximately $234 million in the first quarter and up over prior year of $94 million.
Non-GAAP EBITDA on the second quarter was $1.1 million. This compares favorably to the first quarter, which would have been approximately breakeven after taking effect for the year on fees recognized in the first quarter.
And this is down approximately 300000 from prior years second quarter.
This small decrease year over year was realized despite the increase in salaries as we absorb pay and benefit increases following the implementation of our temporary reductions related to COVID-19.
Compensation represents approximately 70% of our cash expenditures. So these adjustments have a meaningful impact. Additionally expense comparisons are also impacted due to expenses related to the transition service agreements from the sale of its base business at the end of 2019.
Finally, as patent mentioned in his remarks comparisons were also affected by an increase in the number of silver representatives as we invest in sales organization to drive higher revenues in future periods.
While there were some headwinds on our second quarter expenses related to sales force expansion and pay restorations. We view these investments in our organization and people that will deliver future results and are key to building momentum in our business underlying these those increases are significant efforts to increase scalability of our platforms and to <unk>.
Prove our cost efficiency, we have a broad set of initiatives underway that will standardize our processes simplify on internal and external interactions and enhance our self service capabilities.
As previously mentioned, we intend to return full benefits for our employees in the second half of 2021, which would include bonuses and company matching a 401k contributions. We expect this reinstatement of these costs to be offset by some of these anticipated cost efficiencies, yielding net net neutral operating profitability contribution.
Turning to the balance sheet, we ended the quarter with cash and cash equivalents of $20.3 million on June 32021, We also had $13 million of debt, which comprised of 9 million term loan on the balance made up of seller notes from acquisitions.
Since December 31, 2021, we have reduced our indebtedness to $13 million from $25 million a large component of this reduction was forgiveness of $8.6 million of our PPP loans during the second quarter.
On an income statement you will see the extinguishment of the PPP loans created a gain of $8.7 million and that contributed to our net income in the quarter of $3.8 million. This gain however is not reflected in the non-GAAP EBITDA I previously discussed.
As Pat mentioned earlier, we are also pleased to announce the signing of a commitment later today with structural capital investments for a $50 million term loan facility.
Once closed availability of the facility will be based on advanced and advanced rate based on our pro forma annual recurring revenue.
Besides maintaining this ratio there are limited financial covenant compliance metrics. This new facility has a 4 year term and once closed we believe with combined with our previously filed registration statements. We possess the financial structuring flexibility to aggressively pursue our previously stated strategy regarding organic and inorganic.
Net growth.
We anticipate that this facility will close before the end of the third quarter and are very excited about the potential of this new agreement and the opportunity to work with our new partners that structural capital investments.
It is our intention to use the proceeds to repay our existing $9.8 million facility and to deploy the balance of the proceeds for growth opportunities as Pat indicated earlier, we have a demonstrated our ability to make accretive acquisitions that are beneficial for both our customers and our shareholders. These acquisitions create new revenue opportunity.
By expanding our footprint and accelerating product sales opportunities.
As we have consistently communicated we plan to pursue acquisition opportunities in this new facility lays the groundwork to accomplish our strategic goals.
Now I'm going to turn to guidance for the third quarter ending September 32021. This guidance is offered with a backdrop of continuing challenging environment to predict the future economic results given the ebbs and flows of employment trends and Covid.
The following guidance.
Revenue for the third quarter of 2021 is expected to be in the range of between 17 million to $17.5 million.
Non-GAAP EBITDA is guided to be in the range of 800000 to $1 million and non-GAAP EPS is guided to be between <unk> negative and negative 1 penny.
While the economy on labor markets continue to be volatile we focus on the levers of the business that we can reasonably control.
We expect to accelerate our acquisition program for resellers of our software solutions at the same time. We are also continuing to drive significant process efficiencies throughout the organization to build scale and enhance operating leverage which should benefit our results in future periods with that I will turn the call back over to Pat for some final remarks.
Thanks, John in summary on our second quarter results I think are very encouraging we have developed some early momentum in terms of revenues and are starting to turn a corner.
Also substantially improved our balance sheet and once we have closed our new term loan agreement. We believe we will have provided a foundation and have flexibility with to drive future value creation. The second quarter results also showed a positive impact on our financials of recent acquisitions that <unk>.
US and our clients with enhanced solutions and capabilities. We continue to further integrate our payroll HR time and attendance and tax products from <unk>.
<unk> experience, while also streamlining the back end hosting and system architecture to simplify support and reduce cost of goods sold we're also streamlining and improving our internal and external processes in order to build scalability and to make it easier to do business with a share.
These include substantial standardization and simplification efforts as well as enhanced digital and self service capabilities.
Over the past year or so we've focused on significantly improving the quality of our board and key executives in that regard I am pleased to announce that we've created a new role of Chief Technology Officer. We're excited to have point gas made rodriguez to this role.
<unk> brings over 20 years of experience in building World class Human capital management technology solution and she'll lead our it infrastructure process automation and technology roadmap driving innovation to better serve our clients. Congratulations he asked me so that.
Close our remarks and with that ill turn it over the call over to the operator for the Q&A session operator.
Thank you.
<unk> asked a question you will need to press star 1 on your telephone to Jonathan's question press. The pound key please stand by we compile the Q&A roster and once again, if you have a question that is star 1.
Our first question comes from Joshua Reilly from Needham. Your line is now open.
Okay.
Hey, guys congrats on the quarter and thanks for taking my questions here.
So if you look at the significant improvement in bookings during the quarter here, how would you attribute the results to the improving macro versus sales execution and then second how do you think about the opportunity for rep productivity improvement for the rest of the year.
Versus where it's at today and maybe how did that trend in the quarter.
Yeah, I think Josh Thank you for the questions on sales.
I think a couple of things 1 I remind people that our average tenure of our sales force right. Now is about 10 months. So I think the best days are here to calm for quite some time I do think the Mac macro environment is improving but I also think we're improving almost on a daily basis. So very pleased with the.
Progress I think the focus is there I do think you will see growth.
At this level or potentially more throughout the year and I really think we're set up for 2022 and beyond as well. So I'm really encouraged by the productivity on the progress that our salespeople on makeup.
Okay, Great and then maybe just 1 follow up.
The same store sales improved nicely in the quarter what are you seeing in terms of outlets.
In August so far I guess early but.
In July.
What do you think about the improvement here for the rest of the year on that.
We are not modeling a ton of improvement we see I think frankly, a lot of fits and starts and then I think we're all hopeful that maybe coming in the August September timeframe, where.
Maybe some of the unemployment programs potentially and that there might be some hiring and more hiring.
<unk> down the line, so we havent modeled a tiny into it.
I think we're taking a cautious approach to that in our models going forward and our guidance John I don't know if you have anything.
Think obviously, we considered it and when we came up the guidance that we just gave you 17 at 17, the half reflects kind of our view and it's it's tempered.
Because we just really are still as Pat pointed out seeing fits and starts.
Great I'll pass the queue. Thanks, guys.
Thanks, Josh.
Thank you.
And our next question comes from Eric Martin Newsy from Lake Street. Your line is now open.
My congrats as well on the quarter I had a question regarding your pipeline for the back half of the year I know, we're coming up on kind of evaluate the current platform season or.
The weighted alternatives for those prospects, who might be willing to entertain switching over to assure I am wondering if.
If you could just kind of have amnesia on last year and take US back to 2019 is pipeline behavior similar to 2 years ago as far as lead Gen. Because I know people kind of got to be in market here over the next 2 to 3 months to make debt year end switch.
Eric I'd say, a couple of things 1.
What I would say if I think about 2 years ago on last year.
I will kind of normalize for Covid last year.
Our pipeline was pretty strong in the small business area I think this year we have.
Have some emerging pipeline in the mid market that I think frankly is quite a bit of improvement over last year. If you think about our acquisition of Pts we have some tax filing pipeline that really interest us and I think could move the business forward small business pipeline is strong and then from there.
<unk> opportunities I think there is some couple.
Unique opportunities there so I would say it's.
Compared to 2 years ago, I think its broader base compared to last year.
Normalized again I think we're excited about.
A number of products and services and it's not just small business growing but I think the pipeline and some of the other areas whether it's the mid market tax.
And some of the other product lines.
We're excited about now we're in that summer season, and we're really pointing to the third and fourth quarter here and primarily the fourth quarter, but I would say we're cautiously optimistic.
Okay I wanted to follow up on the resale or opportunities.
Obviously.
1 of the credit facility here M&A for assures a little bit different and M&A for a lot of tech companies in that.
They are already working with these people and in many cases their founder room types of businesses. So as soon as we get the green light on the credit facility could we expect to see some.
Kind of a surge in the inorganic side.
Yeah, I mean, I think we're on we're not opening a credit facility for our health right.
Interest and putting it to use I would say if you think about some of the tax changes that have been floated and talked about I think there's some opportunities I'm less concerned about timing I'm more concerned about lining it up to our strategic vision and execution of the business, but I would anticipate we'll be active.
Thank you.
And thank you and our next question comes from Richard Baldry from Roth Capital. Your line is now open.
Thanks could you talk about challenges in hiring sales and are still semi quarantine environment I guess about.
Finding the right people vetting them on boarding them sort of building up.
Without the ability to sort of be in person, which it would have been prior.
Yes, rich I think its a thoughtful question I mean.
First of all I think.
Coming out of Covid.
So people want to make a change and so I think there is some pent up demand, which gives us opportunity I think because of our leadership team having been in the marketplace for a number of years, sometimes too many.
We can play 6 degrees to almost every candidate very very quickly. So we know who is good and it's almost like.
If you're thinking about the basketball recruiting wars and year over year 5 star athletes force their athletes III star athlete a lot of people are jumping in to transfer portal. We wanted to take advantage of that certainly we have to be judicious around the digital media on the interviews why they are making a change.
But if I step back we have a number of different products.
Products and technology and open territories that are bigger than our competition.
People have the opportunity there to really make a lot of money and.
They are interested in.
Pursuing options at this point in time, so I think the recruiting environment have some challenges from face to face, but it also actually has some opportunities that are like no other that I've seen over the last couple of years.
And maybe looking into the same store sales a little bit of sub 5% sequential I think last quarter, you said that there. It pays per control is down about 13% year over year. So do you feel like that that same store sales has a lot of room to keep moving over the second half.
You know obviously, there's some uncertainties around delta, but maybe think about the linearity of that 5% day really come on late in the quarter and feels like it's still ramping or was it sort of consistent throughout that again, let me let me take a shot at this 1 and Pat can fill in some of the gaps again I have the luxury or.
Disadvantage wherever you want to look at it not having the history, but when I look at it I look at the overall average client size of where the company is that.
I heard of Covid to where it's at now and it's still down so from my perspective, there's a decent amount of room to go.
Once that hiring comes back on a per.
Her customer basis now how quickly that comes back in.
Our model has changed I don't know, but I can just tell you there is still a definite impact pre and post COVID-19 in terms of the overall employee.
Sitting at our customers.
And rich just to Echo what Jeff is I agree with everything he said I do think.
There is opportunity for those employment to come back I think we're a little bit cautious on getting ahead of it or modeling it.
Rather than let let's see let's see it take place.
Without telling them on specific targets I am curious about the M&A backdrop in terms of willingness to sell because your targets would also be coming off a tough year.
Whether that puts any pause in their minds to try to get operations back fully smoothed out before they would look at.
On selling the business as a whole or just any sort of color on that environment. Thanks.
Yes, rich that's a great question and I don't think there is 1 so 1 quick answer some of you there is that.
Opportunity to sell the business to take advantage of.
Some tax savings this year perhaps.
The taxes, increasing next year, some I don't want to get credit for Covid normalized Covid head count.
I would say boy.
I'm not quite in the financial position I was 2 years ago, It'll take me a while to get back maybe there's an opportunity to sell some will say, hey, I want to double down and grow and use this as.
A way to get lean and mean and then have an opportunity to growth. So I don't think theres a 1 size fits all I do think there is an opportunity to grow on that and I think we've been active in some discussions and 1 of the decisions that we made really 9 months ago or so when we brought on kind of a new ex.
Decorative team coupled with so people that we really trust us as part of the executive team was really to build a business of scale kind of test out the new models of some of the acquisitions expanded the area of automation and tax and now it's time to leverage that so.
I think the marketplace is right for us to do it I think they are ready for us and I think we're ready for them and we're excited about this.
This next evolution of the journey.
Great Thanks, and congrats on the quarter. Thank you.
And thank you.
Our next question comes from Jeff Van <unk> from Craig Hallum. Your line is now open.
Great a couple from me on the on the bookings front and just talk about what you saw on there that might have been different the mix of new and existing.
And then along those lines how have your competitive win rates varied over the last 2 or 3 quarters.
Looking through the overall macro headwinds that everybody is facing how are you sharing versus your typical competitors.
Yes.
I would just say I think the.
I think the competitive win rate Hasnt changed much I think we have an opportunity and we're very competitive and we went I think theres turbulence sometimes.
<unk> that a slowdown based on COVID-19 as their other business concerns so sometimes the drivers within it.
Our turbulent but as far as the competitive win rate.
I think we're in pretty good shape I would point out the ERP seed funds I think as a company I think we've done that program really well we've helped companies.
And get access to the money and I think we're kind of nimble enough to help them in a better way than some of our competitors and I think thats led to some loyalty and sales that will benefit us not only this year, but in future years. So I'm excited about that.
But but that's how I see the marketplace and then I'd point out that we haven't seen the investor deck that tenure of our sales reps and the productivity and our average tenure being 10 months I think over the next couple of years Youre going to see the experience of some of the salespeople going through this environment and I think there.
We're going to be very productive for the next couple of years.
You put in a new CTO what is it at this point, you're most focused on delivering on the product side that you might not have done in the past.
Yes, I mean Rodriguez.
<unk> to us.
December and she has run some of the tax business and the systems around that we have a common tax filing platform.
Within the company and then we can market on a standalone basis, when I think on Covid, we'd probably add more tax changes at 16 months than we've had in 16 years and.
Yes, I mean, it's really handle that well.
But for me, it's a number of things. So if you think about first of all the operational efficiency and as we.
We have integrated resellers.
On the automation of the processes around box and stuff like that they've made a big impact on theyre going to have a big impact going forward the standardization of processes and using technology will do that the acceleration of some of the product efficiencies and the integration opportunities.
So I don't think its anything completely new but I think it's an enhancement and speed of of a total solution and we think we can make some pretty big improvement and then finally I think in the area.
Money movement, and Treasury management systems, I do think there'll be continued acceleration focus in that area.
Got it thank you.
Thanks, Jeff.
And thank you.
Ladies and gentlemen, if you have a question that is star 1 again, if you'd like to ask a question that is star 1 and our next question comes from Vincent Colicchio from Barrington Research. Your line is now open.
Yes, good afternoon, Pat nice quarter.
Thanks.
I'm curious.
Are you seeing.
Given the tight labor market wage inflation pressures.
How should we think about that.
Somebody told me 1 time that when they talk to a CEO.
They never say they're over.
Over value right.
So I do think from an employment perspective, I think competition for good employees and employees are getting clear about how they want to work where they want to work.
The stress of Covid, the stress of coming out of Covid.
Maybe rethought their families.
I think people are open more open to different possibilities than they were pre COVID-19.
I think what that has done is it.
Create.
On a talent match that perhaps is.
Greater than the last 5 or 6 years. So that's the backdrop.
I would say I think people are also open and tools available to us to do business differently.
It's a robotic.
Automation as opposed to <unk>.
Green Green shades and looking at stuff are available to us. So I think we can make our roles very attractive very satisfying they can do something with us that they can really leave footprints in the sand for their future.
So I think we have a competitive value proposition in certain areas I do think there is a war for talent and whether it's wage inflation or value proposition.
People are looking for that but I also think theres ways that whether its flexibility whether it's different work schedules.
Whether it's some kind of a hybrid offering there'll be opportunity to choose some of them will be money motivated inflation oriented. So it will be flexibility oriented some will be schedule oriented and some will be hey give me.
If you can eliminate the drag.
Something that some mundane and you can I can really focus on learning something that's an opportunity that that folks wanted as well. So there is not a 1 size fits all but I do think there's opportunities for job improvement and attracting people and I think there is a marketplace like no other that I've seen in the.
Last 5 years.
Yeah.
Did you continue to add organic resellers in the quarter.
We had some small reseller improvement.
A couple of them could over time.
Really nice deals for us so.
We are starting to open up in that area quite a bit.
Think COVID-19 froze some folks for a while but what I would say is people are out.
Making decisions and kicking the tires and more important than that I think there'll be ready to buy here. So.
We're excited about some of the prospects we have.
And are you seeing improvement in cross selling activity.
Yes, I think I'd say trust and cross selling now has almost become a bundle.
And so people are buying more collective products right at the point of sale and collective solutions. So we're seeing that.
Improving it's almost becoming the standard and then.
I do believe.
You will see further or more cross selling and whats I think brought this to the table as well as some of the <unk> C or theyre on retention tax credit than when they were able to get access to money. They want to buy more so thats been a catalyst for us.
Yeah.
Thanks for answering my questions. Thanks Beth.
Thank you and I'm showing no further questions I would now like to turn the call back over to Pat to Paul for closing remarks.
Well thank you.
I sure appreciate all of you.
We've been on this journey for a while.
Think COVID-19 was.
On Crazy trip here for 15 months or what have you I think we've managed through it in a logical way I think we're making some progress hopefully you feel that way too I think we're setting this business up for a pretty exciting next couple of years I think we have the right people, but I think we have the right initiatives and I think we have the right.
Market opportunity to make a difference for.
For those of you that have been around a lot of time or are you just getting acquainted with the story.
I'll tell you why I think we're going to do some special things and I appreciate all of you.
Till next quarter have a great day. Thank you.
Okay.
This concludes today's conference call. Thank you for participating you may now disconnect.
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