Q3 2021 Asure Software Inc Earnings Call
Good afternoon, welcome to insurance third quarter earnings conference call, joining us for today's call Ishares, Chairman and CEO at global.
<unk> Chief Financial Officer, John <unk>.
And head of Investor Relations.
Following their prepared remarks, we will be a question and answer session.
And investors on that journey over to ran over these weren't trajectory remarks.
Thank you operator, good afternoon, everyone and thank you for joining us for assures a third quarter 2021 earnings call.
Following the close of market, we released our financial results. The earnings release is available on the SEC's website, and our Investor Relations website at Investor Dot assure software Dot 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.
Ascription and timing of these items along with a 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 risk. We use words such as expects believes may 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 would like to remind everyone that this call is being recorded and it will be made available for replay via <unk>.
Link available on the Investor Relations section of our website.
With that I would now like to turn the call over to Pat <unk>, Chairman and CEO.
Right.
Thank you Randall and welcome everyone to assure software's third quarter earnings call I will begin today's presentation with an update on our business performance and strategy. Then we'll turn the call over to our CFO John <unk> for a more detailed review of our financial results and outlook.
For the fourth quarter of 2021 and fiscal year 2022, We will then conclude the session with time to answer your questions. We are pleased with our performance in the third quarter with revenues, reaching almost $18 million, which was up 12% relative to prior year.
<unk> and up 5% versus prior quarter macroeconomic trends continue to improve in our markets as is evidenced in the decline of the unemployment rate I would say, though there remains lingering softness in some areas owing really to the labor shortage said, it's affecting many small businesses.
It is across the country. However, overall, we are pleased to have grown our organic revenues, 8% versus prior year in this economic environment and our business is continuing to build positive momentum heading into 2022, driven by strong execution across.
The business I also want to point out the third quarter was an important step forward in terms of executing our strategy, we divested the space business.
If you recall in 2019 in order to focus our portfolio and resources, where we can make the biggest impact and that is on the human capital management solutions for small businesses, who need a strong partners. So they can run their business.
Then really we repositioned the board of directors and the management team in 2020 and 2021 in order to strengthen the organization talent and leadership skills. So we could execute on this big opportunity and in 2021, we're making targeted investments.
In sales product and acquisitions, so we can enhance growth and margins for sure while providing our valued customers with leading edge solutions that enable them to be successful in their core business.
The key to achieving that.
Pets of this strategy is execution I believe we have the right people the right resources the right focus to successfully deliver against our long term revenue growth goal of 20% growth in revenues driven roughly by equal.
<unk> organic improvements and acquisitions.
In terms of the three pillars of our strategy, which our sales expansion product enhancements and targeted acquisitions, let's start with the discussion around acquisitions in the third quarter. We acquired two of our larger resellers, one based in New Jersey and the other base.
<unk>, Vermont, both companies were acquired on the last day of the third quarter. It did not impact our results in this period. These resellers focus on providing payroll and related services to small and medium sized businesses within their territories the acquisitions expand our direct operating <unk>.
Territories, providing cross sell and up sell opportunities and we will believe there'll be highly synergistic to our core business. We're really excited to bring these companies into the <unk> family and we expect them to be highly accretive to our business and our stakeholders over time.
Both companies currently utilize our payroll solutions and accordingly system conversion requirements are limited as we integrate their operations into our <unk> platform. We expect additional result, and a smooth integration, while we pick up new operating territories as well as experience.
Tap acquisitions.
Acquisitions will remain an important part of our growth strategy and will continue to be opportunistic in our rolling up our reseller partners that white label, our human capital management solutions. We will also consider acquisitions of other payroll businesses that complement and expand our capabilities.
<unk> as we build scale and scope to our solution offerings.
Turning now to product.
We're excited about the potential of our new human capital management solution. We introduced in the market that combines the best features of our small business payroll and HR solutions into a single new solution with advanced customer experience tools. This significant enhancement simplifies the on boarding experience.
<unk> new tools for employer self service option and now as part of our standard payroll offering also in the third quarter, we launched a new partnership with employee navigator. We both have entered graded our payroll platform with their system in order to provide employers with seamless communications and <unk>.
<unk> across our combined networks. In addition to providing a much more integrated data solution. This partnership should lay the groundwork to enable us to move forward with our ambitions and the broker referral space I also want to spend some time talking about our tax platform as well as the HR for health.
Let's start with our tax platform. This is an asset we acquired in 2020, we feel it provides us with some outstanding differentiation in the human capital management marketplace. We've had significant client interest in our new tax capabilities, particularly among larger enterprise.
We'll see.
The unique position that we have in the marketplace.
Business has the potential to significantly expand our total addressable market and to open up new client segments for US we will keep you updated on the integration.
As well as the product development that this business is we're optimistic about the ability.
For this to be an important driver of revenues in the future not only with tax filing in addition to the money movement opportunities. This opens up.
For health is another recent initiative. We're excited about this solution offers the healthcare industry full service payroll and tax filing services. We've had strong client interest for the solution, which is reoccurring revenues.
With our wholesale revenue model, it's growing and it has a very attractive client retention characteristics. This solution has the potential to open up new end markets for us and are continuing to grow our client base. So if you think of small dental offices doctor offices et cetera that.
Is the target audience here. It also fulfills our objective and that enables clients to focus on running their health care practices, rather than focusing on back office improvements, we deliver the improvements for them. So they can run their businesses turning now to sales activity, we continue to invest.
And our sales channels, our people and in lead generation activity for those salespeople at the end of the third quarter. We had 72 direct sales reps up from 65 at the end of the second quarter and up from significantly from 31, when we started in 2020.
After our space divestiture, a year end 2021, we expect to have approximately 80 direct sales professionals. The average tenure of our sales team now has 14 months.
From above 10 months at the end of last quarter, giving our sales staff to an average tenure of 18 months is an important milestone since at that point.
We see strong improvements in sales productivity, which then in turn drives revenues with our recruitment.
And.
Training efforts that we are getting closer to that important achievement. While we continue to focus on the small business segment. These investments in sales and marketing are paying off with total bookings up 43% year over year in the third quarter, while on a year to date basis.
Our small business business bookings have doubled.
I continue to be very proud of how the <unk> team embraced these challenges and took a leadership role through the pandemic for example, as part of our efforts to support more than 80000 small business clients in navigating the complex Covid regulations, we introduced an employee retention tax credit <unk>.
C solution to help them efficiently maximize this critical stimulus dollars program I couldnt be prouder of our team as they have helped our clients file over $200 million in total tax credits at the end of the third quarter. The stimulus dollars can help our customers higher staff.
And grow their businesses. It also shows how our people and platform can respond to new and unique solutions and situations.
And deliver impactful solutions to our clients as an essential small business assure remains committed to helping more than 80000 small business clients navigate unprecedented compliance changes and grow in a very challenging environment. We're committed to ethical business practices are valued.
Based culture innovation, social responsibility and leadership as well as our support for small businesses throughout the United States.
In summary, we're pleased with the third quarter performance, we acquired two of our larger reseller partners made significant strides in our product strategy continuing to invest in our sales teams deliver another solid quarter of growth in the economy that continues to experience new and significant challenges as we move.
Past the pandemic, we're excited about our acquisition model. We believe our model works is we combine the acquired businesses with insurance platform, we see the opportunity to drive significant value creation and enhance margins longer term so that our future revenues can be effective in driving.
Higher levels of EBITDA and cash flow now I would like to hand off to John <unk> to discuss our financial results in more detail John.
Thanks, Pat as Randall mentioned at the beginning of this call several of the financial figures discussed today are non-GAAP, you'll find the description of our GAAP to non-GAAP reconciliations.
In the earnings release that was made available earlier today.
And the reconciliations themselves are also included in our most recent investor presentation posted on the Investor Relations section of our website at assure software Dot com.
Now onto the results.
Third quarter revenue rose by 12% versus prior year, 5% versus the prior quarter to $18 million recurring.
Recurring revenues represented 91% of our total revenue in the quarter.
Recurring revenues grew by 7% versus prior year, and our nonrecurring revenues more than doubled on the strength of our <unk> service offering.
Which continues to generate significant client interest.
Interest on client funds was approximately 400000 in the third quarter.
Flat from the second quarter and up versus prior year by approximately $200000.
Client fund assets on our balance sheet.
$174 8 million at September 30, compared to 200, and some $4 million at the end of the prior quarter and $199 3 million at.
At the end of Q3 2020.
We are pleased with our gross margin performance.
Non-GAAP gross margin percentage reached 67% in the third quarter.
Which is up 70 basis points versus Q2 and.
And up from 64% in last year's third quarter.
This marks Q3 as the fourth consecutive quarter in which we have grown our gross margin percentage. This performances, owing to a return to revenue growth and cost containment efforts and has occurred despite the headwinds from higher pay and benefit increases.
Non-GAAP, Utah.
For the third quarter was $1 2 million.
For an EBITDA margin of 7% the non-GAAP EBITDA.
Result was 21% higher than prior year, and 15% higher than the prior quarter. Despite the increase in salary expense as we absorbed pay and benefit increases.
Following the implementation of temporary reductions related to Covid compensation represents approximately 70% of our cash expenditures. So these adjustments have any meaningful impact.
EBITDA comparisons also.
Are affected by an increase in the number of sales representatives as we invest in our sales organization to drive higher revenues in future periods.
While there are some headwinds in the third quarter expenses related to the Salesforce expansion and pay restorations. We view these investments in our organization and people.
We will deliver future results and are key to building momentum in our business.
In order to manage these headwinds we are accelerating our efforts to improve our operating margins by increasingly leveraging the scalability of our platform and to improve the cost efficiency.
These are the economic drivers that underpin our acquisition strategy, our sales strategy and our product strategy.
Turning to the acquisitions, we acquired two resellers in the quarter.
For an aggregate purchase price of $38 9 million, which was paid $25 3 million in cash $6 6 million in news payable and by the issuance of 767000 shares.
The acquisitions have resulted in an increase in goodwill and intangible assets on our balance sheet.
These acquisitions are important as we expect it will accelerate our capacity to grow operating margins over time, yielding the benefits of operating leverage and the scale. We have built the business to date.
We have a balance sheet capability to make further acquisitions, and we'll continue to evaluate opportunities that fit our criteria and standards.
Continuing with the balance sheet, we ended the quarter with cash and cash equivalents of $11 5 million and had $39 7 million of debt, which is comprised of an additional 3 million drawdown from structural capital with the balance made up of seller notes from acquisitions.
We achieved a critical milestone in the third quarter as we entered into a new $50 million term loan facility with structural cap.
This facility is based on advanced rate based on our pro forma annual recurring revenues.
From a recurring revenue ratio the facility has limited financial covenant compliance metrics.
As a four year term and we believe when combined with our previously filed registration statements. We possess the financial structuring flexibility to pursue our previously stated strategy regarding organic and inorganic growth.
We relied on the facility to complete the purchase of these two resellers in the third quarter.
We've openly communicated our plans to pursue acquisition opportunities that meet our criteria and this facility will help us to achieve our strategic goals.
We've also commenced a new partnership with Goldman Sachs.
We're really excited about this venture is made possible because of the closure of our credit facility with Wells Fargo.
Which enabled us to uncover our credit facility from our money management activities. This has opened up new options for us with new partners and with new business opportunities in combination with Goldman Sachs, We will be able to offer our clients state of the art money movement and to move into new business areas, such as real time pay.
With one of the leading financial brands in the World.
We also expect to benefit from their expertise and enhancing our investment returns as we invest excess client funds.
In the quarter, we also booked a gain of $10 5 million relating to the employee retention tax credit.
We have filed amended returns for these credits and recorded a receivable for them and us.
Other current assets are.
The recognized gain relates to the activity.
And the first nine months of 2021. This was booked as a discrete item in interest income and other line in our statements.
And is treated as an adjustment of our non-GAAP reconciliations.
While the continuation of this credit as part of the current debate in Washington, We expect to qualify for similar quarterly credit in the fourth quarter. If the law is not modified.
Now I'm going to turn to guidance for the fourth quarter ending December 31, 2021. This guidance is offered with the backdrop of continuing challenging environment to predict future economic results given the ebbs and flows of employment trends.
Covid and the other economic challenges of today.
And considers the impact of our recent acquisitions, we are providing the following guidance.
Revenue for the fourth quarter of 2021 is expected to be in the range of between $20 5 million to two.
$91 million.
Non-GAAP EBITDA is guided to be in the range of between $1 5 million to $1 7 million.
And non-GAAP EPS is guided between negative three.
And negative five.
For 2022 fiscal year. We are also introducing the following guidance revenue in 2022 is expected to be in the range of $85 million to $90 million.
We also anticipate fiscal year 2022, non-GAAP EBITDA margin percentages and non-GAAP EPS to be in line with historical percentages and seasonal trends subsequent to the space divestiture.
Consistent with our historical performance, we expect the first quarter of 2022 results will benefit from revenue generated by the annual preparation of federal reporting Guardian.
What you are reporting them into income and ACA compliance.
Our strategy in this environment is to focus on cost levers that we can reasonably control.
Pursuing beneficial and accretive acquisitions.
Our core solution offerings by improving functionality and customer experience and by expanding our sales efforts to tap into market demand for innovating and trustworthy payroll HR solutions.
With this stabilized foundation as a backdrop, we are pursuing exciting new product and service offerings to better serve our over 80000 direct and indirect customers.
And there are over 1 million employees.
So with that I will turn the call back over to Pat for some final remarks.
Thanks, John in summary, we are pleased with our third quarter performance. We continue to have good momentum in the marketplace as evidenced by our 12% annual growth rate in revenues and 5% sequential growth in organic revenue, we grew our non-GAAP EBITDA by 21%.
<unk> relative to prior year, and 15% relative to prior quarter, despite headwinds from restoring salary and benefits. Our <unk> solution continues to have great traction in the market and in total our clients have filed for more than $200 million in ER Tc Craig.
<unk>, we launched the next generation user interface of our small business payroll clients that combines our payroll and HR solutions into a single solution with improved user controls and a fresh new look we implemented a new integration with employee navigator that keeps employ.
Data and sank adds value to our solution that will enable us better to penetrate the broker referral marketplace. We completed two acquisitions that were excited about and that we expect will be highly accretive for stakeholders over time, and we've diversified our sources of capital which helps us.
Drive the business forward for growth in both organic and inorganic revenues I am very proud of the execution of the <unk> team their commitment to our clients and to providing enhanced payroll and HR solutions that meets and exceeds their needs with that I'll turn the.
Call over to the operator for the question and answer session operator.
Thank you ask a question at this time. Please press Star then one.
Touchtone phone and certainly we saw from the queue just press the pound key.
Again star one for questions for questions.
First question comes from the line of Joshua Reilly from Needham you may begin.
Alright, Thanks for taking my question and congrats on the quarter guys.
Maybe starting off with it.
Maybe starting off with the 'twenty two guidance of $85 million to $90 million in revenue, what how should we think about the organic growth rate assumed in that in that number.
Yes, I don't think anything's changed Josh I mean from our historic guidance I mean, we're hoping for 10% I think.
This number really don't.
Thank you too much on 2022 right now what we're trying to give you a sense of where the street was that historically for 2022 with the impact of these third quarter acquisitions, So I think more to come.
You go through the budgeting process.
Sharpen our pencil for 2022, but we didn't want to give me some sense as.
Two kind of what the impact of the acquisitions would be.
Relative to kind of where everybody had how does that for 2022 and we've not historically at least since I've been here been giving guidance that far out. So it was just an attempt to kind of give you some sense as to what we thought about.
The acquisitions.
Yes, no thats helpful.
Then how much of the gross margin benefit in the quarter is due to the <unk> product and then how sustainable should we think about those revenues being and does that create a headwind somewhat going into next year. If there were some change there.
Yes, definitely definitely helped on the gross margin right. So we didn't add a lot of people to service that incremental revenue opportunities.
It was impactful I'll, let Pat kind of address that kind of headwind comment.
Hey, Josh from my perspective, Yes, we've said scale and we've done a lot of improving in the business. So we have several initiatives that we think will be impactful in 2022% gross margin.
Moving some of the new product introduction and some of the centralization initiatives with AWS.
EBIT kind of redefining how we go to business, including some of them are robots that we talked about last quarter and in the background.
So we think that there'll be several initiatives still layer in as far as <unk> seen we are opportunistic we felt like was a great program and Danny.
Pluses this quarter, we think there'll be some plenty of positives helped mitigate that or or improve on that next year.
Okay, Great and then maybe I can sneak one more in on that line of questioning there.
You hired a new CTO at the beginning of 'twenty. One curious now as the M&A machine is kind of restarting.
Is there anything specific you can point to that you guys have done on the integration process and decided to COVID-19 versus the acquisitions you made pre COVID-19, that's either going to make the integration go quicker <unk> be more margin accretive.
Yes, I think a couple of things. So first of all you don't really after the space business, we hired a new board of directors for the most part with human capital management expertise and I think they did a great job tablet laskey came from coffee was former president.
Really in terms of some of the operational improvement initiatives going forward and then specifically your question, Yes, I mean Rodriguez.
Who has a wonderful background in payroll tax and really we're point to several initiatives that we think will help over time grow gross margins and have a healthy acquisition integration first of all.
Most all now by the first quarter of 2022.
Our second quarter of 2022 will be.
The same instance.
Kind of more the same platform within the AWS environment.
That's a real positive development for us too.
Just.
Standardization initiatives that we have three we've talked about introducing the robots and really taking kind of that non value add work out.
Out of the employment kind of cycle, where we can keep head count relatively stable, but really do a lot more with production around the robotic effort.
Was led by <unk> as well.
And then finally, just kind of where we are within our product set.
We introduced.
Kind of a new user interface that will happen.
Let's integrate going forward, we will do more stuff on the web the customer will be able to do more in a successful environment that will help us on the integration going forward. So is that any one person, but a series of initiatives that we have been planned for over the next couple of years.
Awesome. Thanks, guys.
Thanks, Jeff.
Our next question comes from the line of Richard Baldry from Roth Capital <unk> you may begin.
Thanks.
We're thinking historically I feel like M&A tends to be a bit of a drag on adjusted EBIT or integration.
Integration optimization sort of brings up a new level, but against that backdrop youre actually guiding for adjusted EBITDA to grow pretty solidly from Q3 to Q4 so.
Could you maybe talk about what gives you that confidence that those acquisitions aren't going to sort of pull back first before you go higher and then how long should it take perhaps with an eye to your backend integration being being completed across the AWS platform. Do you think you can be faster and fully integrating them.
Acquired entities now and in the future. Thanks.
I think we can.
We have not modeled in all the synergies in the fourth quarter clearly we are expecting that.
That that to bleed into 2022, and we would hope to kind of be done.
For sure by the end of 2022 with these integrations.
To answer your question about.
The drag I think.
Just to be clear I think Pat mentioned about.
The integration path historically these companies are using our same software platform.
Difference I'm trying to think was good analogy it's configuration.
Use the software, but think about XL and maybe moving buttons around right. So each each one of these resellers might use our software just a little bit differently in the wild and so what we're doing is we're we're standardizing the use case of our software internally amongst all of our previous.
Acquisition as well as when we bring across a new acquisition they kind of come into our use case of the same software. So we're able to do the integration a lot quicker to get to the standardization a lot quicker and then we hope to drive the margins.
Quicker as well.
And I would just add I'd point, you to the first quarter acquisition, we did a smaller acquisition in the northeast in January if you look at our kind of head count and kind of where we are.
Run the business here. This year, we've added some salespeople, but the overall head count is down from where that period was at.
And meaning.
We absorbed that acquisition without without head count over time.
We're nine months from that acquisition I think similar kind of resolved over time well.
<unk> two.
Good results here with these two acquisitions.
And last thing.
Can you talk about the degree to which the company acquired the resellers were growing themselves or.
It's really more about the earnings integration and not really thinking so much about the productive sales capacity youre, bringing on more from those thanks.
Yes.
We're very well run operators that were in the business so while maybe.
Both were growing.
Now the backdrop.
Excuse me Covid et cetera.
But they were growing and we anticipate that there wont grow going forward and we also believe that their expertise coupled with.
Being in business as a partner.
Decade.
So we will lead to a seamless integration and I think we've been pretty clear on this point.
This last year.
It's been challenging just from the standpoint, we're kind of at that breakeven point and.
Getting to scale is important to us.
I think it affords us a lot more flexibility in what we invest in and the speed at which we invest and so it's key for us.
I think we've been pretty transparent on this point that we do want to get to scale quickly.
And Thats why we did the deal with structural that's why we put the registration statement on file scales important we're not going to do things they are improving but we do want to get to scale sooner rather than later, we don't think it's important for the business.
Great. Thanks.
Rich.
Our next question from Bryan Bergin from.
Kevin you may begin.
Hi, guys. Good afternoon. Thank you.
<unk> for you around client employment levels. So two parter here, so pre pandemic employment level can you comment on where average client size for Uni sits today relative to prior to Covid and how much more recovery youre anticipating over the next couple of quarters, and then I didn't hear but just the pays per control metric and <unk> sorry, if you did disclose that.
Yes.
From a.
Client level employment, let's let's talk at a macro level.
Early in the Covid.
Like I said I think we lost $25 million this as far as the United States of America job as early.
And then normalize to about $10 million, even though you see improvement in the economy and the jobless claims were probably $5 million or so out of the workforce and we've done some IR deck modeling et cetera around that.
As far as pace per control this quarter, we were at a little over 20, I believe as far as pays per control, probably pre pandemic, probably in the area of 'twenty two or 'twenty three.
Some of that has some.
Some noise in that but.
That's the order of magnitude I would say this quarter.
Might tick up and.
<unk> speaking.
Any business selling or looking to hire people.
Thanks to all you got to want to hire people and then somebody has got to want to come into.
Job and I would say main Street America small business in general were affected probably with some little bit disproportionally affected so we're improving but we're not quite there yet John I don't know if you know.
The point I was going to make at the end I do think that our client base and disproportionately impacted and you hit the right metrics. There is a slide we added to the IR deck at this point.
Got it shows that $5 million gap still on unemployment returned to normal so even though unemployment rates are starting to return is still.
See in the news.
And I was talking about it there is still.
GAAP overall.
Overall employment levels pre and post pandemic I think we still have.
Have some upside in once it kind of gets back to normal.
Okay, Alright, that's helpful and then on as we think about these two acquisitions.
Are they in line with the.
On the acquisition economics that you've talked about on targets in the past so I guess.
What are you expecting here in the <unk> revenue contribution I'm curious too is is the client size.
Larger than yours, I know you've been talking about mid market pipeline here for a couple of quarters I'm curious if this was in line with that.
No I think there is I think pretty consistent customer base.
In terms of revenue contribution that's obviously reflected in the guidance. We gave you at the 'twenty one to 'twenty five.
The <unk>.
Multiples, we paid I think we've been pretty consistent in this and we've talked about it then.
Presentation Goldilocks scenarios two times, we think that.
Smaller deals will be closer to one time and bigger deals can be closer to three times, we want to kind of be in that one to three range. These were on the higher end in terms of size. So you can kind of infer from that.
Kind of where we're at.
Okay. Thank you.
Sure. Thanks.
Our next question from the line of Jeff Van <unk> from Craig Hallum.
May begin.
Great. Thanks for taking my questions Pat.
You commented just briefly I want to make sure I heard it correctly on the acquisition front. You said you were open to things that I thought were staying open acquisitions that are non evolution that retailers are more maybe a little bit of a variation on the typical model. So maybe just.
Clarification on that.
Yes first of all I think obviously, we are a reseller network that that's pretty powerful and we think we have some opportunities to continue to grow we're also though.
Pretty good about.
Our ability now to start to get the scale.
As we get the scale, we think we have some other assets within the family that could be interesting and one of them that we.
<unk> talked about was our acquisition of PCM.
We start to have Standalone tax filing we have some money move that we think that there could be some opportunities as it relates to that and then if you could talk to a customer base there is.
An interesting some interesting cross sell opportunities et cetera.
RTC just ability to get our customers to ask.
Access to their money show some of the ability that we can cross sell we think that there may be some other opportunities.
We're introducing and I think it could be.
Highlight some opportunities.
Don't have anything immediate but as we turn to page to 2022.
It could be an opportunity that will present itself.
Okay. That's helpful and then on the HR payroll integrated offerings.
Can you put a wrapper around that at all in terms of expectations does that does that.
Uplift does it.
What is the impact cross sell our full adoption just how should we think about the impact of this.
Boston.
I think.
First of all some of the things that Pat mentioned are really just ease of use and customer sat right. So I don't think theres necessarily ARPA uplift based on ease of use or for customer SaaS, but hopefully that leads to higher retention rate.
I think on the cross sell I think Pat just kind of touched on a point that I think is pretty important.
The CRT.
Primarily sold into our existing customer base.
And I think we had a pretty good penetration roughly 10% so far.
It's a pretty healthy for something Thats only been out there for about five to six months, so really really attacked our customers and deliver tons of value to them and I think that's kind of a proof point that as we get some of the other products that we've got.
Better.
<unk> to cross sell that we've demonstrated the ability to do that and so I think that's kind of a fat alluding to for 2022 is really want to spend some time honing some of the product lines that we've got in house, and making them a lot easier for our sales force to kind of take across the installed base I think again, the acquisitions or anything to point to.
Right.
They're primarily just buying one product today, so we're really going to focus not just on adding new logos, which obviously is always important but really trying to make sure that we're delivering that.
<unk> <unk> inquiries on that value across our current customer base as well, yes, and the only point I would add is we're through the budgets are just getting through the budget process will wrap that up here and then in March will really talk about I think some more specific metrics and frankly, I will talk a little bit more about the product line because I think works.
Really increasingly excited about some of the opportunities as we look forward. So youll see that in March.
Maybe one last if I could sneak it in John on the on the guidance for FY 'twenty non-GAAP EBITDA margins and EPS in line with historical trends prior to divestitures can you just maybe expand on that a second there's a lot of trends in there which specific trends in relation to you calling out there.
Specifically kind of the bottom line alright, so the percentage is.
A seasonal component to our EBITDA, which is pretty obvious right in the first quarter, we really really pop a lot of the percentage and then it kind of trends just because of the absolute numbers down. So I think thats, what I was trying to get across and then EPS just high has it right into that right. So it's just kind of have that same trend is always going to be much bigger in the first quarter.
That's what I was trying to get across in that statement.
Okay got it great. Thank you.
Sure.
Yes.
Our next call will come from the line of Eric Martin Buzzi from shrink you may begin.
Yes. My question is regarding the Q4 guidance given the two acquisitions.
The gross margin assumption here you guys have been operating between 66.
69, just kind of going back at the past three quarters or so what should we think about for gross margin for Q4 with the acquisitions layered on.
I think.
Hope, we have a little bit of improvement over this quarter, but nothing nothing that I think.
Wouldn't expect us to continue to trend up based on some of the things that Pat mentioned nothing dramatic I think.
That too a little bit up would be the way I would look at it.
Okay.
And.
You've laid out an aggressive goal.
Looking backwards you had an aggressive goal.
Adding reps coming into the beginning of the year you mentioned 72 now.
Another net eight between here and year end, where we are kind of in that seven weeks left in the year are these folks already kind of in the interviewing pipeline or are they yet to be identified those incremental direct reps.
Yes.
Intensified or or in the process.
We hope to finish the year around 80, I think we have a really good line of sight and that I could see us then.
Going up from there and how much we decide on that will be march's guidance, but clearly we think we have a line of sight to turning the year at 80 reps.
Alright, and that is in Europe.
We're not talking about inherited reps from the acquired companies.
Combined yes, I think the 80 would be both.
Okay, alright, thanks for taking my questions.
Thanks, Eric.
Our next question comes from line of Vincent.
Chill.
Barrington Research you may begin.
Hello, Brad.
A nice quarter.
Curious how wage inflation.
How do you see that impacting your business in the near term on the cost side.
Also in terms of pricing is there any.
Willingness to accept a higher prices in the market.
We haven't had a lot of resistance on pricing.
And then Greg.
I think were suffering some of the same issues that the rest of the market is on the lower end of the employees. The people that are on the customer service side.
Generally you are starting.
At lower pay rates right. So it's kind of an entry level job and those entry level jobs are really where we're seeing more inflation.
Cross the board.
We think we're going be able to manage through it just with some of the efficiencies that we're trying to get in the business but.
We're still in the 2022 budgeting process, but don't feel like its going to be at.
Net headwind for us, but yes, we're definitely seeing it.
I think I would say I would add is I do think as we capture.
No.
Sometimes wage inflation from our customers.
We'll have an opportunity to capture those dollars.
And then ultimately that could lead to.
More float revenue, but.
That's.
That'll be kind of growing with the market and so that's that's one area, where we could see it which would be a positive.
And then Pat if you can comment on pricing in terms of.
Things Youre looking at in terms of <unk>.
We saw the acquisitions.
I know theres some.
It was pressures from both ends.
Focusing their assets are worth.
Quite a bit more than they may be on the one hand on the other hand, there is a potential capital gains tax.
<unk> is coming.
Are you seeing more deals that you can get done.
<unk> value.
No I think it's always had a healthy discussion then I do believe first of all.
As the nation in the marketplaces starts to stabilize coming out of Covid, we're not quite there yet, but there is a little bit more certainty and when you have certainty you can make those value judgments together.
Easier.
Would say theres some people testing in the market, but from the same token.
Think carbon taxes prevailing.
I feel like we have the opportunity to get some deals done here in the first half of the year.
We're going to do the right deal and the right deal for this stage within a share, but we think that there's opportunity to grow it to get scale and we want to take advantage of that.
Again nice job on the quarter. Thank you.
Thank you.
I appreciate it.
Operator is there any other questions.
I'm not showing any further.
Thank you Sir.
Well thank you.
We appreciate everybody.
On this call.
We went into some detail I wanted to make sure you understood. The business. We think we have some pretty good momentum.
For those of you that.
Follow us.
We think we're headed into a pretty exciting 2022, I'm very pleased with the execution of the team look forward to our update in March. So thank you have a great day.
This concludes today's conference call. Thank you for participating you may now disconnect everyone have a great day.
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