Q3 2024 Asure Software Inc Earnings Call
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Speaker Change: Good afternoon and welcome to Assure's third quarter 2024 earnings conference call. Joining us for today's call are Chairman and CEO, Pat Goepel, Chief Financial Officer, John Pence, and Vice President of Investor Relations, Patrick McKillop. 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 Patrick McKillop for introductory remarks. Please go ahead.
Thank you.
Thank you, Operator. Good afternoon, everyone, and thank you for joining us for Assure's third quarter 2024 earnings results call. Along the close of the markets, we released our financial results for the quarter.
The earnings release is available on the SEC's website and our Investor Relations website at investor.assuresoftware.com where you can also find the investor presentation.
During the 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 those items along with the reconciliation of non-GAAP measures to the most comparable GAAP measures can be found in our earnings release.
Speaker Change: 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.
I will hand the call over to Pat in a moment but I just wanted to take a moment to remind folks of our upcoming investor relations activities.
On November 19th, we will be attending the Craig Hallam Alpha Select Conference in New York.
followed by the Roth Technology Conference on November 20th, also taking place in New York.
Thank you.
On November 21st, we will attend the Stevens Annual Investment Conference in Nashville.
and have an executive team member attend the Needham SASS virtual conference that day.
Speaker Change: During the month of December, we will attend two virtual conferences, the TD Cowen Human Capital Management Summit on December 9th, and on December 12th, the Northland Capital Markets Conference.
Speaker Change: Investor outreach is very important to assure and I would like to thank all those that assist us in our efforts to connect with investors.
Finally, I would 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, Patrick, and welcome everyone to AssureSoftware's 3rd Quarter 2024 Earnings Results Call.
Pat Goepel: I'm joined on this call by our CFO, John Pence, and we will provide a business update for our third quarter of 2024 results, as well as our outlook for the remainder of 2024 and our initial 2025 outlook. Following our remarks, we will be available to answer your question.
Questions? Our third quarter revenue was $29.3 million, which was flat relative to prior year, owing to an approximate $5 million decrease in non-reoccurring ERTC revenue.
Excluding the ERTC comparison, total revenue and total reoccurring revenue
both grew by 20% compared to last year. Importantly, reoccurring revenue in the third quarter was 98% of our total revenue compared with just...
81% in the prior year's period, as you know.
Pat Goepel: and John C. Revenue with recurring revenue and you can see the result of our efforts.
In terms of acquisitions, we have acquired 12 companies.
over the past four quarters with
repetitive revenue of approximately $15 million.
The average purchase price is equivalent to about a 2.6 multiple on repetitive revenue.
The acquisitions have been primarily of payroll resellers, but we've also been able to round out our solution set. For example, HireClick gives us a scalable solution for our clients to help them manage and have success with their hiring programs.
We plan to expand HigherClick's applicant tracking system nationally and believe it brings capabilities that fit a key need for our clients and thereby enables us.
Speaker Change: Solution Set and Capture Wallet Share Turning to our organic performance
The 5% organic reoccurring revenue growth in the quarter did not meet our expectations.
Speaker Change: However,
We believe we've had some really encouraging leading indicators and momentum in place as we finish 2024 and embark into 2025 that will accelerate our organic performance. Our sales bookings...
We're up 141% compared to last year. Our current backlog has grown 35% sequentially from Q2 to Q3 2024, and is up...
250% versus prior year. This will set us up nicely for double-digit organic growth in 2025. We also have a strong pipeline of tax solutions for large enterprises.
In the past, we've shared our thoughts about the relatively unique asset we have in the tax space and we're now beginning to capitalize on it with some very large deals in process of going live and a very robust pipeline.
We're pleased to report that we went live with additional Workday and SAP clients.
Important sales wins have included one of America's largest grocery store chains and a nationally known human capital management system integrator that assists large enterprises with Workday, SAP, and Oracle human capital management implementations.
include 401k solutions for small businesses. This initiative leverages the government's secure
2.0 Act, which encourages adoption and provides funding for 401k plans for small businesses.
In addition to our brokerage capability in the benefit space, we have also recently introduced workmen's compensation solutions, as well as preventative health care solutions for small businesses. We're very excited about the upcoming launch.
of a new financial services product called AssurePay. AssurePay is an innovative alternative to online banking for working Americans, while also providing advantages to employers with employee attraction, retention, and overall efficiency.
Speaker Change: Patrick Goepel, John Pence, Patrick McKillop, John Pence, John Pence, John Pence, John Pence,
Speaker Change: Paycheck Advances
Speaker Change: and quite a bit more.
Now, I'd like to spend a minute or two on operations. We have a multiple pronged approach to improve business processes, technology, and create scale economies.
from our continued revenue growth. Acquisitions are an important part of this strategy.
Speaker Change: were pleased with their performance in this area. We've executed several
payroll transactions that should lead to higher revenues and profitability over the coming years.
Speaker Change: We believe that our established playbook is highly effective in maximizing the margin potential of these new acquisitions.
Speaker Change: The playbook offers us...
Speaker Change: to efficiently transition these acquisitions onto our platforms, cross-sell our enhanced capabilities, which we believe will enhance profitability with scale.
Speaker Change: Thank you very much.
We continue to enhance our client experience.
Speaker Change: with new technology, with the goal of integrating all Azure solutions.
on a Common Modern User Interface with Leading Capabilities.
Speaker Change: We'll continue to move the ball forward in this area and have several enhancements coming over the next.
several months.
Now, turning over to 2024, guys.
Based on our current business trends, we're updating our 20
24 Revenue Guides to Arrange
of $119 million to $121 million.
We now expect adjusted EBITDA margins of between 18 and 19 percent. We're also giving our initial 2025 revenue guidance
Speaker Change: of $134 to $138 million and adjusted EBITDA margins of between 23 and 24 percent. The measured margin reflects the value of scaling the business. Now,
I would like to hand it off to John to discuss our financial results in more detail. John?
Thanks, Pat. As Patrick mentioned at the beginning of this call, several of the financial figures discussed today are given on a non-GAAP or adjusted basis.
You will find a description of these gap-to-non-gap reconciliations in the earnings release.
Now on to the third quarter results.
Third quarter revenue was $29.3 million, nearly unchanged relative to prior year as ERTC non-recurring revenue declined by nearly $5 million, which was offset by a $5 million or 20% improvement in recurring revenue.
Speaker Change: As Pat mentioned, the quality of our revenue has improved markedly.
relative to prior year.
with recurring revenue now representing 98% of the total revenue compared with 81% a year earlier.
Speaker Change: Third quarter revenue, recurring revenue growth, was broad-based and led by our recent acquisitions and several significant payroll tax management sales.
Speaker Change: Thank you.
Speaker Change: Thank you so much.
Net loss for the third quarter was $3.9 million versus a net loss of $2.2 million during the prior year period.
Speaker Change: Gross margins for the third quarter decreased to 67% from 73% in the prior year.
non-GAAP gross margins the third quarter decreased to 73% from 76% in the prior year period. We continue to believe there's substantial margin upside over the longer term as business scales.
Speaker Change: Thank you. Thank you.
EBITDA for the third quarter was $2.2 million, down from $3 million in the prior year period.
Speaker Change: Adjusted EBITDA for the third quarter decreased to $5.4 million from $6.2 million in the prior year period and our adjusted EBITDA margin was 19% in the third quarter compared to 21% in the prior year.
Speaker Change: Third quarter EBITDA reflects the revenue trend and transition to higher recurring revenue, lower ERTC revenue, and select investments in the business to support revenue growth.
We ended the second quarter with cash and cash equivalents of $11.2 million, and we have debt of $7.5 million.
Speaker Change: Now in terms of guidance for the fourth quarter of 2024, we are guiding the fourth quarter revenues to be in a range of 30 to 32 million.
Adjusted EBIT off of the fourth quarter is anticipated to be between six and seven million.
Speaker Change: At this time, it appears that the 2024 revenue will fall a bit short of our initial expectations.
Speaker Change: which is primarily the result of lower revenue from new product introductions and the variability and timing of the execution and implementation of a few large enterprise tax deals.
Speaker Change: We close the quarter with over 67 million in contracted backlog. This represents
an over 250% increase from the previous year. We feel we have made important strides in 2024 and have strong momentum as we look forward to 2025.
Speaker Change: We are providing initial 2025 guidance to be in the range of $134 million to $138 million, with adjusted EBITDA margins of between 23 and 24 percent.
Our 2025 Revenue Guidance does not include potential acquisitions, though we do still plan to continue to execute acquisitions in the future.
Speaker Change: Thank you.
Speaker Change: In summary, we are excited about the opportunities that we have for the balance of 2024 and 2025. The headwinds from ERTC have now faded, and our focus is to continue the growth of the business while creating more shareholder value.
Before turning the call back over to Pat, as I just referenced, our long-term business model assumes a complement of both organic and inorganic revenue growth. To this end, as the debt markets become more favorable, we are evaluating the use of various forms of debt financing.
Speaker Change: potentially during 2025.
Speaker Change: We believe that having options for finance in place as we focus on growing the business is prudent.
Speaker Change: So we do not have
We do not intend to over-leverage the balance sheet to achieve our objectives.
I also wanted to mention that after the market closed today, we announced the entering of a sales agreement for an at-the-market or ATM offering, which will augment our existing S3 filing.
While we do not have any immediate intention to utilize the ATM, we have established an ATM to give us additional flexibility in the future for funding opportunities should they arise.
Speaker Change: With that, I will turn the call back to Pat for closing remarks.
Pat Goepel: Thanks, John.
We are pleased to report solid performance in the third quarter of 2024, our ongoing commitment to business growth.
technology advancements and expanding our product offerings have yielded
Strong progress in the first nine months of 2024.
as we work to create a more unified client experience.
Pat Goepel: for SurePay.
Pat Goepel: will be the latest addition to our product portfolio. It is an innovative online banking alternative delivered through an intuitive mobile app for employees that features things like debit card capability, free ATM withdrawals, and paycheck advances plus more. We have announced multiple solutions over the last few quarters.
Pat Goepel: to add to our client experience with products, which will help the small businesses complete background checks.
Pat Goepel: uncovered tax credits that they may be eligible for, ways to lower health care premiums, and through an acquisition we added an applicant tracking technology to our portfolio which will aid them in the hiring process.
Pat Goepel: These additions will aid us in attracting potential new clients as well as cross-selling
existing clients.
Speaker Change: were a relatively young company.
in the human capital management space, and we're continuing to build out our capabilities.
Speaker Change: as we plan for future growth. In summary, we've delivered another solid performance...
with 20% reoccurring revenue growth.
Booking's growth of 141 percent.
Speaker Change: A strong backlog.
Speaker Change: which grew over 35% from Q2 and over 250% from Q3 2023.
We've executed well our plans for acquisitions.
Speaker Change: future deals remains healthy.
Speaker Change: of total revenues in the third quarter was 98%, which increased from 81% in last year's third quarter and shows our ability to grow a high value revenue stream. Our guidance at 134 to 138 million in revenues for 2025
Speaker Change: implies double-digit growth without acquisitions.
and the headwinds from ERTC have dissipated.
We look forward to the exciting opportunities we have in the remainder of 2024 and into 2025. We will continue to provide innovative human capital management solutions that will help small businesses thrive, human capital management providers grow their base.
and large enterprises streamline tax compliance. Thank you for listening to our prepared remarks. So with that, I'll turn the call back to the operator for the Q&A session. Operator?
Thank you. We'll now be conducting a question and answer session.
Speaker Change: If you would like to ask a question, please press star 1 on your telephone keypad.
A confirmation tone will indicate your line is in the question queue.
Thank you.
Speaker Change: Thank you.
Speaker Change: Thank you. Our first question is from Joshua O'Reilly with Needham & Company. Please proceed with your question.
Got it. Thanks, guys, for taking my questions here. So maybe just starting off, if you look at the lower revenue for the quarter than what was expected at the midpoint of guidance, maybe just some more color on what was different versus your internal plan entering the quarter. And as you think about the initial guidance for 2025, that implies about 13% growth at the midpoint. What gives you confidence based on your internal planning that's the right number, given there's going to be a headwind to float income most likely next year?
Yeah, Josh, thanks for the questions. You know, first of all,
You know, as I think about last year...
The big questions were, hey, you know, year of T.C. pause, how are you going to ever grow over it, all that kind of stuff. We laid out a plan.
And we think for the most part, we've executed fairly well. I think as I look about the third quarter, you know, first of all, you know, we probably modeled in the area at 95% reoccurring revenue or repetitive revenue, the difference around that 3% at 98, 98 is not bad, and it's pretty good. But a lot of cases, it was timing around some big deals and professional services.
So, it's book-to-bill timing on some of these large deals. Professional services had an impact here in the third quarter. And then, as I look forward, there's a lot to celebrate. You know, sales was up 141 percent, backlogs up 250 percent. I owned the timing, and I screwed up. You know, we got to yes on a lot of good deals. They were a little bit delayed in a time frame where we're expecting a ramp. This is not a question of if. It's a question of when. And I probably was a quarter or two early here on some things. That being said,
Speaker Change: Some of the progress we're making around Assure Pay, around 401k, around some of the rounding out of offerings is very strong. The momentum in the marketplace, you know, 141% sales growth doesn't happen often. And then it's just the timing of some of these deals where, you know, we had modeled in, you know, kind of that July, August, and then it comes in in September. Should I have known better? Maybe. And I own that, and I'll be better than that in the future. And when I think about, as we had in the fourth quarter last year, I think we were in the 26 range with a million of ERTC. We're guiding the 30, 32.
already kind of there. And if you just take implementing sales in the backlog, you get to that 12 13% pretty quickly. So we're pretty confident. Yes, it's a, you know, a timing pill that we all have to accept. But from success of the business, it's not a question is of if it's a question of when
Got it. That's helpful. And then just maybe following up on the enterprise payroll tax
I've gotten a lot of questions on that over the last quarter.
Speaker Change: Maybe can you help us understand better, like how long is the sales cycle there? How much of that is direct versus through partners?
And what's the level of visibility that you feel like you have now that these deals are kind of progressing over the next few quarters?
Speaker Change: Thanks guys. Yeah, in addition, thanks Josh, in addition to John Pence, I have Al Goldstein who is our President and Chief Revenue Officer and is on the point of some of these solutions.
But a couple of things. First of all, we do have a couple of different models.
where we've been successful in the integrated channel is small business payroll, right? Well, we don't compete, let's say, in the PEO market, and we've announced, you know, a really solid partner and venture, and that's gone very well.
In the large end, we don't compete in the large offering of payroll, but we have some poor competency in tax filing and money movement and tax filing.
Speaker Change: And we've had a lot of success. And, and, you know, we'll disclose names as we go live and go a little bit further, but we've been very successful. So it's not a one size fits all. Where our model has been delayed a bit is sometimes the contract process.
You know, we probably have been used to a motion of around 30 to 60 days. In some cases, it's 90 to 120 on the contracting. And then where we also have done a really nice job of bringing people live within 60 days, if they're already on the current ERP solution, but in some cases, if they're moving
Speaker Change: We're at the whim of, you know, maybe an IT integrator, we're at the whim of them first installing the ERP solution, and then the tax filing solution. So that's kind of the sense on book the bill. And then the other thing is we have integrations with 27 other payroll companies. That's a big number. And that's 27 payroll companies that are bringing us.
Speaker Change: We've got a lot of momentum. The timing, we'll get better on, and I'll get better on it. But, you know, the good news is good pipeline, strong implementations that have gone live that are referenceable, and this is more a contracting book to build, timing of ERP conversion versus anything else. You know, I'm going to just maybe, Ale, you're on the front end of the stuff. Anything you want to add? Yeah, I would say, Josh, the only other thing I would add is it's a combination of direct to enterprise Fortune 500 opportunities or customers, as well as working with some larger system integrators that gives us the opportunity of some of these more one-to-many.
where we can do a deal with the integrator and ultimately all of their clients as they come online, we get credit for and revenue from. So it's a combination of both of those models.
Got it. Thanks, guys. I'll pass the cue.
Speaker Change: Thanks, Josh.
Thank you. Our next question is from Brian Begrin with TD Cowan. Please proceed with your question. Hi, this is actually Chair Levine on for Brian tonight here. First question here, can you go over the underlying assumptions to your FY25 revenue guide here, including what that includes for inorganic based on both planned M&A and as well as already announced M&A here in FY24?
I think the only thing for the 25 guide, we do have one deal that we're anticipating closing this quarter. The rest of the guide does not assume any incremental acquisitions post fourth quarter.
What about employment growth, macro conditions, anything more there to kind of shed light on in terms of those underlying assumptions there for 25?
I would say the only big assumption that we've played in is interest rates, right? So rough order of magnitude, we've historically been sitting on approximately $200 million of client funds. The way we look at it, about a half point.
Speaker Change: is about, I think, about a million dollars a year, so about $250 a quarter, so we've played into our models approximately like a three and a half percent terminal rate from the Fed.
Speaker Change: 2025 per quarter. So to give you some sense of what that's one of the probably key underlying assumptions we put in. I don't think we've modeled anything really differently in terms of employment.
Even restauranteurs, they can't get enough people, and we're obviously trying to help them with our value proposition, access to capital, access to people, and compliance, but we've modeled kind of a flat. If we do get some upside, that's great.
And then the last question here, can you talk about the drivers of this notable margin expansion you're pointing to for FY 25 here relative to your current FY 24 guide?
Well, I just...
simply put the sales, you know, up 141 percent, the backlog up 250 percent last year at this time. I think we had something like 19 million in backlog. We have 67 right now. You know, some of this is just the momentum that we've had. If you think about the first quarter
Speaker Change: Coming off ERTC, we were about 3.5% organic growth, and if you think about kind of where we were at the time, the sales motion pivoting from ERTC with a lot of new products.
You know we we had to take some time to train those products and and roll those out. You know one other stat that just if you think about what products we've added here over the last year is you know first of all common user interface across all employees. You know we're having a common employer user face that we're rolling out. If you think of PEPM or per employee per month
$40 a month relative, you know, we had some products that were relative new, you know, we're probably in the neighborhood now of about 165 per employee per month. So if you think about that capability, we've added a sure pay that we just announced, you know, here in November, this month, we've announced, you know, the brokerage business, the recruiting product, preventative health, workman's comp. So we're really rounding off the offering. And like I said, we're relatively, you know, early business that's building out all these capabilities. And we have a lot of momentum. And then the sales backlog.
Speaker Change: both really well for the future here. And then, coming off ERTC, you know, ERTC now in the fourth quarter, I think we had a million dollar contribution. Next year was about a million and a half that, you know, we had this year. We're through that. So...
Speaker Change: Tremendous amount of confidence.
And then, John, real quickly, can you talk about the drivers to margin expansion you're pointing to for FY25? It looks like a little over three points here, so pretty notable. So just be curious on those margin expansion drivers for next year.
Speaker Change: Yeah, I think we've been pretty consistent just in terms of this being a scale business.
With the top line, we don't expect to add a lot of extra cost to service that top line. We feel like a lot of that incremental growth on the top doesn't come with incremental cost, just by the nature of some of these deals.
Speaker Change: You know, we'll sign some of these large tax deals. It doesn't change any rewrite of the code. It's just a lot of really good top line growth without a lot of incremental costs. So, I think that's the primary driver. It's the scale. It's the same thing we've been saying all along. We think this business should be, you know, as we start to crest
Patrick Goepel, John Pence, Patrick McKillop
Yeah, and maybe just if I could add, you know, 20, 21, I think we were 10% non-GAAP-y, but this year we're, you know, 19% or so, 20% last year. Next year in the guide, we're going to increasingly go up. And then, you know, if you think about some of the things we just talked about with the, let's say, the employer kind of user interface and common employee-user interface, if you think about some of the validation tools and AI that we're rolling out, you know, rework is going down quite a bit. The ability to scale operationally has gone down.
were able to take out, you know, kind of some non-customer service status.
Speaker Change: at an increasing pace with some of our technology projects. So all of that is adding up to, we have early visibility of margin expansion, but we're really early. We think we can do quite a bit more.
Great, thank you.
Speaker Change: and John McCain. Thank you. Thank you.
Thank you. Our next question is from Eric Mark Woolsey with Lake Street Capital Markets. Please proceed with your question.
Speaker Change: So, 6 million in total. We came up short by about 2 million here in Q3.
Obviously, that implies $4 million in Q4. So, I'm hoping to put it in three different buckets here. You talked about, number one, lower revenues from new product introduction, number two.
a few large enterprise tax deals that slipped, and then number three, sounds like pro-services. So can you bucketize that $6 million?
Thank you.
Yeah, I would just give you my first point as I think I would tie the pro services to the tax deals themselves because Most that pro service is going to go with the install timing So that's where I would I would then I'll let Pat kind of give you his feelings on those
Speaker Change: Thank you. Thank you. Thank you.
From a timing in general, I would say we're probably roughly a third. So if you think about, let's say, 401k, you think about preventative health, if you think of our, you know, pay card rollout, in general, some of the new products and the book to bill and client adoption, you know, probably is roughly a quarter behind or so. You know, some of that varies based on those products. So the timing of some of the new products, I would say, probably is another, you know, somewhere around $2 million. We did have, you know, kind of a deal we thought we would have on the acquisition front. And in that, you know, I think
and Patrick Goepel, John Pence, Patrick McKillop, John Pence, Patrick McKillop, John Pence, Patrick
Speaker Change: We've overachieved
on getting backlogged, that timing in a backlog is the other kind of remaining thing, but that's where, if I were to look at it, it's about a third in professional services, about a third in the rollout, and a third about timing, you know, maybe $1 million or so on the one deal with acquisitions, it's probably 2025.
Okay, and then just a clarification, was there any ERTC revenue in Q3 of 2024?
Speaker Change: John, it was the minimum. I think we had some, I think it was like a hundred grand, maybe 150 grand all in.
Speaker Change: Thanks for taking my question
Speaker Change: Thank you, Eric.
Speaker Change: Thank you.
Speaker Change: Thank you very much.
Speaker Change: Thank you. Our next question is from Jeff Van Ree with Craig Hallam Capital Group. Please proceed with your question. Great, thanks. Just to follow up on Eric's question there, with respect to the tax deals, the push that contributed to the meaningfulness of this $6 million miss, how many tax deals are we talking about?
For more information, visit www.fema.gov
Well, we have a, you know, we have a large
integrated deal where, you know, it could be as much as the, you know, 50 deals, right. Or, or more. And so the timing around some of those moves. So if you think about it, you know, they have a different ERP platforms. They have Oracle SAP Workday and without getting too deep
Speaker Change: into that, you know, we're over time going to be, you know, their provider. And so that provider is.
a kind of a licensed solution plus a professional services component to it. And so that is really kind of the, probably the biggest area. There's been some other deals where, you know, that's some one-off bigger deals.
Speaker Change: that, you know, they have to implement...
Speaker Change: First.
on ERP solution, and then they go to tax.
and, you know, they might have...
One has Capgemini involved in it. So they have a consulting firm bringing them live. Once they go live, they go to us. They've moved some of those ERP implementations. But it's probably in the area of 50 plus.
It's truly a timing thing. Nothing more, nothing less. And I'll take ownership that I was
Speaker Change: You know, either too optimistic or didn't do it, didn't forecast it privately or publicly as well as I should have, but I will tell you, I mean, it's not like we didn't sign it. It's not like we don't have things going really well. It's just the timing of it.
Speaker Change: John, do you have a sense on free cash flow conversion in 2025 on the $32 million EBITDA midpoint?
Yeah, I think just get some more type...
answer that I would give you in 24. I mean, our big deltas between the adjusted EBITDA number and the free cash flow are really software cap, which I don't see changing tremendously. So I think this year we'll probably be capping about 10 million, right? I think that
the other big deltas, commissions. And so I believe that we should be kind of in the 20s, you know, we'll be stepping up from where we were this year in terms of free cash flow. It's a simple answer because I don't think there's a lot of other big deltas between the two.
The AR bumped up when you really got heavy into the ERTC, it's still elevated. Is there a scenario in 2025, do you expect that to come down? Just talk about maybe your thoughts on AR for the year.
I hope so. I mean, so we, you know, when they went through the pause of ERTC, it was truly, not even a pause, it was like a freeze. So I would say between September
of last year, kind of September 14th and August of this year, almost no movement really in terms of the IRS letting checks flow. Early in August and I would say in September we actually started to kind of see that that logjam break. We have
visibility through our systems into the IRS. So what we have is like an early warning sign. So there's usually like about a two or three week flag between when the IRS says hey we're going to issue a check and when they actually cut the check.
So we have about a three to four week head start when we know the IRS is about to start releasing funds.
We've seen early signs of sprouts that we haven't seen for the previous 12 months.
So, I do believe that if the IRS kind of continues on its current trajectory, that number should come down. Hopefully, it's really somewhat at their whim as to how quickly they start to kind of unload these things, but I do believe it's coming down. That's the major change in the AR balance that we're still waiting on.
Okay, and then just two quick last for me. One, on the debt side, as you continue to make acquisitions, just what is an acceptable leverage level that you think you would not be comfortable going over? And then on the sales reps, I know last quarter you said you were tracking for $130 by year-end. Where do you end the quarter? Is $130 still the right target?
Speaker Change: So, last question first. I believe that is still the right target. I think we're probably in the 115, 120. Abel can correct me if I'm wrong in that range at the end of the quarter.
And then in terms of the leverage, I think, you know, we'd probably be comfortable with about two times.
Speaker Change: Pat, I don't know if you have a different opinion.
You know, we're comfortable at that level. We think we have some opportunities to thrive, and again, with the, you know, with the expectation that scale will drive, you know, margin expansion, that's our journey.
Speaker Change: Okay, great. Thank you
I'm sorry, I'm sorry, I'm sorry, I'm sorry, I'm sorry
Thank you. Our next question is from Brad Reback with Central. Please proceed with your question.
Great, thanks very much. Pat, I appreciate you taking ownership of the myths this quarter. Can you give us a sense what level of cushion you've baked into 4Q?
Speaker Change: Say that again Brad, I'm sorry I just want to make you fade it out a little bit.
Brad Reback: Can you give us a sense of what level of cushion conservatism you've baked into the 4Q?
Yeah, I mean, I think when we look at it, we wanted to make sure that we built a foundation as we look in fourth quarter.
2025, you know, that we had something to build off of, you know, as far as visibility and starting work.
You know, we're not betting too much on a contract needing to be signed.
Brad Reback: And then we get it implemented. So we're looking really at the backlog. We're looking at, you know, we do have one acquisition that, you know, we anticipate closing. That's a strong OI that's in it. And then, you know, we have revenue that has already started.
that, you know, let's say it started for a month in the third quarter, it'll roll into fourth. So that's pretty certain. So the 30 to 32, you know, we feel we should be able to hit and hit nicely. We're not betting on the come. You know, I think we, you know, in retrospect, you know, I think one of the things coming out of ERTC last year with a guide, you know, is people kind of said, hey, you know, you're coming from a flat start on ERTC. We explained that scale was important, and we're going to get there multiple ways.
as we look at next year and fourth quarter.
Great, thanks for that. John, free cash flow conversions actually been negative through the first nine months I think to the tune of eight and a half million dollars.
Can you kind of walk through what's going on there and how that reverses? Thanks.
Speaker Change: I think if you're if you're putting in acquisitions, I think that's going to be the key delta to that number, right? I'm not. No, I'm only using OCF.
Speaker Change: minus the CAP software.
Thank you. Thank you.
You're talking about off the gap balance sheet?
I don't spend a lot of time looking at the balance sheet movements honestly because it's just a timing issue for my I'm looking more for a bridge to the adjusted EBITDA number
in my mind. I'm not really focused on the movements on the balance sheet as much.
So I'm happy to kind of spend some time and I'm happy to help kind of bridge back to it, but I've not spent a lot of time trying to bridge the operating cash flows off the gap cash flow.
Okay. Thanks.
Thanks, Brad.
Speaker Change: Thank you very much.
Thank you. Our next question is from Greg Gibbous with Northland Securities. Please proceed with your question.
Hey Pat and John, thanks for taking the questions. Does your guidance assume that you know some of those large deals you spoke to on the tax side that you kind of said were a matter of when not if, does guidance for next year assume those kind of kick in in the Q1 or likely later regarding implementation and recognition?
Speaker Change: I think it's a little bit of both, right? Some of these got signed in the second quarter, some of them got signed in the third quarter of meaning. I mean, it's a whole cadre, right? So we have one, for example, that we expected to start in January of 24 that it went live.
Speaker Change: in August.
as an example, a large
Speaker Change: Steel Company, 20,000 employees.
Speaker Change: We've got, as Pat mentioned, I think in his prepared remarks, we've got one of the largest grocery store change that we expect to go live in January, but some of that's a little bit out of our control. We right now are anticipating that one going live January in 2025.
and then as Pat and Ale referred to we've got some large integrators that we're working with we think that you know some of that's going to go in earnest this quarter but again some some of it's in our control some of it's not we're a little bit at their mercy as to how quickly they can they can keep pace
So, I would say some of it is in this quarter, some of it is into 2025.
Speaker Change: Some of them, you know, we have a license deal that we get some revenue now, but then we also implement through the four quarters of next year. So some of it is, you know, the timing is down. Some of it is
quarterly over 2025. So, you know, it's not a one-size-fits-all. I will say the pipeline's pretty robust and, you know, the sales order metrics are very strong and then the backlog strong. So, it will go throughout 2025.
Speaker Change: Okay, got it.
And then I wanted to ask just, I guess, organic growth expectations implicit in your Q4 guidance and maybe for 25 as well. And I guess another way to ask, too, is, you know, the 15 million ARR, you know, how much of that do you expect to recognize this year, or I guess capture this year? Just trying to get a sense of, within your guidance, kind of what's on the organic growth side.
Yeah I think and I'm gonna go I don't have it in front of me right now but I think it's roughly high single digits of organic in the fourth quarter it'll be and then the rest of it will be inorganic.
and many more. Thank you for joining us. We hope you have a wonderful day. And we hope to see you again soon. Until then, take care.
And then as far as acquisition rollover, as far as acquisition rollover, we probably have somewhere around six million or so in that area of the 15, and you know probably some headwinds on flow, but the organic growth coming off of it should be, you know, probably in the neighborhood without acquisitions, you know, 12-13% a quarter throughout 25.
Okay, that's helpful. And, you know, I wanted to just kind of touch on the acquisition of HireClick. Could you kind of discuss the strategy or synergies there and maybe share any valuation metrics of that transaction?
Yeah, I think, you know, and Ale, I'd maybe jump in here too. We have a value proposition for our small businesses of, you know, that it sure will help them be compliant, whether that's payroll, tax filing, as well as HR.
so they can focus on growing their business. And then when we talk to small businesses, they want to be compliant because changing legislation is very difficult. They also want access to capital and we'll give them, you know, either access via, you know, 401k, pre-tax program, health programs, tax programs, et cetera, and then access to people. And within the acquisition of HireClick, you know, we partner with either local job boards or interface with national job boards where small businesses can stick out. And if they can stick out and hire people, that can drive their business forward. So we have a really good.
Good morning, everyone, this is Patrick Goepel, and I'm here to talk to you about how we're going to be able to make some good plans on growing revenue within HireClick. It's part of our value proposition, part of our bundles. We anticipate that we'll get a lot of momentum. Ale, anything you want to add? Yeah, I would say, Greg, the only other thing I would add there as it relates to the recruiting for small business, it's still in that 10 plus percent range. And so our customers, both prospects and current customers, are still dealing with looking for really good people to hire and consistently looking to fill job positions.
Speaker Change: opening. So that's still a challenge for Main Street USA and our customer base and our ideal client profile. And so the technology is really critical there to help close that gap. And it also plays really nice with our HR compliance services.
as it relates to creating job requisitions, job descriptions, interviewing skills, and hiring new employees as well.
Speaker Change: Understood. Thanks, guys.
Thank you.
Thank you. Our next question is from Charles Nabin with Stephens. Please proceed with your question.
Good afternoon and thank you for taking my question. Most of my questions have just been have been asked, but you had cited a multiple of 2.6 times on average for your acquisitions from the past 12 months, if I heard you correctly. I'm wondering if you could parse that out between the resellers versus what type of multiples you're seeing, you know, on ancillary solutions such as HireClick.
I think 2.6 is a really good proxy, right? We've had some outside of the resellers that have been on the high end, and I would say we had one that was really, really...
very very low end in terms of multiple so I think it's still pretty much holds true that 2.6
Speaker Change: is a good proxy for the overall mix. Governor Pat, if you have anything to add. No, I think you're spot on.
Pat Goepel: We had a, you know, the recruiting one probably, you know, was a little bit higher multiple. The brokerage business was a little bit lower. You know, the resellers are in that area. You know, we do kind of thoughtful around, you know, either a seller note or what have you to take care of indemnification issues. So, you know, we're right where we want to be in building out the solution set. And, you know, as we get scale, you know, obviously we feel that we're going to grow, you know, revenues and EBITDA to, you know, have an arbitrage on that 2.6. And, you know, for our perspective, they've done exactly what we wanted to do in an organization.
been able to implement them and we think we have a really good foundation for 25. You know, actually, it's frustrating sometimes with timing, but...
Like I said, we're really pleased with what we're doing here. Now we just got to get in the right position where I set the right expectations and the scoreboard shows it.
Got it. And as a quick follow-up, I wanted to ask about the competitive environment, specifically what you're seeing from the larger legacy competitors and, you know, maybe anything different, any changes in the competitive landscape downmarket as well.
Yeah, I'll let Al touch on that.
Yeah, you know, we're seeing the consistent theme that we've seen before, right, it's the big guys, ADP and paychecks, really. We're not, you know, we're seeing some of the pays come down a little bit, but still there hasn't been much change from a competitive landscape for us.
Pat Goepel: where we're playing in the tax business. There's ADB with their standalone tax solution, and that's primarily who we see in that part of the business as well.
Speaker Change: Got it. Appreciate the call. Thank you very much.
Speaker Change: Yeah, thank you.
Thank you. Our next question is from Vincent Colicchio with Barrington Research. Please proceed with your question.
Yes, most of mine were answered as well. Pat, how did your bookings break down between new and existing clients?
Pat Goepel: You know, we're about...
Pat Goepel: 70-30
So I would say 70-30 new to existing. What I would say with the amount of, you know, if you think about what we're trying to roll out, we'd like to almost flip that over time. We think we have that opportunity. Some of it, you know, will be almost immediate in those opportunities. And then some of it's going to take, you know, through 2025 as we continue to build on technology
Programming, Sales.
throughout the product line and almost have event-driven kind of sales. So we're working on that stuff. A lot of calories internally are working on that. But what I would say, and Al's been really thoughtful about how we drive
Speaker Change: Patrick Goepel, John Pence, Patrick McKillop
Speaker Change: Let's say last year was roughly $40 per employee per month.
Speaker Change: You know, now we're somewhere in the area of 165.
So we have an opportunity to really offer some of those. Now, there's a stair-step approach around technology, event-driven marketing, kind of training the sales force, etc. So we're middle of the movie there, or maybe really early in the movie, but over time we'd love to see the 70-30 flip.
to 3070. Now, the ability to sell new logos is really a great position for us to be in. We're very pleased with those efforts. So we want, you know, if I look at flipping the model from
Speaker Change: I don't want to slow down new logos, I just want to increase the wallet share of our current clients.
Speaker Change: Thank you.
And thank you as well.
Speaker Change: Operator, any further questions?
There are no further questions at this time. I'd like to turn it back to management for any closing remarks.
Speaker Change: Yeah, first of all, thank you. I know sometimes it's disappointing when you have kind of an immediate stock drop, et cetera. I just go back. First of all, I want to thank the 630 employees. They've done a great job with Assure. They carry our banner each and every day. This is not a question of if, it's a question of when, and we're moving in the right direction. If we looked at last year at this time, there were so many questions around ERTC pause, all that stuff. We got through all that noise. We went on a journey that said, hey, we're going to replace ERTC revenue.
I want to beat one of you and you're going to be amazing on�F Fascinating stuff. We passed that. So I have a huge respect for what we did with this new revenue and we did. If you take a look at what we're doing internally, we're sales are up 141% . We're back logs up 250. We're rolling out the kind of product we are we're rolling out the wallet share. When you think about our technology team that's introvening each and every day. They're doing their own thing. They're doing their own things. And the only person here that screwed up was me. And I screwed up based on the wrong expectations, but I'll tell you what, we're not for the faint of heart. We're going to grow this business. We're going to grow it profitably and we're going to do really good things.
Speaker Change: and Peter Capriani.