Q4 2024 Asure Software Inc Earnings Call
Good afternoon, and welcome to assure as fourth quarter and full year 2024 earnings conference call.
Speaker Change: As for today's call are chairman and CEO Pat Keppel.
Speaker Change: Chief Financial Officer, John Pets.
This president of Investor Relations Patrick Mckillop.
Patrick McKillop: Following the prepared remarks will be a question and answer session for analysts and investors.
Patrick McKillop: Now, let's turn the call over to Patrick Mckillop for introductory remarks, Patrick. Please go ahead Sir.
Patrick McKillop: Thank you operator, good afternoon, everyone and thank you for joining us for our assurance fourth quarter and full year 2024 earnings results call.
Patrick McKillop: Following the close of the markets, we released our financial results.
Patrick McKillop: The earnings release is available on the Sec's website, and our Investor Relations website at Investor Dot sure software Dot com.
Patrick McKillop: You can also find the investor presentation.
Patrick McKillop: 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.
Patrick McKillop: A description and timing of these items along with the reconciliation of non-GAAP measures to the most comparable GAAP measures can be found in our earnings release.
Patrick McKillop: Today's call will also contain forward looking statements that refer to future events and as such involve some risks.
Patrick McKillop: We use words, such as expects believes in may to indicate forward looking statements.
Patrick McKillop: 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.
Patrick McKillop: I will hand, the call over to Pat in a moment, but just wanted to take a moment to remind folks of some upcoming investor relations activities.
Patrick McKillop: On March 16th stood the 18th we will attend the 37th annual Roth Conference in Dana Point, California.
Patrick McKillop: We also plan to do some non deal Roadshows later this spring as well.
Patrick McKillop: Investor outreach is very important to assure and I would like to thank all those that assist us in efforts to connect with investors.
Patrick McKillop: Finally, I would like to remind everyone that this call is being recorded and it will be made available for replay via a link on the Investor Relations section of our website.
With that I would now like to turn the call over to Pat Campbell, Chairman and CEO Pat.
Patrick McKillop: Thank you Patrick and welcome everyone to ensure software's fourth quarter and full year 2024 earnings results call I am joined on this call by our CFO, John Pets, and we will provide a business update for our fourth quarter and full year 2024 result.
Patrick McKillop: As well as ours.
Patrick McKillop: For 2025, following our remarks, we'll be available to answer your question as you can see from our reported results, we executed quite well against the plan, we laid out for 2024 and delivered strong results. Our 'twenty total revenue increase modest.
Patrick McKillop: Really in 2024 to 119.8 million excluding E. R. T. C revenues total revenues were up 17% our recurring revenues for the full year 2024 grew 15% versus the prior year and I would like to highly.
Patrick McKillop: Right that our recurring revenues, which carry a higher value than one time revenues as a percentage of total revenues increased to 96%.
Patrick McKillop: That says 84% in 2023 during 2024, we focused on the continued growth of our business and replacing one time E. R. A T C revenues with higher value reoccurring revenues through a combination of organic growth and acquisition.
Patrick McKillop: The drivers of our success in 2024 were broad based with a strong contribution by our payroll tax management product as well as contributions from recent acquisitions over the past year, we added to our product portfolio with items.
Patrick McKillop: Such as employee recruiting technology benefit brokerage capabilities pretax and preventative health care solutions and our 401k offering recently, we launched a share pay this is an innovative alternative to online banking, which we expect to help employers with.
Patrick McKillop: Retention reduction and loss paper checks and attract new employees. It provides employers with the ability to offer on demand pay as also known as earned wage access sure payers delivered via easy to use mobile App and offers debit card capabilities.
Patrick McKillop: ATM withdrawal plus more we're in the early stages of the product rollout with one since two strategic strategic groups. That's far we made great strides with our acquisition strategy during 2024, primarily acquiring our payroll resellers.
Patrick McKillop: Under this approach, we're acquiring new clients and such transactions are not so much acquisition and the traditional definition, we had anticipated at acquisition during the fourth quarter, which did not materialize. However in the first quarter, we replaced the value of the deal with too.
Patrick McKillop: Digital acquisition and our pipeline for future deals remains robust. These client acquisition can be efficiently integrated into our existing business and we can cross sell additional capabilities, which we believe will drive future profitability as we achieved.
Patrick McKillop: Scale as we continue our efforts to enhance client experience, we've been working to integrate all its sure solution and a common modern user interface. Additionally, we recently introduced Luna the industry's first AI agent for payroll.
Patrick McKillop: In HR.
Patrick McKillop: Unlike traditional Canada of AI chat Bot Luna as an advanced air agents.
Patrick McKillop: That understand insurance suite of product and more importantly can act on behalf of both employees through self service and business owners and administrators employees and simply ask wound up her out and she can take care of items like updating personal detail changing benefits election than more.
Patrick McKillop: Recently, we've experienced momentum with new payroll unit, increasing at a strong rate during the fourth quarter and that sets up.
Patrick McKillop: Up nicely for 2025 also our 401k product candidates long business our results in the fourth quarter as we look forward to seeing that trend continue during 2025 as you know our 401k offering leverage of U S government secured 2.0 Act.
Patrick McKillop: Which provided funding and encourage as adoption of the 401K plan by businesses in the U S. Our sales efforts during the year 2024 resulted in an 86% increase in new bookings versus the prior year also our.
Patrick McKillop: <unk> backlog is strong has grown 17% since our third quarter earnings report based on our current business trends, we are reiterating our 2025 revenue guidance.
Patrick McKillop: 134 to 138 million.
Patrick McKillop: With EBITDA margins of between 23 and 24% as a reminder, this 2025 guidance excludes any contribution from future potential acquisitions as we look at the business plan for 2025, our guidance implies a mid teens growth rate.
Patrick McKillop: Which is very positive.
Patrick McKillop: Finally, we're excited to share that we signed a multi year agreement with a firm that is the industry leader and audit tax consulting and advisory services to resell, our payroll and payroll tax management solutions.
Patrick McKillop: Green Bank will enable the firm to deliver our comprehensive solutions to their firm's clients for the first time.
Patrick McKillop: Now I'd like to hand off to John to discuss our financial results in more detail as well as our quarter one guy.
Patrick McKillop: John.
Speaker Change: 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 GAAP to non-GAAP reconciliations in the earnings release that was made available earlier today.
Reconciliations themselves are also included in our most recent investor presentation posted in the Investor Relations section of our website at.
Speaker Change: Investor that assure software dot com.
Speaker Change: Now on to the fourth quarter in 2024 results.
Speaker Change: Fourth quarter total revenues of $30 8 million and grew by 17% relative to prior year, while recurring revenue rose by 14% excluding nonrecurring revenue.
Speaker Change: From a R T see coal revenue rose by 22%.
Speaker Change: For the full year total revenue grew slightly to $119 8 million, despite a $16 $5 million decline in <unk> revenue.
Speaker Change: Recurring revenues for the full year rose by 15% relative to prior year to $114 million.
Speaker Change: Fourth quarter recurring revenue growth was led by our payroll tax management business, where our enterprise solutions have gained great traction on the strength of our offering.
Speaker Change: Also grew revenue and payroll time and attendance and benefit troops.
Speaker Change: We are particularly excited about the future growth potential of our insurance offerings, which is a new business for us.
Speaker Change: We've had some challenges in our HR compliance group in 2024 related to ERP see upsell activity in 2023, we expect a past this issue this year.
Speaker Change: Despite rate reductions our float revenue remained stable in the quarter relative to prior year.
Speaker Change: Gross profit for the fourth quarter was unchanged at 68% compared to the prior year period. Despite the decline in <unk> revenue.
Speaker Change: Full year gross margins decreased to 69% from 72% in the prior year period.
Speaker Change: non-GAAP gross margin for the fourth quarter was 73% versus 72% in the prior year period.
Speaker Change: non-GAAP gross margin for the full year period decreased.
Speaker Change: 274% from 76% in the prior year.
Speaker Change: We continue to believe there's room for margin improvement over the longer term as the business scales.
Speaker Change: Net loss for the fourth quarter was $3 2 million versus $3 6 million during the prior year.
Speaker Change: The net loss for the full year was $11 8 million versus the prior year loss of $9 2 million.
Speaker Change: EBITDA for the fourth quarter was $3 4 million up from $1 1 million in the prior year period.
Speaker Change: And EBITDA for the full year was $11 4 million versus $14 3 million in the prior year period.
Speaker Change: Adjusted EBITDA for the fourth quarter increased to $6 2 million from $2 8 million in the prior year period, and our adjusted EBITDA margin was 20% in the fourth quarter compared with 11% in the prior year period adjusted.
Speaker Change: Adjusted EBITDA for the full year was $22 5 million versus $23 3 million in the prior year period, just EBITDA margin for the full year was 19% versus 20% in the prior year period.
Speaker Change: While discussing adjusted EBITDA, we often get questions regarding our free cash flow. The way, we think about it is essentially adjusted EBITDA minus software capitalization and net capitalized sales commissions.
Speaker Change: We ended the year with cash and cash equivalents of $21 4 million and we had debt of $12 7 million.
Speaker Change: As we have previously discussed we are thinking about entering into a credit facility.
Speaker Change: The company has been in discussions with a number of lenders and based on these discussions we are contemplating a facility between 28 million to $60 million with a rate of silver plus 4% to 7%.
Speaker Change: The company has agreed to negotiate exclusively with one lender until April 13th 2025.
Speaker Change: The company is in the very early stages of negotiating a credit agreement with this lender and no definitive agreements have been reached.
Speaker Change: Accordingly, there can be no assurance about the timing or terms of a definitive credit agreement.
Speaker Change: Now in terms of guidance for the first quarter of 2025, and our full year 2025, our outlook is based on our strong momentum we have built in our sales organization with contracted backlog of $79 million up from approximately $20 million at year end 2023 about a third of this backlog is anticipated to be recognized.
Speaker Change: In 2025.
Speaker Change: We expect to achieve continued synergies both revenue and costs relating to our customer acquisition activities.
Speaker Change: With our expanded product offerings, we also expect to accelerate our cross selling activities success. This will be a strong focus in 2025.
Speaker Change: We anticipate revenue growth across the organization with continued challenges in our HR compliance group in the first half of the year.
Speaker Change: We are estimating first quarter revenues to be in the range of $33 million to $35 million.
Speaker Change: Adjusted EBITDA for the first quarter is anticipated to be between $6 million to $7 million.
Speaker Change: Roughly stable versus Q1 2024.
Speaker Change: We anticipate EBITDA growth will be more subdued consistent with our revenue profile in the first half of the year as we invest in infrastructure to support large enterprise deals product and technology.
Speaker Change: We are leaving our 2025 revenue guidance unchanged with revenue in the range of $134 million to $138 million.
Speaker Change: With adjusted EBITDA margins of between 23% to 24% at these revenue levels.
Speaker Change: Also as Pat mentioned in his comments earlier this guidance.
Speaker Change: Figures exclude any contribution from future potential acquisitions.
Speaker Change: In summary, 2024, it was a busy year as we grew past the headwinds of ear T. C. We are excited about the momentum we have entering into 2025.
And with that I will turn the call back to Pat for closing remarks.
Speaker Change: Thanks, Chad we're pleased to have executed well on our plan during 'twenty 'twenty, four which delivered strong results. Despite the challenges, we face and replacing one time E. R. A T C revenue during the past year, we've invested in the business by expanding our product portfolio.
Speaker Change: Which will help drive new client additions as well as cross selling within our existing client base, our product to dish as in 2024, including a rich recruiting solutions benefit brokerage capabilities 401k, preventative and pretax health.
Speaker Change: Care offering plus assure pay which began at launch in November 2024, we feel really good about our product portfolio and remain focused on executing on the opportunities that we have in front of us for 2025. In addition, our payroll.
Speaker Change: <unk> management product experience very strong momentum in 2024 with several major multi year agreement signed such adventure strata, the grocery store chain Kroger and Nucor just to name a few we believe that the growth of the tax business will.
Speaker Change: Continue to be a driver for us in 2025.
Speaker Change: In 2024, we have invested in the business and while that's partly impacted our margins. We believe that we have laid the foundation that over our medium term time period revenues approached around $200 million, we can achieve 30.
Speaker Change: That plus adjusted EBITDA margins, which would be a significant improvement from current levels. We remain focused on achieving these call and a combination of the investments we made plus the continued customer acquisition will help us achieve that goal as we move.
Into 2025, we're excited with the opportunities we have in front of us with all the new products, we at it everybody looking at cross sell.
Speaker Change: And our attach rate is one of our major measures of success.
And the increase.
Speaker Change: Of overall attach rates will yield increasing margins, which will translate to the benefits of scale in the business that we believe that will help develop a clear understanding of our business and be more beneficial for investors. In summary, we have delivered strong results with reoccurring revenues.
Speaker Change: The most valuable part of the business growing 15% during the year and becoming 96% of total revenues versus 84% in the prior year.
Speaker Change: Our bookings growth of 86% was very good our contracted backlog is very strong and grew approximately 300% from 23 to 24, our guidance for 2025 of 134, <unk> hundred $38 million in revenue imply.
So mid teens growth rate, which is very attractive and the headwinds from yard P. C are now car will continue to provide innovative human capital management solutions that our businesses thrive human capital management providers grow their base and large enterprises.
Speaker Change: To streamline their tax compliance. Thank you for listening to our prepared remarks, and so with that I will send the call back to the operator for a question and answer Sacha operator.
Speaker Change: Thank you and just to your question answer session, if you'd like to be placed in the question queue. Please press star one on your telephone keypad.
Speaker Change: We ask you. Please ask one question one follow up then return to the question queue. Once again Thats star one to be placed into question queue. So please ask one question. One follow up then return to the queue. Our first question is coming from Joshua Reilly from Needham and company. Your line is now live.
Speaker Change: Alright, Thanks for taking my questions, maybe just starting off you know how should we think about the progress youre, making on the pipeline for enterprise payroll tax opportunities in 2025, we know theres a lot of opportunities. There you know and then maybe along with that like how are you thinking about getting the sales.
Speaker Change: People were focused on <unk> are they fully productive now.
Speaker Change: The enterprise payroll tax opportunity.
Speaker Change: You know what level of progress have you made there maybe an update there would be helpful as well.
Speaker Change: Josh. Thank you for the question and you know with me primarily answering questions today as myself pack got Paul the chairman and CEO, John patents as CFO and then with US we have L. Goldstein who's president and in charge of the sales organization. So I'll, let him take some of those questions as well but.
Speaker Change: Just on the hall from an enterprise perspective, and a tax perspective, we're making really good progress you know we've sold a couple of deals where we have licensing deals to start out with but we're starting it in through the year youre going to see us have more and more volume and more and more customers are on the platform. So.
Speaker Change: You know those are going along really really well were really happy with that are you know we have implementations now with an oracle system a S. A P system of workday system. So the interfaces are in place the infrastructure is in place and we're doing really well in that area.
Speaker Change: Thank you will see a you know kind of the fruits of our revenue will be more consistent in the book to Bill timing coming in where you may have a longer book to Bill is if somebody is converting to an ERP solution or enterprise resource planning.
Speaker Change: We're not going to put that in a immediate background a backlog because that contracted account is good. It takes some time to get aligned with the enterprise resource planning software in that and install our tax filing so that was a learning in 2023, and then as far as you know the salespeople.
Speaker Change: Ball moving past E. R. A T C. I got to tell you this year, but it's a really good year. We did some acquisitions and you know we look at sales both from an organic sales perspective or are you don't kind of one by one and partner related system, but we also look at it with our <unk>.
Speaker Change: Client acquisition strategy of our resellers and then what we do is really cross sell and and really look at our how.
Speaker Change: How we drive the value of our attach rates, which start out at about 17% and will continue to drive that in 'twenty five 'twenty six and I'll, let the conversation go to L. Here for a second because it's done a really nice job of top grading the sales staff and you know as we move down from here.
Speaker Change: D C just selling the whole solution, perhaps you can again I have that math, yeah, Hey, Josh. So so couple of things just just a recap on the payroll tax management that team is very well up to speed. We've got a really good marketing approach, where we're driving demand for that group both.
Speaker Change: For enterprise pursuits, as well as re marketers or other payroll platforms that are leveraging and we'll be leveraging our tax platform. So that one is going to continue to see tremendous growth pipeline is growing.
Speaker Change: And like Pat mentioned, we're in some really big implementations right now that will only continue to drive more referrals from the big tier one software players where were integrating into those platforms and then on the other the sales team side outside of payroll tax management.
Speaker Change: We're probably a year and post D. R. T C where that was our sales motion.
Speaker Change: So the team's done a really good job we've top graded a lot of talent on the leadership side and one of the things. We've done now that we've rounded out our solution set with benefits.
Speaker Change: With retirement solutions, where the Shar Pei with HR compliance is we've specialized as well. So we've got some dedicated specialized sales groups that that is their sales focus that is what retires their quota that is what they get compensated on and it was the right time for us to do.
Speaker Change: Now that we've got some of these different solution sets that we didn't have in the past where it'll give us great ability to have that focus to drive cross sell into the customer base.
Speaker Change: Got it that's super helpful detail and then maybe just one quick follow up how important is it to close the credit facility for you to do more M&A in 2025 and are you is it isn't the right way to think about it that you're kind of waiting to see how that financing works out before you were to do any more.
Speaker Change: Cereal material size deals, whether its a reseller or some other type of technology or functionality. Thanks guys.
Speaker Change: Yes definitely that's that's the the main impetus for doing the credit facility is to put the gas on the customer acquisition model that we've been doing for the last couple of years I think I was looking at the stats.
Speaker Change: We did 14 customer acquisitions in the last 18 months and we did two kind of technology extensions.
Speaker Change: So a total of 16 deals, but vast majority of them are customer acquisitions and so yeah.
Speaker Change: Most of those sellers want a component of their proceeds upfront.
Speaker Change: We've restructured the summer notes to give us some protection on the back end, but in general most of that as an upfront cash payment and so to the fund those upfront cash payments and continue that cash those customer acquisition model.
Speaker Change: That's the main purpose of the facility and you know we talk about it all the time, but we really feel like we've spent a lot of time and energy building out the back office and infrastructure.
Speaker Change: To accommodate really adding those are those books very quickly and efficiently.
Speaker Change: So yes, that's definitely one of the main thoughts behind that.
Speaker Change: Considering that facility, assuming we can get it put together over the next guy in and the only thing Chad.
Speaker Change: You hit it on all the right points. So the key point, though that I wanted to make sure that we reinforce is we're finally, one client acquisitions.
Speaker Change: You know out of the business that on a run rate. If you will the real impetus for the facility as you know when we look at scale in 2021, we were somewhere around $79 million or so of revenue at about 10% adjusted EBITDA. This past year close to 120.
Speaker Change: <unk> and close to 20% adjusted EBITDA.
Speaker Change: 180 to 200 were at 30% adjusted EBITDA, We got the model right. We've really laid the foundation and we want to continue to grow stronger. We also think from an equity perspective, you know.
Speaker Change: That you know, we're not interested in raising money. So a proper kind of business line for us to go faster, but you know cash flow wise, we feel really good about the business and the moves that we've done that and laying the foundation, especially interest recently signing this other big.
Speaker Change: Do you know when we look at this you know the ability to grow faster is something we're interested in and that's why it gives us that flexibility and then finally, we wanted to raise it on the call. We think we're going to close at a fairly soon and if everything works out and we didn't want to have a call and not let investors know that.
Speaker Change: This was in our thinking.
Speaker Change: Got it and then actually one last quick point I just wanted to clarify I think you said that you've done to customer acquisitions year to date are those I assume those are factored into the full year guidance and was that a material amount those two customer acquisitions in terms of revenue. Thanks.
Speaker Change: So rough rough order of magnitude Josh.
Speaker Change: I think when we last spoke probably at the third quarter call. We mentioned that we had one acquisition under LOI and honestly I think it's the first one that's fallen out where we didnt close after we got to a letter of intent.
Speaker Change: We were anticipating that deal closing in November and that was going to be a contribution to the quarter of approximately I'm going to say about a half million dollars is that right Pat.
Speaker Change: And so what we did is we replaced that that revenue with.
Speaker Change: These two.
Speaker Change: So again I think it does.
Speaker Change: It doesn't impact the that current year guide because we kind of already have that in our mind. When we were here in the third quarter.
Speaker Change: But yeah, that's the story on that.
Speaker Change: Understood that makes sense thanks, guys.
Jeff: Thanks, Jeff.
Speaker Change: The next question is coming from Bryan Bergin from TD calendar. Your line is now live.
Bryan Bergin: Hey, guys. Good afternoon. Thank you.
Bryan Bergin: Wanted to get a question in your own on the demand environment, just given all the volatility that is out there can you just comment on what kind of you're seeing out there on main street, just amid everything being driven through D. C has it changed any.
Bryan Bergin: Demand cadence in the SMB.
Bryan Bergin: And then also can you comment on just how client hiring and as progressed in this.
Bryan Bergin: This year, thus far.
Bryan Bergin: Yeah, Brian that's a great question and if I listen to CNBC you know the world is changing in the last whatever six weeks, but if you look at main Street. You know people are you know really are continuing to hire I do think that there is a divide pick your number.
Bryan Bergin: Or if it's under 80000, then salary versus over 80000, I think you have.
Bryan Bergin: More of your layoffs at our white collar recession at this point in time than a blue collar or gray collar. There is just still at this point more jobs and people and Covid took two kind of cohorts out of the workplace. The people over 55 to 64 that added after all of that.
Bryan Bergin: <unk> kind of said Hey, that's it and then the second working spouse, who are you know had a home school to kids and or take care of the parents and those folks still haven't quite yet gone back to the workplace and then that in simple demographics, we watch.
Bryan Bergin: The numbers pretty closely we modeled a flat employment Ah kind of play out and we see no reason why we should you know kind of a go away from that plan. The last couple of weeks. We have daily calls every morning unemployment I would say so.
Bryan Bergin: Industries that are tied to the government or tied to let's say homebuilding, where you have <unk>.
Bryan Bergin: <unk> there is people there may be a little bit cautious, but I do think there is a big divide of the stock market, let's say or the news on you know kind of on TV versus main street and right. Now we're just not seeing a you know that area you know that area of trepidation.
Bryan Bergin: As much as you know you hear on TV, but I would tell you we're watching it daily and we want to make sure and then we model that pretty conservative flat growth. So we werent expecting big changes.
Speaker Change: Okay. Okay. That's helpful. And then as you look at 25 can you put some finer points on how you're expecting the contribution of revenue across the payroll tax management business in the marketplace. So really just any sense of scale you can share collectively between businesses like that versus you know your traditional SMB business.
Speaker Change: Yeah, I think from that tax filing business et cetera will continue to grow I mean, we announced the deal out or we announced the deal we can't give the name yet, but you know even.
Speaker Change: Even after the quarter, we have a number of different enterprise deals that are in some of them.
Speaker Change: Our license deals that then are going to break out into customers over the next couple of years. So we have a feeder channel that's pretty strong you know I think order of magnitude you know, we'll we'll probably give that in the first quarter, you know I'm kind of more specifics, but clearly you know.
Speaker Change: We're growing at a very healthy rate and that tax area, our money movement area and then.
As far as our core business, we have some headwinds.
Speaker Change: The around our interest rates potentially going down I don't know if it'll go down we've modeled out three five towards mid year with a couple of three cuts.
Speaker Change: I don't think that might be conservative, but that certainly you know on tax filing for it will be a little bit of a headwind than we model then that might be too conservative, but no home buying of let's say the equifax relationship, it's more or less of a guarantee in more of a tied to mortgages.
Speaker Change: So that might be a little bit of a headwind John mentioned <unk> T C. A little bit of a headwind with human resource compliance now that being said payroll units are at and we feel really good and we think will grow.
Speaker Change: In payroll in a meaningful way over from the start of the year to the final of the year and that process has really been underway here in the last six months or so so and then obviously to cross sell component is huge for US we believe that the work we did to integrate detect.
Speaker Change: Allergy as well as launch some of the new products and by the new products.
Speaker Change: We're going to really focus on attach rates and it's going to start out at a number and we're going to give you the progress each quarter and I think you'll see that the contribution margin and that will increase each quarter of the year.
Speaker Change: Okay. Thank you.
Speaker Change: Thanks, Brian.
Speaker Change: Thank you next question is coming from Eric <unk> from Lake Street. Your line is alive.
Eric: Yes, I was wondering if you could.
Bifurcate or pick apart that.
Eric: Outlook for Q1, just between the recurring revs in the interest sorry.
Eric: Sorry.
Occurring resin interest and the kind of seasonal parts of the business.
Eric: W Twos.
Eric: Yes, I would say I think it'll be pretty flat, we think that the last year, I think roughly $5 million of that annual W.
Eric: W to HCA and probably about the same this year, yeah, and one thing I would say Eric again, one of the dynamics that we have both in our payroll business and our tax business is you know, we're starting to you know price and kind of over an annual fee as opposed to have.
Eric: One time year end fee there is still some certain amount of clients.
Eric: Clients that have that and but a lot of the newer deals are coming in with a per employee fee either quarterly or annually. So you know the flattish or so W. Two revenue is really a you know a is being masked by the pricing in of some of this.
Eric: New way of pricing, where it's more a kind of a P. E. P M R or kind of more repetitive pricing model and some of our acquisitions are like that in addition to some of our go forward business. So.
Eric: And then we have not modeled a ton of business in the first quarter around professional services. We did a lot of work and we will do a lot of work in professional services in the second third and fourth quarter. The first quarter, we may and some of it depends on milestone billing et cetera, we just.
Eric: They've taken a very conservative stance in that area around first quarter.
Speaker Change: Okay, just a follow up so at the midpoint of the $34 million, we'd be talking about roughly.
Speaker Change: $29 million on the recurring and that would be up about a half million sequentially from Q4 is that correct.
Speaker Change: Yes, I'm trying to think what do we have in for <unk>.
Speaker Change: Fourth quarter.
Speaker Change: Yes, yes, so I think.
Speaker Change: Fourth quarter, what I'm, saying is about 28 and a half is the recurring.
Yeah.
Mike: Right. That's the reported number I'm, saying based on what you just answered Mike Yeah, Hey, Mike.
Mike: About 20 about 29, but I would also tell you first quarter a couple of things fourth quarter is sometimes a little bit stronger based on bonus unemployment.
Mike: Because there's extra runs et cetera, I mentioned.
Mike: Kind of a double W. Two anomaly and then I would say the first quarter are usually the checks are a little bit down in first quarter versus fourth quarter and that coupled with growth leads us to a conservative guide, but I would tell you I think there's probably more upside than downside.
Mike: Got it thanks for taking my question.
Thanks, Eric.
Speaker Change: Thank you next question is coming from Jeff Van <unk> from Craig Hallum Capital Group. Your line is now live.
Speaker Change: Good evening guys. This is Daniel on for Jeff just on Sharpie introduction, maybe you can just touch a little bit more and I think go to market. There. What the drivers are in terms of the end users and businesses adopting how that would roll out.
Speaker Change: How's that looking ramp.
Speaker Change: Yeah, just from I sure pay right now we have approximately 500.
Speaker Change: And clients Cynosure pay and what we're doing is really testing the value proposition, we're going through make sure. The pipes are as advertised make sure everybody's got their their system working and then we already have taken quite a few sign ups for <unk>.
People that want to start here in.
The second early in the second quarter. So we'll roll that out we anticipate in a lot of areas that will replace our card revenue that we already have and bring that in house. We also believe that you know from my check revenue this will be.
Speaker Change: An excellent card for that so we have some clients. Some industries, we have people on the system today.
Speaker Change: And for US you know, it's kind of an all in one card where they can use it as earned wage access they can use it as a banking account they can use it.
Speaker Change: As a debit card and then even our charge card that they can pay in the future it might even be a credit card. So we think that this thing has a ton of legs and will be the way that people use this winter.
Speaker Change: Within the assured payroll family, but we're still early days 500 or using it thus far and then we'll kind of.
Speaker Change: And now it's our progress each quarter.
Speaker Change: We feel pretty good about where we're going to be but more to come here in the next quarter's earnings.
Speaker Change: Okay that helps and then on the <unk> in terms of.
Speaker Change: The impression I think.
Speaker Change: I got was that the initial momentum there wasn't maybe as expected when it launched but it sounds like it's accelerating there just help US you know what sort of the learnings are there you know we're sort of the momentum is coming from and what is it sort of would be the key drivers in terms of getting small businesses.
Speaker Change: Adopt new plants.
Speaker Change: Yeah, I'll, let al talk as well on this one but you know first of all we pivoted from a <unk> DC in fourth quarter of 'twenty, three now and really large 401K right around the January timeframe. So it's been kind of a year with that I would say interest level was super high.
Speaker Change: What I would say as you know our partner best well as really nice technology partner and we've worked together well what I would say we've had a leads we've had to learn how to sell it and you have an it admin component and you have a fun lineup component, we had a kind of learn the ins.
Speaker Change: So that and then from an implementation or a book to Bill we had to make sure that we really kind of locked in on a book to bill.
Speaker Change: And I would tell you we've had a lot of interest in from a compliance perspective, and a secured two point all kind.
Speaker Change: Kind of rules some of that was changing in the first year, where the ease of kind of compliance and maybe the carrot and stick werent quite well known so we add evangelize that we found a rhythm here a little bad coming from one of my past lives, we set fidelity, where we had a loss.
Speaker Change: 401, K customers, it's just really a learning curve, but I will tell you we're starting to get it and we're starting to get the book to build out I think the admin piece, we have a pretty good job and then now as we move funds from the other providers that'll start to pop revenue in the future. So.
Speaker Change: It's just the learning curve we have.
Speaker Change: Expanding now our sales motion in that area as well as our operation expertise, but maybe if you want to jump in on that yeah. I think anytime you rollout of financial product. They say you could probably took us a little bit longer than then I would like but just to piggyback, what Pat was saying we've got.
Speaker Change: A dedicated retirement sales grew but now that that is their soul focus they've got the ability first of all they've got experience selling retirement solutions and so they're able to jump into the pursuits that we're that we have referrals into the customer base and new deals.
Speaker Change: And transact and drive those value propositions.
Speaker Change: More effectively than we were a year ago when when we rolled it out so we're seeing the momentum in pipeline both in leads and conversion of the leads.
Speaker Change: And we will have this month more more unit sales up four one K than we've had in.
Speaker Change: In the past it will be a record for us. So the momentum is just starting I think we now have the value proposition down and again the more we have some of these specialized sales teams that that is their sole focus.
Patrick McKillop: I think it's just going to continue to drive the demand and our execution to added not only to new deals coming in but more penetration like Pat mentioned in the customer base.
Speaker Change: Thanks, Pat Thanks Al.
Patrick McKillop: Thank you.
Speaker Change: Thank you. Your next question is coming from Richard Baldry from Roth Capital Partners. Your line is now live.
Speaker Change: Rich.
Speaker Change: Hi.
Speaker Change: Yes.
Yeah, well when you look at the new bookings growth last year was that more a function of unit growth or our pool and the reason I'm asking is it feels like with your broadened offerings that gives you an opportunity to go a little bit more upmarket.
Larger numbers of employees because of the broadened suite that she's got us more complete now.
Speaker Change: So it's just sort of curious how you think about that and how you think about that growth driver at 425 and forward between sort of thought and cross sell.
Rich: Rich you could've been at our board meeting so.
Speaker Change: The real you know I would say first of all a lot of progress a lot of credit goes to L. In 2024, 86% up is.
Speaker Change: What is it about 86% you know like if theres anything we did like we thought it was big deal tax filing enterprise, we thought that had disproportionate amount and then on the small business. We felt really good about the unit growth, but now we have to expand our R. R.
Speaker Change: <unk> and when we looked at the capability. We consciously went after the benefit area. The recruiting area, we really wanted to round out the solution. So now as we introduce you know kind of next year, we introduced product attachments.
Speaker Change: And the overall catch rate that is the focus and then we looked at our organization of reorganizing because that's a high level, we were driving really big deals, but now what we wanted to do is bring bring along those multi product solutions to the company and real.
Speaker Change: Drive the value of the deals and maybe al you've done a really nice job of of hiring the right people to do that but let's talk about that for 'twenty five yeah yeah.
Speaker Change: And rich that was a big reason for part of the reorganization of the sales team to some specialized sales groups. So again on the high end, we had two common deals big six figure deals on tax that's continuing right now are in a big way and then when I looked at the pipeline.
Speaker Change: Actually our units.
Speaker Change: <unk> are up quite a bit 40 something percent here from a pipeline perspective, so we're getting the units the big.
Speaker Change: The big opportunity for was for US was okay. Now how do we attach all of these other solutions that we have that debt, we've rounded out as part of the offering to these payroll units in and that's the big piece for US right. Once that linkage happens now if we can continue that pace of payroll unit.
Speaker Change: And continue to grow that the way we have been.
Speaker Change: In attach.
Speaker Change: Benefits broker 401k, HR compliance time, and attendance, which we've done with some bundles now you'll you'll really start to penetrate in the RP will go up into the right in a big way. The other aspect branch that we're really worked out it's just not only a sales and marketing function, but with our technology.
Speaker Change: Introducing alumina, we're starting to introduce event driven marketing and using our data. So if somebody for example.
Speaker Change: Processes of termination.
Speaker Change: The ability to use our Cobra services right away or.
Speaker Change: There are you know I have a life of that we immediately can market to them. So this is a strategy we've been working on for multiple years.
Speaker Change: We feel like get all sometimes luck is preparation meeting opportunity, we're prepared and we're hoping for some real good lock here in the attach rates in 2025.
Speaker Change: Okay.
Speaker Change: So the 86% increase in bookings or it's not luck right you've done it pretty strong and also it seems to me you're guiding up on revenue seasonally just like you would in any other year, but youre holding the earnings out so you've proactively decided youre going to spend that to support what looks like an acceleration to your your wins and stuff.
Speaker Change: You talked about maybe a little bit more specifically about where you've decided to spend that money what.
Speaker Change: What do you think you'd get out of that that increase on a short term investment.
Yeah, I think rich from my perspective.
Speaker Change: We continue to invest in the technology as Pat mentioned I mean, we're really trying to unify the customer experience. So that's an ongoing spend.
Speaker Change: And we Werent, we were in the payroll tax management business.
Speaker Change: For a while but we werent in the big Enterprise business. So I think we've really tried to step up our game.
Speaker Change: Youre dealing with krogers of Nucor's in workday clients.
Speaker Change: Customers of that Ilk, you really need a different kind of staff. So we put some dollars to work we think.
Speaker Change: It's not.
Speaker Change: It's going to be mindful of spend we haven't been able to give you. The name of this other large enterprise that was closed this quarter, but again.
You really need to have some good people to interface with them. So I think that's where we're putting a lot of our money.
Speaker Change: And rich just to give a finer point of that we know we have some of the license revenue, but we don't have all the clients there and now the clients is safe rather and we've stopped ahead of some of that and then the other thing you know I would say with.
Speaker Change: Some of the technology spend than we were historically a kind of point solution company that now is a total solution company. There is the ability to really automate a lot of functions and then with AI.
Speaker Change: We can now look at doing things quite a bit more efficiently, where instead of setting up a bit on three products. We can set it up once again.
Speaker Change: And some of those kind of investments have been made but they start getting rolled out and then things you know if you look at either our <unk> PE are you know.
Speaker Change: That is something where the infrastructure is already there just comes almost really high margin revenue in the second half of the year, but that cost to get there really was born in the second half.
Speaker Change: In the first quarter.
Speaker Change: Thanks, and congrats on a great outlook.
Speaker Change: Thank you.
Speaker Change: Thank you next question is coming from Charles the bottom from Stephens. Your line is now live.
Speaker Change: Hi, good afternoon, and thank you for taking my question wanted to ask about the the outlook for margin expansion through the year. I think you had indicated that there were some investments coming in the first half.
Speaker Change: Followed by some acceleration in revenue growth slash operating leverage as some of the some of your new bookings go live, but just wanted to get a sense for as we model. The year should we think of margin expansion as being linear.
Speaker Change: Or could we expect any variability through the quarters and then secondly, if you could talk about how much we can expect to come from Opex versus gross margin just for modeling purposes.
Speaker Change: Okay.
So I think what we're trying to do is it's in the 10-K I think our head count at year end was roughly 635, I would say, we're going to try to hold.
Speaker Change: That's a pretty good indicator for us in terms of our cost structure.
Speaker Change: I would say, we're going to try to hold the line in that general vicinity for the year there'll be some ebbs and flows to it.
Speaker Change: That's what we're trying to do from that perspective, and so I think the from my perspective.
The margins flow with the revenues, but if you think about a relatively flat cost structure for the year as our revenues increase you're going to get that fall through.
Speaker Change: So that being said I think it's more backend loaded in terms of it's not a linear progression because it will be down more likely than not in Q2 versus Q1, just because of the abnormal year end transition for those year end fees. So I think it will be kind of more of a third fourth quarter.
Speaker Change: Margin and that's where you're getting most of your lift so is that fair yes.
Speaker Change: No I think so the only other thing I would say is if you think about sales head count we really ramped up in the second half of the year end and first quarter. So a lot of that.
Speaker Change: We ran into it and the reason we did that.
Speaker Change: Also from an implementation perspective et cetera, we knew some of these deals were coming that's the benefit of the enterprise deal. So you know as you as you get the license fees, but now you have a backlog that 79 versus a year ago. I think it was somewhere around 18 or 19 or somebody else into that.
Speaker Change: Year 'twenty at the end of the year, you would just have a lot more visibility into the revenue and where what it's going to be and then we've also in some of those partners have asked us to help them.
Speaker Change: And you know some implementation pursuits in revenue and you'll see that the PFS line. So it's almost kind of pre sold in some cases, so that was the thought process around it.
Speaker Change: Got it.
Speaker Change: And just a quick follow up on M&A could you talk about what youre seeing from a.
Speaker Change: Valuation or maybe like an inbound interest standpoint relative to.
Speaker Change: Where things have been over the past couple of years and secondly outside of the reseller acquisition strategy could you maybe talk about what's on your road map or wish list from a product or solution standpoint.
Speaker Change: I'll hit the first couple of points and then I'll, let Pat talk about pipeline, but I'd say of the 16 deals I mean I was just looking at the metrics I mean, we've always kind of said that we're kind of two to three times. What we think in terms of revenue I mean, it's literally two five when you take all of those acquisitions across.
Speaker Change: That we did last year over the last 18 months, so very very consistent.
Speaker Change: On that front, and then I'll, let Pat talk about kind of the kind of pipeline and what he sees yeah and I think from a pipeline perspective first of all we view. If you think if you step back from it it's client acquisition, both from a sales perspective as well as our reseller network the value is scale.
Speaker Change: We want to get to 180 to 200 million and we want to drive 30% margins, so that kind of drives the opportunity how we get there as clients and the best clients that we can get is either sell them or get them from the reseller network as it's the same technology.
Speaker Change: As we built around capability, one, but on a cross sell the heck out of it and we cross sell the heck out of it and provide value to clients. We already have it's a lot easier and more profitable to sell cross sell clients. We already have then go out and getting them New and then we want to build on our kind of core comps.
Speaker Change: <unk> sees around money movement in tax filing and will continue to drive that and then finally from a cost perspective, we've invested in technology and we want to make sure that we automate and drive efficiencies and we're well on our way to do that and then vadera find areas, where we can automate, including Luna and <unk>.
Speaker Change: Or do you seeing AI finally, you know from a capability perspective, I think you'll see us lean in.
Speaker Change: Continued lean in and benefit area Theres, some things that we wanted to do there and we look at things around build partner or buy and we prefer to partner to understand and then over time to buy a but you know I think right now we're gonna.
Speaker Change: Go vertical for scale and then horizontal I think we have enough to sell we just don't want to rinse and repeat and get to the 180 to 200 scale, but will look and be opportunistic.
Speaker Change: Around.
Speaker Change: Gross possibilities in the business because we believe it's a public company the highest best use from an investor perspective is to get scale.
Speaker Change: Got it. Thanks again guys appreciate all the color.
Speaker Change: Thank you.
Speaker Change: Thank you. Your next question today is coming from Greg <unk> from Northland Securities. Your line is that life.
Speaker Change: Hey, great. Thanks for taking the questions guys.
Speaker Change: You mentioned another large enterprise customer that you closed in Q1.
Speaker Change: I guess I wanted to get a sense of kind of the.
Speaker Change: How much sensitivity maybe revenue performance in your guidance there is that kind of depends on the implementation of those deals just considering in the past there has been a little bit of a challenge in terms of <unk>.
Speaker Change: Forecasting the timing of implementation.
Speaker Change: Yeah.
We'll say break from we did close one and in Q1, we have.
Speaker Change: You know a couple of hundred thousand in license fees.
Speaker Change: Outlets say and we know we're going to be on pursuits. We don't have a ton model then we have a little modeled in around fourth quarter, but really that's a 26 initiative.
Speaker Change: If we get it early that's great and we'll you know, we'll let you know that but you know we're relatively new into it. So when we set the guide we didn't put a lot of dollars in it.
Speaker Change: We're working with them.
Speaker Change: Over the last six months, so we had some visibility, but we're not counting a ton on that one we're really just trying to we're really excited about it we think.
Speaker Change: Yeah.
Speaker Change: You know they have the ability to extend our reach in and we're really positive about it but we don't have a ton model them.
Bryan Bergin: Great. That's helpful. I assume so Pat nice to hear that you are kind of conservative in terms of that from <unk>.
Speaker Change: Forecasting perspective wanted to follow up on kind of your commentary on the reseller acquisitions.
Speaker Change: Obviously they are not included in the guidance this year, but wanted to get a sense of maybe what you're expecting in terms of acquired revenues or are how active you expect to be in terms of reseller acquisitions. This year.
Speaker Change: I'll give you my perspective and impact I think it just depends on.
Speaker Change: Honestly, if we're going to fund it out of our cash flow will be a lot more.
Speaker Change: If we get this credit facility done we're going to go a lot quicker so I'm sorry to ask but it really depends on our capabilities and we can obviously do these acquisitions on our own but we have to be a lot more deliberate pace and again the past point, we're trying to get there quicker. So again, that's the reason for that facility and that's why I can't.
Speaker Change: I'll give you a definitive answer until we know that's a done deal yeah. I would tell you I think after the first quarter earnings call I think we can be a little more definitive on that but we're.
Speaker Change: We're not lacking for things to do and you know we wouldnt pursue this strategy. If we didn't believe we add opportunity.
Speaker Change: Got it thanks guys.
Greg: Thanks, Greg.
Speaker Change: Thank you next question is coming from Vincent Colicchio from Barrington Research. Your line is now live.
Vincent Colicchio: Yes, Pat.
Vincent Colicchio: What was the bookings growth rate in Q4.
Vincent Colicchio: Q4 was do we have that have it off the top of mind.
Vincent Colicchio: You will.
Vincent Colicchio: And I apologize.
Vincent Colicchio: So it was it was 28% in Q4.
Vincent Colicchio: We had as you know some pretty big deals.
Vincent Colicchio: In Q2, and Q3 Q4, 28% and that was primarily in our core business and then obviously we closed.
Vincent Colicchio: A real nice deal here in the first quarter so.
Vincent Colicchio: 28 was good momentum at our core payroll business. We did not we had a couple of outliers in Q2 and Q3.
Speaker Change: And the partnership with the tax and audit firm.
Speaker Change: Is that exclusive and also what are your thoughts on when that may ramp.
Speaker Change: You know I think we're all.
Speaker Change: Already in our pursuits right now it just by the nature of what you know what deals we're pursuing.
Speaker Change: Well, we'll give you updates as we go but.
Speaker Change: You don't feel really really strong about some of the deals we have in the partnership that we're putting together a more to come I would like I said it was probably more in 'twenty six but you know.
Speaker Change: Certainly by the pursuits that we have you know there could be some second half or fourth quarter revenue, but.
Speaker Change: Right now we're early days in it.
Bryan Bergin: Thanks, Pat nice guidance.
Pat Keppel: Thank you.
Pat Keppel: Thank you we reached end of our question and answer session I'd like to turn the floor back over for any further or closing comments.
Speaker Change: Yes pack up all year long and meaningful call I'm, sorry, it took so long, but really had a lot to share again scale.
Speaker Change: More clients, whether it's the reseller network or sales is important to us building out our capabilities that we've worked for so long and they end up making here Oh and the work we did in 'twenty four and we're going to measure that by attach rate and cross sell.
Speaker Change: You know money movement in tax filing are going to be important to us and assure pay we're pretty excited about launching that and already have 500 cards in use and then finally, you know cost we're gonna be important around automation and some of the work we've done and we think that'll.
Speaker Change: That allows us to scale and then finally from a debt perspective, we think that's the right capital call and we want a little bit more flexibility to go faster because scale is important to us from an investor perspective, I see 10 o'clock, 10% plus margin expansion as we get to the next scale.
Speaker Change: I've been here quite a while I'm pretty excited about the business and I really feel good about the people that work here the executive team as well as manage Matt we've upgraded.
Our talent over the course of last couple of years, and we think that talent matches. This opportunity. So we hope you agree and we appreciate your time today. Thank you.
Speaker Change: Thank you that does conclude today's teleconference and webcast you may disconnect. Your lines at this time and have a wonderful day, we thank you for your participation.
Speaker Change: This patient today.
Speaker Change: Yeah.