Operator: Good afternoon, and welcome to Asure's Q3 2026 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 analysts and investors. I would now like to turn the call over to Patrick McKillop for introductory remarks. Please go ahead, sir. Thank you.
Patrick McKillop: Thank you, operator. Good afternoon, everyone, and thank you for joining us for Asure's Q3 2026 Earnings Results Call. Following the close of the market, we released our financial results. The earnings release is available on the SEC's website and our Investor Relations website at investor.asuresoftware.com, where you can also find our investor presentation.
Patrick McKillop: During our call today, we will reference non-GAAP financial measures, which we believe to be useful to investors in understanding our business and exclude the impact of certain items. A description and timing of these items, along with a reconciliation of non-GAAP measures to the most comparable GAAP measures, can be found in our earnings release. Today's call will also contain forward-looking statements that refer to future events and as such, involve some risks.
Patrick McKillop: 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 wanted to take a moment to remind people of some upcoming investor relations activities.
Patrick McKillop: On 17 November, we will participate in the Craig-Hallum Alpha Select Conference in New York. On 18 November, we will attend the Stephens Annual Investment Conference in Nashville, Tennessee, as well as the ROTH Conference in New York. On 19 November, we will participate in the seventh annual Needham Virtual Tech Conference, and finally, on 16 December, we will attend the Northland Capital Markets Virtual Growth Conference.
Patrick McKillop: Investor outreach is very important to Asure, 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?
Pat Goepel: Thank you, Patrick, and welcome everyone to Asure's Q3 2026 Earnings Result Call. I am joined on this call by our CFO, John Pence, and we will provide a business update for Q3 2026 results, as well as our updated outlook for the remainder of the year. Our Q3 revenues came in at $40 million, representing a growth of 10% compared to Q3 2025.
Pat Goepel: Growth was strong and broad-based with payroll benefits and HR compliance among the key contributors, and we are reaping the benefits of the investments we have made in the business over the last few years. Our organic growth rate for Q3 2026 was 9%, compared with 4% in Q3 2025, an increase of 500 basis points and up 5% in Q2 2026.
Pat Goepel: Organic recurring revenue growth for the Q3 was 14%, which is a continued acceleration driven by the launch of Asure Central a year ago and continued Payroll Tax Management momentum. The positive feedback for our products continues to grow, and this is supported by our recent G2 awards announced this fall, where we were rated a high performer in several categories, as well as a momentum leader and a leader in the small business segment.
Pat Goepel: Building on the 9% organic growth and the 14% recurring organic growth we delivered this quarter, we continue to intensely focus on driving double-digit organic growth in the future and increase cross-sell activities while continuing to grow the embedded tax business. During Q3, we meaningfully expanded the distribution of our Payroll Tax Management solution, which already represents nearly 20% of Asure's revenue.
Pat Goepel: In August, we announced a co-selling arrangement for our Payroll Tax Management solution on the AWS Marketplace, and we began to actively co-sell into its 330,000 customers in September. AWS customers can procure Asure through the existing purchasing processes, including unused AWS spend, and our sales team co-sells alongside AWS sales teams against our ideal customer profile.
Pat Goepel: Streamlining contracting and private offers can shorten the typically long enterprise sales cycle. In September, we also made Payroll Tax Management available on Oracle Marketplace, integrated with Oracle Fusion Cloud Human Capital Management. Organizations running Oracle can add multi-jurisdiction payroll tax filing, funding, and money movement without migrating their payroll system of record.
Pat Goepel: They can then use the payroll system of record as we file across federal, state, and local jurisdictions on their behalf. Together, the AWS and Oracle marketplaces open up new opportunities for Payroll Tax Management.
Pat Goepel: Indeed, in the Payroll Tax Management business, we have already won approximately 30 major enterprise accounts for Payroll Tax Management, and these partnerships will continue to help grow that segment of the business. In September, at our annual reselling training event, we launched Asure Central to our reseller network and took our first resellers live on the platform, which we believe will unlock significant cross-sell for our Human Capital Management suite, as we have done in the direct business.
Pat Goepel: Asure Central brings single sign-on, user provisioning, role-based access together with payroll, tax, HR, recruiting, time and attendance, 401(k), benefits, and LUNA, all in one environment, and resellers can white-label the experience with their own logo. The number of clients purchasing multiple products has increased by 7% versus the Q3 2025.
Pat Goepel: With the increase in attach rates, we are also experiencing an uptick in our retention rates versus the Q2, and we will share updated retention metrics in our one year-end 2026 release. We remain focused on moving clients from an average of a little more than two products per client relationship towards four or more products per clients over time. Now, a brief update on AsureWorks, our administrative services outsourcing offering, which lets clients delegate key payroll and HR compliance processes to Asure.
Pat Goepel: The momentum we saw at launch continued into Q3. Our pipelines and new clients continue to grow and set new records. The reception across the target buyers includes small hotel chains, restaurants, HVAC companies, as an example, and remains very, very strong. These are mainstream businesses that need payroll and HR compliance support but lack the internal resources to manage it themselves.
Pat Goepel: We are continuing to train more reps for AsureWorks every day and build out that effort. Clients who adopt AsureWorks typically represent up to 5x the revenue of payroll-only clients. Because it is not a PEO model, there is no co-employment risk, which makes it a compelling and flexible alternative for clients constrained by the cost and rigidity of a traditional PEO. On the sales front, we made significant progress in hiring reps.
Pat Goepel: We are confident in hitting our target of 150 by year-end. The efforts of our recruiters and our sales managers really have paid off, and we are excited to have these new reps on board. These are full solution sellers who can sit down with a business owner and present our entire product suite, and that consultative needs-based approach is central to driving both new logo acquisition and multi-product cross-sell within our existing base.
Pat Goepel: The new type of rep we hire typically ramps faster than when we have experience with prior reps. Our existing-to-new customer logo split in Q3 was approximately 47% to 53%, an improvement versus a year ago of 36% to 64%, but similar to Q2 of this year, where we continue to drive towards our 35% new logo, 65% base expansion mix over time. Our contracted backlog is now $86.6 million, and we expect to convert approximately 46% of that backlog over the next 12 months.
Pat Goepel: We continue to operate in a positive selling environment as small and mid-size businesses need the products and solutions Asure offers to help them navigate the complex world of payroll and compliance. In our forecast, we conservatively model flat headcount growth for our clients. We have not seen any dramatic shifts in the sales cycle process.
Pat Goepel: On the M&A front, after quarter-end in October, we acquired a Human Capital Management payroll processing company based in the southeastern United States for an aggregate purchase price of $26.5 million. The company serves mid-market organizations with cloud-based HR, payroll, and talent tools, expanding our exposure to the small and mid-market segment and adding a developed technology that will be used to update some of our product offerings.
Pat Goepel: We have an active pipeline of potential reseller acquisitions, and we will continue to pursue those opportunities. Also, in October, we closed a new credit facility, which gives us some more flexibility to pursue our strategy, and John will share more details in a moment. On AI, our view has not changed. Payroll and HR compliance is not software a generic AI can replace. We hold money transmitter licenses, interface directly with the IRS, state and local agencies and manage compliance where the margin of error is effectively zero.
Pat Goepel: That makes Asure a system of record and our expertise a real moat. At the same time, AI is a meaningful accelerator for us. Luna conversations grew about 25% in the quarter to more than 26,000, and in her first year, Luna has completed more than 15,000 AI actions for our customers.
Pat Goepel: At the start of Q4, we released the time import agents, bringing Luna directly into the payroll run with humans in control at every decision point. I also want to take a moment to recognize and congratulate our Chief Technology Officer, Yasmine Rodriguez Wakim, a pioneer in payroll tax technology and the compliance infrastructure behind it, who has been named to Women We Admire's Top Women Chief Technology Officers of 2026.
Pat Goepel: Yasmin, congratulations, and thank you for everything you do for Asure and our clients. With that, I would like to turn the call over to John to discuss our Q3 financial results in more detail and provide an update on our 2026 guidance, along with our outlook for 2027. John?
John Pence: Thanks, Pat. As Patrick noted, several figures discussed today are on a non-GAAP or adjusted basis. Reconciliations are available in our earnings release in our investor presentation at investor.asuresoftware.com. Q3 total revenues were $40 million compared to $36.3 million in Q3 of 2025, representing growth of 10% year over year. Recurring revenue for Q3 2026 was $36.9 million, compared to $31.8 million in Q3 of 2025, an increase of 16% year over year.
John Pence: Recurring revenue represented approximately 92% of total revenue in the quarter versus 88% a year ago. Professional services, hardware and other revenue was $3.1 million in Q3 of 2026 compared to $4.4 million in Q3 of 2025. The decline versus prior year was primarily due to reduced professional services provided as part of large tax deals in the prior year. Gross profit for Q3 2026 was $27.8 million, compared to $23.5 million in Q3 2025.
John Pence: GAAP gross margin for Q3 2026 was 70%, compared to 65% in Q3 2025. Non-GAAP gross margin for Q3 2026 was 75%, compared to 70% in Q3 2025. Net loss for Q3 2026 was -$0.6 million, compared to net loss of -$5.4 million in Q3 2025. EBITDA for Q3 2026 was $7.9 million, compared to $3.9 million in Q3 2025.
John Pence: Adjusted EBITDA for Q3 2026 was $10.5 million compared to $8.1 million in Q3 2025, an increase of 29% year over year. Adjusted EBITDA margin for Q3 2026 was 26% compared to 22% in Q3 2025, an increase of approximately 400 basis points. We ended the Q3 with cash and cash equivalents of $16.8 million and total debt of $64.7 million as of 30 September 2026.
John Pence: Subsequent to quarter end, on 15 October, we closed a new senior credit facility of up to $115 million with a syndicate of five banks led by MUFG Bank Limited. The facility has an $85 million term loan, all of which was drawn at closing, a $10 million five-year revolving credit facility, and a $20 million delayed draw term loan facility. The term loan currently carries a rate of SOFR plus 3%.
John Pence: This adjusts periodically based on our consolidated net leverage ratio and could be as little as SOFR plus 2.75% and will not exceed SOFR plus 3.5%. We used $62.6 million of the gross proceeds to repay in full our existing credit agreement with MidCap Financial Trust.
John Pence: Turning to the Southeastern US-based payroll acquisition Pat mentioned, the aggregate purchase price was $26.5 million, paid as follows: $13.5 million in cash at closing, a promissory note in the amount of $3 million to secure the indemnity obligations and other adjustments, and the issuance of shares valued at $10 million. The purchase price is subject to customary working capital adjustments. Based on the current positive momentum in our business, we are updating our Q4 2026 and full year 2027 guidance.
John Pence: Please note that the guidance incorporates the recent acquisition we completed in October 2026. We anticipate revenue of $42 million to $44 million and adjusted EBITDA, $10 million to $12 million for Q4 2026. This implies full year 2026 guidance of $162 million to $164 million in revenue and adjusted EBITDA of $40 million to $42 million.
John Pence: Next year, our preliminary guidance for 2027, we anticipate revenue to be in the range of $183 million to $187 million, and adjusted EBITDA margin to be in the range of 26% to 28%. We expect our cost structure, including capital expenditures and capitalized software development costs, to remain relatively stable on a dollar basis. With that, I will turn the call back to Pat for closing remarks.
Pat Goepel: Thanks, John. Stepping back, I think the third quarter tells a clear story. We grew revenue 10% to $40 million, and adjusted EBITDA grew 29% to $10.5 million, with adjusted EBITDA margin expanding approximately 400 basis points to 26%. Recurring revenue organic growth continues to accelerate, reaching 14%, and we forecast it to be in the double digits again in the fourth quarter. We are really starting to hit our stride, but we are not slowing down. Our sales team is larger and more productive.
Pat Goepel: Our clients are buying more of our core payroll and Human Capital Management products. Our unified technology platform enables us to cross-sell, which drives improved retention, and we can scale organically. We have a very active pipeline of opportunities for Payroll Tax Management, and the new distribution capabilities of Oracle and AWS will help build further opportunities.
Pat Goepel: AsureWorks is gaining traction, and our recent G2 awards reflect the positive feedback our clients have about our products. Just a few years ago, we laid out a goal of $180 million to $200 million in revenue, and with today's forecast for 2027 of $183 million to $187 million, we are close to crossing the goal line. We have worked hard and executed, and all of our metrics are trending up.
Pat Goepel: Margin expansion and improving profitability are two important characteristics of our model, and AI is helping us lower our cost to serve while improving the client experience. We are proud of the progress this quarter and even more excited about what is ahead. Thank you for your continued support and for joining us today.
Pat Goepel: Before we open the call for questions, I want to take a moment to acknowledge the recent loss of Dick Strong, a longtime supporter of Asure and a good friend. Dick was a very smart, talented, kind person, and he will be greatly missed.
Pat Goepel: On behalf of everyone at Asure, we offer our heartfelt condolences to his family and Donna. Thank you for your continued support and for joining us today. I will now turn the call back to the operator for questions and answers. Operator?
Operator: Thank you. We will now conduct a question and answer session. If you would like to ask a question, please press star one on your telephone keypad. A confirmation tone will indicate your line is in a question queue. You may press star two if you would like to remove yourself from the queue.
Operator: For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. Once again, that is star one at this time. One moment while we poll for the first question. The first question comes from Jeff Van Rhee with Craig-Hallum. Please proceed.
Jeff Van Rhee: Great, thanks. Thanks for taking the questions and congrats on a nice posting here, guys. A couple for me. First, Pat, maybe on the per employee per month, where are you now? What is a full suite purchase right now tallied to, and where do you think that can evolve to over time?
Pat Goepel: We publish "The Art of the Possible," which is $100 plus per employee per month. A specific number, we will start to get a little bit more color in 2027. But if you add brokerage and you add all those kind of products and services, as much as 180. We are continuing to sell more products and services, and we are training for that. Then we have Asure Software through AsureCentral, or we will do it for you with AsureWorks.
Pat Goepel: So we are still in the middle of the movie, and there are different sample sizes with different training. We will lay out probably a metric around that in 2027. But right now, suffice to say, it keeps going up. This past quarter, revenue per unit in the payroll business was somewhere up 57%, which was really a nice progression of what we are trying to do. I think in 2027, as we get more mature, I think we can establish that metric and publish that.
Jeff Van Rhee: Okay. Got it. The Southeastern reseller, a bit larger than your typical reseller purchase, I heard in the script. There is maybe some incremental capabilities there as well that might stand out. Maybe just a second more on what you are getting there with that purchase.
Pat Goepel: Yeah. First of all, the technology is obviously like a reseller acquisition, so very simple in integration. They had some unique front ends that we think will help us advance the whole business on some verticals. So we are excited about that. We think that there is some growth in selling.
Pat Goepel: We also think from an integration perspective, this is what we do. So we think we can add scale, add capability, add the growth, and frankly, we thought it was a pretty attractive acquisition for us to do.
Jeff Van Rhee: Mm-hmm. Then maybe, John Pence, just a couple quick numbers questions then. As I look at Q4 and the 2027 outlook, what organic growth is embedded in those two numbers? This reseller, can you give us a little, dial it in a bit closer in terms of what the reseller itself brings in terms of Q4 revenue and next year's revenue?
John Pence: Yeah. I would say when we bought the business, it was probably at about a $10 million run rate. I would expect a couple million in this quarter be realized. We think obviously there is some upside to what they were doing historically when we put our sales team behind it and when we start to maximize some of the technologies they have built out. In terms of next year, I think the guide in the midpoint implies 13% to 14%. I would say right now that majority of that is going to be organic, just in terms of the guide for next year.
Jeff Van Rhee: Okay. If I could sneak one last in there, just on free cash flow. Appreciate the 2027 outlook. Is there just a real quick bridge? I keep a close eye on it. Just curious what that guide implies in terms of free cash flow for 2027.
John Pence: Well, again, we have a little bit of this and we can talk about it off, but the way we think about it, Jeff, is always thinking about the adjusted EBITDA less the cost of finance. I think, with this new loan, we are expecting probably around $8 million of interest cost for the year. Roughly $2 million a quarter, I think.
Jeff Van Rhee: Okay.
John Pence: If you factor that off, and then again, if you want to take software cap off the table, that is going to be really consistent. I think we will probably be in about the $14 million range next year on that. I think midpoint of what we guided towards is in the 40s, mid-40s. Back off the software cap, and I think we are in the low 20s when it is all said and done from our perspective.
Jeff Van Rhee: Got it. Great. Congrats on the quarter, guys. Thanks.
John Pence: Thank you.
Pat Goepel: Thank you, Jeff.
Operator: The next question comes from Richard Baldry with Roth Capital. Please proceed.
Richard Baldry [Managing Director, Senior Research Analyst: Thanks. If I look year-over-year and I add your cost of goods sold and your OPEX, the numbers are very flat while revenues were up decent. Can you talk about the pieces of that sort of cost savings? Is it integration, AI, or just scale leverage efficiencies, sort of breakdown. Seeing a lot of companies across my space noting that AI can drive some material cost savings, sort of wondering how far along that spectrum you feel like you are.
John Pence: I will give you my perspective first, Rich, and then Pat will obviously have his. I think we are just in the early innings. We have always said really consistently, as long as I have been here, that this is a scale business and you are now starting to see the benefits of it. So that was pre-AI. So I think what you are seeing right now is the pre-AI scale part of the business. We are implementing AI throughout the business.
John Pence: We have got it in ops with our call centers. We are using it in the finance area. Our sales guys are going into it as well with Gong, and some of the other tools that they are using. So I think early stages of us getting AI benefits. I think what you are seeing right now is just the pure scale part of the business. So that is my perspective, and I think there is a lot of opportunities in the future to take more cost out.
Pat Goepel: I would echo with John, exactly that. I think the next wave here is a lot of, I always say that the end-to-end process starts with the customer, goes to our office, and then comes back to the customer. I think in the area of workflow, we still have a lot of AI opportunity to take cost out, and improve all the way around. I think there are some other things around marketing where marketing and sales and customer acquisition, again, with workflow.
Pat Goepel: The work that we are doing internally, I think we are just getting a productivity factor here every quarter. So we will continue to work in those areas in 2027. I would say a lot of it has come with scale, but definitely AI is top of mind in how we do business and how we become a better company.
John Pence: Yeah, I didn't even touch on Luna, just in terms of the customer experience, right? Their ease of use of the software. I think there's just, again, lots of opportunities still.
Richard Baldry [Managing Director, Senior Research Analyst: Okay. Then if I look at Q4 specifically, the adjusted EBITDA guide of $10 million to $12 million at the low end of it'd be actually down a little bit sequentially. Obviously, the upper end would step up pretty good. Can you talk about sort of the variables to do that? The acquisition and organic growth would tend to drive some sequential top-line growth. So how do we look at that range and where we'd expect to end up?
John Pence: I think, from my perspective, Rich, we've talked about it throughout the year. We've been running behind, in terms of where we wanted to be in the sales headcount. I think we're finally starting to catch up. So that's one of the headwinds. Headwinds, good, bad, in terms of we're finally getting fully staffed on that team. I do think that there's going to be a little bit of integration work, too, with the acquisition.
John Pence: So I'm expecting really good follow-through from that acquisition in terms of EBITDA contribution, but not necessarily on the front end. So I do think there's going to be some work rationalizing that business. So I think I feel good about the guide, and I do think that there's a little bit of headwind just with some of the things I mentioned-
Pat Goepel: Yeah
John Pence: -in Q4.
Pat Goepel: Oh, I am sorry, John.
John Pence: Go ahead.
Pat Goepel: If I look at it around Q4, first of all, there is a jumping off point on continued spend, in the sales and marketing area. We feel like we have done a lot of work with technology and the operations and, from a sales marketing perspective, we are close to the 150 target of salespeople.
Pat Goepel: We are going to go up again next year in salespeople. So Q4 implicit in that is some ramp costs in sales for 2027. The other thing is, if you look at the mix in the guide, recurring revenue is growing over non-recurring revenue to the tune of a little over $2 million in Q4. So, the quality of the revenue is super high.
Pat Goepel: The integration that John spoke of operationally, we are continuing to sell more and more products per customer, and we are spending some calories on integration between departments and workflows and customer products that we think will benefit in 2027 and beyond. In the immediate quarter, we want to make sure we get those processes right, so we are spending some money.
John Pence: Yeah. Just to put a finer point on it, I think midpoint of the guide is about a 10%, little under, year-on-year growth for next quarter. It is going to be, I think, a similar story as to this quarter in terms of the mix of recurring and non-recurring. We are adding a lot more recurring. We had a lot of pro services last year, as it relates to some of the big tax deals. So we are not expecting that same volume of non-recurring. But we are really excited about the mix in terms of the organic growth that is outpacing the non-recurring that has fallen off.
Richard Baldry [Managing Director, Senior Research Analyst: Got it. Have a good quarter.
John Pence: Thank you.
Pat Goepel: Thanks, Rich.
Operator: The next question comes from Jared Levine with TD Cowen. Please proceed.
Jared Levine: Thank you. To start, I was hoping to get an update in terms of the SMB HCM demand environment more broadly here. What are you seeing? Has there been any macro impacts or changes, as you look over the course of this year in terms of a demand progression, in terms of what you're seeing on pipeline volumes or even sales cycles?
Pat Goepel: Yeah, pipeline's really good. Pipeline's gone up and we anticipate a really good Q4, Q1 sales. Pipeline is strong. I would say the multi-product continues to be a focus, whether it's the managed service or software. A small business wants fewer vendors, a little bit more simplicity. They want a partner that they can hang their hat on with multiple products and services. So those trends, I think, will continue.
Pat Goepel: As far as staff, clearly they want access to capital, they want access to people, they want the easy button so they can focus on growth, and a vendor that can provide more and more of those services. And then also, they want the vendor to have a point of view. So in the area of compliance, we're seeing that broader pipeline of HR, payroll, compliance, all the way through the stack. And then, where there's more pressure with the SECURE 2.0 Act around 401(k), especially in the states that have legislated that, we see that as a big demand focus as well.
Jared Levine: Great. Then for my follow-up here, I wanted to touch on float revenue. Just given the recent 25-basis point increase, can you remind us a framework in terms of how to think about that? I know you do take some duration in terms of a laddering strategy, but just how to think about that benefit from that recent 25-basis point increase as we look over the next four quarters or so.
John Pence: Yeah, I think from my perspective, it is for us, roughly a half a million dollars a year, every quarter point right now with our current balances. That is a simple way to think about it at a high level.
Jared Levine: Got it. Thank you.
John Pence: Again, we talk to Goldman at least once a quarter, but we had our quarterly update with them last week, and their current view is that there is another quarter point coming in December meeting, as well as another quarter point in March. So, going into next year, we probably will see another half point, at least on their current view of rates. So hopefully that is a million dollars of upside to this current year in terms of float.
Pat Goepel: Then Jared-
Jared Levine: You are only assuming. Sorry.
Pat Goepel: Go ahead, Jared. I am sorry.
Jared Levine: I was just going to say, in terms of your guidance for next year, you are just assuming the one hike that has been announced to date?
John Pence: Yeah. We have not overestimated the float. That is in the current guide. It is just what is in the current rates right now.
Jared Levine: Great.
Pat Goepel: Jared Levine, in the queue is our laddering strategy as well.
Jared Levine: Awesome. Great to hear. Thank you.
Pat Goepel: Thank you.
Operator: Thank you. The next question comes from Eric Martinuzzi with Lake Street. Please proceed.
Eric Martinuzzi: You had a nice uptick in the gross margins in Q3. I was curious, obviously, you have given us a view to revenue and EBITDA margins for 2027, but what is implied as far as gross margin? Was that Q3 just an outlier, or is there a change in the longer-term gross margin expectation?
John Pence: Well, I think on a GAAP basis, I think we are probably in the 70% range for the year. I think we will probably get 2 points or so next year on a GAAP basis. There is usually about 5-point spread between the GAAP and the non-GAAP. So if you think 70% this year, it is probably 75%-ish non-GAAP. I would say, next year, I think we are shooting for about 72% GAAP and about 76%, 77% non-GAAP.
Eric Martinuzzi: Yeah. What is behind that? Is that just the efficiencies in the workforce? I will let you answer the question.
John Pence: Yeah, I think it is a little bit of what I was talking about with Rich. It is not anything extraordinary except that we expect our people to continue to be able to ramp with the tools we are giving them, with more and more. It is just kind of implied in the model. If you think about it, we have had this slide in the IR deck for, I do not know, for years, where we kind of talked about the breakpoints of the model at different scale levels.
John Pence: I think it has been out there for quite a while. At $200 million, we are expecting to be at 30% in adjusted EBITDA, and it scales from there. There was some modeling behind that. It was not just aspirational, and so the model is just kind of playing out the way we were hoping it to.
Pat Goepel: Eric, just with the average customer revenue per unit going up and the adoption of more products and the attach rate going up, that is allowing us to have a better gross margin tick up over time.
Eric Martinuzzi: Got it. Congrats on the numbers and the outlook.
Pat Goepel: Thank you.
John Pence: Thank you.
Operator: The next question comes from Brett Huff with Stephens. Please proceed with your question.
Colby Sanford [Equity Research Associate: Hey, this is Colby Sanford on for Brett Huff. Appreciate you taking the question in. Nice to finally be covering you all. Last quarter, you described the enterprise Payroll Tax pipeline as really strong. Since then, you have been at Workday, HR Tech conference, Oracle, and you have added Payroll Tax Management to the Oracle Marketplace and now AWS as well.
Colby Sanford [Equity Research Associate: What are you hearing from your enterprise buyers and your ERP partners at these events? How should we think about these marketplace announcements and how they will generate new leads for you all?
Pat Goepel: Yeah, I think, first of all, our team has been in Las Vegas three weeks in a row at a busy time, and I was joking with our President and Chief Revenue Officer, Eyal Goldstein, if he was taking residence up in Nevada. We have gotten a lot of really good feedback. Our product teams worked really hard.
Pat Goepel: The strategy of the foundation level for us around embedded payroll, tax filing, treasury, et cetera, is a great foundation for us to be because it allows us to play up and down the enterprise clients to the medium and small clients. It frankly, also other payroll companies, because they use some of our foundation tools. The feedback has been really positive.
Pat Goepel: I was on calls even this morning and this afternoon right before earnings with a number of different clients and opportunities and partners that really like our modernization strategy in this area, and that those tools perhaps were underserved by other players in the past. We have that capability.
Pat Goepel: I think our time is right now, and our time is, sometimes luck is preparation meeting opportunity. We are prepared for this moment, and I think you are going to see a lot of growth here in that area. Well, you have already seen it, but in 2027, 2028, I think you are going to see strong growth in that area.
Colby Sanford [Equity Research Associate: Awesome. That is super helpful, and I appreciate it. If I could just sneak one more in there. A larger competitor of yours has been leaning a little bit more into PEO, moving some of their clients out of management solutions and into that PEO business and having their sales team refer some deals into it. Just curious if you are feeling any of that new logo deals in your client base and, just any change in the competitive landscape recently with some of your competitors and just the AI natives.
Pat Goepel: Yeah, I think from our perspective, I used to run a PEO, and I was the CEO of a PEO, and that is an environment that can get complicated quickly. I personally think we have all the capabilities of the model. If we choose to do that, we would have the capability to build into that base.
Pat Goepel: As far as I look, we have the capability and kind of what we are doing where you do not have to have things like group insurance and all that, where you can unbundle that, and we have kind of best-in-class tools and managed services without the PEO. I happen to like that position. As far as the competitive environment, I think all in all, it is going to be a changing environment. We are a better company with AI and software, not one or the other, and I think other competitors feel that there are opportunities too.
Pat Goepel: For us, it is an exciting time to be part of a Human Capital Management space, and we think there is market share opportunity to go after, and we are pleased to report a really good quarter because of that. I think the trend towards multiple products, multiple solutions, having tools not only around breadth of products, but also workflow within products, is where a good solution looks like. Then agentic AI with the workflows gives more power to the user in a quicker basis and makes good decisions, and we are leaning into that strategy as well.
Colby Sanford [Equity Research Associate: Awesome. Thank you.
Operator: Once again, ladies and gentlemen, to ask a question, please press star one on your telephone keypad. The next question comes from Greg Gibas with Northland Securities. Please proceed.
Greg Gibas: Hey, good afternoon, guys. Congrats on the quarter. Wanted to ask regarding those strengthened positions, one within the Oracle ecosystem, but also, Payroll Tax Management available there, but in the relationship with AWS. Could you maybe speak to the response you are seeing so far at this point, as it relates to the opportunities with those networks or potential customer bases?
Pat Goepel: Greg, it is so early days, what I would say, and I was at two of the trade shows. I did not have a chance to go to Oracle just with timing of earnings, but our team was there. I will give you an idea. Last year we were at the Workday conference. I think our lead volume was probably triple last year, and it is just a progression of us having a lot of success stories and taking market share, and there has been a good buzz there.
Pat Goepel: The lead flow was really good. HR Tech, very similar. From the feedback I am getting at Oracle, really good opportunities, some good serious buyers. And there is an opportunity with the modernization of the work we have done. People really want to engage with us, and that is right where we want to be.
Pat Goepel: The early returns are real positive, but a lot of these announcements are over the last 45 days or so, and a lot of this activity has been in the last 30 or so. We will continue to progress here, but it is probably just a little bit early. Initially, a lot of excitement.
Greg Gibas: Okay, that is fair. With respect to the payroll processor you acquired, I think you mentioned some verticals or capabilities that add an incremental opportunity to where Asure sits today. I wonder if you maybe expand on those, and then should we think about the purchase price being pretty close to your 2x revenue target?
Pat Goepel: Yeah, I think purchase price was about 2.6x revenue. We disclosed that, and how I look at it is we got a nice size, nice capability. The staff is really strong. They know our products and services. We know their products and services really well. So the learning curve is not a long putt. It is a real easy putt for us.
Pat Goepel: When I look at some of the vertical markets they have done and some of the capability, I think some of the scheduling capability and kind of time opportunity there, in addition to some of the reporting, we think was a nice add to some of our product family and service family. So that, we are going to leverage that going forward.
Greg Gibas: Got it. Thanks very much.
Operator: Thank you. At this time, I would like to turn the call back over to management for closing comments.
Pat Goepel: No. Anyway, I'm just seeing if the team had anything. Hey, Q3 was an outstanding quarter for us. Good momentum, reoccurring revenue going up. We're excited about it. We think that will pay dividends as we finish the year of 2026 in a strong way. In 2027, it sets us up for really good growth.
Pat Goepel: John mentioned that in the IR deck, I think it was three years ago, we kind of pointed to $180 million to $200 million. We're in that sweet spot. It's been very predictable for us, that scale wins. The AI, good fortune. We're embedding that in a lot of things we do, which is helping our software. Change is afoot in Human Capital Management. Our people are at the tip of the spear leading change.
Pat Goepel: We've got a lot of pipeline of opportunities, and I think we're a story to watch here, and I've been here a long time, really, really excited. From an investor perspective, hey, we lost a good one in Dick Strong, and I want to, again, wish my sentiment to the family. Right now, I think is a real good time to look at Asure again, because we got a lot of stuff going on. So I really appreciate your time, and have a good day.
Operator: Thank you. This does conclude today's teleconference. You may disconnect your lines at this time. Thank you for your participation, and have a great day.
