Good afternoon. And welcome to Asure’s Third Quarter 2021 Earnings Conference Call. Joining us for today’s call are Asure’s Chairman and CEO, Pat Goepel; Asure’s Chief Financial Officer, John Pence; and Head of Investor Relations Randal Rudniski. Following their prepared remarks, we’ll have question-and-answer session from analyst and investors. I would now like to turn the call over to Randal Rudniski for introductory remarks. Please go ahead.

Thank you, operator. Good afternoon, everyone. And thank you for joining us for Asure’s third quarter 2021 earnings call. Following the close of markets, 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 the investor presentation. During our call today, we will reference non-GAAP financial measures, which we believe to be useful to investors and exclude the impact of certain items. A description and timing of these items along with a reconciliation of non-GAAP measures to their most comparable GAAP measures can be found in our earnings release. Today’s call will also contain forward-looking statements that refer to future events, and as such, involve some risks. We use words such as expect, believe and may indicate forward-looking statements. And we encourage you to review our filings with the SEC for additional information on factors that could cause actual results to differ materially from our current expectations. Finally, I would like to remind everyone that this call is being recorded, and it will be made available for replay via link available on the investor relations section of our website. With that, I would now like to turn the call over to Pat Goepel, Chairman and CEO. Pat?

Thank you, Randal, and welcome everyone to Asure Software’s third quarter earnings call. I will begin today’s presentation with an update on our business performance and strategy, then will turn the call over to our CFO, John Pence for a more detailed review of our financial results, and outlook for the fourth quarter of 2021 and fiscal year 2022. We will then conclude the session with time to answer your questions. We are pleased with our performance in the third quarter with revenues reaching almost $18 million, which was up 12% relative to prior year and up 5% versus prior quarter. Macroeconomic trends continue to improve in our markets, as is evidenced in the decline of the unemployment rate. I would say though, there remains lingering softness in some areas owing really to the labor shortage that is affecting many small businesses across the country. However, overall, we are pleased to have grown our organic revenues 8% versus prior year in this economic environment and our business is continuing to build positive momentum, heading into 2022, driven by strong execution across the business. I also want to point out, the third quarter was an important step forward in terms of executing our strategy. We divested the space business, if you recall, in 2019, in order to focus our portfolio and resources where we can make the biggest impact. And that is on the human capital management solutions for small businesses who need a strong partner, so they can run their business. Then, really we repositioned the Board of Directors and the management team in 2020 and 2021 in order to strengthen the organization’s talent and leadership skills, so we could execute on this big opportunity. And in 2021, we’re making targeted investments in sales, products and acquisitions, so we can…

Thanks Pat. As Randal mentioned at the beginning of this call, several of the financial figures discussed today are non-GAAP. You will find a description of our GAAP to non-GAAP reconciliations in the earnings release that was made available earlier today. And reconciliations themselves are also included in our most recent investor presentation posted in the Investor Relations section of our website at asuresoftware.com. Now, on to the results. Third quarter revenue rose by 12% versus prior year and 5% versus prior quarter to $18 million. Recurring revenues represented 91% of our total revenue in the quarter. Recurring revenues grew by 7% versus prior year and our non-recurring revenues more than doubled on the strength of our ERTC service offering, which continued to generate significant client interest. Interest on client funds was approximately $400,000 in the third quarter, flat from the second quarter and up versus prior year by approximately $200,000. Client fund assets on our balance sheet were $174.8 million at September 30th, compared to $207.4 million at the end of the prior quarter, and $199.3 million at the end of Q3 2020. We are pleased with our gross margin performance. Our non-GAAP gross margin percentage reached 67% in the third quarter, which is up 70 basis points versus Q2 and up from 64% in last year’s third quarter. This marks Q3 as a fourth consecutive quarter in which we have grown our gross margin percentage. This performance is owing to a return to revenue growth and cost containment efforts and has occurred despite the headwinds from higher pay and benefit increases. Non-GAAP EBITDA for the third quarter was $1.2 million for an EBITDA margin of 7%. The non-GAAP EBITDA result was 21% higher than prior year and 15% higher than prior quarter, despite the increase in salary expense…

Thanks John. In summary, we are pleased with our third quarter performance. We continue to have good momentum in the marketplace as evidenced by our 12% annual growth rate in revenues and 5% sequential growth in organic revenue. We grew our non-GAAP EBITDA by 21% relative to prior year, and 15% relative to prior quarter, despite headwinds from restoring salary and benefits. Our ERTC solution continues to have great traction in the market. And in total, our clients have filed for more than $200 million in the ERTC credits. We launched the next generation user interface of our small business payroll clients that combines our payroll and HR solutions into a single solution. With improved user controls and a fresh new luck. We implemented a new integration with Employee Navigator that keeps employee data in sync, adds value to our solution, and will enable us better to penetrate the broker referral marketplace. We completed two acquisitions that we’re excited about, and that we expect will be highly accretive for stakeholders over time. And we’ve diversified our sources of capital, which helps us drive the business forward for growth in both, organic and inorganic revenues. I’m very proud of the execution of the Asure team, their commitment to our clients and to providing enhanced payroll and HR solutions that meets and exceeds their needs. With that, I’ll turn the call over to the operator for the question-and-answer session. Operator?

Thank you. [Operator Instructions] Our first question comes from the line of Joshua Reilly from Needham.

Maybe starting off with the ‘22 guidance of $85 million to $90 million in revenue. What -- how should we think about the organic growth rate assumed in that number?

Yes. I don’t think anything’s changed, Josh, I mean, from our historic guidance. I mean, we’re hoping for 10%. I think this number really, it -- don’t anchor too much on 2022 right now. We’re trying to give you a sense of where the Street was at historically for 2022 with the impact of these third quarter acquisitions. So, I think more to come, as we go through the budgeting process, and as we sharpen our pencil for 2022. But, we did want to give you some sense as to kind of what the impact of acquisitions would be relative to where we might have had at for 2022. And we’ve not historically, at least since I’ve been here, been given guidance that far out. So, it was just an attempt to kind of give you some senses as to what we thought about the acquisitions.

Yes. No, that’s helpful. And then, how much of the gross margin benefit in the quarter is due to the ERTC product? And then, how sustainable should we think about those revenues being? And does that create a headwind somewhat going into next year, if there was some change there?

Yes, definitely helped on the gross margin, right? So, we didn’t add a lot of people to service that incremental revenue opportunities. So, that was impactful. I’ll let Pat kind of address the kind of headwind comment.

Yes. I think, Josh, from my perspective, we set scale, and we’ve done a lot of improving in the business. So, we have several initiatives that we think will be impactful in 2022, too, to gross margin, including some of the new product introductions, some of the centralization initiatives, with AWS, and even kind of refining how we go to business, including some of the robots that we talked about last quarter in the background. So, we think that there’ll be several initiatives to layer in. As far as ERTC, we’re opportunistic, we felt it was a great program. And any pluses this quarter, we think there’ll be some plenty of positives to help mitigate that or improve on that next year.

Okay, great. And then, maybe I can sneak one more in on that line of questioning there. You hired a new CTO at the beginning of ‘21. Curious, now as the M&A machine is kind of restarting, is there anything specific you can point to that you guys have done on the integration process on this side of COVID versus the acquisitions you made pre-COVID that’s either going to make the integration go quicker and/or be more margin accretive? Thanks.

I think, a couple things. So, first of all, really after the space business, we hired a new Board of Directors for the most part with human capital management expertise. And I think they did a great job. Todd Waletzki who came from CompuPay was former president, he’s really in charge of some of the operational improvement initiatives going forward. And then, specifically, your question Yasmine Rodriguez, who’s the CTO who has a wonderful background at payroll and tax. And really, we’re pointing to several initiatives that we think will help over time, grow gross margins and help the acquisition integration. First of all, almost all now, by first quarter of 2022 or second quarter of 2022, will be on the same instance or the same platform within the AWS environment. So, that’s a real positive development for us. Two, I think just the standardization initiatives that we have. Three, we talked about introducing the robots, and really taking kind of the non-value add work out of the employment kind of cycle where we can keep headcount relatively stable, but really do a lot more with production around the robotic effort. That was led by Yasmine as well. And then, finally, just kind of where we are within a product set, and we introduced kind of a new user interface. That will help us integrate going forward, will do more stuff on the web, the customer will be able to do more in that successful environment. All that will help us in the integration going forward. So, it’s not any one person but a series of initiatives that we’ve been playing for over the next couple of years?

Our next question comes from the line of Richard Baldry from ROTH Capital.

Thanks. Sort of thinking historically, I feel like M&A tends to be a bit of a drag on adjusted EBITDA before integration optimization sort of brings up a new level. But against that backdrop, you’re actually guiding for adjusted EBITDA to grow pretty solidly from Q3 to Q4. So, could you maybe talk about what gives you that confidence that those acquisitions aren’t going to start pull back, first, before you go higher? And then, how long should it take perhaps with an eye to your backend integration being completed across the AWS platform? Do you think you can be faster at fully integrating the acquired entities now and in the future? Thanks.

Yes, I think we can. We have not modeled in all the synergies in the fourth quarter. Clearly, we’re expecting that to deplete into 2022, and we would hope to kind of be done for sure, by the end of 2022 with these integrations. To answer your question about the drag, I think, just to be clear, I think Pat mentioned about just the integration path. Historically, these companies are using our same software platform. And the difference I’m trying to give a good analogy, but it’s configuration. So, it’s the same use of software, but think about Excel, [ph] and maybe moving funds around. So, each one of these resellers might use our software just a little bit differently in the wild. And so, what we’re doing is we’re standardizing the use case of our software. Internally, amongst all our previous acquisitions, as well as when we bring across new acquisitions, they kind of come into our use case of the same software. So, we’re able to do the integration a lot quicker, get to the standardization a lot quicker and then we hope driving margins higher, quicker as well.

And I would just add, I’d point you to the first quarter acquisition. We did a smaller acquisition in the Northeast in January. If you look at our kind of headcount and kind of where we’ve run the business here, this year, we’ve added some sales people, but the overall headcount is down from where that period was and meaning we absorbed that acquisition without headcount over time. And we’re nine months from that acquisition. I think on a similar kind of result over time will lead to a good result here with these two acquisitions.

Last thing, could you talk about the degree to which the companies you acquired, the resellers, were throwing themselves or this is really more about the earnings integration, and you’re not really thinking so much about the productive sales capacity you’re bringing on more from those? Thanks.

Yes. I think both were very well run operators that were in the business. So, while they both were growing, now the backdrop of COVID, et cetera, but they were growing. And we anticipate that there will grow going forward. And we also believe that their expertise coupled with being in business as a partner for a decade or so will lead to a seamless integration.

Yes. And I think we’ve been pretty clear on this point. This last year has been challenging, just from the standpoint, we’re kind of at that that breakeven point. And getting to scale is important to us. I think, it affords us a lot more flexibility and what we invest in, and the speed at which we invest, and so it’s key for us. And I think we’ve been pretty transparent on this point that we do want to get the scale quickly, and that’s why we did the deal with Structural, that’s why we put registration statements on file, scale is important. We’re not going to do things that are imprudent, but we do want to get to scale sooner rather than later. We think it’s important for the business.

Our next question comes from the line of Bryan Bergin from Cowen.

A question for you around client employment level, so two-parter here. So, pre-pandemic employment level, can you comment on where average client size really sits today relative to -- prior to COVID and how much recovery you’re anticipating over the next couple of quarters? And then, I didn’t hear it, but just the pays for control metric in 3Q? Sorry if you did disclose that?

Just from a client level employment, let’s talk at a macro level. Early in the COVID mindset, I think we lost $25 million, as far as the United States of America, jobs early, they’re normalized about 10 million. Even though you see improvement in the economy and the jobless claims, we’re probably 5 million or so out of the workforce. And, we’ve done some IR deck modeling, et cetera, around that. As far as pays per control, this quarter we were at a little over 20, I believe, as far as pays per control, probably pre-pandemic, probably in the area 22 or 23. And some of that has some noise. But that’s the order of magnitude. I would say this quarter, slight tick up. And you know, just in speaking to almost any business owner who’re looking to hire people, it takes two though, you got to, one, hire people, and then somebody’s got to want to come into a job. And I would say mainstream America and small business in general were affected, probably was a little bit disproportionately affected. So, we’re improving, but we’re not quite there yet. John, I don’t know if you have anything to add.

The point I was going to make at the end, I do think that our client base disproportionately impacted and needed the right metrics. There is a slide we added to the IR deck to this point, it kind of shows that that 5 million gap still on unemployment return to normalcy, even though employment rates starting to return but still you’ll see in the news and all the analysts talking about it, there’s still a gap in overall employment levels pre- and post-pandemic. So, I think we’re still -- have some upside and gets back to normal.

Okay, all right. That’s helpful. And then on as we think about these two acquisitions, are they in line with the acquisition economics that you’ve talked about on targets in the past? So, I guess, what are you expecting here in 4Q revenue contribution? And I’m curious too, is the client size larger than yours? You’ve been talking about mid market pipeline here for a couple quarters. Curious if this was in line with that.

I think pretty consistent customer base. In terms of revenue contribution, it’s obviously reflected in the guidance we gave you, the $21 million to $20.5 million. The multiples we paid, I think we’ve been pretty consistent in this and we’ve talked about it in our IR presentation. Goldilock scenarios two times, we think that smaller deals will be closer to 1 time and bigger deals can be closer to 3 times. We want to kind of be in that 1 to 3 range. These were on the higher end in terms of size. So, you’ve got to infer from that where we’re at.

Our next question comes from the line of Jeff Van Rhee from Craig-Hallum.

Pat, I think you commented just briefly, and I want to make sure I hear it correctly on the acquisition front. You said you were open to things. And I thought you were saying open acquisitions that are non-evolution resellers and more maybe a little bit of a variation on the typical models. So, just clarification on that to start?

Yes. First of all, I think, obviously, we have a reseller network that is pretty powerful. And we think we have some opportunities to continue growth. We’re also though feel pretty good about our ability now to start to get to scale. And then, as we get to scale, we think we have some other assets within the family that could be interesting. And one of them that we talked about was our acquisition of PTM, where we start to have standalone tax filing, we have some money movement. We think that there could be some opportunities as it relates to that. And then, if you talk to our customer base, there’s an interesting -- some interesting cross-sell opportunities, et cetera. I think, ERTC, just ability to get our customers to access to their money shows some of the ability that we can cross-sell. We think that there may be some other opportunities. I wouldn’t -- we’re introducing it, I think it could be -- highlight some opportunities. I don’t have anything immediate. But, as we turn the page to ‘22, there could be an opportunity that would present itself.

And then, on the HR payroll integrated offering, can you put a wrapper around that at all in terms of expectations, does that provide powerful uplift? What is the impact, also ARPU adoption, just how should we think about the impact of this new integrated offering?

I think, first of all, some of the things that Pat mentioned are really just ease of use and customer sat, right? So, I don’t think there’s necessarily ARPU uplift, based on ease of use or customer sat, but hopefully, that leads to higher retention rates. In terms of cross sell -- I think Pat just kind of touched on a point that I think is very important. This ERTC was primarily sold into our existing customer base. And I think we had a pretty good penetration, roughly 10% so far, which is pretty healthy for something that’s only been out there for about five, six months. So, really, really attacked our customers and delivered tons of value to them. And I think it’s got to a proof point that as we get some of the other products that we’ve got better, ready to cross sell that we’ve demonstrated the ability to do that. And so, I think that’s kind of what Pat’s alluding to for 2022 is really want to spend some time honing some of the product lines that we’ve got in house and making them a lot easier for our sales force to take across the installed base. And I think again the acquisitions are interesting point too, right? So, they’re primarily just buying one product today. So, we’ve really got to focus not just on adding new logos, which obviously is always important, but really trying to make sure that we’re delivering that ARPU increase and that value across our customer base as well.

Yes. The only point I would add is we’re through the budget, or just getting through the budget process, we’ll wrap that up here. And then, in March, we’ll really talk about I think, some more specific metrics. And then, frankly, we’ll talk a little bit more about the product line, because I think we’re really increasingly excited about some of the opportunities as we look forward. So, you’ll see that in March.

Yes. Maybe one last, if I could sneak it in John, on the guidance you set for FY22 non-GAAP EBITDA margin and EPS for in line with historical trends prior to divestures. Can you just maybe expand on that a second? There is a lot of trends in there. Which specific trends or relations that you’re call out there?

Specifically kind of the bottom line, right? So, the percentages -- there’s a seasonal component to our EBITDA which is pretty obvious, right? In the first quarter, we really, really pop a lot of the percentage, and then it kind of trends, just because of the absolute numbers down. So, I think that’s what I was trying to get across. And then, EPS just ties right into that, right? So, it’s just kind of has that same trend and always going to be much bigger in the first quarter. That’s what I was trying to get across in that statement.

Our next call will come from the line of Eric Martinuzzi from Lake Street.

Yes. My question was regarding the Q4 guidance. Given there are two acquisitions, the gross margin assumption, you guys have been operating between 66 and 69? Just kind of going back the past three quarters or so, what should we think about for gross margin for Q4 with the acquisitions layered on?

I think, hopefully we have a little bit of improvement over this quarter, but nothing that really I think I would expect us to continue to trend up based on some of the things that Pat mentioned. But nothing dramatic, I think, flat to a little bit up would be the way I would look at it.

Okay. And you’ve laid out an aggressive goal. I mean, you -- looking backwards, you had an aggressive goal, adding reps, coming into the beginning of the year, you mentioned things 72 now, and another net 8 between year and year-end. We are kind of in the seven weeks left in the year, are these folks already kind of in the interviewing pipeline, or are they yet to be identified, those incremental direct reps?

Yes. No, they’re identified or in the process let’s say. We hope to finish the year around 80. I think we have a really good line of sight of that. I could see us then going up from there and how much we decide on that will be March’s guidance. But clearly, we think we have a lot of sight to turning the year at 80 reps.

All right. And then, in the organic, we’re talking about inherited reps from the acquired companies?

It’ll be combined. Yes, I think the 80 would be both.

Our next question will come from the line of Vincent Colicchio from Barrington Research.

Curious how wage inflation -- how do you see that impacting your business in the near-term on the cost side? And also in terms of pricing, is there any willingness to accept higher prices in the market?

We haven’t had a lot of resistance on pricing, Vince. I think we’re suffering some of the same issues that the rest of the market is, on the lower ends of the employees. The people that are on the customer service side, generally are starting at lower pay rates, right? So, it’s kind of an entry level job, and those entry level jobs are really where we’re seeing more inflation across the board. We think we’re going to be able to manage through it just with some of the efficiencies that we’re trying to get in the business, but we’re still in the 2022 budgeting process, but don’t be like it’s going to be an inordinate headwind for us, but yes, we’re definitely seeing.

I think, Vince, the only thing I would add is, I do think as we capture flow, sometimes wage inflation from our customers, we’ll have an opportunity to capture those dollars. And then, ultimately, that could lead to more float revenue. But, that’ll be kind of growing with the market. And so, that’s one area where we could see it, which would be a positive.

And then, Pat, if you can comment on pricing in terms of things you’re looking at in terms of reseller acquisitions. I know there’s some pressures on both ends, people -- folks think their assets are worth quite a bit more than they may be, on the one hand. On the other hand is the potential capital gains, tax changes coming. Are you seeing more deals that you can get done at economical value?

No, I think it’s always a healthy discussion. And I do believe, first of all is the nation and the marketplaces start to stabilize coming out of COVID. And we’re not quite there yet, but there’s a little bit more certainty. And when you have certainty, you can make those value judgments together easier. I would say, there’s some people testing the market, but from the same token, I think common sense is prevailing. And I feel like we have the opportunity to get some deals done here in the first half of the year. We’re going to do the right deal and the right deal for this stage within Asure. But we think that there’s an opportunity to grow and to get scale up, and we want to take advantage of that.

Again, nice job in the quarter. Thank you.

Thank you. I appreciate it. Operator, is there any other questions?

I’m not showing any further questions, sir.

Well, thank you. I really appreciate everybody’s attention on this call. We went into some detail, wanted to make sure you understood the business. We think we have some pretty good momentum. For those of you that have followed us, we think we’re headed into pretty exciting 2022. I’m very pleased with the execution of the team and look forward to our update in March. So, thank you. Have a great day.

This concludes today’s conference call. Thank you for participating. You may now disconnect. Everyone have a good day.