Good afternoon, and welcome to Asure’s First Quarter 2022 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, there will be a question-and-answer session for the analysts and investors. I would now like to turn the call [indiscernible] Randal Rudniski for introductory remarks. Please go ahead.

Thank you, operator. Good afternoon, everyone, and thank you for joining us for Asure’s first quarter 2022 earnings call. Following the close of markets, we released our financial results. The earnings release is available on the SEC’s website where you can also find – and on our Investor Relations section of our website 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 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. Finally, I’d like to remind everyone this call is being recorded, and it will be made available for replay via a link available on the Investor Relations section of our website. With that, I would now like to turn the call over to Pat Goepel, Chairman and CEO. Pat?

Thank you, Randal, and welcome, everyone, to Asure Software’s first quarter earnings call. We sure appreciate your interest, whether you’re a shareholder, client, employee, or prospective shareholder or analyst. I’ll begin today’s presentation with an update on our business highlights and strategy and then we’ll turn the call over to our CFO, John Pence for a more detailed review of our financial results and outlook for the remainder of the 2022 fiscal year. We will then conclude the session with time to answer your questions. First of all, I am pleased with the way our business performed in the first quarter. We delivered solid execution of our 2022 business plan, and we continue to build our sales and product momentum, and we showed meaningful progress in key business areas. We grew revenues by 23% in non-GAAP EBITDA by 18% relative to the prior year. We also improved our business mix with reoccurring revenues representing 95% of our total revenues. Let’s now turn to the progress we made across the business in the first quarter. I’m really excited about what we are able to achieve and how that sets us up for the remainder of 2022 and looking into 2023. I will start with innovation of product and technology. We had important achievements in the first quarter, which were the culmination of a lot of dedicated effort over the past few quarters. Our technology focus has two main vectors. One is to enhance the connections between our platform with partners to provide new ways of creating value for clients and the entire Human Capital Management ecosystem. We believe there’s a meaningful opportunity in this area to create new high margin revenue streams for Asure. A great example of our focus in this area is that our announcement this morning that we…

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. The reconciliations themselves are also included in our most recent investor presentation posted in the Investor Relations section of our website at asuresoftware.com. Now onto the results. Overall, we are pleased with our financial performance in the first quarter. Here are some of the highlights. In terms of revenues, the first quarter was our highest revenue quarter since we repositioned as a pure play HCM provider. Our 23% revenue growth in the quarter versus prior year was driven by $3.8 million or 20% growth in recurring revenues. Our non-recurring revenues increased by $800,000 versus prior year and was aided by continuing success of our employee retention tax credit program, where we have now delivered to our customers more than $300 million of stimulus through this government program. We also had strong cross selling success with clients as we saw strong demand for our HR consulting and tax solutions. Non-GAAP gross profit margin remains strong in the first quarter at 69% of revenues. Over the past two years, we have improved our non-GAAP gross margins by almost 500 basis points. As we continue to increase the scale and efficiency of our operations. Non-GAAP EBITDA rose by $600,000 or 18% in the first quarter relative to prior year and our non-GAAP EBITDA margin remains stable at 17% of revenues. We accomplish this despite the headwinds from higher benefits expense this year, as a result of last year’s reductions in response to the impact of COVID on our business. That headwind was approximately $1 million in the – our year-over-year comparisons, without…

Thanks, John. We’re really excited about the opportunities ahead for our organization in 2022. We’ve developed some innovative solutions with partners, while also enhancing our own technology to improve client service and product capabilities. We believe developments in this area will bring tremendous value to Asure stakeholders to clients and the entire community. We’ve invested in sales and marketing are experiencing strong demand for our solutions such as HR consulting and our tax solution. We’ve had great success with cross-selling and our employee retention tax credit program continues to resonate in the market and deliver tremendous value for our clients. We expect our investments in these areas, we’ll bring more robust levels of organic revenue growth in the second half of 2022 and beyond, our acquisition strategy is also proving itself. The integration has gone seamlessly, the business are hitting our objectives, and they’re helping to build scale and operating margins in our business, we’re happy to have proven the business model here. We expect 2022 will be a strong year with double-digit revenue growth, strong margin performance and a portfolio of new innovative solutions that is poised to deliver new revenue streams and value for our business. So with that, I’ll send the call back to the operator for the questions. Operator?

Thank you. [Operator Instructions] Our first question will come from line of Bryan Bergin from Cowen. Your line is open.

Hi, guys. Good afternoon. Thank you. First one, we’ve got here, just on organic growth, so we’re looking at the slides. Can you dig in a little bit more there on the 1% year-over-year? I’m just curious why that isn’t matching up here with the good commentary and the bookings performance that you point out. So can you maybe comment on year-end client churn or just other factors that are causing that?

I think I’ll give you one comment, Bryan, when we were looking at kind of the year-on-year comparisons, I think we were actually favorably impacted last year on W-2 revenue. If you think about W-2 revenue, it’s kind of based on a number of employees by employers. So for example, if they work one day or if they worked the entire year, it’s the same – you still need to get provided W-2 to that employee. I think we had more employees kind of churn in and out of our customers through that COVID year. So W-2 revenue was actually down in our core business, not substantially, but probably like 10%. So I think that’s a little bit of the compare difference from my perspective. Pat, I don’t know if you have any other thoughts on that.

Yes. And I just think some of it is also the mix a little bit of the repetitive revenue versus non-repetitive. I think normalized that at the first quarter, we’re going to be in single digits and then moving to the fourth quarter double digits. And so I feel good about where we are the repetitive revenue is strong, 42% growth in sales, especially repetitive. And the pipeline is really, really strong. So I think as we move through these quarters, you’ll see that incrementally go up.

Okay. Okay. And then follow-up here, just on your ERTC offering. So can you just comment on the demand – as you think about this going forward? When does that start to kind of tail off and maybe just any context you give us from a standpoint of revenue mix that’s can provide.

I think the program’s going to be available for five years, right. Look back, so it’s going to be really has somebody already tapped that or not? So it’ll definitely start to be less robust. I think that back half of this year and then in the four years, but it’s still a product that can be sold if the customer hasn’t already made a filing yet.

Yes. And as far as sales bookings, it’s probably started to trail a bit. It will still continue, like John mentioned, and then from delivery of that, we’ve done real good delivery here in the third, fourth quarter, and the first quarter. I anticipate that the demand will continue and the delivery will continue, but maybe not as robust as the third and fourth quarter.

Okay. Thank you.

And our next question will come from the line of Josh Reilly from Needham & Company. You may begin.

Yes. Thanks for taking my questions today. Just curious, how are you thinking about the acquisition strategy here now? You’ve got the two most recent deals kind of integrated and given the volatility in the markets, I think it’d be helpful to give up investors an update on what you’re thinking there.

Yes, really I’m pointing towards the second half of 2022 and really 2023. I don’t think you’ll see anything imminent, Josh. We’ll continue to be opportunistic and are looking at that. We’re focused on our business and really building out the product capability and we’ll add tuck-in acquisitions as we go. So nothing imminent, but we’re going to continue to be opportunistic.

Got it. And then have you seen any impact to customer confidence either since the Ukraine war has started or more recently now in the last few weeks some more localized macroeconomic issues in the United States?

I have not seen anything and I’ll let put Pat comment too. I think we still in our target audience, we still having real struggles getting enough people back to work for, right. There’s still a lot of job openings out there. So I don’t think that’s necessarily tied to Ukraine are competence. I think there’s still a lot of help wanted times out in our customer base.

Yes. We’re really Main Street America small business. I think people are looking whether you’re a bank credit union, retail shop or restaurant, you’re looking for help. We believe that demand environment for our solutions is pretty good and high. I think for the Ukraine war and others in the news, our folks feel inflation a bit, but also really want to be active in upgrading to a digital presence or getting more customers or serving customers and we want to help them do that. So I think the demand environment’s very strong for us and will continue to grow.

Thanks guys.

And our next question will come from the line of Eric Martinuzzi from Lake Street. You may begin.

Yes. I wanted to dive into the competitive landscape here. And I’m specifically talking about the – where your sales for your direct sales force is competing for the attention of partners. What can you tell us about that?

So, for example, on the partners – our tax filing sales force, I think demand is very high. So we think we’re in a competitive environment, whether it’s an ADP master tax or a Ceridian standalone tax environment. Those are the two main competitors. I think you will see some further announcements on some wins in the second and third quarter. I think the pipeline is really strong in that area. On human management consulting, we’ve sold more in the first quarter than we did all of last year. That will continue to grow very, very pleased with the business line there. And in small business services, we’re going out and competing very, very effectively. And as we continue to get more sales people, I think our average tenure actually went down a month, because we’re bringing new sales people on. We have a goal to be over 90 in the third, fourth quarter and theback half of the year. So we’re continuing to add and then we’re adding, because we think we can compete effectively. As far as the reseller network, I would say, there’s been a pretty good pipeline. The demand for open APIs is something that we’ve announced here today and we think we’ll continue to have traction in that area through the second half of the year. And it is critical to our success, because we believe that as our partner network wants to have more and more solutions available with our microservices technology, we’re able to spin those up faster and we think that will garner more customers down the road. So we think the momentum is there and we’re positioned very nicely for the second half of the year.

Do you feel like, I mean, if we were to compare where the platform is now versus a year ago. Do you feel like you lost some opportunities because you didn’t have the integrations marketplace because you weren’t API first?

It’s a great question, Eric. From our perspective, it’s – we’ve been building this for three, four years and it’s – we’ve done some foundational work. There’s no question that we laid the seeds to get to this point in time. And but I think also COVID when you think about there were more tax law changes in the last two years than probably the previous 20. Everybody had to go through some maintenance efforts and really take care of their core customers. And now it’s time to get very aggressive in acquiring new partners and services. So for me, it’s just an evolution upon attended of the timeline and some of the work we’ve done over the last couple years. And I think we’re poised really well for success in the second half.

Okay. And then just one more, if I could, for John, based on the full year adjusted EBITDA outlook of $8.5 million to $10 million. How does that translate into free cash flow?

That’s a good question. I think if you look at that GAAP to non-GAAP reconciliation, I mean, the biggest adjustments can’t really see them on that reconciliation, but the ones that kind of issue would be interest. And then there’s a little bit of arbitrage between commissions and software capitalization, those are probably the three major items. You can strip those out of the actual GAAP cash flow, but those would be the kind of three, I think, key drivers in terms of free cash flow versus what you see in the kind of non-GAAP EBITDA.

Okay. Thanks for taking my…

Thanks, Eric.

Our next question will come to line of Richard Baldry from Roth Capital. You may begin.

Thanks. With respect to your two most recent acquisitions, we’ve typically seen them be dilutive upfront and then over time cut costs, but they came in essentially accretive when they were. Does that argue that they’re fully integrated cost wise now or there are still more costs to be taken out of those sort of slowly through the balance of this year?

Yes. There’ll be a little bit more to come out, but I think good hit on a key point. We’ve tightened the model quite a bit in terms of integration. If they’re re-papered, we didn’t bring on a lot of extra bank accounts as we did with past acquisitions, the employees came across onto our federal ID. So they were [indiscernible] through our payroll versus maintaining separate payroll systems for them. So I think we are getting better with the playbook in terms of the acquisitions. They become a lot more creative, a lot sooner, but there’s still going to be cost to rationalize out as we get more of our processes in place. For example, getting on a common some of the back office might not be all the way maybe plus yet, might not have the phone systems yet. So you’ll see additional savings come out that dramatic. I think it’ll be gradual over time, but we’ve gotten a lot of synergies out a lot quicker than in the past.

Yes. I would say we’re three to six months ahead of previous acquisitions with these acquisitions and that gives us confidence in the model going forward.

Most of mine addressed. So maybe just a very broad concept with inflation running hot. Can you talk about how you think that could impact your model anywhere from in incremental interest earned off of the tax withholding balances versus costs or how tough it is to find sort of people to keep building out the business. Thanks.

You hit the key points, right? I mean most contractors are the outside of employment are going to be kind of locked in for some amount of time, right? We don’t have outside of freight. There might be some kind of near-term hits where to bill, they’ll pass on a cost to us. And we can generally pass that on to our customers. Big part of our cost structure is employees, right? So about 70% of our cost structure is going to be in benefits or wages to our employees. So as wage pressure happens, that that impacts us just like anybody else. So we’ve got to figure out accretive ways to still deliver the service cost effectively. So that’s on us to try to figure out you hit on a key point about float, we’re in the process. I think we’ve talked about it over the last couple calls about how we were kind of rationalize our footprint in terms of banks and we’re well done that journey. I think it’s going to time really well for us as we get into this consolidated bank view. We’re sitting on an average $200 million at any point in time and we can put that money to work and as the rates go up, obviously that, that adds to the top line for us. So I think we’ve not played out a ton of that in to our model, we’ve got some rating uses in the back after year if Fed’s going to come in, but we don’t get to necessarily take all that immediately. As we have a ladder that we would invest in probably on average about three years long. So as we have more money cooling and as we start to get the back office rationalize, we put more money to work rates go up. It’s all good. So that’ll – that’s the benefit of the rating for us, but again, we have some wage pressures potentially on our cost pressure. Pat, I don’t know if you have any other thoughts.

No, just I think we’ve modeled in some of the moves that we anticipate from the Fed. I think the impact of 2023 will be much larger than 2022. But in modeling that, we were able to raise the lower end of our revenue guides and overall raise our EBITDA guides. So the float treasury tax impact and some of the momentum we’re seeing will definitely play in 2022 as well as 2023.

And maybe contrast that part with pricing power, you’ve got a lot of experience going back a long time in the payroll space. So how price elastic do you feel like the market is just from an overall perspective to offset some of those potential inflationary impacts on costs?

Yes. I think as we do – I always talk about payroll being a negative satisfier business. And which means I haven’t – I’ve been in the industry 30 years. I don’t think I’ve ever gotten a letter saying Pat, great job on those taxes, right. But if something is incorrect or something needs to be fixed, you got to react quickly. But those vendor relationships and trusted relationships are really important. And typically, they do have some pricing power as you integrate. And as you really lock in with the customer over multiple products and services. So if you do a good job, you do have some pricing power. We think we’re well-positioned short-term. We do think we’ll get some benefit as interest rates go up and more importantly, as we’re providing value to our clients and services. So we think we’re positioned very well in this environment and we’ll continue to drive value forward.

Thank you. Our next question will come from the line of Jeff Van Rhee from Craig-Hallum Capital. You may begin.

Hey guys, this is Aaron on for Jeff. Just a couple quick ones here. First on sales head count, I think you finished last quarter with 75 targeting 90 by year-end. Just curious if you have an update there on total number hired during the quarter. And then anything you’re seeing as far as process of getting those reps in and getting them ramped.

Yes. Just as far as the environment with sales reps and SDRs, we made some progress in that area, probably somewhere close to 80 or so that are committed to joining Asure. And so that’s up maybe five or so. As far as the process for us it’s quality, not quantity. Naturally, we want more feet on the street because we think we can have them productive. Our pipeline is almost double where it was a year ago, which gives us a lot of confidence. And I would say the 42% increase year-over-year, we think we got a shot to beat that in second and third quarter. So a lot of momentum in that area. I would say it’s a tough environment to hire really good sales people in that the market is hot right now. So we’ve done a good job of I think getting the right talent, investing in the right tools for them to be successful and giving them an opportunity to do really, really well. We want to hire more in the future and it’ll be a game of hiring more, but also really more important in that hiring the right people and want to see us get to 90 by the end of the year.

Got you. Thank you. That’s helpful. And then second one, just curious on, you mentioned cross sell and I apologize if I missed it, but anyway to quantify some of the strong cross sell you’re seeing, and then where are the premier areas where you’re seeing the most uptake on the cross sell?

Well, I highlighted HR consulting services and where we’re really having some good success and we sold more in the first quarter than we sold all of last year. So that’s an excellent stat. The fact that our average clients are taking three plus products right from the get go is a great step for us. I think we need to provide a little bit more data in cross sell as the year goes on, but HR consulting, tax filing as well as money movement, tend to be kind of the products and services that we lead with naturally time and attendance and ERTC, which we’ve highlighted over the last year. We’ve had some really good success on. So more data to come. And then – and in our investor deck, there’s kind of a walk up to over $40 per employee per month on the cross selling. And we’ll provide a little bit more formal guidance throughout the year as we get our meaningful progress in those numbers.

Awesome. Thanks. That’s it for me.

Thank you. Operator, any other questions?

I’m not showing any further questions in the queue at this moment.

Great. Well, listen, I appreciate your time today. We’re very pleased with the first quarter. We thought we executed well on the business plan. We set up guides throughout the year and feel good about what we’re accomplishing here at Asure. And we appreciate your interest and look forward to seeing you next time, take care.

And this concludes today’s conference call. Thank you for participating. You may now disconnect. Everyone, have a great.