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 -- pardon me, Asure's Chief Financial Officer, John Pence, and the Head of Investor Relations, Randal Rudniski. Following the prepared remarks, there will be a question-and-answer session for the analysts and investors. I would now like to turn the call over to Randal Rudniski for introductory remarks. Please go ahead.

Thank you, operator. Good afternoon, everyone, and thank you for joining us for Asure's fourth quarter and full year 2022 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 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. 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 that this call is being recorded, and it will be made available for replay via a link available on the Investor Relations section of our website. With that, I would now like to turn the call over to Pat Goepel, Chairman and CEO. Pat?

Thank you, Randal, and welcome, everyone to Asure Software's fourth quarter and full year 2022 earnings call. I will 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 2023. We will then conclude the session with time to answer your questions. We are very pleased with the performance of the business in the fourth quarter and in 2022. We made meaningful enhancements to our HR compliance and tax solutions while introducing a sure marketplace and more effectively leveraging client funds to drive interest revenues. Collectively, these businesses contributed significantly to our revenue gains in the quarter and in the year. We also had a strong contribution to revenues from processing of employee retention tax credits in '22 on behalf of our clients. This government stimulus program, which is part of the CARES Act is expected to be active to 2025 and we have leveraged our differentiated tax filing processing capabilities to tap into this segment on a very efficient basis. Strength in those areas drove 39% annual growth in revenues in the fourth quarter, virtually all of which is organic. It also resulted in an improved net loss of $1.1 million versus a net loss of $4.3 million prior year and improved EBITDA of $5 million relative to $1.5 million in the prior year. Adjusted EBITDA grew 159% in the quarter to $6 million for a margin of 20.5%. Notably, we converted 45% of each incremental dollar of revenues into adjusted EBITDA in the quarter relative to prior year's quarter. This high flow-through is the direct result of enhanced automation within our systems, improved efficiencies via consolidation and increased penetration from high margin…

Thanks, Pat. As Randal 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. This quarter, we have updated our non-GAAP reconciliations to provide additional information that we hope will be useful to investors and analysts. We are providing reconciliations for each operating expense line item. We have also adjusted our definition of one-time items. The reconciliation in the press release have been updated for the current and prior quarters that you have comparable basis to get our results. The reconciliations themselves are also included in our most recent investor presentation posted in the Investor Relations section of our website at investor.asuresoftware.com. So with that, now on to the fourth quarter and full year results. Revenues reached $29.3 million in the fourth quarter, rising by 39% relative to prior year, almost all of which was organic. Recurring revenues rose 25% relative to prior year, while non-recurring revenues rose by 93%. Our revenue improvement this quarter was driven by continued strength and our recurring HR compliance business, which has seen success in their differentiated solution as well as being bundled with our ERTC offerings. Increased interest revenues with average client balances exceeding $200 million. The fourth quarter also represented the first full quarter of Asure's marketplace, which was initially introduced in the third quarter. Finally, we also experienced a nice uplift generating revenues from processing of earned retention tax credits. For the full year, revenues reached $95.8 million, a 26% increase relative to prior year with growth being relatively balanced between organic and inorganic. Net loss for the quarter was $1.1 million, a $3.2 million improvement over prior…

Thanks, John. I'd like to conclude by saying that 2022 was a busy and successful year at Asure. And I'm very excited about the foundation we have built to drive growth and value creation for the future. In 2022, we invested in sales and marketing to drive higher demand for our solutions. We invested in product and technology, resulting in enhancements to our HR compliance and tax solutions with greater automation to support new applications such as the Asure marketplace. These investments produced accelerating demand throughout 2022 with Q4 new sales bookings growing 234% year-over-year. And with fourth quarter organic revenue growth accelerating as we said it would. We also continue to improve our cost structure and efficiencies by pursuing consolidation and standardization initiatives designed to save $5 million annually when fully complete. We are really excited about the progress we made in 2022 and anticipate following it up with a strong performance again in 2023. In 2023, we anticipate delivering double-digit organic revenue growth and strong adjusted EBITDA margin gains. Our revenue guidance anticipates solid momentum with our HR compliance and tax solutions, reflecting the upgrades we have made revenue contribution is expected to come from new revenue solutions such as the Asure marketplace. Interest revenues are also anticipated to increase meaningfully due to the rise in rates and investable balances. We'll continue to pursue our consolidation and standardization initiatives while simultaneously investing in technology development and sales expansion to support long-term success. We are excited about the foundation that we have laid, which we expect to drive double-digit revenue growth and increasing margins. We look forward to updating you on our progress next quarter or during one of the several conferences we'll be participating in over the next couple of months. So with that, I'll send the call back to the operator for the Q&A session. Operator?

Thank you. [Operator Instructions] And our first question comes from Barry Bergin from Cowen. Your line is now open.

Hey. Bryan, [indiscernible] careful. How are you?

Good guys. How are you doing? Good afternoon.

Good. Thank you.

Wanted to start here on demand drivers. So is it possible you can quantify some of the larger contributors to that strong bookings performance, the 200% plus in 4Q? And how have you seen that strong level of demand? Has it continued into the early part here through January and into February?

Yes. Bryan. Thanks for the question. First of all, the marketplace, if you think about how we started in April, we announced the Equifax deal, we've announced in Q1 and Q2 or excuse me, Q1 and Q4, whether the H&R Block or Intuit recently, ZayZoon. So clearly, the marketplace has a ton of focus. HR compliance offering has really picked up steam, especially in the second half of the year, and there's no reason to think that it won't continue. Our tax filing solutions have done really well. We did bring some tax partners on in the fourth quarter and there was some accelerated demand on backlog of processing ERTC or in addition to some of the tax deals that we also announced. So what I would say is, Q4 and Q1 feel real good. There's a continuation of those -- primarily those four product lines that have really accelerated in the second half of 2022 and we anticipate them to continue in 2023.

Okay. That's good to hear. And then just on float revenue. So I know you consolidate -- it sounds like you're through the consolidation there in the accounts. Can you give us a sense on what the float was in 4Q and how you're forecasting that into 2023, just so we can kind of tease that out when we think about operating margin expansion ex float?

Yeah. I'll give you a little bit of sense, just to give you some rough numbers again. Average balances were pretty consistent throughout the quarter of a little over $200 million. I'd say we entered the quarter at probably at 2% on that $200 million. And with the rising rates, we probably ended the quarter around 3%. And let me kind of explain you how that's composed. Roughly $60 million is laddered. And so there's always some money coming off and that's getting reinvested at higher rates, but it's potentially a little bit lower than the current Fed funds rates. Where we're really seeing the upside is in that short-term money because we're getting pretty close with most of our banking partners the Fed funds rate. So that gives you some sense in terms of modeling, but it's definitely going to be a positive in terms of the compares for the balance of '23, at least that's what we expect.

Okay. And if I could squeeze just one more in here. So I understand the outlook here is all organic. Just how are you guys thinking about M&A? Anything here imminent on the recall front?

Yeah, Bryan. From my perspective, one of the things that the teams worked hard on is popping out the model because we believe we got it, and we believe the model has a lot of momentum. What we wanted to do is pop out that model, and we'll continue to do that in the first half of the year. I would say the second half of the year, we'll evaluate and really look at being more aggressive in acquisitions. We think we have the luxury with the reseller network to -- that there are some folks that are raising their hands. As you may know, the debt market is a bit of a mess right now. What we want to do is be real thoughtful on keeping the momentum that we have, both organic and with margin expansion. And then, we'll start to revisit layering acquisitions in because we do think that's an important part of the model. But I would look more midyear, second half of 2023.

All right. Very good. Thank you.

Thanks, Bryan.

Thank you. [Operator Instructions] And our next question comes from Joshua Reilly from Needham & Company. Your line is now open.

All right. Thanks guys. Nice job on the strong results here in the quarter are pretty impressive. If you -- yes, if you look at the Pro services revenue in Q4, it was quite above -- a bit above what we were modeling. How should we think about that mix in 2023? And is there anything there to call out in terms of one-time projects or anything there in Q4 that drove that higher than normal?

Hey, Josh. Thanks for the question. On Pro Services, some of the quarters were probably $1 million and change. In the fourth quarter, we had signed up some partners around ERTC and some tax related products. And if you think about some of those partners because we can get it done a lot faster from a processing perspective because the calculation engine is already built, and then we had some streamlined processes that make it easier we were able to work off some onetime for them. They had some backlog. We were able to help them push that backlog through. I would anticipate that we'll have some project revenue or ERTC revenue in 2023. We haven't modeled a ton of it in because we do believe we are working off backlog at a big rate in Q4 and then it will normalize in 2023, but there could be upside to the plan, but we're not going to forecast that as we go.

Okay. So if we're looking at the Q1 revenue guidance, there's going to be some reversion in the mix, I assume in fact...

Yeah. I think what you'll find, Josh, is seasonally, we're very strong in W-2 revenue, et cetera., in the first quarter, some of the onetime revenue in the fourth quarter may not come back, but it gives us confidence on 29% to 30%. Now, as we do see some project revenue with ERTC, we may be guiding conservatively, but we don't want to kind of declare it before we revenue it. So that will be some conservative to the plant.

Got it. That's helpful. And then if you look at the gross margin improvement year-over-year, obviously, very impressive. Can you just give us a sense of how much of that is due to the higher interest income versus the business mix with the marketplace revenue. It sounds like that's starting to ramp or is there anything else there to call out on gross margin in Q4?

I think some of that is also in the processing that Pat was referring to. I mean because of the technology that the teams put in place, it's pretty high margin business when it's all said and done. So I think the combination of the HR compliance that Pat mentioned, the float, the tax processing, I think that's all combined are pretty high margin and obviously, the marketplace, too. So I think it's pretty exciting for us. Look, we're not going to necessarily have that same combination every quarter, but it kind of shows you what the business plan and what the business model can look like at that scale. So I don't think, if we can continue to add those revenue streams at this high margin, this is what the business can produce longer term.

Got it. Thanks, guys.

Thank you, Josh.

And thank you. [Operator Instructions] And our next question comes from Richard Baldry from ROTH Capital.

Thanks. Congrats on the quarter. It looks like the partner revenue structures, I'd be curious if you could dig into a little bit. It looks like some of them come on sort of the step function because they're sort of very recurring oriented what the services you're dealing with them. Others would be a bit more seasonal and take some time to ramp into their customer bases. So how do you think about those in terms of how you layer those on to your 2023 outlook, there's any seasonality that we should be thinking about? Thanks.

Yeah, Rich. Good question. Around the marketplace, there will be -- how we look at it, in general is, as you think about kind of the needs of employees and employers, one of the example that we recently announced, Earned Wage Access, which if somebody is punching in and they don't get paid for two or three weeks, giving them access to money that they work prior to receive. We think it's going to be probably an everyday occurrence or won't be seasonal. W-2s, for example, with the Intuit and with the H&R Block primarily, it will be around a first quarter kind of revenue initiatives. So we kind of contemplated that in our guidance. I think you will see more announcements throughout the year of marketplace. When I look at the Equifax deal it took from announcement, I believe, in April to August 31, it took us somewhere around six months to get started. So we're still in the early days. We think we have a lot of potential. We're probably not as refined yet to have the seasonality of the marketplace. But we will give guidance each quarter throughout the year. And what we see in the first quarter, we feel real comfortable with.

Okay. My second one, the you talk a bit about the sales team you have to start this year? Maybe contrast it to last year in terms of tenure, capacity or the pipelines they have, how they've been able to build those and this sort of to give us an idea of how that strength in organic can continue on the sort of per employee per month baseline business? Thanks.

Yeah. No, I appreciate it, Rich. And I'm going to give a shout out and we'll get them on a future earnings call. But El Goldstein, our President has done just a wonderful job of really building out the sales team and really adding kind of an art and a science, and we just came off about a month ago, our sales kickoff meeting. But really enthused. I think the biggest difference is, one, just by numbers. We're close to 90 sales reps now. And there's sales reps we want, and they want us and we're excited about. I think the retention of the sales force this year and they're having success that second and third year of tenure leads to big productivity improvements. Obviously, some of the products in the bag, I alluded to tax filing and ERT -- ERTC processing, HR compliance, the marketplace we've gotten some big kind of productivity gains based on those areas. So when I refer year-over-year, to me, it's the tenure of the sales force, more products in the bag, more technology enhancements. And then, as I look for pipeline where we had a really strong fourth quarter and pipeline is not slowing down. We'll have difficult compares compared to the previous year, but we have a lot of momentum going on in the sales organization.

Yeah. And I would add, Rich, just one other thing. You'll see it in our IR deck, and we're going to be out at different conferences over the next few months. But I think it's a pretty big refresh in terms of the way we're kind of explaining the business. I think it's we've been prophesizing it, but we've got it now kind of better in the deck. I mean we're not just a traditional ECM sericite anymore. I think we're trying to obviously continue to do that, but really, really start to talk about biz dev and some of these different opportunities that add revenue streams. So if you take a -- take a look at it, we're happy to follow up with you and talk about that deck, but we spent some lease of time kind of really rebuilding the story. So I think that -- if you focus on that, that might also help.

Great. Thanks. Congrats again.

Yeah. Thanks, Rich.

Thank you. [Operator Instructions] And our next question comes from Eric Martinuzzi from Lake Street Capital Markets. Your line is now open.

Yeah. I wanted to better understand the uplift in the 2023 guide. We're up $6 million at the midpoint versus where we were 90 days ago. I know you've had success pretty much across the product line from HR compliance to tax filing to ERTC in the marketplace. But the lift in the full year outlook, can you pin that down to one or two capabilities that you got?

In my perspective, it's the same things we keep talking about, Rich. I mean, Eric, the float back when we gave that guide, Fed funds continue to go up as an example, I think we continue to see strength in the marketplace that we were a very early stages when we get that initial guide and we feel like it's really starting to kick in. So I mean those are just two examples of things that we've gotten better confidence in since the last time we gave guidance.

Okay. And then...

And then, Eric -- and just lastly, Eric, I think the sales momentum, I didn't forecast 234% year-over-year growth in the fourth quarter. So that gives us comfort that we have a higher jumping off point. So -- but good momentum. I think it will continue. I think we're early days on some of these initiatives, and we thought it warranted that uptick.

Yeah. No, I'm not going to complain about a guide up for the year. The other thing, I just wanted to get a layer deeper on the investments you talked about because at the same time, you're talking about $5 million in efficiencies. You're also talking about investing in the business. You had mentioned the sales headcount at about 90 reps coming out of 2022. Where do you expect that to be at the end of 2023?

Probably slightly over 100 or so from a sales rep perspective. We're also investing in engineers and development resources. We feel that, that product and extension of the product is really important. And if you think about the marketplace, we're going to add partners each quarter throughout the year. So we're investing in some of that work as well. And then you take that and then you balance it with operational efficiency as we're building a national business. Some of the initiatives we talked about, SKUs are going from 2,000 to 200 bank accounts, 125 to less than 20 instances of our payroll platforms in AWS have been standardized and in the process of standardizing, phone systems with chat features and a national system no matter where you are, are all things that we're getting efficiencies. And then, one thing that I'd point out, and it really manifests itself in the fourth quarter is September 30, 2021, we made two acquisitions. I believe at the time, we're somewhere around 544 employees or so. And I think we ended the year something like 501 according to our 10-K. So when you look at that, those efficiencies came in, but the beauty of that is we're not slowing down the investments in the front end of business or development side of the business. We're just getting better and more efficient at what we do. And then I'd remind you, seven years ago, we weren't even in this business. So to build what we're looking at is $106 million, I would say, 20% adjusted EBITDA by 2024. We're just getting more and more confidence that the model is starting to get hardened, and we think we have the opportunity to continue to grow again.

Got it. Congrats on the quarter and the outlook.

Thank you, Eric. Appreciate the support.

And thank you. [Operator Instructions] And our next question comes from Jeff Van Rhee from Craig-Hallum. Your line is now open.

Great. Thanks for taking the question. Just exceptional performance, you guys congrats. So a couple for me. I guess on the upside, Pat, would you contrast the momentum and particularly the upside relative to expectations you saw along the lines of whether more or less of it came through licenses versus direct business. Do you see a meaningful difference in the momentum in the different channels?

I think some of the channel business around some of the onetime revenue probably was good momentum from CPA firms and some market firms around earned retention tax credit. So that obviously was good momentum, and the volume of the backlog probably was a little bit unexpected coming into the quarter. So very pleased with the performance in that area. And then the direct sales force, really with the product lines that we talked about, their ability to execute and deliver revenue in the quarter. Clearly, we were happy with that. We guided to a double-digit repetitive revenue and to surpass that in both the indirect and direct side was positive, but the direct side on a repetitive side was very, very encouraging to see. And that helped us in the 2023 guide to guide up.

And the new customer momentum, where are you seeing greater new customer momentum on the licensees or your own direct efforts?

I would tell you, I think the cross-sell component in the license area has gained a lot of momentum, and we'll continue to gain momentum in 2023. From the direct side, new logos have done really, really well. And in some of our partnerships around the new logos, that feed the direct business have done really well or we anticipate we'll do very well in 2023. So we made a lot of tax announcements including Workday and PRISM and those things. We've had a lot of marketing work on behalf of those partnerships, we anticipate those to be very, very strong. And then HR compliance on the direct side, the bundles are really working, especially in the second half of the year. We anticipate that, that momentum will continue and feel really good about that as well.

Maybe one last if I could sneak it in, then just update us on your macro thinking versus 90 days. 90 days ago? How has it changed?

John, I don't know if you want to comment and then I'll comment.

Yeah. I mean I don't think it's really changed. Again, what we're seeing from our perspective is this is not a main street recession. There's still -- where we see the jobs being shed are in the bigger tech firms and the bigger firms. Obviously, that's not our client base. And so we're not seeing a lot of degradation right now and knock on wood, hopefully, there's no contagion effect, but I don't think it's really changed much since the last time we got to give you guys an update on that perspective.

Yeah, Jeff, very similar. But what I would say a couple of things. interest rates, probably there's maybe a raise in interest rates more or 1 or 2 in the forecast prior to 90 days ago, that's only good for us as we sit on over $200 million average daily balance. So that's a slight positive. And then what John said, I don't think a mild recession would hurt us. But I think back to the Main Street. There's still the businesses that we serve, they can't hire enough people. And then if you think about some of the marketplace, we're rolling out like Earned Wage Access, what that will be able to do is, an employer can confidently say, hey, work today, get paid today. So we think that, that will be good. And then when I think of the effects of COVID, pick your number, pick your source, but the bottom line is people dropped out at a workplace and they haven't come back. We believe that if we have a mild recession and your 401(k) becomes a 301(k), it might kind of drive people back to the workforce. And if it does, in Main Street America, that's really good for Asure Software.

Great. Thanks so much.

Thanks, Jeff. Appreciate it.

And thank you. [Operator Instructions] And our next question comes from Vincent Colicchio from Barrington Research. Your line is now open.

Yeah. Pat, a terrific quarter. On the growth side, what was the contribution of acquisitions? I know it was small, but -- and also, curious what portion of the organic growth was driven by the improvement in float income?

Yeah. So Vince, first of all, always a pleasure to talk to you. Our acquisition revenue is about $250,000 in the fourth quarter. So we had done a small deal in January. And the fourth quarter, that was about the contribution of revenue. So really, everything else was organic. And then as far as float, I don't think we broke out that small acquisition on float, but it's safe to say all but, let's say, 1% was organic revenue growth, and we're very pleased with that.

And the marketplace, what type of contribution can we expect in '23? Is it a meaningful number?

I think it will be an accelerating number over time. If you think about it in the fourth quarter, Equifax was the primary vehicle in the marketplace. Recently, we announced H&R Block, and we announced the Intuit. We also announced a ZayZoon. I think you'll see more announcements to come. We haven't broken out marketplace revenue and simply put, relatively new product line or business for us. We look at the Equifax deal, and we thought we executed that well, but we went from start to finish on beginning revenue for about six months. So we'll continue and kind of, in 2023, I think you'll see more announcements around the marketplace. And then you'll see more refined guidance that as these revenue streams become more and more predictable. But make no mistake about it, we anticipate some big things multiyear over the marketplace.

And one more for me. The acquisition environment, any improvement in pricing?

For us, Vince, I think it's interesting. We've been really working on the model, and the team has done a really nice job of whether it's technology, whether it's operations, sales and marketing, finance and administration, everybody's got more efficient. Our objective was to pop out the model, get over $100 million, build a national business get kind of 20% by 2024, margins and then continue to grow. What we'll do is that first half of this year as we pop out the model, we've already had some conversations for the second half of 2023. And we anticipate we'll add to the model because now we can add to it in a way where when we were building a business, it was all about size. Now it's all about scale. And we feel like we -- as evidenced by our 2021 acquisitions, what we can do is add those acquisitions with scale and profitability for Asure. So we're through the fixed -- high fixed cost nature of the business. We're starting to get into really good organic growth. really good line of sight to profitability, and then we'll do more and more acquisitions in the model. So I think we'll start to accelerate. But right now, we're joining -- really enjoying the organic nature of popping out the model.

Thanks, Pat.

Thank you, Vince.

And thank you. And I'm showing no further questions. I would now like to turn the call back over to Pat for closing remarks.

Yeah. Really excited about the business. I think hats off to the employees of Asure, you perform your jobs in a wonderful way. You're committed, really appreciate each and every one of you. Some of our investors that have been with us a long time. I appreciate you hanging in there with us, and we had a dream and a vision, and we're starting to execute on that and it's good to see that you're being rewarded. From a client perspective, we have great clients and they stay with us a long time, and it's fun to grow with them and it's fun to give them enhancements that will continue that growth for years to come. So the best days of Asure are ahead of us and really excited about the progress. Thank you for your time joining on the call or the web and look forward to talking to you soon. We are going to be at several conferences here in the first quarter, second quarter hopefully, we can catch you along the way at one of those conferences, and have a great day. Thank you.

This concludes today's conference call. Thank you for participating. You may now disconnect.