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Asure Software's (NASDAQ:ASUR) Q1 Sales Top Estimates, Provides Optimistic Full Year Guidance


Full Report / May 09, 2022
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Online payroll and human resource software provider Asure (NASDAQ:ASUR) announced better-than-expected results in the Q1 FY2022 quarter, with revenue up 22.8% year on year to $24.3 million. Guidance for the full year also exceeded estimates, however the guidance for the next quarter was less impressive, coming in at $20.2 million, 1.4% below analyst estimates. Asure Software made a GAAP loss of $3.01 million, down on its loss of $1.59 million, in the same quarter last year.

Asure Software (ASUR) Q1 FY2022 Highlights:

  • Revenue: $24.3 million vs analyst estimates of $23.5 million (3.26% beat)
  • EPS (non-GAAP): $0.11 vs analyst estimates of $0.06 ($0.05 beat)
  • Revenue guidance for Q2 2022 is $20.2 million at the midpoint, below analyst estimates of $20.5 million
  • The company lifted revenue guidance for the full year, from $87.5 million to $89 million at the midpoint, a 1.71% increase
  • Free cash flow of $1.78 million, up 18.9% from previous quarter
  • Gross Margin (GAAP): 63.5%, in line with same quarter last year

Created from the merger of two small workforce management companies in 2007, Asure (NASDAQ:ASUR) provides cloud based payroll and HR software for small and medium-sized businesses (SMBs).

Human Capital Management (HCM) software is meant to streamline mundane, but vital, business functions like keeping attendance, running payroll, and keeping compliant with shifting Federal and local government taxes and labor laws. For many small and medium sized businesses, these are often handled by their accountant which is an unnecessarily expensive use of resources, or QuickBooks style spreadsheets which don’t have sufficient functionality.

Enter Asure, who offers inexpensive cloud-based subscription software that automates the full spectrum of HR tasks, from handling payroll to managing benefits or submitting leave requests.

The company has a unique go-to-market strategy that focuses on underserved customers, specifically SMBs located outside the Top 10 US metropolitan markets. In addition to a direct sales force, Asure leans heavily on resellers (e.g. regional payroll providers focused on a specific vertical) and referral partners (e.g. regional banks and benefits brokers) who will resell Asure's products under their own brand.

HR software benefits from dual trends around costs savings and ease of use. First is the SaaS-ification of businesses, large and small, who much prefer the flexibility of cloud-based, web-browser delivered software paid for on a subscription basis than the hassle and expense of purchasing and managing on-premise enterprise software. Second is the consumerization of business software, whereby multiple standalone processes like payroll processing and compliance are aggregated into a single, easy to use platforms.

Asure’s main competitors are legacy providers ADP (NASDAQ:ADP) and Paychex (NASDAQ:PAYX), as churn from these two represent a large part of Asure’s new clients annually. Other cloud-first providers of HR solutions for small and medium-sized businesses include Ceridian (NYSE:CDAY), Paycom (NYSE:PAYC), Paycor (NASDAQ:PYCR), Paylocity (NASDAQ:PCTY), and Workday (NASDAQ:WDAY).

Sales Growth

As you can see below, Asure Software's revenue growth has been strong over the last year, growing from quarterly revenue of $19.8 million, to $24.3 million.

Asure Software Total Revenue

This quarter, Asure Software's quarterly revenue was once again up a very solid 22.8% year on year. Quarter on quarter the revenue increased by $3.22 million in Q1, which was in line with Q4 2021. This steady quarter-on-quarter growth shows the company is able to maintain its steady growth trajectory.

Guidance for the next quarter indicates Asure Software is expecting revenue to grow 17.9% year on year to $20.2 million, slowing down from the 21.6% year-over-year increase in revenue the company had recorded in the same quarter last year. Ahead of the earnings results the analysts covering the company were estimating sales to grow 11.3% over the next twelve months.

Profitability

What makes the software as a service business so attractive is that once the software is developed, it typically shouldn't cost much to provide it as an ongoing service to customers. Asure Software's gross profit margin, an important metric measuring how much money there is left after paying for servers, licenses, technical support and other necessary running expenses was at 63.5% in Q1.

Asure Software Gross Margin (GAAP)

That means that for every $1 in revenue the company had $0.63 left to spend on developing new products, marketing & sales and the general administrative overhead. While it improved significantly from the previous quarter this would still be considered a low gross margin for a SaaS company and we would like to see the improvements continue.

Cash Is King

If you follow StockStory for a while, you know that we put an emphasis on cash flow. Why, you ask? We believe that in the end cash is king, as you can't use accounting profits to pay the bills. Asure Software's free cash flow came in at $1.78 million in Q1, turning positive year on year.

Asure Software Free Cash Flow

Asure Software has generated $2.48 million in free cash flow over the last twelve months, 3.07% of revenues. This FCF margin is a result of Asure Software asset lite business model, and provides it with at least some cash to invest in the business without depending on capital markets.

Key Takeaways from Asure Software's Q1 Results

With a market capitalization of $121.4 million Asure Software is among smaller companies, but its more than $12 million in cash and positive free cash flow over the last twelve months put it in a very strong position to invest in growth.

It was good to see Asure Software outperform Wall St’s revenue expectations this quarter. And we were also glad that the revenue guidance for the rest of the year exceeded expectations. On the other hand, it was unfortunate to see that the revenue guidance for the next quarter missed analysts' expectations. Overall, Asure stayed on target during Q1. The company is flat on the results and currently trades at $6.07 per share.

Is Now The Time?

When considering Asure Software, investors should take into account its valuation and business qualities, as well as what happened in the latest quarter. We cheer for everyone who is making the lives of others easier through technology, but in case of Asure Software we will be cheering from the sidelines. Its revenue growth has been solid, though we don't expect it to maintain historical growth rates. But while its very efficient customer acquisition hints at the potential for strong profitability, unfortunately its gross margins show its business model is much less lucrative than the best software businesses.

Asure Software's price to sales ratio based on the next twelve months is 1.4x, suggesting that the market does have lower expectations of the business, relative to the high growth tech stocks. While we have no doubt one can find things to like about the company, and the price is not completely unreasonable, we think that at the moment there might be better opportunities in the market.

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