Asure (ASUR)

Online payroll and human resource software provider Asure (NASDAQ:ASUR) reported revenue ahead of Wall Street’s expectations in Q1 CY2025, with sales up 10.1% year on year to $34.85 million. Revenue guidance for the full year exceeded analysts’ estimates, but next quarter’s guidance of $31 million was less impressive, coming in 2.2% below expectations. Its GAAP loss of $0.09 per share was 40.6% below analysts’ consensus estimates.

Company Overview

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).

Modern HR software has two powerful benefits: cost savings and ease of use. For cost savings, businesses large and small much prefer the flexibility of cloud-based, web-browser-delivered software paid for on a subscription basis rather than the hassle and complexity of purchasing and managing on-premise enterprise software. On the usability side, the consumerization of business software creates seamless experiences whereby multiple standalone processes like payroll processing and compliance are aggregated into a single, easy-to-use platform.

Reviewing a company’s long-term sales performance reveals insights into its quality. Even a bad business can shine for one or two quarters, but a top-tier one grows for years. Over the last three years, Asure grew its sales at a 15.1% compounded annual growth rate. Although this growth is acceptable on an absolute basis, it fell slightly short of our standards for the software sector, which enjoys a number of secular tailwinds.

This quarter, Asure reported year-on-year revenue growth of 10.1%, and its $34.85 million of revenue exceeded Wall Street’s estimates by 1.7%. Company management is currently guiding for a 10.5% year-on-year increase in sales next quarter.

Looking further ahead, sell-side analysts expect revenue to grow 12.7% over the next 12 months, a slight deceleration versus the last three years. Despite the slowdown, this projection is above the sector average and suggests the market sees some success for its newer products and services.

Billings is a non-GAAP metric that is often called “cash revenue” because it shows how much money the company has collected from customers in a certain period. This is different from revenue, which must be recognized in pieces over the length of a contract.

Asure’s billings came in at $31.04 million in Q1, and over the last four quarters, its growth was underwhelming as it averaged 7.9% year-on-year increases. However, this alternate topline metric grew faster than total sales, meaning the company collects cash upfront and then recognizes the revenue over the length of its contracts - a boost for its liquidity and future revenue prospects.

The customer acquisition cost (CAC) payback period measures the months a company needs to recoup the money spent on acquiring a new customer. This metric helps assess how quickly a business can break even on its sales and marketing investments.

Asure is extremely efficient at acquiring new customers, and its CAC payback period checked in at 10.5 months this quarter. The company’s rapid recovery of its customer acquisition costs means it can attempt to spur growth by increasing its sales and marketing investments.

For software companies like Asure, gross profit tells us how much money remains after paying for the base cost of products and services (typically servers, licenses, and certain personnel). These costs are usually low as a percentage of revenue, explaining why software is more lucrative than other sectors.

Asure’s gross margin is slightly below the average software company, giving it less room than its competitors to invest in areas such as product and sales. As you can see below, it averaged a 68.4% gross margin over the last year. Said differently, Asure had to pay a chunky $31.62 to its service providers for every $100 in revenue.

Asure produced a 70.6% gross profit margin in Q1, in line with the same quarter last year. On a wider time horizon, Asure’s full-year margin has been trending down over the past 12 months, decreasing by 2.8 percentage points. If this move continues, it could suggest a more competitive environment with some pressure to lower prices and higher input costs.

Asure’s expensive cost structure has contributed to an average operating margin of negative 10% over the last year. Unprofitable software companies require extra attention because they spend heaps of money to capture market share. As seen in its historically underwhelming revenue performance, this strategy hasn’t worked so far, and it’s unclear what would happen if Asure reeled back its investments. Wall Street seems to be optimistic about its growth, but we have some doubts.

Analyzing the trend in its profitability, Asure’s operating margin decreased by 5.4 percentage points over the last year. This raises questions about the company’s expense base because its revenue growth should have given it leverage on its fixed costs, resulting in better economies of scale and profitability. Asure’s performance was poor no matter how you look at it - it shows that costs were rising and it couldn’t pass them onto its customers.

This quarter, Asure generated a negative 5.8% operating margin. The company's consistent lack of profits raise a flag.

Free cash flow isn't a prominently featured metric in company financials and earnings releases, but we think it's telling because it accounts for all operating and capital expenses, making it tough to manipulate. Cash is king.

Asure has shown mediocre cash profitability over the last year, giving the company limited opportunities to return capital to shareholders. Its free cash flow margin averaged 5.6%, subpar for a software business.

Asure’s free cash flow clocked in at $1.80 million in Q1, equivalent to a 5.2% margin. Its cash flow turned positive after being negative in the same quarter last year, but we wouldn’t read too much into the short term because investment needs can be seasonal, leading to temporary swings. Long-term trends are more important.

Asure reported $14.08 million of cash and $19.44 million of debt on its balance sheet in the most recent quarter. As investors in high-quality companies, we primarily focus on two things: 1) that a company’s debt level isn’t too high and 2) that its interest payments are not excessively burdening the business.

With $23.04 million of EBITDA over the last 12 months, we view Asure’s 0.2× net-debt-to-EBITDA ratio as safe. We also see its $13,000 of annual interest expenses as appropriate. The company’s profits give it plenty of breathing room, allowing it to continue investing in growth initiatives.

We were impressed by how significantly Asure blew past analysts’ EBITDA expectations this quarter. We were also glad its full-year EBITDA guidance exceeded Wall Street’s estimates. On the other hand, its revenue guidance for next quarter missed significantly and its EBITDA guidance for next quarter fell short of Wall Street’s estimates. Overall, this quarter could have been better. The stock traded down 3.8% to $9.40 immediately after reporting.

Updated: May 22, 2025 at 10:15 PM EDT

Before making an investment decision, investors should account for Asure’s business fundamentals and valuation in addition to what happened in the latest quarter.

Asure isn’t a terrible business, but it isn’t one of our picks. To begin with, its revenue growth was uninspiring over the last three years, and analysts expect its demand to deteriorate over the next 12 months. And while its efficient sales strategy allows it to target and onboard new users at scale, the downside is its declining operating margin shows it’s becoming less efficient at building and selling its software. On top of that, its low free cash flow margins give it little breathing room.

Asure’s price-to-sales ratio based on the next 12 months is 1.9x. While this valuation is reasonable, we don’t really see a big opportunity at the moment. We're pretty confident there are superior stocks to buy right now.

Wall Street analysts have a consensus one-year price target of $14.33 on the company (compared to the current share price of $9.50).

Although the price target is bullish, readers should exercise caution because analysts tend to be overly optimistic. The firms they work for, often big banks, have relationships with companies that extend into fundraising, M&A advisory, and other rewarding business lines. As a result, they typically hesitate to say bad things for fear they will lose out. We at StockStory do not suffer from such conflicts of interest, so we’ll always tell it like it is.

Want to invest in a High Quality big tech company? We’d point you in the direction of Microsoft and Google, which have durable competitive moats and strong fundamentals, factors that are large determinants of long-term market outperformance.

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