Asure Software (ASUR) Q2 2026 earnings call transcript

I would now like to turn the call over to Patrick McKillop for introductory remarks. Please go ahead. Thank you, Operator. Good afternoon, everyone, and thank you for joining us for ASURE's second quarter 2026 earnings results call. Following the close of the market, we released our financial results. The earnings release is available on the SEC's website and our investor relations website at investor. assuresoftware. com, where you can also find our investor presentation. During our call today, we will reference non-GAAP financial measures, which we believe to be useful to investors in understanding our business 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.

I'll hand the call over Pat in a moment, but I just wanted to take a moment to remind people of some of our upcoming investor relations activities. On August 26th, we will attend the three-part advisors' ideas conference in Chicago. On September 10th, we will attend the Lake Street Conference in New York. On September 22nd, we will participate in the 19th Annual Barrington Research Virtual Fall Investment Conference. On November 17th, we will participate in the Craig Hallam Alpha Select Conference in New York.

On November 18th, we will attend the Stevens Annual Investment Conference in Nashville, Tennessee, as well as the Roth Conference in New York. On November 19th, we will participate in the 7th Annual Needham Virtual Tech Conference. Investor outreach is very important to ASURE, and I would like to thank all of those that assist us in our efforts to connect with investors.

Finally, I would 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 Geffel, Chairman and CEO. Pat? Thank you, Patrick, and welcome, everyone, to ASURE's second quarter 2026 earnings results call. I'm joined on this call by our CFO, John Pence, and we will provide a business update for second quarter 2026 results, as well as our updated outlook for the remainder of the year. Our second quarter revenues came in at $37.1 million, representing a growth of 23% compared to second quarter 2025. Our growth was broad-based across our business lines, and our past investments in technology, products, and AI are showing real returns. Our organic growth rate for second quarter 2026 was 5%, compared with 1% in quarter two 2025, an improvement of 400 basis points, and down slightly sequentially, compared with 7% in quarter one 2026 due to seasonality.

We continue to receive positive responses to our platform, and we believe we will deliver double-digit organic growth as we move through the remainder of 2026 by driving expanded cross-sell of our products and go-lives of previously booked business, all in our enterprise payroll tax management platform. On the enterprise payroll tax management platform, we're pleased to share an important milestone that was recently achieved. As you recall, we signed an agreement with Venture Employer Services, and we are glad to announce that 2 million of their supported employees are now live on our payroll tax management platform. Our pipeline of opportunities remains robust, and we're excited about the future. However, for competitive and confidentiality reasons, we are limited in our ability to share details.

ASURE Central continued to progress nicely during the second quarter. We now have a majority of our 30,000 direct clients on the platform as we forecasted on our prior call. We are increasingly well positioned to accelerate cross-sell and attach rates through the second half of 2026 and beyond. The number of clients purchasing multiple products increased by 6% versus quarter two of 2025. We remain focused on moving clients from an average of two products per client relationship towards four or more products per client over time. Now, a brief update on ASURE WORKS, our administrative services outsourcing offering, which allows clients to delegate key payroll and HR compliance processes to ASURE. The positive trajectory we saw at launch has continued to grow into the second quarter.

Our pipeline keeps growing. We've added new clients and the reception across our target buyer types, small hotel chains, restaurants, HVAC companies, among others. Remains very strong. These are Main Street businesses that need payroll and HR compliance support, but lack the internal resources to manage it themselves. We're training additional sales reps on ASURE Works every day and building out the dedicated team beyond our original pilot group. ASURE WORKS remains strategically very important. Clients who adopt, manage payroll and compliance services typically represent up to five times the revenue of a payroll-only client. And importantly, ASURE WORKS is not a PEO model. We're not taking on co-employment risk. For clients constrained by the cost of rigidity of traditional PEO, we believe ASURE WORKS is a compelling and flexible alternative.

On the Salesforce front, we are working very hard towards our goal of 150 reps by the end of 2026. But this isn't just about headcount. We're being deliberate about the types of sales reps we hire. We want full solution sales reps. People can sit down with the business owner and sell the entire product suite, not just a single point solution. That's a fundamentally very different skill set than traditional single product selling, and it's core to how we drive both our new logo acquisition and multi-product cross-sell within our existing base. Historically, we hired more transactional, small business sales professionals suited to selling point solutions. Now that we're selling the broader platform, and especially with the ASURE WORKS, it's a more consultative, needs-based sale, and we've been disciplined about bringing in sales reps who fit that profile.

The good news is those reps are ramping faster than what we've historically seen. Today, our existing to new customer logo split is approximately 53% to 47%, which is an improvement from last quarter. And we're still targeting a 35% new logo, 65% base expansion mix over time. On the M&A front, we did not complete any reseller acquisitions in the second quarter, but we continue to actively evaluate opportunities. And I would expect to see us complete a few deals in the second half of 2026. Our new sales bookings for core human capital management payroll grew 14% over quarter two, 2025, and our contracted backlog remains at approximately $80 million. We expect to convert approximately 41% of that backlog over the next 12 months.

Our client base, primarily small and mid-sized businesses in payroll-intensive, compliance-driven industries, remains strong. We continue to conservatively model for our clients to have flat headcount growth in our forecast. We haven't seen any meaningful shifts in sales cycle length or competitive intensity during the second quarter. I also want to take a moment to reiterate our thoughts on AI and what it means for our business. We've discussed this on prior calls, but we feel it's important to remind investors of our view here. Payroll and HR compliance isn't the type of workflow software as a generic AI can replace. We hold money transmitter licenses across the country, interface directly with the IRS and state and local tax agencies, and manage compliance obligations where the margin for error is effectively zero.

That regulatory complexity combined with high switching costs and a consumption-based revenue model is what makes the SHURE a system of record and our expertise with enormous moats. At the same time, we continue to see AI as a meaningful accelerator for us as we're already far along in the AI evolution journey. We witnessed an over 30% increase in platform adoptions with Luna, our AI agent, since the first quarter. And the number of interactions with Luna has increased by approximately 38% versus the first quarter. Additionally, 147,000 voicemail calls have been transcribed, and about 196,000 emails have been screened for sentiment analysis, extending our capability to capture sentiment analysis from both voice into email. We continue to replicate the automated Luna-powered model that is generally available for our Canadian tax solution across U. S. payroll, U. S. tax, and HR compliance, bringing our AI capabilities into the flow of work and from human check to AI verified.

The same foundation underpins the ASURE WORKS and continues to sharpen our sales intelligence and our support operations. We remain confident in both the durability of our system of record model and the opportunity AI creates for us going forward.

So with that I like to turn the call over to John to discuss our Quarter 2 financial results in more detail and provide an update on our 2026 guidance John Thanks Pat As Patrick noted several figures discussed today on a non or adjusted basis Reconciliations are available in our earnings release and our investor presentation at investor. assuresoftware. com. Second quarter, total revenues were $37.1 million compared to $30.1 million in Q2 of 2025, representing growth of 23% year-over-year. Recurring revenue for Q2 2026 was $34 million compared to $28.6 million in Q2 of 2025, an increase of 19% year-over-year. Recurring revenue represented approximately 91% of total revenue in the quarter.

Professional services hardware and other revenue was $3.2 million in Q2 of 2026, compared to $1.5 million in Q2 of 2025. The increase was mostly driven by increased hardware sales from our Latham acquisition. As a reminder, we are in the early stages of transitioning Latham to a hardware-as-a-service model, And we are forecasting a headwind of approximately $600,000 to revenue during the first half of 2027.

As that shift progresses, you'll see more of this revenue move into the recurring line with some of the corresponding pressure on the non-recurring line, a mixed shift that is good for the long-term health of the business, which should enable us to deliver better customer experience while improving total customer value. We expect Latham will continue to have hardware-only customers for the foreseeable future.

Growth revenue was relatively flat in Q2 2026 compared to Q2 2025, and we no longer are forecasting any further rate cuts this year based on current market sentiment. Gross profit for Q2 2026 was $25.1 million compared to $19.9 million in Q2 2025. Gap gross margin for Q2 2026 was 68% compared to 66% in Q2 2025. Non-GAAP gross margin for Q2 2026 was 73% unchanged versus Q2 of 2025.

Net loss for Q2 2026 was $4.4 million compared to a net loss of $6.1 million in Q2 of 2025. EBITDA for Q2 2026 was $4.6 million compared to $1.4 million in Q2 of 2025. Adjusted EBITDA for Q2 2026 was 7.7 million compared to 5.2 million in Q2 2025, an increase of 48% year-over-year.

Adjusted EBITDA margins for Q2 2026 was 21% compared to 17% in Q2 2025, an increase of 400 basis points. For the full year, we continue to expect to generate positive levered free cash flow in the mid to high teens range, which we calculate by taking adjusted EBITDA at the midpoint of our guidance range, less software capitalization of approximately $15 million, and approximately $6 million in cash interest expense. We ended the second quarter with cash and cash equivalents of $19.7 million and total debt of $68.9 million as of June 30, 2026.

Based on the current positive momentum in our business, we are updating our full year 2026 guidance and providing Q3 guidance. We expect revenue of $159 million to $163 million for the full year of 2026 and adjusted EBITDA margins of 24% to 25%. For Q3, we anticipate revenue of $38 to $40 million and adjusted EBITDA of $8 to $10 million. We expect our cost structure, including capital expenditures and capitalized software development costs, to remain relatively stable on a dollar basis.

With that, I'll turn the call back to Pat for closing remarks.

Thanks, John. Stepping back, I think quarter two tells us a clear story. We're growing. We're becoming more profitable as we grow, and we're doing it on the back of a platform strategy that's all coming together. ASURE Central has reached the majority of our client base. Luna is doing real work for us and orchestrating real work on behalf of our clients. ASURE WORKS is gaining good traction in its early days, and we're being disciplined about building a sales force that can sell the whole solution, not just a piece of it. We have truly leveled up from a year ago. In quarter two, we grew revenue by 23% in the second quarter and adjusted EBITDA an impressive 48%.

We also expanded adjusted EBITDA margin by 400 basis points with increased scale and AI efficiencies. We did all that while continuing to invest in the platform and the team. That's the model working the way we designed it to. As you know, we will typically receive revenue tailwinds in the second half, and we expect that trend to continue with continued acceleration from this point through the rest of 2026 and into 2027. We are increasingly optimistic about 2027 as our initiatives continue to take hold with increasing adoption of ASO, LUNA-enabled automation of U. S. payroll and tax, and more.

We remain on track for our medium target of $180 million to $200 million in revenues with adjusted EBITDA margins of 30% or better. And our longer-term vision, which we have discussed with investors, reflects the potential for margins to expand well beyond 30% as we achieve scale. AI continues to reduce our costs to serve while simultaneously expanding our revenue opportunities. We're proud of the progress this quarter and even more excited about what's ahead. Thank you for your continued support and for joining us today. I will now turn the call back to the operator for questions and answers. Operator?

Yeah, Rich, I think, first of all, I'll start on the revenue side. You know, as we get more to intent data and trigger data, AI is really helping us quite a bit in just, you know, having customer data available, and then Luna and or the data is available to us to help cross-sell. So a couple of examples, and I brought this out before, when a company has 20 employees, verse 19, they're now subject to have COBRA, and they have to have COBRA. Well, we can now, with that intent data, ask them if they'd like us to provide COBRA services on their behalf. Or, you know, it can be an employee that has a new hire.

You know, would they like to have a 401k savings and or, you know, continue to, when there's a raise, invest more in the 401k? So all of this intent data with AI, with Luna, is going to really tee up those opportunities for revenue. The other aspect of it, if you think about the marketing to sales motion, there's a whole series of kind of data available that would lead it to be very predictive where they use ASURE WORKS, where they want a system done for them, but maybe they're not ready to go into a PEO. So we think there's a lot of revenue opportunities that I just talked about that are really we're putting them in the use cases as we speak.

On the cost side, where we see opportunity, and Lou has been very active on it, is Lou is already taking some of the calls or some of the data that would go to people. And some of those easy answers or some of those what-if questions are being answered with Luna as opposed to getting into a queue or getting into customer service. And what that allows our customer service folks is to build a much more strategic relationship with the customer as opposed to a transaction one. John, I don't know if you have some ideas on this, but those are some, Rich, that we have in place right now.

Yeah, I think you were asking kind of where we are in the journey, and I would say really, really early, early days. But it's pretty interesting stuff. Here's an example of one use case that the ops team is using right now with AI. They've done sentimental analysis on all the calls coming into the customer service center, and they can tell based on – and they transcribe them, and then they have key trigger words, And they can tell you, hey, here's a customer that somebody needs to reach out to because they had a really, you know, they were amplified in their language. And so we can proactively go out and deal with customers that might have had a bad experience.

And, again, early days, is that a cost-cutting? Not necessarily a cost-cutting, but it's definitely going to, I would think, hopefully impact retention over time and customer satisfaction over time. So, early days of the cost out, but obviously you can start to see some of the examples on implementation and some of the other areas of the business where we're going to get a lot more efficient.

Yeah Rich you know as I even look at the second half you know we believe that we be double reoccurring revenue on an organic basis and some of that is laying the foundation of salespeople that we already done But that being said, if you look at productivity, you know, our productivity around attach rates, about having more dollars available to sell, getting at the right level with a software model or we'll do it for you model, we think we're in the early innings. We've had some really good success of productivity. I would think that next year we'll be targeting 25% plus productivity, especially in those year one to year two sales reps. That we'll work through in overall productivity at a later date.

But those are the things that really excite me. And I think what's happening, if you look at it, you know, you have an area of bringing all these products together with ASURE Central, layering out ASURE Works, adding salespeople, adding training to that, and getting up to the business owner as opposed to an office manager. All those things are really good for productivity. And then from a growth rate perspective, you know, we're going to be relentless on getting the double-digit organic growth. We think that's a really important part of the model. And then layering in tuck-in acquisitions where we already, especially where we already own the platform.

Thanks. Congrats on a good quarter. Thank you, Reg.

Yeah, so what we're trying to say, Jared, is if you were to look at last year and the composition of the revenue, I think we had some pretty healthy non-recurring professional services, specifically with some of the large tax deals. So the way we've got the back half of the year currently forecasted and modeled is, you know, those are going to be negative from a compare, so we're going to lose some of that non-recurring revenue on a compare basis. But we think that that's going to be offset by the growth and recurring organic side of the business, which, again, it's healthier, it's better. But, yeah, we have a little bit of a compare on the non-recurring from prior year that's causing that overall revenue growth to be a little bit muted because of that.

And, Jared, a lot of the motion is already in place, so we feel real confident in getting to those kind of outcomes.

Yeah, and I think if you think about our history, you know, we really had managed payroll as part of our core offering before competitors thought it was cool. And so I think we have that opportunity and what we've been layering into ASURE Central is really we have the software to run a business and, you know, keep them compliant, keep them efficient, etc. But we can also do it for them. And then if you think about Luna, we introduced Luna a couple years ago, and for her to really do a lot of the work around workflow and AI, but then also not only do the work, but orchestrate it from a team approach, whether it's payroll benefits, general ledger interface, et cetera, there's a lot of things to get coordinated.

So we built AI, you know, into our product and into ASURE WORKS. We also, you know, if you think about our core customer base, you know, the average maybe company hires an HR professional at about 80 employees or so. You know, we're there every day helping people do work where we've already done it at the payroll manager level. Now we're extending it out through managed services. So, you know, we feel that this is really a core offering where we have quite a bit of a lead in, and, you know, we think the competition, you know, kind of looking at that model will really help us because, you know, they're starting fresh, and they'll draw more attention to the space.

And, you know, we feel that this is right in our core confidence team.

Yeah, I think, you know, just we're at 150 for the year here, and we're probably still about, you know, 10 where we want to be. If I look at, you know, kind of the bridge, you know, in a number of cases, we've top-skilled or up-skilled the sales leadership, and those leaderships bring, you know, people along in many cases. So about half our resources are manager-led versus, let's say, a recruitment. The recruitment, we have added a couple of recruiters in that space and think we have a really good traction from a pipeline. And then from a selectivity perspective, we are building an efficient kind of adding who we want to select, et cetera, with the criteria.

But also, we're in a position where we can be a bit choosy, and we're in a position as well that we're selling the whole solution as opposed to a point solution. So some of those muscles are different than historically. We feel like we're doing a really good job in getting the salespeople we want. We can see the productivity, and we feel confident that we'll be at 150 by the end of the year.

Yeah, I think, well, first of all, you know, we're getting a lot of traction in our HR area combined with payroll and 401k. We see just increasingly confidence. Both of them are really building up units each and every quarter that, in a lot of cases, are records for us. So that's really positive. Those two, obviously, time with the acquisition of Latham and the integration. You know, we feel, you know, those four products will really be the core to sum a payroll. Tax filing is always part of the offering. So, you know, then when you think about, depending where you are in a cycle of hiring, you know, our recruiting solution, from a benefit perspective, you know, we've invested in broker record as well as HSA, FSA, COBRA.

So, you know, we're really rounding out the offering, but I'll tell you, just the two to four, simply put, time and attendance, HR, and 401K, you know, we have a really good line of sight to those being added to our core offerings.

Got it. Thanks for taking the questions.

First of all, the tax. We've been busy, as John mentioned, around installing a base of large customers that we've had in the background with tax. We think that there's potential, and I think you'll see some activity in the second half of the year around new logo acquisition and new partner acquisition field pipelines really, really strong. As it relates to the second quarter, the reoccurring mix that John talked about, you know, where we very confident in the, you know, double-digit reoccurring growth that's organic in the second half of the year versus the one-time mix, you know, that leads us to a lot of success here in the quarter, which was small business related. And, you know, I talked about some of the tax rates around 401k and around time of attendance and HRC or HR compliance offerings.

Those are the things that have led our growth, you know, combined with payroll. And I think you'll see more of it as the reoccurring revenue builds here in the second half. Tax filing, I think, continue. You know, we're very excited about the story. We accomplished a lot in taking ventures over $2 million live. There's more to come in that area, and you'll see that, but that didn't have any outside influence in second quarter's growth.

It absolutely, and it'll build on itself exponentially as we continue throughout the year. And in the quarter, we had a 6% improvement in cross-sell, but we're just getting started. I feel really good about that. And then as we are layering in different cohorts from some of the reseller acquisitions in the past, after a year we layer them in, those historically were one or two products. Now they have the ability to continue to cross all the offerings And as we layer ASURE Central to the multi family we talk about some of the intent and trigger event analysis This only is going to continue So I'm very pleased with the transactions that have been sold around time, 401K and HRC.

I think that will build in the second half. And, you know, as we increase the trigger event opportunities, we believe that will be more of a standard than an incremental approach.

Yeah, great question, Josh. I would say that the emerging pipeline is extraordinarily strong. As far as, you know, when that turns into revenue, sometimes they have shorter and longer term cycle, but we're very pleased with the opportunities available to us in that area of the business. And as far as forecasting it, John talked a little bit about the one-time revenue. You know, we didn't forecast a ton of PS work, and maybe we're being conservative there. Whether that falls in 26, 27, or frankly, even 28 will remain to be seen. But, you know, our guidance is not have a lot of tax in it, although I think you'll see, you know, over the next, you know, quarter or so that you'll see some press releases that will reflect growth opportunity in the business.

And I was just curious to know, is that a result of the mix that you're assuming in the revenue, or is there something going on with your cost of goods?

I think it's more of just what's already in the barn, right? So I think we've had pretty strong quarters already. We've put up in terms of adjusted EBITDA, so we feel pretty steady state that we can hit that bottom line. I mean, we wanted to tighten up a little bit because we felt like it was pretty achievable. So nothing structurally has changed dramatically. It's really just had pretty strong quarters these first two of the year and wanted to pick it up a little bit based on where we think we're going to land.

If you could comment maybe, first of all, on the retention that you forecast versus what you've been able to hang on to, and then the opportunity for cross-sell, whether that's a second half 26 or more like 2027. I'll take the retention. I mean, that business has been around 100 plus years and was really, really consistent in terms of the retention. Very similar retention stats to ours, and nothing's really changed post-acquisition. So it's really been very, very consistent business, performed, you know, at or a little bit above our expectations when we bought it in terms of the revenue production. So it's been really – and we've been able to realize, you know, most of the cost savings that we had planned for, if not a little bit more.

So it's performed as good as we hoped for from that perspective.

And then I'll let Pack on talk about Crossville. Yeah, and culturally, great fit. You know, Bill Latham did a great job from a family perspective. And then, you know, our GM, Lance, has done a great job with Latham and in the culture. In the culture of the two companies, you know, the profile of the current customers, et cetera, it's just spot on. And, you know, we're continuing to evolve kind of the thinking, whereas Latham was more of a standalone time on the smaller end.

You know, we're integrating, but we're keeping those key relationships from a standalone perspective, but then also we're integrating the go-to-market strategy. And John talked about, you know, in some cases where the time clocks, et cetera, are going to be has for the first time or hardware as a service. You know, in the first half of the year, that'll impact the revenue about $600,000.

But it aligns the value proposition, the offering with an integrated approach with payroll, et cetera. And long term, it's about a $2 million positive just at the current numbers. So, you know, we think the opportunity with the ASURE Central, what we're trying to accomplish with the ASURE works, that really fits us really well. We have a product that's plug-and-play, and, you know, now we're aligning the pricing strategy for both of them. So we believe that we're just getting started there. But, boy, you know, if you told me a year ago where we'd be with Latham, you know, we've hit really almost every milestone. And we have a lot more to build off in the future.

No, well, I think there's certainly more in 2027, but, you know, we've been pretty pleased with the payroll opportunities that we've gotten, and we're pretty pleased with the attached rates of time and attendance. We think some of the pricing around reoccurring time will continue to build. But no, it's been, you know, I think when I look at it, the second half and even the first half of this year have been real strong on the cross-sell opportunities.

It's just going to build and will continue the momentum through 2027 and 2028. Thanks for taking my questions.

So nothing in the guide right now for acquisitions.

Yeah, and as you know, Greg, the reseller will be active in that area and continue to be active. We've been working on a couple that we believe could happen, and I believe you'll see some of that, but more to come when it does get finalized. And I think you'll see some of it in the back half of the year.

Yeah. So right now, again, our current guide, let's say I look at last year in the back half of the year, we probably had about $9 million of nonrecurring. And I said, you know, a big chunk of that, obviously we had the lath and hardware coming in, but a lot of that $9 million was some professional services work with regard to some large tax deals. So right now, we don't have those focused. So I think, you know, it's fair if you're thinking about your model, probably in that $5 to $6 million range is kind of what we're thinking about on non-recurring in the back half of the year as opposed to nine from last year.

And so when you start to do that math, that really shows you where the growth's coming from. It's coming from recurring. We don't have any acquisitions imminent. We're lapping Latham. So that's where we kind of go back to that beginning comment about most of the growth in the back half as we've currently guided us. It's coming from the recurring organic side of the house.

And more specifically, 401k, HRC, time and attendance combined with payroll are the leading products that we're cross-selling. That last year we had, let's say, a 70-30 of new logos to customer. Now it's closer to 53-47. And that additional kind of products and additional dollars, you know, are building up and lead to the reoccurring revenue that's growing in the second half. So, you know, we think it's a very predictable story. We think investors appreciate the predictability. And, you know, if we do have an acquisition or we do have some professional services dollars, that will be additive. But right now, we feel really, really good about where we're at as a company.

Yeah, let me just – I just went back and looked at my notes.

Actually, it was $10 million last year in the back half of the year, I think, for non-recurring. So, yeah, I think that's where you're seeing the transition.

I would like to turn the floor back to Pat Geppel, Chairman and CEO, for closing remarks. Well, I sure appreciate your time today in previewing and in viewing the second quarter results. We feel like we have a lot of momentum. We talked to you about the predictability of the results going forward. Feel good about where we're at, and we always take stock at halftime and then look forward to a strong second half in the beginning of 2027. We appreciate you as an investor and look forward to talking again real soon. We'll do some outreach here with different conferences in the third quarter and fourth quarter, so hopefully we'll see you soon. Thank you.