Asure Software, Inc 2026 Q3 Earnings Call

Thank you, operator. Good afternoon, everyone, and thank you for joining us for Asure's third 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.asuresoftware.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 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. I will hand the call over to Pat in a moment, but I wanted to take a moment to remind people of some upcoming investor relations activities. On November 17th, we will participate in the Craig-Hallum Alpha Select Conference in New York. On November 18th, we will attend the Stephens Annual Investment Conference in Nashville, Tennessee, as well as the Roth Conference in New York. On November 19th, we will participate in the seventh annual Needham Virtual Tech Conference. Finally, on December 16th, we will attend the Northland Capital Markets Virtual Growth Conference.

Investor outreach is very important to Asure, and I would like to thank all 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 Goepel, Chairman and CEO.

Pat? Thank you, Patrick, and welcome everyone to Asure's third quarter 2026 earnings result call.

I am joined on this call by our CFO, John Pence, and we will provide a business update for third quarter 2026 results, as well as our updated outlook for the remainder of the year. Our third quarter revenues came in at $40 million, representing a growth of 10% compared to the third quarter of 2025. Growth was strong and broad-based with payroll benefits and HR compliance among the key contributors. We are reaping the benefits of the investments we have made in the business over the last few years. Our organic growth rate for third quarter 2026 was 9%, compared with 4% in the third quarter of 2025, an increase of 500 basis points and up 5% in the second quarter of 2026.

Organic recurring revenue growth for the third quarter was 14%, which is a continued acceleration driven by the launch of AsureCentral a year ago and continued Payroll Tax Management momentum. The positive feedback for our products continues to grow, and this is supported by our recent G2 awards announced this fall, where we were rated a high performer in several categories, as well as a momentum leader and a leader in the small business segment. Building on the 9% organic growth and the 14% recurring organic growth we delivered this quarter, we continue to intensely focus on driving double-digit organic growth in the future and increase cross-sell activities while continuing to grow the embedded tax business. During the third quarter, we meaningfully expanded the distribution of our Payroll Tax Management solution, which already represents nearly 20% of Asure's revenue.

In August, we announced a co-selling arrangement for our Payroll Tax Management solution on the AWS Marketplace, and we began to actively co-sell into its 330,000 customers in September. AWS customers can procure Asure through the existing purchasing processes, including unused AWS spend, and our sales team co-sells alongside AWS sales teams against our ideal customer profile. Streamlining contracting and private offers can shorten the typically long enterprise sales cycle. In September, we also made Payroll Tax Management available on Oracle Marketplace, integrated with Oracle Fusion Cloud's Human Capital Management. Organizations running Oracle can add multi-jurisdiction payroll tax filing, funding, and money movement without migrating their payroll system of record. They can then use the payroll system of record as we file across federal, state, and local jurisdictions on their behalf. Together, the AWS and Oracle marketplaces open up new opportunities for Payroll Tax Management.

Indeed, in the Payroll Tax Management business, we have already won approximately 30 major enterprise accounts for Payroll Tax Management, and these partnerships will continue to help grow that segment of the business. In September, at our annual reselling training event, we launched AsureCentral to our reseller network and took our first resellers live on the platform, which we believe will unlock significant cross-sell for our Human Capital Management suite, as we have done in the direct business. AsureCentral brings single sign-on, user provisioning, role-based access, together with payroll, tax, HR, recruiting, time and attendance, 401(k), benefits, and Luna, all in one environment, and resellers can white label the experience with their own logo. The number of clients purchasing multiple products has increased by 7% versus the third quarter 2025.

With the increase in attach rates, we are also experiencing an uptick in our retention rates versus the second quarter, and we will share updated retention metrics in our one year-end 2026 release. We remain focused on moving clients from an average of a little more than two products per client relationship towards four or more products per client over time. A brief update on AsureWorks, our administrative services outsourcing offering, which lets clients delegate key payroll and HR compliance processes to Asure. The momentum we saw at launch continued into the third quarter. Our pipeline and new clients continue to grow and set new records. The reception across the target buyers includes small hotel chains, restaurants, HVAC companies, as an example, and remains very, very strong. These are main street businesses that need payroll and HR compliance support but lack the internal resources to manage it themselves.

We are continuing to train more reps for AsureWorks every day and build out that effort. Clients who adopt AsureWorks typically represent up to five times the revenue of payroll-only clients. Because it is not a PEO model, there is no co-employment risk, which makes it a compelling and flexible alternative for clients constrained by the cost and rigidity of a traditional PEO. On the sales front, we made significant progress in hiring reps. We are confident in hitting our target of 150 by year-end. The efforts of our recruiters and our sales managers really have paid off, and we are excited to have these new reps on board. These are full solution sellers who can sit down with a business owner and present our entire product suite, and that consultative needs-based approach is central to driving both new logo acquisition and multi-product cross-sell within our existing base.

The new type of rep we hire typically ramps faster than when we have experience with prior reps. Our existing to new customer logo split in the third quarter was approximately 47% to 53%, an improvement versus a year ago of 36% to 64%, but similar to the second quarter of this year, where we continue to drive towards our 35% new logo, 65% base expansion mix over time. Our contracted backlog is now $86.6 million, and we expect to convert approximately 46% of that backlog over the next 12 months. We continue to operate in a positive selling environment as small and mid-size businesses need the products and solutions Asure offers to help them navigate the complex world of payroll and compliance. In our forecast, we conservatively model flat headcount growth for our clients. We have not seen any dramatic shifts in the sales cycle process.

On the M&A front, after quarter end in October, we acquired a human capital management payroll processing company based in the Southeastern United States for an aggregate purchase price of $26.5 million. The company serves mid-market organizations with cloud-based HR, payroll, and talent tools, expanding our exposure to the small and mid-market segment and adding a developed technology that will be used to update some of our product offerings. We have an active pipeline of potential reseller acquisitions, and we will continue to pursue those opportunities. Also, in October, we closed a new credit facility, which gives us some more flexibility to pursue our strategy, and John will share more details in a moment. On AI, our view has not changed. Payroll and HR compliance is not software a generic AI can replace.

We hold money transmitter licenses, interface directly with the IRS, state and local agencies, and manage compliance where the margin of error is effectively zero. That makes Asure a system of record and our expertise a real moat. At the same time, AI is a meaningful accelerator for us. Luna conversations grew about 25% in the quarter to more than 26,000, and in her first year, Luna has completed more than 15,000 AI actions for our customers. At the start of fourth quarter, we released the time import agents, bringing Luna directly into the payroll run with humans in control at every decision point. I also want to take a moment to recognize and congratulate our Chief Technology Officer, Yasmine Rodriguez Wakim, a pioneer in payroll tax technology and the compliance infrastructure behind it, who has been named to Women We Admire Top Women Chief Technology Officers of 2026.