Good afternoon, and welcome to Asure's Second Quarter 2022 Earnings Conference C all. Joining us for today's call are Asure's Chairman and CEO, Pat Goepel, Asure's Chief Financial Officer, John Pence, and Head of Investor Relations, Randal Rudniski. Following their 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.
Thanks, operator. Good afternoon, everyone, and thank you for joining us for Asure's second quarter 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 IR 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 the 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. 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 second quarter 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 the remainder of the 2022 fiscal year. We will then conclude the session with time to answer your questions. The second quarter was an active period for Asure, and we made some significant strides in implementing our strategy. I'm very pleased with our progress in some of the key areas of the business, including new sales, development, product development, and our efficiency initiatives. I will address each of these items in a moment, but first, let's recap the second quarter results.
We grew our second quarter revenues by 18% relative to prior year and non-GAAP EBITDA 23%. That makes this period the 5th consecutive quarter we have grown revenues by double-digit rates. We also maintained a healthy business mix with recurring revenues representing 94% of total revenues. In the quarter, our revenue growth was driven by acquisitions, with organic growth being slightly positive as expected, led by our HR consulting and our tax products. As you can tell from our revenue guidance, we're expecting higher levels of organic growth in the second half of this year, particularly in Q4. Our guidance for that quarter implies approximately 10% revenue growth relative to prior year. Since we've not made any significant acquisitions since September 2021, that growth is primarily organic.
In other words, we're expecting a strong finish to 2022 driven by our recent sales successes and launch of our new solutions. We will still need to execute and deliver, but we believe we're on track to do just that. The acquisitions we completed in September of last year have met or exceeded expectations, and the integrations are now essentially complete on time and on budget. Despite having some expense headwinds resulting from the reinstatement of last year's temporary COVID-related reductions and investments we're making across the business, we managed to hold our EBITDA margin in the quarter. We continue to target a 20% EBITDA margin longer term, and we believe we'll get there as we build scale in the business, grow high-margin revenue streams, and enhance the efficiency of our operations. Let me now turn to the progress we made across the business in the second quarter.
Beginning with sales development. In 2022, we focused on leveraging our unique strengths to bring value to existing and new customers, while also enhancing our sales efforts by introducing new tools and investing in marketing to drive performance. These efforts have gained great traction in the market and helped drive an 87% increase in new sales bookings in the second quarter relative to prior year. Importantly, growth in new sales was driven by recurring revenues, which we expect to have installed and generating revenue in the second half of this year. I previously highlighted the unique differentiation we have with our HR consulting and tax solutions. We have focused on these segments to enhance cross-sell activity, expand our addressable market, and enhance our resale revenues.
Our efforts in these areas are really paying off, and in the second quarter. We grew our HR Consulting revenue by 19% relative to prior year, and we grew our tax revenues by 9%. Our cross-selling success is improving each quarter, and we see significant opportunities ahead within our existing base. These successes enabled us to penetrate 12% of our base with the ERTC solutions in the first nine months from offering. We think we have just scratched the surface in our cross-selling efforts and believe we can generate more recurring revenue from our existing client base. We're also seeing significant client interest in the Integration Marketplace, which we introduced last quarter. This API-led initiative sets the stage for new partnerships and new revenue streams, such as our recently announced partnership with Equifax.
It also provides a base to introduce solutions such as Earned Wage Access, employer solutions such as benefit reconciliation, retirement solutions, and employee-focused solutions such as the Asure Wallet and tax preparation. We believe the Integration Marketplace will be a meaningful source of revenue growth for Asure, and we expect that will begin to happen in the third quarter and more notably in the fourth quarter, owing to the timing of product introductions. Turning now to product development. Our company's goal is to provide best-in-class human capital management products. To get there, we are consolidating to a single HCM and a single tax engine to allow us to offer a centralized human capital management ecosystem for both the employer and the employee. Our efforts will bring new levels of efficiency and automation, and we will drive high-margin revenue streams for Asure.
I'm really proud of the great work that our teams have accomplished in this area. So far in 2022, we've introduced several new initiatives that we're incredibly excited about. These include, one, the Integration Marketplace, where we launched in the second quarter with 125 pre-built integrations to enable accelerated development with new partners. Our new Treasury Management solution that brings world-class automation for our clients. This solution is geared for human capital management providers and larger enterprises to enable them to operate more efficiently and reduce risk. We also announced new product developments with Employee Navigator for benefits, Certegy for unbanked employees, and QuickBooks for accountants and payroll clients. Last week, we announced the introduction of a new industry-leading tax portal.
Our new portal gives employers real-time access to historic and current tax data and all tax information, including liabilities, deposit records, and copies of actual tax returns. It provides transparency and interactivity while making tax compliance easier for payroll clients. We believe this new solution is best in the industry and further demonstrates our leadership in the tax area. These initiatives are also expected to contribute to revenue performance in the second half of the tax year, helping drive higher levels of organic growth and improve client engagement. Turning now to some of the enterprise efficiency initiatives we're working on. Our initiatives in this area are geared to enhance standardization and centralization of our operations while delivering exceptional client service. To get there, we're consolidating back-office functions, creating centers of operational excellence with fewer locations and improved efficiency.
Our initiatives also support our acquisition strategy and enable us to expedite synergies and timelines for integrating future assets. As we centralize our model, it will result in fewer bank accounts with enhanced float revenue potential and deliver an expected $5 million in annual cost savings as the program is implemented to the end of 2023. Turning to acquisitions, we'll continue to be opportunistic. While we've not pulled the trigger on any larger targets so far in 2022, we'll continually monitor the market. We will acquire assets that fit within our M&A model, and that will drive value creation for our shareholders. Finally, I hope my remarks give you a sense of the great amount of activity that is underway at Asure. We're making great progress in sales, product, and operations.
Our commitment to provide leading-edge solutions that drive value for our clients and to be the most trusted partner for small businesses. We are in a labor environment of almost unprecedented change from the perspectives of regulation, mobility, and talent. Our innovative solutions will help guide our clients through this dynamic environment so they can focus on their core businesses. Now, I would like to hand off to John to discuss the financial results in more detail. John?
Thanks, Pat. As Randall mentioned at the beginning of this call, several of the financial figures discussed today are non-GAAP. You will find a description of our GAAP to non-GAAP reconciliations in the earnings release that was made available earlier today. The reconciliations themselves are also included in our most recent investor presentation, posted in the investor relations section of our website at AsureSoftware.com. Now on to the results. We are encouraged with our financial performance in the second quarter, and here are some of the highlights. Revenue of $20.3 million in the second quarter grew by 18% relative to prior year, with both recurring and non-recurring revenues having strong gains. We had good cross-selling success with clients as we saw demand continue to rise for our HR consulting, tax, and ERTC solutions. Our non-recurring revenues increased by $200,000 compared to prior year.
As a result of the continued success of our Employee Retention Tax Credit offering, we have now delivered to our customers more than $300 million of stimulus through this government program. We are thrilled with the strong demand it is generating, and we believe it will continue to contribute to our revenue over the balance of the year, albeit at lower levels relative to prior year. Non-GAAP gross profit margin remained strong in the second quarter at 66% of revenues. Non-GAAP EBITDA rose by $250,000 to $1.3 million, or 23% in the second quarter relative to prior year, and our non-GAAP EBITDA margin remained stable at 6% of revenues.
We accomplished this despite headwinds from higher headcount expense this year as a result of last year's suspension of some of our employee benefits that were made to mitigate the impact of COVID on our business. That headwind was almost $800,000 in our year-over-year comparisons, without which we would have generated even stronger EBITDA margin gains. As stated before, in 2022, we are reinvesting our earnings to fuel technical improvements that support our product strategy, our growing list of partnerships, and increased marketing activity. As Pat indicated, it has been very active year in this regard, and we believe these investments will generate high margin revenue activity in the second half of this year in 2023. As these investments take hold, they will fund themselves.
Accordingly, the headwind from these investments, we believe, will be temporary, and that they will lead to higher levels of value creation in the future. We ended the quarter with cash and cash equivalents of $14.6 million. We also had $35.9 million of debt, which is comprised of $30 million drawn under our senior credit facility, with the remainder made up of seller notes from acquisitions. Client fund assets were $184.7 million at June 30th. Turning to guidance for the remainder of 2022. This guidance is offered with a backdrop of some continued economic uncertainty and a dynamic labor market. We are pleased to reaffirm our guidance for full-year 2022 revenues of $88 million-$90 million, with Q3 at $21 million-$21.5 million and Q4 at $23 million-$23.5 million.
We expect the third quarter revenues will show similar trends as Q2, with revenues being driven primarily by acquisitions and to a lesser extent, organic. In Q3, we expect to make additional product launches and implement parts of our Integration Marketplace to begin driving new high-margin revenue streams. We expect the combination of higher interest rates and higher investable balances will together drive higher flow of revenues. As part of our centralization strategy, we have and are continuing to consolidate our banking footprint, which we believe will enable us to enhance our investment returns in this area. Our revenue guidance for the fourth quarter calls for approximately 10% growth relative to prior year. Since we did not expect to have any significant contributions from acquisitions in the fourth quarter, that growth is anticipated to be primarily organic.
Organic growth in the fourth quarter is expected to come from a continued strong performance in HR consulting and tax and improved float revenues and traction with some of the new partnerships we are in the process of launching. For non-GAAP EBITDA, we are maintaining our range of $8.5 million-$10 million for 2022. We expect EBITDA trends in 2022 to show the same seasonal variations as we've seen in the past. First quarter typically is the strongest quarter, followed by seasonally adjusted performance for the balance of the year. Non-GAAP EBITDA in the third quarter is expected to be consistent with prior year's third quarter. We continue to invest in sales tools, marketing, advertising, and other initiatives designed to utilize our more robust technical platform and leverage the innovative partnerships and integrations we have underway.
We expect the cost of these investments will be offset by the savings via efficiency and centralization initiatives over time. Overall, the initiatives we are putting in place around sales development, product enhancement, and centralization, we anticipate will begin to bear fruit in our revenues and provide a strong base for 2023. We will be diligent in evaluating acquisitions and will transact if the right opportunity arises to create value for our stakeholders. However, nothing is imminent at this time. Looking into 2023 and beyond, we continue to focus on long-term targets of 10% annual growth in organic revenues and 10% growth in organic revenue. We also believe that as the business scales and benefits from our efficiency initiatives, we can deliver 20% non-GAAP EBITDA margins.
With that, I will turn the call back to Pat for closing remarks.
Thanks, John. In conclusion, I hope that today's call has given you a sense of the many initiatives that are underway to position Asure for sustained revenue growth and profit improvement. Our new sales growth has accelerated meaningfully as we have progressed through 2022, and we believe positions us for a strong finish to 2022 and great momentum heading into 2023. We have developed some really fantastic innovative solutions that are creating strong client interest and demand. These solutions also create real differentiation and leadership for Asure as we strive to offer the most valuable products and become the most trusted partner for small businesses. Our strategy is to move from the legacy transactional way the payroll industry has operated to a world where we provide new tools for employers and employees to connect and run their lives or businesses.
Our efficiency initiatives are centralizing and standardizing our workflows and operations. We believe they will produce enhanced efficiencies and improve margins as we make progress. We're very excited about the progress we made on our journey to create leadership in our market using our unique collection of assets. We expect they will create meaningful value for our stakeholders. With that, I will send the call back to the operator for the Q&A session. Operator?
Thank you. Ladies and gentlemen, if you would like to ask a question, please press star one on your telephone keypad. If you wish to remove yourself from the queue, you may press star one again. One moment please, for your first question. Your first question comes from the line of Brian Bergen with Cowen. Please go ahead.
Hi, guys. Good afternoon. Thank you. Wanted to start on the new sales. Your bookings here up 87%. Can you just talk about some of the factors that are really driving that inflection? Also just when you look at new sales, maybe the composition between new logo versus cross-sell and just cadence of bookings. As you went through the quarter, did it accelerate month-to-month, and did you carry that momentum here in July?
Yeah. Thanks, Brian, for the question. What I would tell you know, this has really been a couple years in the making. I think, you know, last quarter we announced the Integration Marketplace, where we're providing our customers with access around Earned Wage Access and wage verification. Some of the bookings are related to that marketplace, and we'll continue to see revenue in the second half. Human resource consulting, which is an add-on to our payroll customers, has gotten a lot of traction and keeps accelerating. Our tax products, which we recently announced, the Tax Portal, is doing really, really well, and I think the prospects for that going forward are robust. So it's a strength all across the business.
As far as new sales to kind of different product lines, you know, it's probably maybe this quarter, a 60-40 blend around add-ons. You know, the marketplace drove some things as well as tax and human resource consulting. As far as momentum in the quarter, it was pretty steady. June was very positive. I would say third quarter looks like it's going to bode well, and we had a great start to the third quarter. All in all, very pleased with the sales effort. I would tell you know, our guidance in the fourth quarter is double-digit organic 10% revenue growth. We think we're on track for that, and that's an important milestone. We think we've hit that inflection point.
Okay, that's helpful. And obviously we're not seeing it in the bookings, but just, you know, understanding you affirmed the back half guidance here. In an uncertain environment, can you just talk about, have you seen any concerns in the client base, anything in client employee levels, anything like that that's changed, you know, to the negative side at all?
Yeah, Brian, the only thing I would say is, you know, if you see those help wanted signs in Main Street America, if you can provide access to keep filling them, we'd love it. You know, when you look at pre-COVID, some people would say we're close to back to those levels. I don't think we're quite there yet in small business America, so any hiring is usually good for us. What I would say, 94% repetitive revenue. We have some new products and services that we've talked about that we're launching. We think they're getting traction. 87% growth is positive. When I look at third and fourth quarter, we'll have really strong numbers in repetitive growth in bookings, and then that'll turn to revenue.
I think the inflection point we've been waiting for is within sight. Always have some concern with the economy, et cetera, but this business is getting more and more predictable for us.
Okay. Just one last one for me here. Just on float, how did that change? Or I guess, did that change in your fiscal 2022 outlook here? I may have missed it, but how are you thinking about float contribution now versus what it was before?
I don't think we've had a dramatic change in our view. I think we always had expected some improvement in our float, not only because of interest rates, but because of some of the centralization projects that Pat was mentioning.
We had in our plans that we were going to be consolidating bank accounts, and with that consolidation, we were going to be able to put more money to work at longer-term rates. We had a little bit of that played in. Obviously, with rates going up and that consolidation of bank accounts, we're going to get a little bit more lift, but not enough to offset, you know, to kind of change guidance. We think it's going to give us a pretty strong momentum into 2023.
Okay. Thank you.
Thanks, Brian.
Your next question comes from the line of Richard Baldry with Roth Capital Partners. Please go ahead.
Thanks. Can you maybe talk about average sales tenure? You've been talking about that a little bit. I think that's been extending, so maybe that's one of the key drivers behind the booking success. You know, maybe also talk about plans for additional hiring to keep up this acceleration and how replicable you think the successes in more recent hiring has been that's helped drive this current bookings acceleration. Thanks.
Yeah. Rich, I would say it's twofold. You know, one is, you know, the average tenure of the sales team, you know, we probably have about 75. We'll end the year somewhere around 90. You know, it's quality, not quantity. I think one of the things that sometimes gets, probably confused in the hiring of salespeople, we've done a lot of product development. The marketplace that we introduced, last quarter, the tax portal this year, the human resource, consulting package and bundle, the three tiers of the bundle, all have been introduced in the last, 6 months.
When you look at those opportunities, you know, it's not only the salespeople that are up to speed or getting up to speed, and we'll continue to add to that infrastructure, but also the product acceleration with the API first strategy and some of the products I mentioned. I think we're positioned really well in the end of 2022 here in 2023, and we'll continue to pour gas on that fire.
Thanks. There's a one-time or what looks like a one-time item, a gain on the P&L. Can you talk about sort of what that is, whether that's, you know, is just one-time or if it's the beginning of something else that's happening?
No, no, I think it's pretty straightforward. We had some cleanup with regard to some of our seller notes and some contingent obligations. I think we had three different transactions where we were kind of settling up and cleaning up the balance sheet as of this quarter end. It is literally kind of just cleanup of acquisition accounting.
Okay. Last would be the R&D number was a little high in the first quarter. It's come down to what looks more in line with prior quarters. Do you think this is sort of a good run rate level to look at, or was this somehow dampened in the first quarter? Is more what we should be thinking about?
It's probably the composition, right? I think as, you know, the accounting model that the company's been operating under is kind of a capitalization of new. I think what you'll see is we'll probably actually start spending even more on R&D, but we'll probably have more new as opposed to maintenance. Because of the accounting model that we're under, that more will get capitalized and amortized over a longer period of time. I think what you actually see quarter-over-quarter is probably more capitalized software, probably not less spend, but probably more that's hanging up on the balance sheet.
Yeah. Rich, just to that point, what we saw with COVID and with some of the tax law changes, a lot of focus on maintenance. We're now into a different phase. We're really focused on the new and the API first strategy. I do think you'll see more capitalization in the maintenance, while be steady, won't be as much as a percentage as where we were over the last year.
Thanks. Last for me, again, back to, not to beat the same horse, but the 87% bookings increase. Can you talk about how close to capacity your current teams are? Like, that's a pretty big number year-over-year. Is that most people firing on all cylinders, or do you still feel like there's a lot of room to keep deepening that productivity with your existing team before, you know, you're adding additional heads?
Yeah. No, that's a great question. Rich, you know, we've been accelerating headcount in this environment. You know, we've been focused on quality and numbers. What I would say is we have a good cadre of folks that are now hitting their third year that are getting very, very productive. Some of the product lines that are getting productive are tax, the marketplace, as well as human resource consulting. General new logos and payroll through some of our partners are growing. I think we have plenty of room to grow, you know, organically speaking, within the sales team. In addition to, we're going to look to add more people and more focus to continue to drive that productivity because we think we have the ability to do that.
I would say our technology and implementation has made it easier to stand up these clients quicker and with a good amount of quality. We're going to keep using those productivity gains to help our salespeople and our product lines grow.
Great. Thanks.
Your next question comes from the line of Joshua Reilly with Needham & Co. Please go ahead.
Hey there. Thanks for taking my questions. Just kind of building off the sales dynamics there, how should we think about the balance of time sales reps are spending right now on organic net new customer acquisition versus upselling the ERTC opportunity and cross-selling customers that you've acquired through the fall 2021 acquisitions? What do you think offers the highest ROI over the next year?
Yeah, I mean, I think the one thing that, you know, we'd like to highlight is ERTC is important, but really it's the marketplace that's really important for us. You know, the ability to partner and get the broader ecosystem, you know, whether it's Earned Wage Access, whether it's 401(k), whether it's W-2 processing, whether it's wage verification, the marketplace has a lot of legs for us, and we'll continue to drive that. Within tax and human resource consulting, it's not only cross-sell, but in many cases it's new services. We'll continue to drive new logos at a nice pace.
There's no question with an API-first strategy, we can integrate more product lines quicker, and that will lead to some real good benefits for us, not only in the second half of the year or even second quarter. We continue to have and expect good productivity within the sales force in the second half of the year in 2023. We have the ability to grow incrementally within the sales team that we have, but then adding some new folks to take advantage of the product enhancements.
Got it. That's helpful. Can we get some more color on both the savings and investments over the next year? How much are those offsetting in the current year? How much does the higher interest income that should be coming into the model help offset the impact of the increased investments?
Yeah, I don't know if we have that much detail to give to you on this call. I would say that, just order of magnitude, I think if you look at the financials, you know, we had $30 million invested long-term at the end of the year. We closed up this quarter at $50 million. We think that we can probably add kind of that same level over the balance of the year. That gives you some sense of kind of long term what we think we can do in terms of longer term investments on that float. That gives you, let's say rough numbers, we're able to put new money to work based on the current rate environments, probably in the neighborhood of 3.5%-4%.
That gives you some sense as to the order of magnitude of that opportunity just on the longer term. I would say the bigger upside on the back half of the year and in 2023 is really, you know, when you have cash that's not invested long-term and interest rates are at zero, you're getting zero on them, right? Because, I mean, the money markets and the kind of overnight rates are not giving you much. What we really see a lot of opportunity on is in that balance that's not invested long-term. You know, and that's a pretty healthy balance, right? If I'm telling you that we're going to get to $70-ish by the end of the year, that's invested long-term, you know, right now, that gives you another $100 that's kind of sitting there every day.
If you're able to get some return on that's where we really get excited about it, from our perspective. That is, back to your question, 100% follow through, right? That really does help afford some of the investments Pat's been talking to. I think it's really additive to the model from our perspective. I don't know if I answered your question directly, but I think I can try to give you some direction as to what it could be.
Yeah. Josh, the only thing I would add, I think John's answer around the float is spot on, and I think that those are some of the opportunities we have at the second half of 2022 and 2023. As far as some of the efficiencies we spoke about with operational efficiencies, et cetera, you know, my sense is we have $4 million-$5 million of savings, but we also have some expenditures around technology and sales. I think, you know, from our perspective, you know, we can hold expenses relatively flat. You know, we'll still grow probably a little bit.
The key here is coming into 2023 with a double-digit revenue growth while having some slowdowns in the market as far as expense, and then investing in products and sales people to continue to grow and also to grow in float. We think we're set up really nice for 2023. We won't give guidance on this call, but you know, as we get further along the year, you know, we think that this is an inflection point and an acceleration, and we'll let you know how that plays out with next call and calls after that.
Got it. Thanks, guys.
Thank you, Josh.
Your next question comes from the line of Vincent Colicchio with Barrington Research. Please go ahead.
Yeah, good afternoon, Pat. Curious if you can give us an update on your progress in the mid-market?
Yeah, you know, Vince, I think we're doing an okay job in the mid-market. We have a couple leadership changes that have worked out, I think, well for us and will continue to work well. We have a couple reps that are doing really well and, you know, going to have really nice years. I think as we package some of these initiatives that we're speaking about in the mid-market, well, we'll do fine. As you may remember, really, it was a little bit of a rebuild, you know, in the fourth quarter, first quarter of the year, and I think you'll see some acceleration in the back half. I really expect a good 2023 as the investments in people and technology will take hold.
It's probably about three months or six months behind the core business, but no reason why we can't achieve some pretty nice stuff in the mid-market. There's some green shoots right now. I'd like to get a little bit further along as we head into the second half of the year.
On the acquisition side, it seems like you're taking a more measured approach. Curious what valuations look like. Are you waiting for them to come in? Or is it just simply lessons learned and you know, being a little bit less aggressive than the past?
No, I think a couple things. One, first of all, I do think valuations have changed a bit, and perhaps there was, you know, I think there's some really nice targets that we have that we believe would be a good fit. We want to see the market reflection on the seller side match the buyer appetite, and we think that'll happen over time. As far as the model, we feel really good about the model. I think the acquisitions we did last year have performed really well. Our leadership has been excellent in integrating acquisitions, including John Pence from a financial perspective. We feel really good about that model going forward, and we'll execute on that as appropriate. I just want to make sure we do the right deal.
The focus there, you know, and this is all along, we've stated that we want to get to 10% organic with a 20% EBITDA model, and I think we're well on our way. I think there's some green shoots that we spoke about today, primarily the 87% sales growth. If you point to a fourth quarter, you're somewhere around 10% organic with a 14% non-GAAP EBITDA. That's pretty exciting because, you know, we're getting there, and then we have some jumping off points that we've already talked about for 2023. It's not if, it's when, and we think we're really poised for a very strong 2023.
Okay. Last question for me. Any changes in wage inflation? Any, you know, slowing or status quo with last quarter?
I think, and I'll let John speak as well, you know, internally, you know, we always have a little pressure. We want to make sure we take care of our best. Especially middle America, you know, with inflation, you know, their real wages are under pressure. We want to be sensitive to that. You know, we think we've done a good job of listening to people and really making sure that we understand that pressure. Then from our client perspective, you know, we do believe that that will enhance float over time. There's some really good elements of that across small business. As far as it, you know, worsening or lessening, I think there's some more measured approach across the base.
I think some of this, you know, is a realization that you know you had some pent-up demand. Now you have maybe some steady kind of data. You know, some of the leading indicators around lumber, gas, et cetera, are starting to go down. I would say, you know, inflation is there. It may be not as on top of everybody's mind a couple months ago, but it's still kind of a worry point and make sure that the policy makers get it right. As you know, the float opportunity across our base, as we head into 2023 and 2024, you know, we feel really good about that opportunity should rates rise because that's a little juice to our model. John, I don't know if you have anything to add.
Yeah. I think, you know, what we see is it's probably more pressure on the lower end of the labor market. You know, on our more entry-level people that are on the hourly base, I think that's where we see more wage acceleration. We tried to get ahead of it at the beginning of this year. We changed the compensation structure for that group. We used to have a variable component, and we actually just kind of front loaded it and kind of gave that to them up front. We tried to get a little bit ahead of this. Whether that's going to wear off in the back half with inflation still kind of going up the way it is, I don't know if we'll get additional pressure. We did try to get ahead of it.
I think we did a decent job of kind of, you know, not waiting for it and reacting. We tried to do a little bit more proactive, take a look at it.
Okay. Thank you for answering my questions.
Thanks, Vince.
Sure, Vince.
Your next question comes from the line of Jeff Van Rhee with Craig-Hallum. Please go ahead.
Hey, this is Daniel Hibshman on for Jeff. Just two questions for you. First one, just on churn in the base and retention and both net and gross. Just wondering if you could give us any color there on anything you've been seeing changing on retention.
You know, Daniel, thanks for the question. Our unit retention year-over-year is, you know, we've done a really nice job and, you know, that has improved year-over-year, in a pretty measurable way. As far as revenue retention, you know, we're not quite as strong as the units, but still, you know, some good improvement, throughout the business in revenue retention as well. Then as we look at the second half of the year, there have been some things that we've worked on, one of the things around the tax portal that we announced this quarter. When you look at some of our notices and some of the kind of key leading indicators, we're way ahead of where we expected to be, and the improvement has been remarkable.
We believe that'll set us up nicely for 2023 as well.
Thanks for the color. Just my second question, just on the guidance and outlook for the quarter and sort of month-over-month. This was already touched on a little bit, but the macro just kind of month-to-month and then what you have sort of in your assumptions guided for the back half in terms of macro.
Yeah. I think again, we've tried to play in the macro level environment. We've tried to keep it consistent with that as a backdrop. We put this out there, I guess, three months ago when we gave the full year guidance and kind of tried to execute. I think we took it up a little bit back in that period. We feel like again we've got execution with some of these initiatives that are played into what we've guided towards. If we're able to execute the way we think we can, we're pretty comfortable with what we've done, especially even in light of the current economic backdrop.
Yeah. Daniel, I would just say from a hiring perspective, we didn't expect crazy hiring in the second half. More of a steady state improvement. Then as far as the float, I think, you know, we kind of expected a couple of 0.75 increases by the Fed. You know, I think that'll have more of an impact in 2023. You know, I think the macro environment we expected flat to steady improvement is kind of how that was implicit in our guidance.
Okay, thanks.
This concludes the question and answer session. I will turn the call to Pat Goepel for closing remarks.
No, thanks for everybody being on the call today. We felt like the quarter was a very solid quarter. It was as expected. You know, we have a lot of visibility in the second half of the year and feel like this was an inflection point that sets us up for the second half of the year in 2023 and beyond. You know, feel really good about where we are as a business. You know, we took a little bit longer today to talk about our operational efficiencies, our product, our enhancements, some of the marketplace initiatives, tax initiatives. We're doing so for a reason, because we think we have the opportunity to do and transform this business, and really set ourselves up for a good, strong multi-year run.
Appreciate your interest, whether you're a shareholder, an analyst, or a client or an employee. We'll see you next time. Thanks.
This concludes today's conference call. You may now disconnect your lines.