Good afternoon, welcome to Asure's second quarter 2023 earnings conference call. Joining us for today's call are Chairman and CEO, Pat Goepel, Goepel, Chief Financial Officer, John Pence, and Head of Investor Relations, Randal Rudniski. Following their prepared remarks, management will hold a question and answer session for 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 2023 earnings call. Following the close of markets, we released our financial results for the quarter. 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 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. Finally, I'd like to remind everyone that this call is being recorded, and it will be made available for replay via a link that can be found 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?
Thanks, Randal , welcome, everyone, to the Asure Software's second quarter 2023 earnings call. I'm joined on the call by our CFO, John Pence. John and I will provide a business update for the quarter and our outlook for the remainder of 2023. Following our remarks, we'll be available to answer your questions. As you can see from the reported results, our strong momentum continued in the second quarter, with strength coming from solid execution across the business. Our revenue growth for the second quarter was 50%, all of which was organic, with recurring revenues growing by 21% relative to the prior year, and non-recurring revenues up $6.2 million on continued strong performance of our ERTC solutions.
This top line growth also drove a significant increase in adjusted EBITDA, which reached $6.1 million in the second quarter, with adjusted EBITDA margin of 20%. Through the first half of 2023, we've generated 20% more adjusted EBITDA than we produced in all of 2022, showing the powerful operating leverage we have built in the business as we continue to grow revenues. Powering this performance is our focus on delivering a unique value proposition for our target market that addresses the needs of our clients. This approach starts with identifying impactful solutions that we believe will make a real difference to our clients and is supported by engaging and efficient technologies. It also involves mobilizing our sales teams to make sure that our message and value proposition is well understood in providing prompt and reliable customer service.
Our sales efforts for the second quarter produced an 80% increase in new sales bookings, which also builds upon the 87% growth rate we achieved in the second quarter of last year. We continue to invest in the salesforce expansion and been very pleased with the quality of new hires we're making. We're supporting our sales efforts with digital marketing, which is driving a higher level of sales leads and productivity in 2023. In the second quarter, our marketing source bookings increased by 227% relative to the prior year. Our selling and marketing activities have been underpinned by a focus on delivering excellent solutions that address specific client challenges and needs. In payroll, our focus has been on elevating the client experience by making enhancements to our platform in standardizing processes to produce efficiencies.
This client focus, combined with our increasingly effective marketing efforts, produced an 86% increase in new payroll client revenues in the second quarter relative to the prior year. We've also had notable successes in the quarter with our HR compliance and marketplace solutions. HR compliance revenues more than doubled prior year relative to the prior year, with, without an increase in underlying costs, as we have automated our solutions in a manner that is duly efficient for our employees and our clients. This efficiency has also met with opportunities for us to provide scalable solutions in the midst of an increasingly complex regulatory environment that poses new challenges for growing businesses. The Asure Marketplace, which was launched in the second half of last year, has contributed meaningful to our performance, and we continue to believe this segment will represent 30%-40% of our revenues over time.
We're developing new solutions that we will introduce later in 2023 and 2024, which will address a wide range of business needs through targeted integrations and will meaningfully support the next level of growth for our company. I'll have more to say on that in a moment. Processing of employee retention tax credits drove upside in our non-recurring revenues for the quarter. This activity is an example of effectively identifying and developing impactful solutions that make a real positive contribution to our clients' successes. Furthermore, ERTC solutions have also been a helpful contributor to our bundling success, particularly with HR compliance. Interest revenues were also an important contributor to revenue growth in the quarter. With the rise in the yield curve, along with our success in consolidating back-office systems and bank accounts, we have the opportunity to support higher investable balances and revenues.
We're continuing to invest in technology and product development to create new solutions for our clients and to proactively anticipate market opportunities in the future. Our partnership with Amazon Web Services application monetization lab, which we announced during the second quarter, is an important part of this commitment. This strategic initiative is designed to help spur innovation and to accelerate our platform development to ensure we can deliver the most secure and advanced cloud platform in the industry. Our collaboration with AWS will speed development activity while advancing our cloud optimization efforts and employing artificial intelligence to drive future efficiencies. Our technology investments will support the introduction of new solutions later in 2023 and 2024, that we expect to have meaningful impact on our top line performance.
These new initiatives will enable us to further leverage our core capabilities to address our clients' pressing business needs in a dynamic business environment. One other significant opportunity I'd like to highlight is the vast revenue-generating opportunity that has come from last year's passing of the SECURE Act 2.0. The original SECURE Act made it easier for small businesses to set up safe harbor 401(k) plans and provide some tax credits to do so. Version 2.0 of the SECURE Act aims to increase employee participation in retirement plans with updated rules and dramatically expanding the tax credits available to employers for plan setup, administration, and matching contributions.
While the federal government is incentivizing small business retirement plans with the SECURE Act 2.0, a growing number of states are now mandating small businesses offer retirement savings to their employees as well. Many small businesses traditionally have not had the resources to offer such retirement programs, but now they have the mandate and the funding to move forward. Given our large base of small businesses, there is a unique and substantial opportunity to provide our clients with solutions that address these new business requirements. Just as legislation created an opportunity for us with ERTC processing, SECURE Act 2.0 and the state mandates enable us to create compelling solutions to address this emerging area. We recently announced a partnership with Vestwell to use their advanced record-keeping technology to help power Asure's new 401(k) offering.
We're excited to work with them and deliver a great solution for our clients. Because we've already developed scalable tax credit capabilities with ERTC, where we are uniquely positioned to help those same clients take advantage of the tax incentives available from SECURE Act 2.0. Our efforts are focused on providing our clients with solutions that address the most pressing business challenges. In that light, we released our Small Business HR Benchmark Report in the second quarter. This report identifies best practices in human resources based on a survey of more than 2,000 businesses across the United States. It also lays out a roadmap for success for businesses to address HR challenges and positioning themselves for enhanced growth and success.
Our benchmark report identifies eight areas in human resources across the employee life cycle that are critical for success, exposing areas where compliance with regulations is challenging or misunderstood. It also identifies ways of maximizing employee retention and satisfaction to help fuel organizational success. For small businesses, there is nothing more important than linking employees clearly to the drivers of organization success. Best-in-class businesses have best-in-class HR practices, and Asure has the solutions to help. A copy of our Small Business Benchmark Report is available on our website at asuresoftware.com. In addition to the momentum we've built with our HR compliance marketplace and ERTC solutions, we are working on strategic enhancements to our tax platform to capitalize on our unique position in the market. We're consolidating to a single tax engine, introducing a new tax portal, and improving technology to facilitate integrations.
We will have more to say about our development activity in the tax area in future calls, but we're very pleased about the unique and valuable asset and its ability to drive value for our clients and growth for us. In closing, I hope my comments give you a sense of the opportunities that are ahead for Asure in 2023 and 2024. Based on our performance and our current expectations, we're introducing revised higher 2023 financial guidance. We are now guiding for a full- year revenues of $118 million-$120 million, an adjusted EBITDA margin range of 19%-20%. Our previous guidance was for revenues of $111 million-$113 million, and an adjusted EBITDA margin of 17%-18%.
We're also introducing third quarter 2023 guidance of revenues of $26 million-$27 million, which is approximately 20% higher than the third quarter of 2022. For adjusted EBITDA, we're guiding the $3.5 million-$4.5 million in the third quarter, which at the midpoint, would mean adjusted EBITDA expected to more than double relative to the prior year. We expect 2023 will be a strong year for revenues and adjusted EBITDA margins. The midpoint of our revenue guidance range implies approximately 24% organic revenue growth and 19%-20% adjusted EBITDA margins, exceeding the Rule of 40 for the year. We're also very excited about the portfolio of solutions we are developing to drive value for our clients and growth for Asure in the long term.
I would like to hand off to John to discuss our financial results in more detail. John?
Thanks, Pat. As Randal mentioned at the beginning of this call, several of the financial figures discussed today are given on a non-GAAP or adjusted basis. You will find a description of these GAAP to non-GAAP reconciliations in the earnings release that was made available earlier today. Reconciliations themselves are also included in our most recent investor presentation, posted in the investor relations section of our website at investor.asuresoftware.com. On to the second quarter results. Revenues reached $30.4 million in the second quarter, rising by 50% relative to prior year, all of which was organic. Recurring revenues rose 21% relative to prior year to $23 million. Second quarter recurring revenues grew on the strength of our HR compliance solutions, Asure Marketplace, and increased interest revenues with an average client balances exceeding $200 million in the quarter.
ERTC revenues were recorded in the professional services, hardware, and other category in both the current and comparable periods. Non-recurring revenues saw an increase of $6.2 million on the strength of ERTC processing activity. Relative to the first quarter, revenues declined in the period. That is attributable to the normal seasonality of our business as recurring annual year-end W-2 and ACA revenue is recognized in the first quarter. Net loss for the second quarter was $3.8 million, a $2.1 million improvement over prior year's loss of $5.9 million. Gross margins rose by 12 percentage points to 72% in the second quarter relative to the prior period, while non-GAAP gross margins rose 11 percentage points to 77%.
It is notable that our revenues rose by 50% year-over-year in the quarter, while our non-GAAP cost of sale rose by only 2%, which allowed for almost 100% fall through of each $1 of revenue growth into the non-GAAP gross margins. This operating leverage reflects the high margin mix of our growth and our continued impact of our standardization and consolidation efforts. EBITDA for the quarter was $3.3 million, a $3.4 million improvement from prior year's quarter. Adjusted EBITDA rose by $5.5 million, relative to prior year to $6.1 million, and our adjusted EBITDA margin reached 20% in the quarter, compared with 3% in the prior period. In the quarter, we converted a little over half of each incremental $1 of revenue growth into adjusted EBITDA.
Margin expansion was driven by growing high margin revenue streams, continued progress with our efficiency initiatives, and scale benefits from our growth. These gains more than offset the investments we are making in the expansion of our sales and marketing activities. We continue to believe there's margin upside over the longer term as the business scales. We ended the quarter with cash and cash equivalents of $21.6 million. We also had $36.8 million of debt, which is comprised of $32 million drawn under our senior credit facility, with the remainder made up of seller notes from acquisitions.
Now, in terms of our guidance for the third quarter and the full- year of 2023, as Pat mentioned, we are raising our full- year 2023 revenue guidance to the range of $118 million-$120 million, including a third quarter revenues of $26 million-$27 million. Our full- year guidance implies annual revenue growth of 24%, while the midpoint of our third quarter guidance would yield revenue growth of 21%. We expect our organic recurring revenue performance in the third quarter will be broadly in line with the results in the first half of 2023. HR compliance, Asure Marketplace, and float revenues are expected to continue to drive high margin performance.... Our non-recurring revenue performance year-to-date has been driven substantially by the success with our ERTC processing activity.
While there's no sign of a significant slowdown in this area, our guidance reflects a modest expectation for this revenue stream, given its transactional nature. We have also introduced 2023 adjusted EBITDA guidance for margins of 19%-20%, and third quarter adjusted EBITDA to be in the range of $3.5 million-$4.5 million. Adjusted EBITDA performance is expected to be driven by continuing strong revenue performance, efficiency gains from our consolidation and efficiency programs, which will be partially offset by continued investment in sales and marketing activity. In terms of acquisitions, while nothing is currently imminent, we will continue to be prudent in evaluating targets and will execute if the right opportunity arises to create value for our stakeholders.
In conclusion, we are pleased with our performance in the second quarter and the momentum we have built on the strength of our product development, technology, and sales. Our year-to-date performance gives us confidence in our forward-looking guidance. We think that we are continuing to build the foundation for driving sustainable, profitable growth and value creation for the future. With that, I will turn the call back to Pat for closing remarks.
Thanks, John. We achieved a new milestone in the second quarter, achieving 50% revenue growth, all of which was organic. We achieved this growth by investing in products and technologies that will make a difference for our clients. It is very gratifying to see the positive reception to our solutions from our clients. The feedback supports our view that by enabling them to focus on their core businesses, we can create meaningful value for them. We're very encouraged by the early results of the Asure Marketplace, which we think is a game changer for Asure. Its results to date have made a meaningful contribution to our overall performance, and there are lots more to come. Earlier, I previewed our activity with retirement solutions under the SECURE Act 2.0.
While we believe our initiatives here will be significant, they're just one example of the many ways we can leverage our systems and knowledge to create impactful solutions for our clients. We're also leveraging our strengths in areas such as HR compliance. Our solutions address real business challenges facing Main Street America. We anticipate demand for our HR solutions will continue to be healthy as businesses increasingly seek to supplement their internal capabilities with external experts who can help them navigate the increasing complexity of today's HR. Investments in market-leading technology that support our client solutions is also a high priority at Asure. The partnership with AWS is an example of our focus on delivering compelling solutions. These efforts enable us to tackle the critical business issues our clients are facing and supports our efforts to maximize sales and cross-sell our solutions.
Supporting all these initiatives are our efforts to improve our cost structure and efficiencies via our consolidation efforts. We continue to be on track to deliver annual savings of $5 million annually once its implementation is complete. Our upwardly revised revenue and adjusted EBITDA guidance reflects the positive momentum we achieved with our expanding portfolio of solutions and continued strong new sales performance. In conclusion, we're very excited about the performance of the business and the direction we're headed. We are focused on creating value for our clients and on delivering consistent, positive results for our stakeholders. We look forward to speaking with you again next quarter. With that, I'll send the call back to our operator for the Q&A. Operator?
Thank you. At this time, we'll be conducting a question-and-answer session. If you would like to ask a question, please press star one on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star two if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. Our first question comes from the line of Bryan Bergin with TD Cowen. Please proceed with your question.
Hey, guys. Good afternoon. Thank you. Wanted to start off with a demand question here. Just any comments, any measurable change in client demand that you've witnessed over the last three months? Obviously, booking strength seems to imply a healthy continuation, but we know you've got a lot of moving pieces here as you're scaling a lot of the new offerings. I'm just really curious, have you seen any change in what clients are demanding in the current environment and, and nearly any change by client size that's worth calling out?
No, Brian, thank you for the question. We do not see any demand changes. I mean, I think if you think about early in the quarter, you know, the July 4th week is always a vacation week, et cetera. You know, bookings have been solid, demand's been interest levels been really high, leads have been flowing. You know, we, we feel really good about our solution set.
Okay, good to hear. My follow-up then to margin expansion. Can you talk about, you know, how you feel about a sustainable gross margin here? Just understanding you've had some higher margin revenue contributors, like, like the non-recurring, I, I believe, here, that support to the second quarter strength. Can you kind of give us puts and takes in that second half margin outlook? Do we need to be mindful of potential grow over pressures as you get into next year as things like ERTC sunsets?
Yeah, let me, let me go at the first one, Brian, and then I'll let kind of Pat give his perspective on that. I mean, I think in general, what you can tell is that the cost of goods sold line is generally becoming relatively fixed. I mean, there's a little bit of variable component to it, like in the first quarter, there's more shipping. I would say in general, it's fixed to going down, just based on, again, the standardization and some arbitrage in terms of offshoring some of those positions. I think that's the way to think about it. From my perspective, is, is there's relatively kind of high fixed cost to doing business, but once we add that to incremental revenues, that's where you see the margin.
That's that's the way I would think about it in the back half of the year. However we're, you know, guiding revenues, think about cost of goods sold being relatively consistent, the way I think about that. You can talk about the kind of year-over-year kind of issues.
Brian, I, I think we've done an excellent job with the cost structure. John's really done a nice job of budgeting that in. Then our, our team has automated solutions in such a way where we can achieve those results, where COGS is roughly flat. As we look and turn into page in 2024, we'll, we'll probably share 2024 guidance next quarter. Just on a whole, the ERTC program, you know, we put it in a one-time item, and we've done that all year. There's no question that ERTC, you know, as a program, ends first quarter of 2025. There'll be some headwinds in the 2024.
If you think about kind of what we've done as a business, you know, we, we've got several early day products that we're working through that we're pretty proud of. You know, the SECURE Act 2.0, with 401(k) will be a great extension and, and, you know, we're launching that as we speak. We think that'll be a good tailwind. HR compliance will be a good tailwind for us. The marketplace will be a tailwind. Our tax filing business, in general, will be a tailwind. What I'm proud about the sales organization is they've achieved some outstanding productivity.
What we've kind of, you know, locked into here is, if you think about small businesses in this environment, access to capital is probably their number one concern, and then expertise around the changing compliance, whether it's HR, payroll, or tax filing, is number two. To have a partner to be able to solve their problems, is really, really important. You know, that's really what we set out to do, and we've automated the back end in such a way for that to be efficient. There's no question there might be some one-time, tailwind, or excuse me, headwinds going into 2024, but we have our share of tailwinds going into it, and more to come next quarter when we announce 2024 guidance.
Our next question comes from the line of Eric Martinuzzi with Lake Street. Please proceed with your question.
Yeah, I wanted to go a layer deeper on the guidance for Q3. I know you characterize the expectation for ERTC as modest, but I'm trying to put a finer point on that. If I take the growth rate that you just had in Q2, on the recurring rev side, and I apply that to Q3, you know, I kind of... I'm backing into sort of a $2.3 million number for non-recurring, and I want to know if that's in the ballpark.
Yeah, I think what we've been saying consistently is, you know, that's our typical range is in that. You know, if, if you try to put the non-recurring back to a norm, without the last couple of quarters where we had that incremental success, I think that's what we, what we've been kind of, contemplating in the guidance. We've tried to put the non-recurring as if we weren't having the extraordinary sales in the ERTC. That's that's kind of implicit in the guidance.
Okay. Then the retention trends in the core HCM, just curious to know if we've seen an improvement there. It, it feels like small business is doing better, but, just wondering what you're seeing in the retention trends.
Yeah. My perspective, they're trending up from where we have been.
Yeah, I, I would say, Eric, just, we've been 1%, 2% up over the past year, and it's been pretty consistent. I think we've had good accountability, good product rollout, good solution set, good upsell capabilities. You know, if you think about we were probably at a low point around COVID, we've achieved improvement about 1% or 2% per year since COVID, and, you know, feel like we have a good momentum there. I would say, small business formation looks pretty strong. Small business, I would say, access to capital is probably their number one need, but, as far as continuation and growth, you know, we feel really good about where we are.
Got it. Thanks for taking my questions.
Thanks, Eric.
Our next question comes from the line of Richard Baldry with Roth Capital Partners, LLC. Please proceed with your question.
Thanks. If you look back a couple quarters, it looks like the sales and marketing line's up 50% in a pretty big hurry. Can you talk about how much of that is, you know, headcount, you know, resource expansion versus, you know, just commissions on, you know, faster sell-throughs? And then you talked a little bit about, you know, that line continuing to grow and investing in that. Is there any way to sort of scale how much, numerically or even qualitatively, do you expect to keep adding to that organization? You know, obviously, you're seeing some efficiencies, but, you know, that could argue that there's, you know, more to go after as well because of their successes. Thanks.
Yeah. Yeah, no, I appreciate it, Rich. You know, just in, in general, we add headcount to our sales organization and, you know, we're somewhere around 100. I think if you play the tape forward, we'll be about 120. We're gonna continue to grow headcount. As far as costs going up, some of it's headcount. Commission productivity has been very strong, and so naturally, commission is up. There's some referral dollars that are also up. As far as efficiency, we have a field sales organization, and we have an inside sales organization. We've spent some more money on marketing leads, and those leads have paid off very well. We've spent some money on internal tools to really automate inside sales, and so that's an expenditure. We're really happy with the productivity of sales organization.
In general, we'll continue to invest in sales. If you think about our plan over the last couple of years, it's been to be more efficient operationally, to automate, invest in some technology, and then grow the feet on the street or the sales organization, and it's really starting to pay off. John, I, I don't know if you have color.
No, I was thinking about the one slide that was on our board presentation from about a week ago. We were looking maybe at not the same time horizon you were, Rich, but we were kind of at an 18-month view, and the shift was almost, you know, head for head from operations to sales and marketing. Again, you see the overall spend not going down, but it's really that composition of where it's landing on the P&L. Obviously, if we can take it out of cost to serve and put it into the tip of the spear, that's what we've been trying to do. Again, we've got, we've got that shift going on as well as, again, as Pat mentioned, lead gen and commissions.
Then again, we, we intend to continue to try to add to that group over the next, you know, half a year and into the next year.
You know, you've had a lot of new products launching, but you're still holding the R&D, say, first half of this year versus first half last year is also pretty flat. You know, are you seeing, you know, the composition of that changing, some leverage points on that that are new? Do you think that that'll have to start trending up closer to revenues, over time? Just a little more color there.
Yeah, I think actually it's probably up if you were to look at how much has been capitalized versus prior years. I think that the, in general, what you're seeing is the maintenance line is staying pretty steady. It's actually trending down maybe a little bit, which means that, you know, we're still spending more, but we're capitalizing because it's all new and an innovative investment versus just maintaining the old, which is kind of how it's delineated in terms of how we account for it. I would say we're investing, probably at a healthier rate than, than prior years, just not showing up in a P&L. It's, it's getting hung up on the balance sheet.
The, the other thing I'd add to that, John, is, and Rich, is, you know, our partnership, development partnership with AWS, where, you know, we really have a strong five-year agreement, and they've put some calories and, and money into our development effort around a monetization effort of our payroll tax filing, products. They're investing along with us in that case. You know, the, the spend is going up, but the nice thing about it, it's going up in new products and services and new development, which adds to the capital line.
Thanks. Last for me, B. When you look at the Marketplace side, you're obviously pretty happy with what's happening there. Could you maybe break it into two pieces, sort of the successes you're having with people you've had as partners there for a couple of quarters, and then, you know, maybe, you know, more recent activities, how you're feeling about newer partners being added that'll be the fuel for the future? Thanks.
Yeah, I think from the marketplace, you know, a couple of things. First of all, our ability to find partners and have partners wanna do business with us is high. Really feel good about that. I think, you know, the, the first partnerships that are alive, whether it's Equifax or H&R Block or Intuit, you know, those are really strong partnerships. What I would tell you, a lot of them are multi-year in nature. You know, we signed an agreement with 401(k) vendor Vestwell. You know, clearly, the ZayZoon partnership is underway. You will see more partnerships being signed.
I think all of them have a little bit of a different economics around it, and then a lot of them have different lead times, where it might be, you know, a quarter, six months, or a year as you layer it in. Long term, feel really good about the partnership opportunities. I feel good about the biz dev team and what they're putting together from a technology service organization. You know, we kind of leg into each partnership in a different way, but, you know, suffice to say, the future is bright in that area.
All right, next question comes from the line of Josh Reilly with Needham & Company. Please proceed with your question.
Thanks, guys. Nice job on getting these ERTC deals through. We've discussed this a little bit, but maybe could we get some more details on how the pipeline is shaping up for the rest of the year on the ERTC processing deals? Obviously, the guidance doesn't include much for Q3 or Q4 there. Then along with that, can we get some... Are there any proof points or commentary you can share with us about how the ERTC deals have been leading to cross-selling of other Asure solutions?
Yeah, I think from, first of all, from a ERTC solutions, we have bundled with HR compliance, and payroll, and, and have some pretty good attach rates. Probably number one is HR compliance, second is payroll. That's been very, very strong. When we look at guidance for the rest of the year, you know, we anticipate that ERTC backlog will turn into revenue, and maybe not as fast a pace as second quarter, but we'll still be there. We talked a little bit about 2024, and we'll, we'll have more color next quarter.
As far as, you know, kind of our ability to execute, what I'm really excited about is, you know, now that we've connected small business owners to government programs and access to capital, the SECURE Act 2.0, where you have, you know, multiple states now requiring 401 plans, and, you know, we sit on that data, so we can tell if they're compliant or not. We then have give them not only the ability to set up 401s, but also allow them to get government credits on the matching and, and, and the matching of funds. There again, we're not only helping them be compliant, but we're also helping them get access to money to start the program to be compliant. That's a very strong trend.
There's other tax credits that our tax engine can process on behalf of small businesses, so we'll keep connecting there. We have a multi-year strategy around this. We're just getting going. Clearly, ERTC in the second quarter, probably over exceeded expectations a bit. You know, the way we're setting this up, we're, you know, early, early innings to a multi-year growth plan.
Well, I was gonna add one thing, too, just in terms of the, the mechanics. We don't have a lot of ERTC that sits and languishes, right? Because of the nature of our engine and what we've built, we're very efficient. Once we've got, you know, got it to, to closing, it turns around pretty quick in terms of our ability to process on behalf of the client. That's one of the things, I think, our advantage is, is once they, they get into the funnel, they go, they go through it pretty quick.
Got it. That's helpful. Then, on the digital marketing that you mentioned, that you're doing a little bit more of now, what exactly are you doing differently there, maybe, and any proof points there on what that's been driving for you guys?
Yeah, a couple things. First of all, our HR study that we announced, you know, that's an example of our thought leadership. Even though, you know, we have a study here and, and a survey, and then we linked small business success with best-in-class HR practices, oh, by the way, we can offer that, that gives us content for almost a year. It allows us to have the messaging. When you think back before 2023, here, our investment in Salesloft, Salesforce, ZoomInfo, it gives us content, it gives us repeatable marketing. Now it's, it's best-in-class content management. We also do some other, you know, MQL marketing or digital marketing based on keywords, et cetera, but we're driving people to have engagement with Asure.
The other day, we had a sales kind of quarter two and review, and the average customer, in some cases, is engaging with us six, seven, eight times, where they're looking and consuming our content, and then making decisions to go with us around a program. That's the kind of engagement we want. The old days, you know, you were knocking on doors or you're doing telephone calls. Here, the client gets to try you out on, you know, various thought leadership pieces or the website, and then when they're ready to buy, we're there for them, and we're there in an automated way. We've just been more efficient in continuing to drive new clients.
When you think about our productivity, you know, in the quarter, we had a very strong quarter, and that's coming off an 87% compare, so I couldn't be more pleased with our marketing sales efforts.
Got it. That's great. Then maybe one just last, housekeeping question for me: How has the sales headcount trended year to date? I think you mentioned it's around 100 now. Is that a 100, 140 left?
Yeah, we're 90... Josh, I think we're 98 as we speak. You know, beginning of year, Randal, maybe we were somewhere around 88 or so, we probably trended up 10. I anticipate, you know, we'll be closer to 120, sometime in 2024. We're continuing to look to hire. By the same token, we're not just chasing a number, we're chasing quality. You know, if we fall a little short in that area and, and get better quality, that's right where we wanna be.
Got it. Great. Thanks, guys. We'll see you.
Thanks, Josh.
Our next question comes from the line of Jeff Van Rhee with Craig-Hallum Capital Group. Please proceed with your question.
Great. Thanks for taking my questions. Appreciate it. Real nice quarter here, guys. A few questions. Pat, on the on the tax ID numbers, just what, yeah, what are you growing there in terms of TINs on the payroll platform? Then does that mark acceleration or steady growth over the, maybe the past couple quarters?
... Yeah, you know, we, we, will publish unique identifiers, I think, once a year. What I would say, it's probably steady growth. I think retention's been very positive. As far as new sales, I know we're adding more customers than we're losing, which is a very positive side, and then we're getting better attach rates in HR compliance. You know, obviously, we've talked about tax, the marketplace, et cetera. But I would say it's steady growth. I do think, you know, from a new product perspective, our partnership with AWS, et cetera, will continue to grow. But once a year, we publish the EINs, and I would say we'd have steady growth.
Yep. Okay. Very helpful. And maybe just expand a second on HR compliance. A little surprised, given the, the at least the manual component of that, that it levered to the degree it did. Maybe expand on that a second? And when I say leverage-
Yeah, I think.
I mean the operating leverage.
Yeah, Jeff, one of the things that I think is a misnomer is, you know, there's not a, a ton of manual effort. When you think about, let's say, a handbook, we automate best practices within the handbook, so it is a lot of it's a rinse and repeat. Some of the government legislation, et cetera, is pretty automated. You know, some of the best practices are. And then we have kind of a use it or lose it philosophy, where in some cases it's almost an insurance policy, where, you know, you have small businesses that they want somebody in the huddle, and it's a long way from HR professional to employment attorney.
What they're looking for is sometimes they get very sticky situations, and if you think about even coming out of COVID, you know, people working from home, hybrid, you know, do they have to come into work? What if they don't? Do I have separate rules for separate people? You know, there's all kinds of complexity. Then some of it, too, is just if you think about minimum wage. 10 years ago, we had one minimum wage, and it was at the federal level. Now there's places in California, you have four levels of minimum wage, whether it's the city, the county, the state or the federal government.
You know, the small business owner is throwing up its hands and saying, "Hey, help me." You know, we have been able to automate in such a way where there's a lot of leverage to that model. We have pretty good pricing power, and we've set it up a way where, you know, we're, we're very pleased with the results, top and bottom line.
Mm-hmm. Fair enough. One, one last one, just on the competitive landscape. The PAYXs have talked a lot about coming down market. Are you seeing more of that group or any, any changes in particular of who you're seeing?
No, we, we see Gusto, Paychex, ADP, and, you know, occasionally we'll see the PAYXs, but I, I don't, I don't see those companies on a regular basis.
Okay, great. Thanks for taking my questions.
Thank you, Jeff.
Our next question comes from the line of Vincent Colicchio with Barrington Research. Please proceed with your question.
Yeah, nice quarter, Pat. Curious about the bookings growth breakdown between new and existing clients?
You know, we're pretty strong on new. We're probably about, historically, about 60/40. We were right in line with 60 new, 40 existing. We've had some really good growth in new logos. We also had very strong growth in additional products and services, especially the introduction of some of the products I mentioned around, you know, whether it's tax or Marketplace or HR compliance.
How is the tax product revenue versus your plan? When do you expect to make the, you know, improvements you're currently working on, when do you expect to complete that?
Yeah, I don't think we had a ton built in up to this stage. I think that you'll start to see it become more meaningful, second, I mean, probably fourth quarter 2024. But again, we, we weren't playing a ton into this year, but trying to build a foundation. I think it really starts to kick in as we talk about next year.
Yeah, to John's point, Vince, a lot of, you know, we'll... I think you'll see very strong bookings in tax, but because of the nature, whether it's Workday or, or some of the books of business at tax, the install times are a little bit longer than a 10-employee payroll. You, you'll see that play in in a meaningful way on revenue in 2024, but we're real excited about marketing and the booking potential.
what I was trying to ask is, the current improvements you're making to the tax product, when will those be complete? Do you expect that to significantly improve traction?
I don't think it's, it's ever completed, right? Especially if you're going upmarket to some of these enterprise accounts, you're always gonna have to be, you know, investing in it. I don't think it's, it's not a big bang. There's not like this one, you know, day that this thing's gonna be completed. It's just, it's an ongoing process from my perspective.
Then lastly, on acquisitions, is this something that we should see happen in the next six months or so?
I think so. I mean, look, we've been pretty consistent on this one since the beginning of the year, that we were gonna take a hiatus, try to focus on the, on the core business. It's, it's clearly part of our model. I mean, it's something that we think makes a lot of sense in terms of being very creative from a cash generation perspective. It's, it's something that we think we've, we've perfected. You know, I think we're, we'll opportunistically look and see if we can find some stuff back half of this year and going into 2024. There's nothing imminent. We don't have anything under a letter of intent at this point.
Thank you.
Thanks, Vince.
Our next question comes from the line of Greg Gibas, with Northland Securities. Please proceed with your question.
Great. Hey, Pat and John, thanks for taking the questions. Congrats on the strong results. You know, wanted to get a sense, 'cause I think the ERTC Solutions activity was, you know, provided some upside relative to expectations. You know, I guess just whether in your maybe full year outlook, just trying to get a sense of how much of that strength in the professional services and other continues into the back half. You know, what's kind of implied in your, in your outlook for the year?
Yeah, I think what I was... I think that was a question earlier. I, I'd try to answer it the same way. Hopefully, I'll, I'll answer it the same way. I think, you know, we were when we look at kind of our guidance in the, in the back half of the year, we, we look at it being kind of back to normal in terms of that line item. Historically, it's been a couple million dollars over the last few years, in that line. We, we didn't forecast in our implicit in our guidance, huge numbers, for that. Again, just because of the nature of the pipeline and how quickly it turns through, and the fact that it is non-recurring in nature, it's just not as predictable as, as the recurring line item, obviously.
Yeah, Greg Gibas, what I would say, you know, second quarter was 21% recurring. There's really no ERTC in that line. You know, we think we have the ability to keep going on the recurring line, and some of the products we talked about give us reason for that conviction. We'll continue to grow that. Then what I would tell you is, you know, the ability to sell kind of the processing of the ERTC credits, now we move that, you know, over time into 401(k) and tax credits around WOTC, et cetera. There's other things that we have the ability to go. I think you'll see some line extensions in that area that will bear fruit in 2024.
The recurring revenue of this business being up 20%, both the first quarter and the second quarter year, gives us pretty good optimism heading into the back half of 2023.
Perfect. Very helpful. I know you broke out-- you said bookings growth was kind of 60/40, new versus existing. Apologies if I missed it, but did you break out, bookings growth in the quarter?
Have we broken it out before?
No, just wondering-
Sorry.
-what it was. Sorry, in Q2, bookings growth.
We're about 60/40. I would tell you, we've hovered between 40/60, 50/50, 60/40, depending on products and depending on kind of where we're at. Our new logos has been particularly strong here the last six to nine months. That, you know, is an investment in marketing and both the digital marketing as well as the content that we had. In our HR survey, if you go to asuresoftware.com, you can get a copy of that survey. That's some of the thought leadership we've been able to monetize into new logos, and that's been very successful. As far as the growth rate of some of the services and products that we offer, the attach rates have been up on the new logos, which is very, very strong.
That's led to some of the new logo growth. That's probably more so than we've had in past years.
Okay, got it. Thank you.
Greg, thank you.
Thank you.
And we have-
Operator, any more questions?
There are no further questions. I'll turn it back over to you, Pat, for closing remarks.
Well, well, great. Hey, I been here, gosh, almost 14 years now. Really proud of the staff. You know, there's always four constituents that I think of in running a business. It's the employees that we have, and they've done an outstanding job. It's the clients we serve, and, you know, on behalf of the 1.7 million employees that we serve and 100,000 clients we serve, you know, really good to see the momentum. The investors are a big piece of, you know, w- we want to satisfy from a financial return, and year-over-year, you know, we've had pretty strong stock performance. We're not satisfied. We wanna continue to improve that. It's the communities we serve.
You know, we're having the good fortune of being in a number of cities across the United States, and we always wanna help in the community. You know, really positive of where we're at. Feel like we have a long way to go. We've not yet reached our potential, and we'll do so over time, and this gives us a great jumping-off point. Look forward to seeing you next time, and appreciate your interest in Asure. Bye now.
This concludes today's conference, and you may disconnect your line at this time. Thank you for your participation.