Good afternoon, everyone. My name is Jacobo, and next up we have Asure Software trading as ASUR on the Nasdaq exchange. I would now like to introduce Patrick McKillop, VP of Investor Relations.
Thank you. Good afternoon, everybody. As Jacobo said, I'm Patrick McKillop. I'm the Vice President of Investor Relations for Asure Software, and thank you for joining me this afternoon, and I'm going to walk you through our slide deck and tell you our story. Before we get started here, just a quick note. Here's our forward-looking statements. Please take a minute to review these, and certainly you can refer to our filings with the SEC, our 10-K and 10-Qs as well. Who is Asure Software? We are a payroll and HR platform for growing businesses. We help business pay their employees, remain compliant, as well as win the war for talent, and give them tools to better manage their workforce. Some quick stats. We're headquartered in Austin, Texas. We have about 641 employees. Excuse me. We serve over greater than 100,000 clients.
About 2 million or more employees are served on our platform. This year we are guiding for revenues of between $159 million and $163 million, and we're predicting adjusted EBITDA margins of between 24% and 25%. We have net retention of about 98% as of the end of 2025. Our revenues are about 91% recurring revenues. We service clients in all 50 states in America. We have a very sticky client base that typically stays with us between 8 to 10 years. We have no heavy concentration in one particular client base. The management team and the board are big owners of the shares, approximately 9% insider ownership. Our platform and our growth has been accelerating over the last couple of years.
This slide depicts a number of point solutions that we've acquired going back to the year 2020, where we acquired a payroll tax management platform, and then in 2024 we acquired PeopleStrategy, which is a HR and benefits brokerage firm. In 2024, we also acquired HireClick, which is a recruiting and applicant tracking technology. Lastly, in July of last year, we acquired Lathem, which is a best-in-class time and attendance product to augment our existing time and attendance product. Again, in a short order of time, we've built this business into an approximately $160 million business. We've only been in the HCM industry for about 10 years now. By way of some background information, it took Paycor 20 years to reach $100 million in revenues, and so we've achieved greater than that status in a shorter period of time.
Here on this slide, this just depicts our operating leverage. This is a business that is a high fixed cost structure. But as we achieve certain revenue targets, you can see that the profitability improves dramatically. If we go back to the year 2020, we were doing about $75 million in revenues, and we had adjusted EBITDA margins of about 10%. As I just referenced, we are targeting about $161 million revenues at the midpoint of our guidance this year with adjusted EBITDA margins of about 25%. And then longer term, as we get up to even further scale, you can see at the $500 million level, we should be able to achieve adjusted EBITDA margins of about 50%. Again, this slide is just depicting our history of where we have been and where we are going.
We have a nice revenue CAGR of about 17%, followed by an adjusted EBITDA CAGR of about 37%. Our revenue base is primarily made up of a couple of different cohorts. If you look here, the light blue section represents about 64% of our revenues. That is our core business is small and medium-sized business payroll clients. Followed by the light green triangle, which is our enterprise tax offering making up about 18% of our revenues. And then we have our darker blue triangle, which represents our HCM or small business platform, which is indirect customers. We go to market two ways. We sell our products directly. We also go through a reseller network where they use our software and pay us a royalty of approximately 8%-10% of their revenues.
We also have a cohort, which equates to 10% of our revenues, which is hardware sales, things like time clocks, for example, and some other non-strategic businesses that we have acquired over time. As I said, we go to market in a couple different ways. We have a direct sales force of a little over, at this point, 120 sales reps. We are looking to add to that team and grow it to about 150 over the back half of this year and into next year. That would be what we call traditional organic growth. This includes any new logos that we acquire as well as driving sales through cross-selling opportunities into that existing client base. And then we have what we call enhanced organic, which is essentially, we are in the motion of acquiring these resellers over time.
We have done a number of these transactions over the last 24 months. We have probably acquired about 20 resellers. The way that we do that is that we pay them about 2x their revenue, and then we issue them a seller note for the balance of the purchase price. We lose the royalty revenue from them, but we gain the overall revenue from them, and we integrate them into our existing base, in some instances, in little as 24-48 hours. The business owners sometimes will stay for a longer period of time, depending upon each situation. But it is really a great strategy. The way to think about enhanced organic is we are really just buying books of business. It is not a traditional M&A transaction, if you will. And then lastly, we have what we call strategic inorganic.
This is a situation where we would acquire a new product or a new technology that we did not have in our existing business in order to fill an area that we felt we needed to broaden our portfolio, if you will. These are, again, the definitions of how we describe our paths to growth. Here is a TAM slide. You can see we are playing in a very large market. Approximately a $90 billion total United States HCM market TAM. Here we are basically just depicting a layered economic model, which is built on an infrastructure, which is tied to a regulatory function. We have, on the bottom, you can see that we have payroll infrastructure, which includes enterprise payroll tax, treasury services, as well as data. Then we have brought all of these point solutions together under what we call AsureCentral.
All of the acquisitions that we have completed over the last couple of years have now been integrated. When end user clients log in to use the system, there is one landing page. There is a single sign-on with a multi-factor authentication. The landing page will show the client the products that they are currently using, as well as products that are available to them for consideration. Then this year, we rolled out, in January, a product called AsureWorks. What AsureWorks is a managed services offering. That means that we will take responsibility and do all of the work for the client versus the client doing the work for themselves using our software. It is early days in this, but we have seen some really good traction and great reception to this product. AsureWorks is kind of like a PEO, if you have heard of a PEO.
It is not a PEO in the sense that we do not take ownership of the employees. If you are a small business owner and you have, let us say, 70 employees, and you are considering hiring a full-time HR rep, that HR rep might cost you in the neighborhood of $125,000 per year. With AsureWorks, we are able to do all of these things for you at a much more attractive price point, say, for example, potentially $50,000 per year.
There is a cost savings initiative for a business owner to consider this as an option. Small business owners are constantly faced with new regulations and compliance laws, as well as shopping for benefits for their employees. We are able to handle all of this for you and take that work off of your plate so that you can focus on what you do best, which is growing your business.
As you can see here on this slide, it gives you a quick screenshot of what AsureCentral platform looks like when you log in to use the system. It welcomes you. You can see your name there. You can see all of the products that you are taking. There is a menu on the left, which shows you other products that are available to you. As we talk about our product portfolio, you can see over the last six years, we started out with time tracking, payroll, as well as payroll tax. As we sit here now in 2026, it is a much broader product portfolio. We use the industry term PEPM, which is per employee per month, the amount of money that you are able to charge your client per month for each employee that you handle. In 2020, that number was about $15 max.
Now, as we sit here in 2026, we are able to charge at a maximum of $100 + per employee per month. We have dramatically increased our capability in terms of what we can bill our clients per month. Now the focus is really on getting our existing client base to take more products from us and drive cross-sell or attach rates. We have been reporting out our attach rates over the last couple of quarters. Here in this slide, you can see that during Q2 2026, the number of clients taking two or more products from us increased by about 6%. Our goal here is to get the average client up from using two products to four or more products. We are on the right trajectory here. The numbers are trending in the right direction, and we continue to focus on increasing adoption.
I would say another metric that we look at is our new logo versus existing logo split, meaning the number of new customers versus existing customers that are generating sales. If we went back in a period in time, I would say that was averaging around 70% new clients versus 30% existing clients. As of the end of Q2 2026, that split is 53% new clients versus 47% existing clients. That is a function of us selling more products to existing customers, not the number of new clients declining. These metrics give us confidence that we are heading in the right direction, and this is going to be one of the key drivers of our organic growth going forward. There is a big discussion in the marketplace today. Obviously, the narrative has been that AI is going to destroy or disrupt software businesses. We are not of that thought process.
We think that AI in combination with software is really how you need to think about it. One of the things that you need to consider is that we have several moats around our business. We are a system of record. We have things like compliance moats. For example, payroll tax laws. We move $20 billion, 20 billion with a B, in terms of money movement. In order to process payroll, you need to have money transmission licenses from the 50 different states. Our executive team is fingerprinted, background checked, and submits personal financial statements almost on a monthly basis. We have a direct connection into the IRS. We are what they call a bulk filer status with the IRS. These are all the types of things that AI is not going to be able to accomplish for you.
As a matter of fact, many of our small business clients, they may be aware of AI, but they are certainly not of the types that are going to vibe code an app to process their payroll. Payroll has to be exact. You cannot make mistakes. This is not an area where you can allow AI to hallucinate and just make up somebody's paycheck. These are some of the areas where we point to as a defensive moat against this AI is going to disrupt our business. This slide here just kind of depicts how we interface with AI. We do have our own internal developed AI agent by the name of Luna. Luna has multiple different functions. She can perform over 50 different functions at this point. But this just kind of depicts how we interact with frontier models and develop our AI strategy.
Using AI, it is helping us embed tools and copilots across all of our new product development. 70% of our new code is generated from tools like GitHub Copilot and Claude. We can reduce UX prototyping from several hours into just minutes. Some of the things in terms of productivity we look at, a sales development rep can now collect buyer insights in a matter of minutes versus an hour. We also use AI for things like sentiment analysis. For example, Luna listens in on our customer service reps' calls. She listens for keywords where a customer may be upset, not happy with a problem that they are having. We then use that in training with our CSR reps to figure out, okay, did this client end up ending their relationship with us? Did the client end the phone call in an angry manner? Was the issue resolved?
Things of that nature. It is really helping us with client interaction. We look at Luna AI as part of helping our margin expansion story. We can help lower our cost to serve our clients with AI. A lot of questions that come up, typically from a client, they can log into Luna and ask it certain questions. If you are an employer, and let us say you sent around an employee handbook to have all of your employees sign, Luna can keep track of who signed that, who needs to be sent a reminder. She can keep track of, for example, there are certain employees that have time sheets that are missing that have not been submitted. She can make sure that all of the relevant data is in a perfect place before the payroll actually gets run.
We think this will also help with increasing our stickiness as well as helping process productivity, and drive that even higher. This is a proprietary data advantage in terms of a competitive mode. Overall, basically, it is not just a feature, it is a mechanism by how we increase our margin profile over time. These are some highlights from our second quarter 2026 results, which we just recently reported back at the end of July. You can see here revenues were up nicely, 23% year-over-year for total revenues. Our recurring revenues increased by 19%. We improved our net loss by $1.7 million. You can also see that our adjusted EBITDA, excuse me, was up about 48%. When we look at growth, a lot of people want to understand what was organic growth contribution versus inorganic growth contribution.
In this slide here, we are breaking that out for you. You can see that during Q2 of 2026, our organic growth contributed roughly 5.3%. The enhanced organic component, again, which comes from the reseller books of business that we bought, that contributed about 3.5% growth to this quarter. The strategic inorganic, which would include things like Lathem Time and Attendance acquisition that we made last July, contributed 14.5% to this quarter's growth. This is a snapshot of some of our select financial data. Again, you can see that our insiders collectively own about 8%-9% of our outstanding shares. I just want to go back to a minute for a discussion about our payroll tax management business, because I feel like a lot of people do not necessarily understand what is payroll tax management.
Essentially when you are processing payroll, everyone assumes that the tax filing and that the taxes are being paid to the relevant agencies, whether that is the IRS, the state, or local governments. Essentially, this is a unique business for us in that we are one of only three companies that have this capability in the entire United States. Our competitors being ADP MasterTax, as well as a company called Ceridian, which is now known as Dayforce. What our payroll tax engine does is it takes responsibility for filing the tax notices as well as remitting the money to the tax agencies, whether it is the IRS, state, or local governments, again. We have seen some really good growth with this business in terms of the last 18 to 24 months. This was a business that we bought during COVID in 2020.
It was doing about roughly $2 million to $2.5 million. As we stand here today, it is probably a $25 million business for us, roughly. Ultimately, we think in the future that this can become a $100 million business over the longer term. We process payroll taxes for some of the largest corporations in America. For example, Kroger, the grocery store chain, Nucor, which is the largest steel company in America. We have partnerships with large human resource platforms like Workday, Oracle, as well as SAP. We use this internally to do payroll tax filing for our own clients as well as other payroll companies. We also sell it on a standalone basis, and we have a very active pipeline here.
As we look out to the second half of the year and the beginning of next year, we think that we are going to land a couple more large enterprise deals. These are deals that are typically multimillion-dollar deals that last over a couple of year period. We think it is important that people understand what this business is all about. As I said, it is about 18% of our revenues now and growing quite nicely. I think with that kind of wraps up the presentation. I do not know if anyone has any questions at this point. I would just say that over the last couple of years, we have been hard at work building this company, acquiring the point solutions, doing a lot of the integration of the products, as well as acquiring our reseller network.
There is about 200 resellers out there still that we continue to execute on that strategy. If you look back in history, there was another company by the name of Ultimate Software that executed this playbook and ultimately exited the public markets at a very high multiple. We will continue to execute on this reseller roll-up strategy. We feel that 2026 is really the year that we have been playing for a long time. We have got the product portfolio, we have got the technology in place now, and we are going to continue to drive the business growth through both organic methods as well as inorganic methods. We do have the ability to generate free cash flow. We will probably generate about $18 million or so of free cash flow in 2026.
As you look out to the future, when we achieve our medium-term revenue target of $180 million to $200 million in revenues, you'll see the adjusted EBITDA margins and the profitability really pop out. At the $200 million revenue mark, we can probably achieve adjusted EBITDA margins of 30% +. If you do the math, 30% adjusted EBITDA margins on $200 million in revenue generates about $60 million in adjusted EBITDA. Then, free cash flow at that point would be somewhere in the neighborhood of $40 million. We feel like we're on the right trajectory. The wind is at our back, and we really just need to execute on the model. I would also just reiterate the fact that our management team owns quite a bit of stock, and so there's a vested interest in here to be responsible in growing this business.
I have a question.
Question. Yeah, sure.
Over the next three years, three transformational pieces of growth, between cross-selling, AsureWorks, enterprise tax, which do you think is the biggest contributor?
I would probably say it will be a combination of all of them, but certainly, I think the enterprise tax business probably has the biggest upside. Just due to the limited nature of competition there, the momentum that we've had, we've kind of proved out that we can scale this business to handle large enterprise clients. A lot of people ask us, "Why wouldn't Workday or Oracle or SAP just build their own payroll tax engine?" The reality is that Workday and Oracle, those are more front-office, client-facing software type companies. That's what they focus on building. The payroll tax filing engine is really kind of a more back-office function. It's really a lot of nitty-gritty type of work, and that's not something that these larger companies are interested in investing in and taking the time to develop.
They would rather just partner or outsource that type of function. Thank you for coming today. Appreciate it. Enjoy your day.