Good afternoon, and welcome to Assure's First Quarter 2021 Earnings Conference Call. Joining us for today's call are Assure's Chairman and CEO, Pat Gapoul John Pence and Vice President of HR, Cheryl Chula. After the speakers' remarks, there will be a question and answer session. I would now like to turn the call over to Cheryl for introductory remarks. Please go ahead.
Thank you, operator. Good afternoon, everyone, and thank you for joining us for Assure's Q1 2021 earnings call. After the market closed, we Our earnings release is available on the SEC's website and our Investor Relations website at investor. At asuresoftware.com, where you can also find the investor presentation. This teleconference is also being broadcast over the Internet and will be archived and available on our IR website.
During our call today, we will reference non GAAP financial measures, which we believe to be useful to investors and exclude the impact should 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 would like to remind everyone that this call will be 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 Gapple, Chairman and CEO. Pat?
Thank you, Sheryl, and I'd like to welcome everyone To our Q1 earnings call, we sure appreciate your interest whether you're an employee, a client, investor, analyst or another interested I'll start today's call with an update on some key metrics before reviewing business highlights for the Q1. Then John Patz, our CFO, will review our financial results and provide an outlook for the Q2 2021. Then he'll In reflecting December 2019, when we sold the Space business, we increased our sales from 33 to 64 right in the middle of a COVID Pandemic. And I think what's really important since that kind of progress has been made, this quarter was a really important inflection The past 14 months or so have been different than any other we've experienced before. The mass shutdowns in response to COVID COVID-nineteen forced us to find innovative ways to connect with our small and medium sized business Clients and prospects as well as our own employees to overcome these challenges.
With more than a year passing since the pandemic began, I'm very proud of how the Asure team embraced the challenges and took a leadership role through this pandemic. For example, as part of our efforts to shepherd more than 80,000 SMB clients through the COVID pandemic, we recently introduced an employee retention tax credit or what we call ERTC solution to help clients efficiently maximize the tax credit. ERTC is part of the CARES Act, which encourages businesses To help our CPAs, our brokers and our bank referral sources grow and prosper. When they grow and prosper, we grow and prosper. While our sales channels continue to be impacted by the restrictions of face to face meetings and delayed We also continue to add reseller partners and our total bookings this quarter increased over 20% year over year.
Compared to the Q4 of 2020, Q1 revenue, EBITDA, Non GAAP EBITDA and non GAAP EPS all increased sequentially. As a reminder, The Q1 is seasonally strong because this is when we recognize our year end W2 and ACA reoccurring revenue. Even after backing out the year end revenue, we performed well compared with the Q1 2020 in a very tough environment. The COVID-nineteen pandemic is still a headwind, primarily putting current same store sales due Drilling down into the COVID impact on a monthly basis of the 10.50 of our 10,000 direct customers Pause last March 2020, approximately 900 have returned through March 2021, resulting in about a 1% churn in our clients. Our pays per control or what we call same store sales, which roughly tracks national unemployment rates, was down 14% year over year in Q2 of 2020, it improved to down 9% in the Q3 of 2020.
It remained above that level in the Q4 of 20 20. In the Q1 2021, it dipped initially and it recovered a bit in March, but the average for the quarter was down 13%. This has presented a headwind because in normal times, pays per control typically increase about 2% year over year. Still, since we've been adding more clients than we're losing as same store sales normalize over time, this will even if they're willing to do so. However, we're pleased with the number of new clients booked is increasing and with the broad adoption of multiple solutions Our investments in sales rep are also bearing fruit.
As a reminder, we began 2020 is a transition year with 33 sales reps and at the end of Q1 2021, we had 64. We expect to be between 7580 by year end. Most of these new hires have very experienced, bringing Strong referral relationships. The selling environment will likely continue to evolve with differences on a regional basis As COVID cases and the reopening trajectory stabilize, we are optimistic with the vaccine deployment progressing steadily, Our clients are in a best position since the pandemic started to begin making Buying decisions. Our initiatives to reduce expenses while accelerating our go to market And product innovation investments have positioned us very well for growth as the pandemic situation improves.
We have delivered solid client growth and demonstrated our unique value to our clients and partners through some of the most difficult times. Still, we believe that momentum with our business metrics will continue and the economic conditions will improve as national employment levels gradually return to pre COVID levels. As for acquisitions, Integration of the small reseller based in the Northeast that we purchased in December is going well. We don't have any acquisitions pending. We do expect to be opportunistic in rolling up our reseller partners that white label our human capital management solution.
This is in line with our Partners for Life strategy, where our partners can provide referrals or white label and resell our solutions and then join the Asure family. As an essential small business, Asure remains committed to helping more than 70,000 indirect 10,000 direct small business clients grow in a very challenging environment. We're committed to ethical business practices, values based Culture, innovation, social responsibility and leadership as well as our support for small businesses throughout the United States. Now I would like to hand off to John to discuss our financial results in more detail. John?
Thanks, As Cheryl mentioned
at the beginning of this call, several of the financial figures discussed today are non GAAP. You will find a reconciliation from GAAP to non GAAP As part of the earnings release made available earlier today and included in our most recent investor presentation posted in the Investor Relations section of our website at Sure software.com. As mentioned on our last earnings call, we continue to review the metrics used to explain our business performance. With the year behind us As a pure play HCM software provider, following the separation of the Workspace business in 2019, it is a good time to simplify and add clarity to our reporting With the goal of making our progress on the execution of our strategy easier to follow, we believe this ultimately will require fewer GAAP to non GAAP story around our results. We will continue to try and add more visibility and insight over the coming quarters.
Both year over year and Sequential quarterly revenue comparisons are challenging this quarter for different reasons. Year over year revenue comparisons are pressured largely due to lower volume of employees employed In mind, revenue for the Q1 increased 20.5 percent to $19,800,000 from $16,400,000 in the Q4 of 2020 and 4.5 Year over year. Recurring year end revenue was driven by fees generated by annual preparation and federal reporting regarding employee 0 in the Q4 of 2020 and from $3,200,000 in the Q1 of 2020. Additionally, we have added a slide to our investor deck to help visualize these revenue transitions. Finally, as a reminder about our seasonality, the Q1 of each calendar year is seasonally strong for Revenue and profitability as your NW2 and ACA recurring revenue is recognized in this quarter.
The seasonal boost we experienced This quarter does not exist in the second and third and fourth quarters. Recurring revenue continues to represent approximately 97 Interest on client funds was approximately $400,000 in the first quarter, up from approximately $300,000 in the 4th The increase was primarily due to the change in the average balance of client funds held on behalf of our clients, increasing from an $185,000,000 in the 4th quarter to approximately $234,000,000 in the Q1. As we consider the expenses, I will offer Similar caveats regarding the expense comparisons. As we previously mentioned, in the Q1 of 2020, our employees had normal pay rates and benefits pre Both of which were reduced in the Q4 of 2020 to help the company manage the impact of the company's We returned pay rates to normal levels in the Q1 of 2021 and anticipate returning to normalized benefit levels in the second half of twenty Depending on continued economic improvement. Compensation and benefits represent approximately 70% of our cash expenditures, So these adjustments have meaningful impact.
This quarter, revenue growth had a significant impact on our profitability. Our sequential gross profit in the 1st quarter 2021 EBITDA was $2,600,000 representing 13.1% margin, up from negative $1,600,000 in the 4th quarter. Compared with the Q1 of 2020, EBITDA increased about 30%. It is important to point out While revenue increased a little over $800,000 year over year, EBITDA increased by $1,500,000 after taking out approximately $900,000 of transition services expenses related to the Workspace sale. Non GAAP EBITDA, which also removes stock compensation and one time expenses EBITDA was $3,400,000 representing a 17.3% margin, up from the 4th quarter $1,100,000 representing a 7% 1st quarter 2020 was $4,300,000 on this metric, but included more than $1,800,000 of one expenses, add backs versus approximately 200,000 of these types of add backs in the current quarter.
Turning to the balance
We ended the quarter with cash and cash equivalents of $24,300,000 At March 31, 2021, we had 22 point We have applied for forgiveness of the PPP loan and we hope to receive a decision from the Small Business Administration sometime in the next few months, but have not given any new indication of timing of this decision. Now I'm going to turn to guidance for the Q2 ending June 30, 2021, this guidance is offered with the backdrop of a very challenging environment to predict future economic results as evidenced by the significant on expected employment results last Friday and the revisions to previous employment figures. We're providing the following guidance. Revenue for the Q2 It'd be in the range of between $700,000 $900,000 and non GAAP EPS is guided to be between negative 0 point While we continue to be cautiously optimistic with the potential tailwind of the improving economy, given the uncertainty of when America returns We want to be prudent with how we are running the business and describing our prospects. Accordingly, we are not yet Our earnings call is now open.
Our next question comes from the line of Matt Miller with In relation to overall employment levels, we've included a slide in our investor presentation, which is located at Slide 28. And as I mentioned earlier, we have also added a slide to presentation to help bridge the revenue transitions between quarterly comparisons and that slide is located at Slide 29. And again, our investor presentation is located on our website in the Investor Relations section. And with that, I'll turn the call back to Pat.
Thanks, John. And I want to highlight John and the management I think they did an excellent job with the investor presentation and I think really gives a window of clarity As we enter our 2nd year here with COVID, we remain diligent in helping businesses We continue to navigate the pandemic and remain hopeful that the worst is behind us. Throughout every stage of the pandemic, We have demonstrated our commitment to helping clients in our multifaceted response. Our COVID-nineteen resource center Webinars, for example, continue to help thousands of small businesses. We continue to listen to and work with small and midsized businesses to provide information, resources and the support they need.
We've assisted our clients in quickly applying for and obtaining PPP loans. We have also helped them claim paid and employee retention tax credits. Our Experienced employees have really lived Assure's values of embracing change, leading with integrity, owning the outcome, Delivering awesome and being a good human. I give credit to the innovation, integrity and hard work of our employees who have continued to Show up for our clients even while navigating the challenges of the pandemic in their own personal lives. And what This is done, is that it really has helped our small, medium business clients get back to growth and help them navigate the We're confident that our resilient business model, strong financial position and dedicated employees and leadership team will help us Sure finished 2021 even stronger than when we started it.
We're particularly pleased with the trend line of revenue growth It troughed at an 18% year over year decline in Q2 of 2020, improved to a 10% decline in 3rd Growth in the Q1 of 2021. And as John mentioned, our core operating metrics are now at a point where $17,000,000 this range points to year over year growth of 17% to 20%, About half of this growth being organic and the other half inorganic. We believe that this points to an important milestone As we march towards our strategic goal of 10% organic growth, 10% growth generated through accretive acquisitions and twenty percent EBITDA, which gets Assure more in line with the growth and profitability margins with some of the other publicly traded SaaS human capital Our vision of providing human capital management software with services that help companies grow While nurturing a culture of growth around us and our mission is to help customers grow by getting the most from their human capital. We also want to help our employees grow personally and professionally, grow relationships in the With that, We'll open it up for questions. Operator?
Our first question is from the line of Ryan MacDonald with Needham. Please go ahead.
Hey guys, this is Josh on for Ryan. Congrats on the strong quarter. Just wanted to start off, our checks and some
Yes. No, I Josh, I'll let Josh chime in as well. I think January, February, if you think back, We had a second wave of COVID. The election stimulus probably was a little bit delayed. So we saw some Softness in January, February, March was relatively strong and started to bounce back a bit.
I think that's how we saw it. From a sales rep productivity perspective, first of all, we've been really happy with the reps that we've been I will tell you, I think our reps are developing really good referral sources. We're learning how I sell digitally and I've done that a really nice job in a tough environment. And we're cautiously optimistic that as America reopens, We'll keep gaining productivity, but to be up in bookings over 20% in the Q1 year over year, I was Very happy with our sales rep performance.
Yes, I agree with Pat's assessment. It was a little choppy January, February, but it did come back in March. We're talking in May, right, so we've already forgotten the spike that happened kind of in that timeframe. So anyway, it did come back
Okay, great. And then following up on that, how should we think about the slower return The work that we're all very aware of here given what's happened in the last week, particularly in the troubled industries impacting your Same store sales later in the year here. And then can we get some more color on how you're factoring that into Q2 guidance here or what assumptions you're using? Thank you.
Yes. Just in general, we're not counting the table on a We're kind of modeling steady state, if you will. I do think in the back half of the year towards September, we may have an opportunity that employment levels will start to go up a bit, but we'll take that on 3rd quarter or second quarter's call. But as far as modeling 2nd quarter, we've really kind of looked at it as we're open for business, we're going to continue to drive results And keep feeling the trajectory that we have, but we're not expecting anything more natural than that.
Thanks guys. Thanks Josh.
Your next question is from the line of Richard Baldry with Roth Capital. Please go ahead.
Thanks. Firstly, could you talk about what you're seeing at the leading edge of your pipeline for your marketing funnel Whether there is material changes to that and how that's been trending. And then maybe just kind of an easy one, but R and D was sort of flattish Year over year below where it's been trending in the last several quarters. Is this sort of a new level to base off of or there anything unusual in that number?
Yes, I'll answer that first question first and then I'll or that last question first and then I'll turn it over to Pat. There was, I think, a little bit more capitalized this quarter and it kind of just varies depending on what projects they're working on. So I think that's probably the transition more than anything. I don't think that you I think the levels are fairly consistent year over year.
I would agree with John. And I think as far as the leading edge of the funnel, what I would say, Rich, is I do think we're working on some really interesting stuff And some maybe bigger transformational kind of accounts, but they're early in the pipeline and it's really a factor of Some of our either resellers or some of our value added partners are now turning to, hey, I have hundreds of clients, boy, I could do something more meaningful. Let's talk to Assure. So I think we're in the early innings of some pretty nice Sales opportunities, but I don't anticipate anything immediate to that. But that's what I would say towards the back half of twenty 21 or 2022, we certainly have some interesting opportunities.
So we'll see how those play out.
And the last for me is, could you maybe dig into the M and A backdrop a little bit? I'm sort of curious whether COVID Altered some of the willingness of people to entertain the concept of sale or how it changes your ability even to evaluate those
We're really focusing on our employees, our clients getting back to normal. We've built a business to Scale and we're going to take advantage of some opportunities to do that. I would say right now we have Some opportunities, I think in the back half of the year, you will see some of those opportunities. I think in this first half of the year, We kind of want to finish what we started. We're pointing towards double digit growth.
We have a plan to do that And we anticipate to get there in 2021. And I think you'll layer tuck in acquisitions as we go. As far as expectations, I do think people, whether it's capital gains or perhaps some of the new legislation, They're evaluating their options. And then as far as COVID, I think we've been able to understand the COVID impact Small and medium sized businesses as well as anybody being a provider and then we have a window into some of our resellers and other businesses So from a pricing strategy, sometimes it's just really understanding that and understanding and matching I do think you'll see some deals as we get into end of 2021 and 2022.
Congrats on the return to growth and the
Your next question is from the line of Eric Martinuzzi with Lake Street. Please go ahead. Yes.
I wanted to focus on the pay for control stats And when we start to see a recovery there, I know a year ago this time you were doing kind of I don't know if it was a daily war room or what the expression for the concentrating on the installed base was, What are your expectations there given we had this 13% step down in Q1? How
Yes, I'm going to go I'll let John jump in too. First of all, we do a daily call At 9 am every day, Al Goldstein runs that call with the management team and really proud of Yes, everybody is showing up and really giving us the data we need to match our customer base and make sure that we're in What I would say in the Q2 early on, there's 2 stories here. First of all, from a client perspective, If I think back to last year, companies really didn't know what to do. Were they going to go back into business? Were they going to go out of business?
They needed funding? Are they going to Are they going to get it from the government? Are they going to get it from their favorite uncle? Is their institution going to draw in their credit line? They really didn't know.
What I would say is there's been a return to normalcy. We lost probably 1% to 1.5% of our businesses Because of COVID, but I think the more important stat now is the employees and when do the employees return to work. And We're not sousayers. We don't know the future. What I would tell you is, 2nd quarter was down.
We had improvement in the 3rd quarter, 4th quarter installed and if you think about the election and first quarter, there was a second wave 3rd wave of COVID that really reduced employment in that December, January, February timeframe. I think the vaccine has certainly helped, but now what you're seeing is with the stimulus and employees Get paid extra to navigate some of the unemployment now that there are jobs open, there's been sometimes Not a workforce or a steady workforce. And then in some cases, there are supply chain challenges. And then finally, I think just if we look at it, some of the early indicators, if you're thinking about hiring people, your first Jeff is going to pay more over time to make sure you have demand and then you hire. So I don't think we've seen Return to normal yet.
I do think digital will maybe some jobs will be lost forever, But we'll create other jobs and there'll be more employment opportunities. We've modeled some slight improvement As we look into September, but not until then. And John, I don't know if you want to add any color.
No. Look, I wasn't Here for the full impact in the Q2 of last year, obviously, but I've tried to educate myself on the business And what I saw was a huge obviously decline in the employees served in the Q2 of last year. It's come back as Pat mentioned, but it's We're close to where it was pre COVID in terms of the overall employment levels. I mean the client counts were roughly the same. But When we look at the overall employees served under those employers, still dramatically different than pre COVID.
So, when that comes back to normal, I guess, is anybody's guess. And clearly, the economists are missing it as well. So there's tons of obviously demand out there, But it's unclear as to when the employees are actually going to show back up again.
And I think for us, I think what's important is, We've modeled continued business improvement despite that uncertainty. I know just when I had Two appointments recently, one at the barber a year and a half ago that same time I go on a late Sunday afternoon after the Packer There's 12 barbers in that chair a year and a half ago, there were 3 this year. Those 9 employees for our business, that's Top and bottom line, we don't we have the same customer service people based on the companies that we serve. So that'll be accretive when they We can't wait for them to return, but we can model the business and run the business even if they don't return Quickly, second, the dentist office. The dentist is doing oral surgery.
The dental hygienists have not Quite yet gotten back to employment. They're increasing their hours, but not anywhere near what that is. So that's The 2 type of businesses that when employment does come back, that'll be a good opportunity for us top line, bottom line. We're going to Cautious in modeling that, but when it does, it will be a nice tailwind for us.
And again, just to close out Pat's point, I mean, we're trying to focus on things we can control, right? We can't control the overall economy and When people all go back to work, but we're trying to do the right things to take care of the business in the interim.
That takes me to my next question, which is on the gross profit. The gross margin is up nicely here. Any one timers to the good that we should be aware of? How should we think about gross profit margin For Q2, I
think it will be fairly consistent. There is not any one timer. I think it will get pressured potentially in the second As we start to put the benefits back on, but we'll I guess we'll get to that point, when we start talking about the 3rd and Q4. But I don't think anything extraordinary Changing between this quarter and next.
Yes, Eric, I just think seasonally a little bit the W2 and ACA revenue as it's the To normal levels from an employee perspective, in the second half of the year, we want to restore bonus and 401 So we're excited about that, but that will probably put a little bit of a damper on gross margin improvement. That being We are getting more efficient and our operations, I've been very proud about the group that's doing the work. I think we're getting a higher level of standardization, harmonization of how we do business. We're getting efficiencies in our Our software and our technology projects, in that coupled with the economy, if we get a boost, So we'll have gross margins as well. That's a fair point.
Pat, I think I was looking at it more from a cost of sales perspective, not changing dramatically, But you're right, absolute dollars and potential FICO will be down with the transition in revenue. That's fair.
Understand. Thanks for taking my questions.
Thanks, Eric. We really appreciate it.
Your next question is from the line of Derrick Wood with Cowen and Please go ahead.
Great. Thanks for taking my questions. Pat, I just wanted to ask about the focus on Mid market versus kind of SMB and smaller organizations, particularly as you onboard new reps. And it seems like you could Go after target smaller companies with kind of higher volume level of new customers or target Mid market customers where there's bigger ASPs, but perhaps maybe lumpier deal flow. So what's the Strategic focus, particularly with a lot of the new reps onboarding.
Derek, it's a little bit of both, right? And I They will very often bring to you, whether it's clients, 10 clients at a time, 50 clients or 100. We want to make sure We're very clear, we're not going to be in the enterprise or the large end of the marketplace for payroll. But when you have the opportunity to gain In somebody's book of business, you want to be able to serve their book of business because they don't want to, if It's over quickly and we saw some opportunities in the middle of the pandemic. Now what we're also doing is taking a second stage in Growing the mid market.
So we strategically grab reps in a small business. This next stage over the second half of the year And then when we prosecute the strategy around partners, we want to make sure that if we get 100 clients, we can get 100 of them served on behalf of our partner.
Yes, that makes sense. And Maybe kind of a follow on would just be the maybe give us what your sense is of the competitive market and competitive landscape and Compare and contrast maybe how that was 6, 9, 12 months ago?
Yes. I think when you think about human Capital Management, I mean, clearly the I think the upper end of the marketplace, I've been in this industry 30 years, is a bit crowded and there's some world Class companies in that upper marketplace. And I think there's a number of clients or competitors that are fighting each other in that I really like this small, medium sized business. I think first of all, we have good market adoption, good market opportunity to get We continue to do that. And I think we're following a model that is very profitable in that segment of the marketplace.
And then as far as The need, especially with COVID, I think people are coming out of COVID and they're wanting increased. Last
That's great. Thanks for the color. Thanks guys.
Thank you, Derek.
And your next question is from the line of Jeff Zendree with Craig Hallum. Please go ahead.
Hey guys, this is Rudy on for Jeff. Just one for me. Pat, I think you mentioned you're seeing some good multi product, Some good cross sell bundling in the quarter. Could you just go into a bit more color on what modules are seeing strong attach rates?
Time and Attendance and HR, both are increasing. And then what I would say, our tax Product and Money Movement, we do feel is embedded and has some opportunities in the future as well. So We feel really good about those product sets that we're seeing.
Great. Thanks.
Thank you.
And your next question is from the line of Vincent Colocco with Barrington Research. Please go ahead.
Yes. Pat, did you add any resellers organically in the quarter? And what are your thoughts about going forward adding resellers Organically?
Well, first of all, we're always willing and able to add resellers. We almost look at it. First of all, we have a lot of we're underserved in a lot of the Tier 2 and Tier 3 cities in the United States. So we've identified probably We'd like to go to with the right reseller partner. We probably added about 3 or 4 in this Q1.
We want to make sure and we do believe that as especially as we get to the second half of the year, Some of the resellers with COVID, if you're starting a business, it's tough to fund a business and start a business in the middle of COVID. So I do think you'll see that we'll get some resellers in the second half of the year or first part of 2022 and I think there'll be a return of normalcy there. And then I do think some Folks that have been in reselling for us for a while, will look at potentially capital gains Some of the other taxation where they might want to strategically partner in exiting the business in late 2021 to make sure that they're tax efficient as well. So it's kind of a constant pursuit Where we're opening cities, we want to build a presence in those cities. And then as we do strategically, we can welcome them
As you move forward hiring incremental sales people this year and you said the mix may change more towards the midsize focus. What's your gut instinct? Will you be able to hire the people with the same level of tenure as you did last year?
I think so. Last year, we had an opportunity with the acquisition of CopyPay by ADP where we were fortunate that culturally we had some good sales reps that we could add. But we're fortunate in that we have a management team, President and Chief Revenue Officer, Suriel Goldstein, our Chief of Staff, Todd Walensky, myself, others that have been in the industry 30 years, 20 years, 15 years, 10 years. And with that, what happens is you work with really some special people. And so it's always it's hard to get really good sales people, but by the same token, when you have You have opportunities to get talent.
And what we feel really good about As we grow our business and really focus our business, that talent is becoming available and Luck is preparation meeting opportunity and we think we have an environment where we can get some good people working for us and we can do something Special. So that's how we see it.
Thanks, Pat.
Vince, I always appreciate your time. Thank you.
And I'm showing no further questions at this time. I would like to turn the call back to Pat for closing.
Yes. Thank you so much and appreciate everybody being on the call today. I think Just a couple of takeaways. It's a tough environment. We play we knew that this was going to be a tough environment.
By the same token, we could see the other And when you think about the progress we made with today revenue growth, first of all, pre COVID compare versus post COVID, that really bodes well for the future. I think you're going to see more revenue growth and more growth in the Assure business going forward. I think the trajectory we're on when you think about some of the results we showed in the Q2 2020 To now, we have some really good momentum in the business despite having some tough times and some uncertainty with COVID. I'm really confident that as we go through the year and go through next year, investors, clients, shareholders and employees Are going to be very fortunate that they stayed with Assure because I think we're going to make some great things happen. So I appreciate your time today And I look forward to talking to you live next time.
This concludes