Asure Software (ASUR) Reports Q2 Results
Asure Software (ASUR) reported results this morning that beat on revenue and slightly missed on EPS. Revenue growth of 33.3% (to $12.9 million) beat by $410,000, while EPS of $0.07 missed by $0.03. Organic revenue growth was around 10%. Notably, recurring revenue was up from 72% to 79% of total revenue, cloud revenue was up 64% (cloud bookings were up 174%) and is now up to 69% of total revenue (from 56% in Q2 last year), and hardware revenue was up 22%. Gross margins also improved, from 77.5% to 78.1%. Other than the EPS miss (which is largely due to non-cash stock based compensation and acquisition-related expenses), those are great numbers, particularly with cloud. When the company migrates customers to the cloud it gets about 2.2-times as much revenue per customer, so investors are clearly in favor of it.
One of the big things the company is working through is a CFO replacement after the current CFO left (rather suddenly) to return to his private equity roots. The CEO, Pat Goepel, said it will complete the first round of interviews this week and sees a lot of talent in the candidate pool. This will be an important hire given all the acquisitions Asure has made, and plans to make, as well as the ongoing transition toward cloud-based subscriptions and away from on-premise installations. I think the recent weakness in the stock is indicative of uncertainty in the CFO office, and I hope Asure is able to hire a great person for the role. Mr. Geopel said it expects to fill the role by October.
Remember that this was (another) big quarter for acquisitions. Asure bought Compass HRM, a regional HR and payroll service bureau in the southeast U.S. that is an existing reseller of Asure HCM. And it bought Burlington, VT (my college town) based iSystems, which provides HCM solutions to over 100 payroll and HR service bureaus. Management hiked revenue guidance for the year to (at the midpoint) $55.3 million ($2 million over consensus), and reduced the high end of EPS guidance to a range of $0.50 to $0.56, from $0.50 to $0.59 (consensus was $0.56). It reiterated that by the end of 2018 it wants to get to between $70 million and $80 million in revenue (consensus is $67.6 million) by achieving double-digit revenue growth and completing multiple acquisitions. It sounds like a deal or two could happen by the end of this year.
Management was asked about new competitors and noted that a few VC-backed firms are picking up momentum in the HCM space but that, generally speaking, the industry remains much as it has been (competitive, and not a lot of room to screw up!).
The bottom line was a solid quarter where Asure more-or-less hit the numbers, and gave us plenty to like on the transition to cloud. There is still significant room for the stock to move higher so I’m keeping at buy. A solid hire in the CFO slot would likely be very bullish for the stock. BUY.