Asure Software (ASUR): Keeping at Buy After Strong Quarter
Asure reported a solid quarter this week that prompted a fresh wave of buying and drove the stock up over 10% yesterday. The topline beat wasn’t all that big, with revenue up 64.5% to $15.5 million (beating by $340K) and EPS of $0.15 (just meeting expectations). But the stock has been beaten down, the numbers beyond the headline look quite good, and the growth strategy looks like there could be a ton of upside ahead (as I expected when I first recommended the stock!).
The payroll, HR and workspace management software company has been moving to the cloud, and in Q3, that trend continued with cloud revenue up by 97%. Hardware revenue, which is part of the workspace management business (Asure Space), was up an impressive 48% (it was “only” up 35% in the first six months of the year). Cloud revenue is now over 70% of total revenue. Bottom line: Asure is becoming a cloud-based Human Capital Management (HCM) and Workplace Management software company, which should mean the stock’s valuation should inch toward that of its larger peers over time (it trades at a much lower multiple now).
Management also affirmed prior full-year guidance that’s toward the high end of analyst expectations, and reaffirmed its goal to grow organic revenue (which doesn’t factor in acquisitions) by over 20%. It also plans to add around $10 million in revenue by acquiring five or more service bureaus that generate around $2 million in annual revenue, and which already use its software. When you add it all up, it looks like the company wants to grow total sales by 35% or more in 2018 and non-GAAP earnings by around 43%, using the midpoints of management’s stated goals (revenue of $70 to $80 million, and non-GAAP EBITDA between $16 and $20 million).
Asure expanded its sales infrastructure and landed Broadridge Financial, Anthem and the Department of Health and Human Services, as well as HCM cloud deals with Shape of Behavior, Green Bee Services, Easy Jet and Global Radio (the latter two are both based in Europe). The CEO said that it has tremendous success (better than 50%) when it competes with its Asure Force solution, which is particularly strong overseas.
Analysts asked a lot of questions about the acquisition-led growth strategy on the call and the management team sounded confident that they have a long road of opportunities ahead. Cash flow and profitability should be going up, and will be used for acquisitions, instead of paying down the relatively inexpensive debt Asure currently has. In short, things look good, and I’m keeping at Buy. BUY.