How can you tell if a company has a strong core business foundation? One method is to look at its annual recurring revenue (ARR) growth and bottom-line margins. These are important indicators because the core business represents the key focus of an enterprise. If the core business is growing, the overall enterprise is likely expanding as well (as long as there are not massive losses on ancillary businesses and endeavors). Bottom-line margins like adjusted EBITDA and EBITDA are important because they provide a clear percentage of a company’s adjusted EBITDA or EBITDA compared to its net revenue. If this percentage is growing each year, then it means the company’s bottom-line results are expanding as well.
One such company that has seen its ARR and adjusted EBITDA margins expand over the last several years is Asure Software (NASDAQ: ASUR).
HCM Core Business Continues Delivering for ASUR
Asure is Texas-based human capital management (HCM) solutions provider that offers a robust suite of products and services aimed at helping small-to-medium businesses (SMBs) and even larger companies with effectively managing their HCM operations, which include things like human resources, payroll & taxes, employee wellness and more.
Given the fact that nearly every single SMB and certainly larger enterprises need to manage their human capital, Asure’s core business holds a massive total addressable market opportunity. This provides a clear baseline for why the company’s ARR has been steadily expanding over the past several years.
Diving into the specific ARR figures, Asure’s core business grew 16% in full-year 2022 from full-year 2021. In 2023, Asure’s ARR expanded an additional 19% compared to 2022. Management has projected ARR to expand an additional 23% for the full year 2024.
This shows very clearly not only the health of Asure’s core HCM business but also the continued growth opportunity that lies ahead. The core business has been the lifeblood of Asure and the key driver of overall revenue growth.
Adjusted EBITDA Margins Have Expanded Alongside ARR
As a reminder, adjusted EBITDA margins are another important metric to watch to determine how the company’s bottom-line results are growing relative to to-line results. In the case of Asure, the company saw adjusted EBITDA margins come in at 10% for full-year 2021 and expand to 12% in full-year 2022. In full-year 2023, adjusted EBITDA margins rapidly expanded to 20%. Management has forecasted full-year adjusted EBITDA margins to come in a range between 20% and 21% for 2024.
Margins expectations remain very strong for 2024, as the company reports its first full year without the ERTC one-time revenue source. However, given the forecasted ARR of 23% for this full year of 2024, an adjusted EBITDA margin range of 20% to 21% still signifies strong bottom-line results.
ASUR: Looking Forward to Q3 and Q4 2024 and Current Valuation
With the last month of the third quarter underway, investors will have an easier time engaging in comparative analysis for Asure Software, as the company’s one-time ERTC revenues (generated from a COVID era tax credit program) effectively slowed during Q3 2023 and began being replaced by higher value recurring revenue. For reference, Asure had about $5 million in ERTC revenues during Q3 2023 and about $1 million for Q4 2023. This means investors will be able to get a better apples-to-apples comparison of its core business growth.
Management has previously issued guidance for Q3 2024, which estimates revenue between $30 million and $33 million on an adjusted EBITDA range between $6 million and $7 million.
From a valuation perspective, Asure continues to trade at a discount relative to its industry peers. According to the company’s Q2 2024 investor deck, Asure trades at an EV/revenue multiple of 1.9x. Top industry peers like Paycor (NASDAQ: PYCR), Paycom (NYSE: PAYC), ADP (NASDAQ: ADP), Paylocity (NASDAQ: PCTY) and Paychex (NASDAQ: PAYX) have EV/revenue multiples ranging from 3.3x to 8.3x, as of the time of the creation of the deck.
Overall, Asure Software is sitting on a very solid foundation thanks to its HCM core business. The HCM industry continues to see a rich opportunity for growth moving forward, as the TAM and need for these specialized services continue to expand.
Asure has a notable track record dating back to 2021 showing steady and impressive ARR and adjusted EBITDA margin growth. Management’s forecasts for the full year 2024 highlight not only the continued trend of growth but also the further acceleration of that expected growth. For investors, these are very important key facts that could point to a strong underlying growth engine for the company.
Disclaimer:
Spotlight Growth is compensated, either directly or via a third party, to provide investor relations services for its clients. Spotlight Growth creates exposure for companies through a customized marketing strategy, including design of promotional material, the drafting and editing of press releases and media placement.
All information on featured companies is provided by the companies profiled, or is available from public sources. Spotlight Growth and its employees are not a Registered Investment Advisor, Broker Dealer or a member of any association for other research providers in any jurisdiction whatsoever and we are not qualified to give financial advice. The information contained herein is based on external sources that Spotlight Growth believes to be reliable, but its accuracy is not guaranteed. Spotlight Growth may create reports and content that has been compensated by a company or third-parties, or for purposes of self-marketing. Spotlight Growth was compensated four thousand dollars cash by Asure Software for the creation and dissemination of this content by the company.
This material does not represent a solicitation to buy or sell any securities. Certain statements contained herein constitute “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Such statements may include, without limitation, statements with respect to the Company’s plans and objectives, projections, expectations and intentions. These forward-looking statements are based on current expectations, estimates and projections about the Company’s industry, management’s beliefs and certain assumptions made by management.
The above communication, the attachments and external Internet links provided are intended for informational purposes only and are not to be interpreted by the recipient as a solicitation to participate in securities offerings. Investments referenced may not be suitable for all investors and may not be permissible in certain jurisdictions.
Spotlight Growth and its affiliates, officers, directors, and employees may have bought or sold or may buy or sell shares in the companies discussed herein, which may be acquired prior, during or after the publication of these marketing materials. Spotlight Growth, its affiliates, officers, directors, and employees may sell the stock of said companies at any time and may profit in the event those shares rise in value. For more information on our disclosures, please visit: https://spotlightgrowth.com/disclosures/
The post Increasing ARR and Expanding Margins Signal Strong Core Business for Asure (NASDAQ: ASUR) appeared first on Spotlight Growth.
