Asure (ASUR) Q3 2026 Earnings Call Transcript

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DATE

Thursday, Oct. 29, 2026

CALL PARTICIPANTS

• Chairman and Chief Executive Officer - Pat Goepel
• Chief Financial Officer - John Pence
• Vice President of Investor Relations - Patrick McKillop

TAKEAWAYS

• Revenue -- $40.0 million, representing 10% growth driven by strong performance across payroll, benefits, and HR compliance segments.
• Recurring Revenue -- $36.9 million, a 16% increase reflecting the expansion of Payroll Tax Management and the launch of Asure Central.
• Organic Revenue Growth -- 9%, an increase of 500 basis points from the 4% growth reported in the third quarter of 2025.
• Organic Recurring Revenue Growth -- 14%, demonstrating continued acceleration compared to prior quarters.
• Adjusted EBITDA -- $10.5 million, a 29% increase over the $8.1 million reported in the prior year.
• Adjusted EBITDA Margin -- 26.1%, reflecting an expansion of approximately 400 basis points from 22.3% in the third quarter of 2025.
• Net Loss -- $0.6 million, an improvement from the $5.4 million net loss recorded in the third quarter of 2025.
• Non-GAAP Gross Margin -- 75.4%, compared to 70.1% in the prior year, supported by increased product attach rates.
• Payroll Tax Management Revenue -- nearly 20% of total revenue, with nearly 30 major enterprise accounts already secured.
• Contracted Backlog -- $86.6 million, with 46% expected to convert into revenue over the next 12 months.
• Southeastern U.S. Acquisition Price -- $26.5 million, consisting of $13.5 million in cash, a $3 million promissory note, and $10 million in common stock.
• New Credit Facility -- up to $115 million, including an $85 million term loan drawn at closing to repay existing debt with MidCap Financial Trust.
• Cash and Cash Equivalents -- $16.8 million as of Sept. 30, 2026.
• Total Debt -- $64.7 million as of Sept. 30, 2026, prior to the closing of the new senior credit facility.
• Luna AI Engagement -- 26,000 conversations during the quarter, an increase of 25% from the previous quarter.
• Sales Headcount -- on track to reach 150 representatives by the end of 2026 to support future growth.
• Fourth Quarter 2026 Revenue Guidance -- $42 million to $44 million.
• Full Year 2026 Revenue Guidance -- $162 million to $164 million.
• Full Year 2027 Revenue Guidance -- $183 million to $187 million, incorporating the impact of the October acquisition.
• Full Year 2027 Adjusted EBITDA Margin Guidance -- 26% to 28%.
• Estimated 2027 Interest Expense -- approximately $8 million, or $2 million per quarter, under the new credit agreement.
• Projected 2027 Free Cash Flow -- approximately $14 million, based on adjusted EBITDA minus finance costs and stable capitalized software expenses.
• Average Products Per Client -- slightly more than two, with a long-term goal of reaching four or more per relationship.
• New Logo Mix -- 53% new customers and 47% base expansion, compared to a 64% to 36% split in the prior year.
• Interest Rate Sensitivity -- approximately $0.5 million in annual revenue impact for every 25 basis point change in interest rates.

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RISKS

• Pence stated, "I do think that there's going to be a little bit of integration work too with the acquisition... I'm not -- I'm expecting really good fall-through from that acquisition in terms of EBITDA contribution, but not necessarily in the front end," indicating potential near-term pressure on margins.
• Pence warned that the fourth quarter results would be impacted by "ramp costs in sales for '27" as the company aggressive hires to reach its 150-person headcount target.

SUMMARY

Asure Software, Inc. (NASDAQ:ASUR) reported third quarter results that included 10% revenue growth and significant expansion of its recurring revenue base. The company finalized a $26.5 million acquisition of a Southeastern U.S. payroll processor and secured a new $115 million credit facility to enhance its financial flexibility for future organic and inorganic initiatives. Management highlighted the successful integration of its Payroll Tax Management solution into the AWS and Oracle marketplaces, aiming to shorten enterprise sales cycles by leveraging existing procurement processes. The rollout of the unified Asure Central platform to the reseller network was also completed, facilitating increased product attach rates and improved customer retention. Management confirmed that recurring revenue growth has continued to accelerate, reaching 14% organically during the quarter.

• CEO Goepel noted the revenue potential of managed services, stating, "Clients who adopt AsureWorks typically represent up to fivefold the revenue of payroll-only clients."
• The company's PTM solution is now integrated with Oracle Fusion Cloud HCM, allowing organizations to add tax filing and money movement without migrating their payroll system of record.
• Luna, the company's proprietary AI assistant, has completed more than 15,000 actions for customers in its first year and recently added a time import agent for payroll processing.
• Management reported that the revenue per unit in the payroll business rose approximately 57% during the quarter as clients adopted more comprehensive HCM solutions.
• The new credit facility with a syndicate led by MUFG Bank Ltd carries an initial interest rate of SOFR plus 3% and includes a $20 million delayed draw term loan.
• CEO Goepel indicated that the company is nearing its long-term revenue goal, stating, "Just a few years ago, we laid out a goal of $180 million to $200 million in revenue. And with today's forecast for 2027 of $183 million to $187 million, we are close to crossing the goal line."

INDUSTRY GLOSSARY

• Asure Central: A unified cloud-based platform providing single sign-on access to payroll, tax, HR, and benefits modules.
• AsureWorks: An administrative services outsourcing (ASO) offering that allows businesses to delegate payroll and HR processes without the co-employment risk of a traditional PEO.
• HCM: Human Capital Management, referring to the software and services used to manage an organization's workforce and compliance.
• Luna: Asure's proprietary artificial intelligence platform designed to automate HR actions and customer support.
• PTM: Payroll Tax Management, a software solution specifically for managing multi-jurisdictional tax filing and funding requirements.
• SOFR: Secured Overnight Financing Rate, a benchmark interest rate used for dollar-denominated loans.

Full Conference Call Transcript

Operator: Good afternoon, and welcome to Asure's Third Quarter 2026 Earnings Conference Call. Joining us for today's call are Chairman and CEO, Pat Goepel; Chief Financial Officer, John Pence; and Vice President of Investor Relations, Patrick McKillop. [Operator Instructions] I would now like to turn the call over to Patrick McKillop for introductory remarks. Please go ahead, sir. Thank you.

Patrick McKillop: Thank you, operator. Good afternoon, everyone, and thank you for joining us for Asure's Third Quarter 2026 Earnings Results Call. Following the close of the market, we released our financial results. The earnings release is available on the SEC's website and our Investor Relations website at investor.asuresoftware.com, where you can also find our investor presentation. During our call today, we will reference non-GAAP financial measures, which we believe to be useful to investors in understanding our business and exclude the impact of certain items. A description and timing of these items, along with a reconciliation of non-GAAP measures to the most comparable GAAP measures can be found in our earnings release.

Today's call will also contain forward-looking statements that refer to future events and as such, involve some risks. We use words such as expects, believes and may to indicate forward-looking statements, and we encourage you to review our filings with the SEC for additional information on factors that could cause actual results to differ materially from our current expectations. I'll hand the call over to Pat in a moment, but I wanted to take a moment to remind people of some upcoming Investor Relations activities. On November 17, we will participate in the Craig-Hallum Alpha Select Conference in New York.

On November 18, we will attend the Stephens Annual Investment Conference in Nashville, Tennessee, as well as the ROTH Conference in New York. On November 19, we will participate in the Seventh Annual Needham Virtual Tech Conference. And finally, on December 16, we will attend the Northland Capital Markets Virtual Growth Conference. Investor outreach is very important to Asure, and I would like to thank all of those that assist us in our efforts to connect with investors. Finally, I would like to remind everyone that this call is being 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 Goepel, Chairman and CEO. Pat?

Patrick Goepel: Thank you, Patrick, and welcome, everyone, to Asure's Third Quarter 2026 Earnings Results Call. I'm joined on this call by our CFO, John Pence, and we'll provide a business update for third quarter 2026 results as well as our updated outlook for the remainder of the year. Our third quarter revenues came in at $40 million, representing a growth of 10% compared to the third quarter of 2025. Growth was strong and broad-based with payroll, benefits and HR compliance among the key contributors, and we're reaping the benefits of the investments we have made in the business over the last few years.

Our organic growth rate for third quarter 2026 was 9% compared with 4% in the third quarter 2025, an increase of 500 basis points and up 5% in second quarter 2026. Organic recurring revenue growth for the third quarter was 14%, which is a continued acceleration driven by the launch of Asure Central a year ago and continued Payroll Tax Management momentum. The positive feedback for our products continues to grow, and this is supported by our recent G2 awards announced this fall, where we were rated a high performer in several categories as well as a momentum leader and a leader in the small business segment.

Building on the 9% organic growth and the 14% recurring organic growth we delivered this quarter, we continue to intensely focus on driving double-digit organic growth in the future and increased cross-sell activities while continuing to grow the embedded tax business. During the third quarter, we meaningfully expanded the distribution of our Payroll Tax Management solution, which already represents nearly 20% of Asure's revenue. In August, we announced a co-selling arrangement for our Payroll Tax Management solution on the AWS Marketplace, and we began to actively co-sell into its 330,000 customers in September.

AWS customers can procure Asure through the existing purchasing processes, including unused AWS spend and our sales team co-sells alongside AWS sales teams against our ideal customer profile. Streamlining contracting and private offers can shorten the typically long enterprise sales cycle. In September, we also made Payroll Tax Management available on Oracle Marketplace integrated with Oracle Fusion Cloud Human Capital Management. Organizations running Oracle can add multi-jurisdiction payroll tax filing, funding and money movement without migrating their payroll system of record. They can then use the payroll system of record as we file across federal, state and local jurisdictions on their behalf. Together, the AWS and Oracle marketplaces open up new opportunities for Payroll Tax Management.

Indeed, in the Payroll Tax Management business, we have already won approximately 30 major enterprise accounts for payroll tax management, and these partnerships will continue to help grow that segment of the business. In September, at our annual reselling training event, we launched Asure Central to our reseller network and took our first resellers live on the platform, which we believe will unlock significant cross-sell for our Human Capital Management suite as we have done in the direct business. Asure Central brings single sign-ons, user provisioning, role-based access together with payroll, tax, HR, recruiting, time and attendance, 401(k), benefits and Luna, all in one environment and resellers can white label the experience with their own logo.

The number of clients purchasing multiple products has increased by 7% versus the third quarter 2025. With the increase in attach rates, we're also experiencing an uptick in our retention rates versus the second quarter, and we will share updated retention metrics in our 1-year-end 2026 release. We remain focused on moving clients from an average of a little more than 2 products per client relationship towards 4 or more products per client over time. Now a brief update on AsureWorks, our administrative services outsourcing offering, which lets clients delegate key payroll and HR compliance processes to Asure. The momentum we saw at launch continued into the third quarter.

Our pipeline and new clients continue to grow and set new records. The reception across the target buyers includes small hotel chains, restaurants, HVAC companies as an example, and remains very, very strong. These are main street businesses that need payroll and HR compliance support, but lack the internal resources to manage it themselves. We are continuing to train more reps for AsureWorks every day and build out that effort. Clients who adopt AsureWorks typically represent up to 5x the revenue of payroll-only clients. And because it is not a PEO model, there is no co-employment risk, which makes it a compelling and flexible alternative for clients constrained by the cost and rigidity of a traditional PEO.

On the sales front, we made significant progress in hiring reps. We're confident in hitting our target of 150 by year-end. The efforts of our recruiters and our sales managers really have paid off, and we're excited to have these new reps on board. These are full solution sellers who can sit down with a business owner and present our entire product suite, and that consultative needs-based approach is central to driving both new logo acquisition and multiproduct cross-sell within our existing base. The new type of rep we hire typically ramps faster than when we have experienced with prior reps.

Our existing to new customer logo split in the third quarter was approximately 47% to 53%, an improvement versus a year ago of 36% to 64%, but similar to the second quarter of this year, where we continue to drive towards our 35% new logo, 65% base expansion mix over time. Our contracted backlog is now $86.6 million, and we expect to convert approximately 46% of that backlog over the next 12 months. We continue to operate in a positive selling environment as small and mid-size businesses need the products and solutions Asure offers to help them navigate the complex world of payroll and compliance. In our forecast, we conservatively model flat headcount growth for our clients.

We haven't seen any dramatic shifts in the sales cycle process. On the M&A front, after quarter end in October, we acquired a human capital management payroll processing company based in the Southeastern United States for an aggregate purchase price of $26.5 million. The company serves mid-market organizations with cloud-based HR, payroll and talent tools, expanding our exposure to the small and mid-market segment and adding a developed technology that will be used to update some of our product offerings. We have an active pipeline of potential reseller acquisitions, and we'll continue to pursue those opportunities.

Also, in October, we closed a new credit facility, which gives us some more flexibility to pursue our strategy, and John will share more details in a moment. On AI, our view hasn't changed. Payroll and HR compliance isn't software a generic AI can replace. We hold money transmitter licenses interface directly with the IRS, state and local agencies and manage compliance where the margin of error is effectively zero. That makes Asure a system of record and our expertise a real moat. At the same time, AI is a meaningful accelerator for us. Luna conversations grew about 25% in the quarter to more than 26,000.

And in her first year, Luna has completed more than 15,000 AI actions for our customers. At the start of fourth quarter, we released the time import agent, bringing Luna directly into the payroll run with humans in control at every decision point. I also want to take a moment to recognize and congratulate our Chief Technology Officer, Yasmine Rodriguez Wakim, a pioneer in payroll tax technology and the compliance infrastructure behind it, who has been named to Women We Admire's Top Women Chief Technology Officers of 2026. Yasmine, congratulations, and thank you for everything you do for Asure and our clients.

So with that, I'd like to turn the call over to John to discuss our third quarter financial results in more detail and provide an update on our 2026 guidance, along with our outlook for 2027. John?

John Pence: Thanks, Pat. As Patrick noted, several figures discussed today are on a non-GAAP or adjusted basis. Reconciliations are available in our earnings release and our investor presentation at investor.asuresoftware.com. Third quarter total revenues were $40 million compared to $36.3 million in Q3 of 2025, representing growth of 10% year-over-year. Recurring revenue for Q3 2026 was $36.9 million compared to $31.8 million in Q3 of 2025, an increase of 16% year-over-year. Recurring revenue represented approximately 92% of total revenue in the quarter versus 88% a year ago. Professional services, hardware and other revenue was $3.1 million in Q3 of 2026 compared to $4.4 million in Q3 of 2025.

The decline versus prior year was primarily due to reduced professional services provided as part of large tax deals in the prior year. Gross profit for Q3 2026 was $27.8 million compared to $23.5 million in Q3 2025. GAAP gross margin for Q3 2026 was 70% compared to 65% in Q3 2025. Non-GAAP gross margin for Q3 2026 was 75% compared to 70% in Q3 2025. Net loss for Q3 2026 was $0.6 million compared to net loss of $5.4 million in Q3 2025. EBITDA for Q3 2026 was $7.9 million compared to $3.9 million in Q3 2025. Adjusted EBITDA for Q3 2026 was $10.5 million compared to $8.1 million in Q3 2025, an increase of 29% year-over-year.

Adjusted EBITDA margin for Q3 2026 was 26% compared to 22% in Q3 2025, an increase of approximately 400 basis points. We ended the third quarter with cash and cash equivalents of $16.8 million and total debt of $64.7 million as of September 30, 2026. Subsequent to quarter end, on October 15, we closed a new senior credit facility of up to $115 million with a syndicate of 5 banks led by MUFG Bank Ltd. The facility has an $85 million term loan, all of which was drawn at closing, a $10 million 5-year revolving credit facility and a $20 million delayed draw term loan facility. The term loan currently carries a rate of SOFR plus 3%.

This adjusts periodically based on our consolidated net leverage ratio and could be as little as SOFR plus 2.75% and will not exceed SOFR plus 3.5%. We used $62.6 million of the gross proceeds to repay in full our existing credit agreement with MidCap Financial Trust. Turning to the Southeastern U.S.-based payroll acquisition Pat mentioned, the aggregate purchase price was $26.5 million, paid as follows: $13.5 million in cash at closing, a promissory note in the amount of $3 million to secure the indemnity obligations and other adjustments, and the issuance of shares valued at $10 million. The purchase price is subject to customary working capital adjustments.

Based on the current positive momentum in our business, we are updating our Q4 2026 and full year 2027 guidance. Please note that the guidance incorporates the recent acquisition we completed in October of 2026. We anticipate revenue of $42 million to $44 million and adjusted EBITDA of $10 million to $12 million for Q4 2026. This implies full year 2026 guidance of $162 million to $164 million in revenue and adjusted EBITDA of $40 million to $42 million. Next year, our preliminary guidance for 2027, we anticipate revenue to be in the range of $183 million to $187 million and adjusted EBITDA margin to be in the range of 26% to 28%.

We expect our cost structure, including capital expenditures and capitalized software development costs to remain relatively stable on a dollar basis. With that, I will turn the call back to Pat for closing remarks.

Patrick Goepel: Thanks, John. Stepping back, I think the third quarter tells a clear story. We grew revenue 10% to $40 million and adjusted EBITDA grew 29% to $10.5 million with adjusted EBITDA margin expanding approximately 400 basis points to 26%. Recurring revenue organic growth continues to accelerate, reaching 14%, and we forecast it to be in the double digits again in the fourth quarter. We're really starting to hit our stride, but we're not slowing down. Our sales team is larger and more productive. Our clients are buying more of our core payroll and Human Capital Management products. Our unified technology platform enables us to cross-sell, which drives improved retention, and we can scale organically.

We have a very active pipeline of opportunities for Payroll Tax Management, and the new distribution capabilities of Oracle and AWS will help build further opportunities. AsureWorks is gaining traction, and our recent G2 awards reflect the positive feedback our clients have about our products. Just a few years ago, we laid out a goal of $180 million to $200 million in revenue. And with today's forecast for 2027 of $183 million to $187 million, we are close to crossing the goal line. We've worked hard and executed, and all of our metrics are trending up.

Margin expansion and improving profitability are 2 important characteristics of our model, and AI is helping us lower our cost to serve while improving the client experience. We're proud of the progress this quarter and even more excited about what's ahead. Thank you for your continued support and for joining us today. Before we open the call for questions, I want to take a moment to acknowledge the recent loss of Dick Strong, a long-time supporter of Asure and a good friend. Dick was a very smart, talented, kind person, and he'll be greatly missed. On behalf of everyone at Asure, we offer our heartfelt condolences to his family and Donna.

Thank you for your continued support and for joining us today. I will now turn the call back to the operator for questions and answers. Operator?

Operator: [Operator Instructions] The first question comes from Jeff Van Rhee with Craig-Hallum.

Jeff Van Rhee: Congrats on a nice posting here, guys. A couple for me. First, Pat, maybe on the per employee per month, where are you now? What does the full suite purchase right now tally to? And where do you think that can evolve to over time?

Patrick Goepel: We published the art of the possible, which is $100-plus per employee per month as specific number. We'll start to get a little bit more color in 2027. But if you add brokerage and you add all those kind of products and services as much as $180. We're continuing to sell more products and services, and we're training for that. And then we have Asure software through Asure Central or we'll do it for you with AsureWorks. So we're still in the middle of a movie, and there's different sample sizes with different training. We'll lay out probably a metric around that in 2027. But right now, suffice it to say, it keeps going up.

This past quarter, revenue per unit in the payroll business was somewhere up 57%, which was really a nice progression of what we're trying to do. I think in 2027, as we get more mature, I think we can establish that metric and publish that.

Jeff Van Rhee: Okay. Got it. And then the Southeastern reseller, a bit larger than your typical reseller purchase, I heard in the script. There's maybe some incremental capabilities there as well that might stand up. Maybe just a second more on what you're getting there with that purchase.

Patrick Goepel: Yes. First of all, the technology is obviously like a reseller acquisition, so very simple in integration, et cetera. They had some kind of unique front ends that we think will help us advance the whole business on some verticals. So we're excited about that. We think that there's some growth in selling. We also think from an integration perspective, this is what we do. So we think we could add scale, add capability, add growth. And frankly, we thought it was a pretty attractive acquisition for us to do.

Jeff Van Rhee: And then maybe, John, just a couple of quick numbers questions. And as I look at Q4 and the '27 outlook, what organic growth is embedded in those 2 numbers? And then this reseller, can you give us a little, dial it in a bit closer in terms of what reseller itself brings in terms of Q4 revenue and next year's revenue?

John Pence: Yes. I'd say when we bought the business, it was probably at about around $10 million run rate. So I would expect a couple of million in this quarter to be realized. We think, obviously, there's some upside to what they were doing historically when we put our sales team behind it and when we start to maximize some of the technologies they've built out. So in terms of next year, I think the guide kind of in the midpoint implies kind of 13%, 14%. I would say right now that majority of that's going to be organic just in terms of the guide for next year.

Jeff Van Rhee: Okay. And if I could sneak one last in there, just on free cash flow. I appreciate the '27 outlook. Is there just a real quick bridge? I keep a close eye on it. Just curious what that guide implies in terms of free cash flow for '27.

John Pence: Well, again, we wish -- we have a little bit of this, and we can talk about it off. But the way we think about it, Jeff, is always thinking about the adjusted EBITDA less the cost of finance. So I think with this new loan, we're expecting probably around $8 million of interest costs for the year, roughly $2 million a quarter, I think. So if you factor that off and then, again, if you want to take software cap off the table, that's going to be really consistent. So I think we'll probably be in about the $14 million range next year on that.

So I think midpoint of what we guided towards is in the 40s -- mid-40s. So back off the software cap, back off the -- and I think we're in the low 20s when it's all said and done from our perspective.

Jeff Van Rhee: Got it. Great. Congrats on the quarter, guys.

Operator: The next question comes from Richard Baldry with ROTH Capital.

Richard Baldry: If I look year-over-year and I add your cost of goods sold in your OpEx, the numbers are very flat, while revenues were up decent. Can you talk about the pieces of that sort of cost savings? Is it integration, AI or just scale leverage efficiencies, sort of breakdown, seeing a lot of companies across my space, noting that AI can drive material cost savings? Sort of wondering how far along that spectrum you feel like you are.

John Pence: I'll give you my perspective first, Rich, and then Pat will obviously have his. I think we're just in the early innings. We've always said really consistently, as long as I've been here, that this is a scale business, and you're now starting to see the benefits of it. So that was pre-AI. So I think what you're seeing right now is the pre-AI scale part of the business. We are implementing AI throughout the business. We've got it in ops with our call centers. We're using it in the finance area. Our sales guys are going into it as well with Gong and some of the other tools that they're using.

So I think early, early stages of us getting AI benefits. I think what you're seeing right now is just the pure scale part of the business. So that's my perspective. And I think there's a lot of opportunities in the future to take more cost out.

Patrick Goepel: Yes. I would echo with John, exactly that. I think the next wave here is a lot of -- I always say that the end-to-end process starts with the customer, goes to our office and then comes back to the customer. I think in the area of workflow, we still have a lot of AI opportunity to take cost out and improve all the way around. I think there's some other things around marketing where marketing and sales and customer acquisition, again, with workflow. The work that we're doing internally, I think we're just getting a productivity factor here every quarter. So we'll continue to work in those areas in 2027.

And I would say a lot of it's come with scale, but definitely AI is top of mind in how we do business and how we become a better company.

John Pence: Yes. And I didn't even touch on Luna just in terms of the customer experience, right? So -- and their ease of use of the software. So I think there's just, again, lots of opportunity still.

Richard Baldry: Okay. And if I look at the fourth quarter specifically, the adjusted EBITDA guide of $10 million to $12 million, at the low end of it, it'd be actually down a little bit sequentially. Obviously, the upper end would step up pretty good. Can you talk about the variables to do that? The acquisition and organic growth tend to drive some sequential top line growth. So how do we look at that range and where we'd expect to end up?

John Pence: I think from my perspective, Rich, we've talked about it throughout the year. We've been running behind in terms of where we want to be in the sales headcount. I think we're finally starting to catch up. So that's one of the headwinds. Headwinds, good to bad in terms of we're finally getting fully staffed on that team. I do think that there's going to be a little bit of integration work too with the acquisition. So I'm not -- I'm expecting really good fall-through from that acquisition in terms of EBITDA contribution, but not necessarily in the front end. So I do think there's going to be some work rationalizing that business.

So I think I feel good about the guide. And I do think that there's a little bit of headwind just with some of the things I mentioned in the fourth quarter.

Patrick Goepel: Yes. If I look at it around fourth quarter, first of all, there's a jumping off point on continued spend in the sales and marketing area. We feel like we've done a lot of work with technology and the operations. And from a sales and marketing perspective, we're close to the 150 target of salespeople. We're going to go up again next year in salespeople. So fourth quarter implicit in that is some ramp costs in sales for '27. Then the other thing is, if you look at the mix in the guide, recurring revenue is growing over nonrecurring revenue to the tune of a little over $2 million in the fourth quarter.

So the quality of the revenue is super high. And then the integration that John spoke of operationally, we're continuing to sell more and more products per customer, and we're spending some calories on integration between departments and workflows and customer products that we think will benefit in '27 and beyond. And -- but in the immediate quarter, we want to make sure we get those processes right, so we're spending some money.

John Pence: Yes. And just to put a finer point on it, I mean, I think midpoint of the guide is about 10%, a little under year-on-year growth for next quarter. It's going to be, I think, a similar story as to this quarter in terms of the mix of recurring and nonrecurring. We're adding a lot more recurring. We had a lot of pro services last year as it relates to some of the big tax deals. So we're not expecting that same volume of nonrecurring. But we're really excited about the mix in terms of the organic growth that's outpacing the nonrecurring that's falling off.

Operator: The next question comes from Jared Levine with TD Cowen.

Jared Levine: I was hoping to get an update in terms of the SMB HCM demand environment more broadly here. What are you seeing? Has there been any macro impacts or changes as you kind of look at over the course of this year in terms of demand progression in terms of what you're seeing on pipeline volumes or even sales cycles?

Patrick Goepel: Yes. Pipeline is really good. Pipeline has gone up, and we anticipate a really good fourth quarter, first quarter sales. Pipeline is strong. I would say the multiproduct continues to be a focus, whether it's the managed service or software. A small business wants fewer vendors, a little bit more simplicity. They want a partner that they can hang their hat on with multiple products and services. So those trends, I think, will continue. As far as staff, clearly, they want access to capital. They want access to people. They want the easy button so they can focus on growth and a vendor that can provide more and more of those services.

And then also, they want the vendor to have a point of view. So in the area of compliance, we're seeing that broader pipeline of HR, payroll, compliance, all the way through the stack. And then where there's more pressure with the SECURE 2.0 Act around 401(k), especially in the states that have legislated that, we see that as a big demand focus as well.

Jared Levine: Great. And then for my follow-up here, I wanted to touch on float revenue. Just given the recent 25 basis point increase, can you remind us kind of a framework in terms of how to think about that? I know you do take some duration in terms of a laddering strategy, but just how to think about that benefit from that recent 25 basis point increase as we kind of look over the next 4 quarters or so?

John Pence: Yes. I think from my perspective, it's worth for us roughly $0.5 million a year every quarter point right now with our current balances. And that's a simple way to think about it at a high level. So again, we talk to Goldman at least once a quarter, but we had our quarterly update with them last week, and their current view is that there's another 0.25 point coming in December meeting as well as another 0.25 point in March. So going into next year, we probably will see another 0.5 point, at least on their current view of rates. So hopefully, that's $1 million of upside to this current year in terms of float.

Patrick Goepel: And then, Jared...

Jared Levine: You are only assuming -- sorry.

Patrick Goepel: Go ahead, Jared. I'm sorry.

Jared Levine: I was just going to say, in terms of your guidance for next year, you're just assuming the one hike that has been announced to date.

John Pence: Yes. I mean we have not overestimated the float. But yes, so there's -- that's in -- in the current guide, it's just what's in the current rates right now.

Patrick Goepel: Jared, in the queue is our laddering strategy as well.

Operator: The next question comes from Eric Martinuzzi with Lake Street.

Eric Martinuzzi: You had a nice uptick in the gross margins in Q3. I was curious, obviously, you've given us a view to revenue and EBITDA margins for 2027. But what's implied as far as gross margin? Was that Q3 just kind of an outlier? Or is there a change in the longer-term gross margin expectation?

John Pence: So I think on a GAAP basis, I think we're probably in the 70% range for the year. And I think we'll probably get 2 points or so next year on a GAAP basis. There's usually about a 5-point spread between the GAAP and the non-GAAP. So if you think 70% this year, it's probably 75%-ish non-GAAP. And I would say next year, I think we're shooting for about 72% GAAP and about 76%, 77% non-GAAP.

Eric Martinuzzi: Got it. And what is behind that? Is that just the efficiencies in the workforce? Is that -- I'll let you answer the question.

John Pence: Yes. I mean, I think it's a little bit of what I was talking about with Rich. It's not anything extraordinary, except that we expect our people to continue to be able to ramp with the tools we're giving them with more and more. So it's just kind of implied in the model. And if you think about it, we've had this slide in the IR deck for, I don't know, for years where we kind of talk about the breakpoints of the model at different scale levels. I think it's been out there for quite a while. At $200 million, we're expecting to be at 30% in adjusted EBITDA and it scales from there.

So there was some modeling behind that. It wasn't just aspirational. And so it's -- the model is kind of playing out the way we were hoping it to.

Patrick Goepel: And then, Eric, just with the average customer revenue per unit going up and the adoption of more products and the attach rate going up, that's allowing us to have a better gross margin tick up over time.

Eric Martinuzzi: Got it. Congrats on the numbers and the outlook.

Operator: The next question comes from Brett Huff with Stephens.

Colby Sanford: This is Colby Sanford on for Brett Huff. Nice to finally be covering you all. So last quarter, you described the enterprise payroll tax pipeline as really strong. Since then, you've been at Workday, HR Tech Conference, Oracle, and you've added Payroll Tax Management to the Oracle Marketplace and now AWS as well. So what are you hearing from your enterprise buyers and our ERP partners at these events? And kind of how should we think about these marketplace announcements and how they will generate new leads for you all?

Patrick Goepel: Yes. I think, first of all, our team has been in Las Vegas 3 weeks in a row at a busy time, and I was joking with our President and Chief Revenue Officer, Eyal Goldstein, if he was taking residence up in Nevada. But we've got a lot of really good feedback. Our product teams worked really hard. The strategy of the foundation level for us around embedded payroll, tax filing, treasury, et cetera, is a great foundation for us to be because it allows us to play up and down the enterprise clients to the medium and small clients, but frankly, also other payroll companies because they use some of our foundation tools.

So the feedback has been really positive. I was on calls even this morning and this afternoon right before earnings with a number of different clients and opportunities and partners that really like our modernization strategy in this area and that those tools perhaps were underserved by other players in the past, and we have that capability. So I think our time is right now and our time is, sometimes luck is preparation meeting opportunity. We're prepared for this moment. And I think you're going to see a lot of growth here in that area. But you've already seen it, but in '27, '28, I think you're going to see strong growth in that area.

Colby Sanford: Awesome. That's super helpful. And I appreciate it. If I could just sneak one more in there. So a larger competitor of y'all has been leaning a little bit more into PEO, moving some of their clients out of management solutions into that PEO business and having their sales team refer some deals into it. So just curious if you're feeling any of that new logo deals in your client base. And just any change in the competitive landscape recently with some of your competitors and just the AI natives?

Patrick Goepel: Yes. I think from our perspective, I used to run a PEO, and I was the CEO of a PEO, and that's an environment that can get complicated quickly. I personally think we have all the capabilities in the model. If we choose to do that, we would have the capability to build into that base. As far as I look, we have the capability and kind of what we're doing, where you don't have to have things like group insurance and all that, where you can unbundle that and we have kind of best-in-class tools and managed services without the PEO. I happen to like that position.

As far as the competitive environment, I think, all in all, it's going to be a changing environment. We're a better company with AI and software, not one or the other. And I think other competitors feel that there's opportunities, too. And for us, it's an exciting time to be part of a human capital management space, and we think there's market share opportunity to go after. And we're pleased to report a really good quarter because of that. So I think the trend towards multiple products, multiple solutions, having tools not only around breadth of products, but also workflow within products is where a good solution looks like.

And then agentic AI with the workflows gives more power to the user in a quicker basis and makes good decisions, and we're leaning into that strategy as well.

Operator: [Operator Instructions] The next question comes from Greg Gibas with Northland Securities.

Gregory Gibas: Congrats on the quarter. I wanted to ask regarding those strengthened positions, one within the Oracle ecosystem, but also Payroll Tax Management available there, but in the relationship with AWS. Could you maybe speak to the response you're seeing so far at this point as it relates to the opportunities with those networks or potential customer bases?

Patrick Goepel: Greg, it's so early days. What I would say, and I was at 2 of the trade shows. I wasn't -- I didn't have a chance to go to Oracle just with timing of earnings. But our team was there. I'll give you an idea. Last year, we were at the Workday conference. So I think our lead volume was probably triple last year. And it's just a progression of us having a lot of success stories and taking market share, and there's been a good buzz there. So the lead flow was really good. HR Tech, very similar. From the feedback I'm getting at Oracle, really good opportunities, some good serious buyers.

And there's an opportunity with the modernization of the work we've done. People really want to engage with us, and that's right where we want to be. So the early returns are real positive, but a lot of these announcements are over the last 45 days or so, and a lot of this activity has been in the last 30 or so. We'll continue to progress here, but it's probably just a little bit early, but initially, a lot of excitement.

Gregory Gibas: Okay. That's fair. And with respect to the payroll processor you acquired, I think you mentioned some verticals or capabilities that add an incremental opportunity to where Asure sits today. And I wonder if you could maybe expand on those. And then should we think about the purchase price being pretty close to your 2x revenue target?

Patrick Goepel: Yes. I think purchase price was about 2.6x revenue. We disclosed that. And how I look at it is we've got a nice size, nice capability. The staff is really strong. They know our products and services. We know their products and services really well. So the learning curve is not a long putt. It's a real easy putt for us. And then when I look at some of the vertical markets they've done and some of the capability, I think some of the scheduling capability and kind of time opportunity there in addition to some of the reporting, we think was a nice add to some of our product family and service family.

So that -- we're going to leverage that going forward.

Operator: At this time, I would like to turn the call back over to management for closing comments.

Patrick Goepel: No. So anyway, I'm just seeing if the team had anything. Hey, third quarter was an outstanding quarter for us. Good momentum, recurring revenue going up. We're excited about it. We think that will pay dividends as we finish the year of 2026 in a strong way. And in '27, it sets us up for really good growth. And John mentioned that in the IR deck, I think it was 3 years ago, we kind of pointed to $180 million to $200 million. We're in that sweet spot. It's been very predictable for us, that scale wins. The AI, good fortune. We're embedding that in a lot of things we do, which is helping our software.

Change is afoot in Human Capital Management. Our people are at the tip of spear, leading change. We've got a lot of pipeline of opportunities. And I think we're a story to watch here. And I've been here a long time, really, really excited. And from an investor perspective, hey, we lost a good one in Dick Strong, and I want to, again, wish my sentiment to the family. But right now, I think it's a real good time to look at Asure again because we got a lot of stuff going on. So I really appreciate your time, and have a good day.

Operator: Thank you. This does conclude today's teleconference. You may disconnect your lines at this time. Thank you for your participation, and have a great day.

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