Asure Software Inc

NASDAQ:ASUR

Earnings Call Analysis

Asure Software shows revenue stability and strong growth potential for 2025.

In Q3 2024, Asure Software's revenue stood at $29.3 million, flat year-over-year due to reduced nonrecurring revenue, but recurring revenue surged by 20%, constituting 98% of total revenue. The firm completed 12 acquisitions, boosting its recurring revenue base significantly. Looking ahead, 2024 revenue guidance is updated to $119-$121 million, while 2025 anticipates $134-$138 million, reflecting double-digit growth. Adjusted EBITDA margins are expected to rise to 23%-24% by 2025. Notably, sales bookings increased by 141% year-over-year, with a backlog up 250%, indicating a positive trajectory despite recent challenges.

Steady Revenue Amid Challenges

During the third quarter of 2024, Asure Software reported total revenue of $29.3 million, marking no increase from the previous year. This stagnation was primarily due to a $5 million decrease from nonrecurring ERTC revenue. However, excluding this figure, total recurring revenue and total revenue saw impressive growth of 20%. Notably, recurring revenue constituted a remarkable 98% of total revenue, up from 81% in the previous year. This shift underscores the company's successful strategy to enhance its revenue mix, prioritizing higher-value recurring revenue over one-time sources【4:3†source】.

Strong Backlog and Sales Performance

Asure's sales performance showed significant momentum, with bookings increasing by an impressive 141% year-over-year. Moreover, the company's contracted backlog stood at over $67 million, a staggering 250% increase from the previous year. This growth in backlog sets a promising foundation for double-digit organic growth in 2025, signaling that Asure is on a solid trajectory going forward【4:2†source】【4:4†source】.

Acquisitions Driving Recurring Revenue

Over the past year, Asure has completed 12 acquisitions, contributing approximately $15 million in annual recurring revenue. The acquisitions have primarily focused on payroll resellers and have strategically rounded out Asure's service offerings – such as the recent acquisition of HireClick, which enhances the company's hiring solutions. These efforts reflect Asure's commitment to increasing its portfolio while maintaining an average acquisition multiple of 2.6x revenue【4:9†source】【4:5†source】.

Guidance Updates for 2024 and 2025

Looking ahead, Asure has updated its guidance for the fourth quarter of 2024, projecting revenue in the range of $30 million to $32 million, with adjusted EBITDA anticipated between $6 million and $7 million. For the full year 2024, the revised revenue guidance is set between $119 million and $121 million, with adjusted EBITDA margins expected between 18% and 19%. For 2025, Asure is optimistic, projecting revenue between $134 million to $138 million and aiming for adjusted EBITDA margins of 23% to 24%【4:2†source】【4:3†source】【4:4†source】.

Operational Improvement and Margin Expansion

Despite a decline in gross margins, which fell to 67% from 73% year-over-year, Asure anticipates significant margin improvement moving forward. The company's strategy focuses on scaling its operations without a proportional increase in costs, especially in light of its varied service offerings and acquisitions. The aim is to not only return to prior margin levels but to achieve higher margins in the coming years. John Pence, CFO, highlighted that increases in revenue will largely come without a corresponding rise in service costs【4:3†source】【4:2†source】.

Strategic Focus on Technology and Client Experience

Asure continues to innovate and enhance its client offerings, including plans to launch an online banking alternative, AsurePay. This product is designed to improve employee retention and streamline client payroll processes. The company is committed to creating a seamless client experience by integrating all solutions under a common user interface, which will enhance the usability and value of its services【4:5†source】【4:4†source】.

Navigating Market Challenges

Asure's leadership acknowledged some challenges with product introductions and the timing of large enterprise tax deals, which contributed to the slight revenue miss this quarter. However, confidence remains high due to robust sales growth and a strong pipeline moving forward. The company has emphasized that although some revenue expectations were not fully met in Q3, they remain convinced about future performance driven by a substantial backlog【4:2†source】【4:4†source】.

Earnings Call Transcript 2024-Q3

[Operator]

Good afternoon, and welcome to Asure's Third Quarter 2024 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.

[Patrick McKillop, executive]

Thank you, operator. Good afternoon, everyone, and thank you for joining us for Asure's Third Quarter 2024 Earnings Results Call.

Following the close of the markets, we released our financial results for the quarter. The earnings release is available on the SEC's website and our Investor Relations website at investor.asuresoftware.com, where you can also find the investor presentation.

During the call today, we will reference non-GAAP financial measures, which we believe to be useful to investors and exclude the impact of certain items. A description and timing of those items, along with the 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 will hand the call over to Pat in a moment, but I just wanted to take a moment to remind folks of our upcoming Investor Relations activities. On November 19, we will be attending the Craig-Hallum Alpha Select Conference in New York, followed by the ROTH Technology Conference on November 20, also taking place in New York. On November 21, we will attend the Stephens Annual Investment Conference in Nashville and have an executive team member attend the Needham SaaS Virtual Conference that day. During the month of December, we will attend two virtual conferences, the TD Cowen Human Capital Management Summit on December 9 and on December 12, the Northland Capital Markets 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, executive]

Thank you, Patrick, and welcome, everyone, to Asure Software's Third Quarter 2024 Earnings Results Call.

I'm joined on this call by our CFO, John Pence, and we will provide a business update for our third quarter 2024 results as well as our outlook for the remainder of 2024 and our initial 2025 outlook. Following our remarks, we will be available to answer your questions.

Our third quarter revenue was $29.3 million, which was flat relative to prior year, owing to an approximate $5 million decrease, a nonrecurring ERTC revenue. Excluding the ERTC comparison, total revenue and total recurring revenue both grew by 20% compared to last year. Importantly, recurring revenue in the third quarter was 98% of our total revenue compared with just 81% in the prior year's period. As you know, recurring revenue is significantly more valuable than nonrecurring revenue. Our focus has been on replacing the lower value ERTC revenue with recurring revenue, and you can see the result of our efforts in the improved revenue mix in the third quarter. Key drivers of our revenue performance in the quarter include acquisitions and organic growth from an expanding portfolio of solutions.

In terms of acquisitions, we have acquired 12 companies over the past 4 quarters with repetitive revenue of approximately $15 million. The average purchase price is equivalent to about a 2.6x multiple on repetitive revenue. The acquisitions have been primarily of payroll resellers, but we've also been able to round out our solution set. For example, HireClick gives us a scalable solution for our clients to help them manage and have success with their hiring programs. We plan to expand HireClick's applicant tracking system nationally and believe it brings capabilities that fit a key need for our clients and thereby enables us to provide a more comprehensive solution set and capture wallet share.

Turning to our organic performance to 5% organic recurring revenue growth in the quarter did not meet our expectations. However, we believe we've had some really encouraging leading indicators and momentum in place as we finish 2024 and embark into 2025, that will accelerate our organic performance. Our sales bookings were up 141% compared to last year. Our current backlog has grown 35% sequentially from Q2 to Q3 2024, and is up 250% versus prior year. This will set us up nicely for double-digit organic growth in 2025.

We also have a strong pipeline of tax solutions for large enterprises. In the past, we've shared our thoughts about the relatively unique asset we have in the tax space, and we're now beginning to capitalize on it with some very large deals in process of going live in a very robust pipeline. We're pleased to report that we went live with additional Workday and SAP clients, important sales wins have included one of America's largest grocery store chain and a nationally known human capital management system integrator that assists large enterprises with Workday, SAP and Oracle Human Capital Management implementation.

In the quarter, our repetitive growth was broad-based, and we've expanded our product offerings and our partnerships to better serve businesses of all sizes. Initiatives that we're excited about include 401(k) solutions for small businesses. This initiative leverages the government's SECURE 2.0 Act, which encourages adoption and provides funding for 401(k) plans for small businesses.

In addition to our brokerage capability in the benefit space, we have also recently introduced workmen's compensation solutions, as well as preventative health care solutions for small businesses. We're very excited about the upcoming launch of a new financial services product called AsurePay. AsurePay is an innovative alternative to online banking for working Americans while also providing advantages to employers with employee attraction, retention and overall efficiency. Delivered via an easy-to-use mobile app it will offer features such as a debit card, free ATM withdraws, paycheck advances and quite a bit more.

Now I'd like to spend a minute or two on operations. We have a multiple-pronged approach to improve business processes, technology and create scale economies from our continued revenue growth. Acquisitions are an important part of this strategy. We're pleased with our performance in this area. We've executed several payroll transactions that should lead to higher revenues and profitability over the coming years. We believe that our established playbook is highly effective in maximizing the margin potential of these new acquisitions. The playbook offers us to efficiently transition these acquisitions onto our platforms, cross-sell our enhanced capabilities, which we believe will enhance profitability with scale.

We continue to enhance our client experience with new technology, with the goal of integrating all Asure solutions on a common modern user interface with leading capabilities. We'll continue to move the ball forward in this area and have several enhancements coming over the next several months.

Now turning over to 2024 guidance. Based on our current business trends, we're updating our 2024 revenue guidance to a range of $119 million to $121 million. We now expect adjusted EBITDA margin of between 18% and 19%. We're also giving our initial 2025 revenue guidance of $134 million to $138 million, and adjusted EBITDA margins of between 23% and 24%. The measured margin reflects the value of scaling the business.

Now I would like to hand it off to John to discuss our financial results in more detail. John?

[John Pence, executive]

Thanks, Pat.

As Patrick mentioned at the beginning of this call, several of the financial figures discussed today are given on a non-GAAP or adjusted basis. You will find a description of these GAAP to non-GAAP reconciliations in the earnings release that was made available earlier today. The reconciliations themselves are also included in our most recent investor presentation, posted in the Investor Relations section of our website at investor.asuresoftware.com.

Now on to the third quarter results. Third quarter revenue was $29.3 million, nearly unchanged relative to prior year as ERTC nonrecurring revenue declined by nearly $5 million, which was offset by a $5 million or 20% improvement in recurring revenue. As Pat mentioned, the quality of our revenues improved markedly relative to prior year, with recurring revenue now representing 98% of the total revenue compared with 81% a year earlier.

Third quarter revenue -- recurring revenue growth was broad-based and led by our recent acquisitions and several significant payroll tax management sales. Net loss for the third quarter was $3.9 million, versus a net loss of $2.2 million during the prior year period. Gross margins for the third quarter decreased to 67% from 73% in the prior year. Non-GAAP gross margins for the third quarter decreased to 73% from 76% in the prior year period. We continue to believe there is substantial margin upside over the longer term as business scales.

EBITDA for the third quarter was $2.2 million, down from $3 million in the prior year period. Adjusted EBITDA for the third quarter decreased to $5.4 million from $6.2 million in the prior year period, and our adjusted EBITDA margin was 19% in the third quarter, compared to 21% in the prior year. Third quarter EBITDA reflects the revenue trend and transition to higher recurring revenue, lower ERTC revenue and select investments in the business to support revenue growth. We ended the second quarter with cash and cash equivalents of $11.2 million, and we have debt of $7.5 million.

Now in terms of guidance for the fourth quarter 2024. We are guiding the fourth quarter revenues to be in the range of $30 million to $32 million. Adjusted EBITDA for the fourth quarter is anticipated to be between $6 million and $7 million. At this time, it appears that the 2024 revenue will fall a bit short of our initial expectations, which is primarily the result of lower revenue from new product introductions and the variability and timing of execution and implementation of a few large enterprise tax deals.

We closed the quarter with over $67 million in contracted backlog. This represents an over 250% increase from the previous year. We feel we have made important strides in 2024 and have strong momentum as we look forward to 2025. We are providing initial 2025 guidance to be in the range of $134 million to $138 million, with adjusted EBITDA margins of between 23% and 24%. Our 2025 revenue guidance does not include potential acquisitions, but we do still plan to continue to execute acquisitions in the future.

In summary, we are excited about the opportunities that we have for the balance of 2024 and 2025. The headwinds from ERTC have now faded, and our focus is to continue the growth of the business while creating more shareholder value.

Before turning the call back over to Pat, as I just referenced, our long-term business model assumes a complement of both organic and inorganic revenue growth. To this end, as the debt markets become more favorable, we are evaluating the use of various forms of debt financing, potentially during 2025. We believe that having options for finance in place as we focus on growing the business is prudent. But we do not intend to over leverage the balance sheet to achieve our objectives.

I also wanted to mention that after the market closed today, we announced the entering of a sales agreement for an at-the-market or ATM offering, which will augment our existing S3 filing. While we do not have any immediate intention to utilize the ATM, we have established an ATM to give us additional flexibility in the future for funding opportunities should they arise.

With that, I will turn the call back to Pat for closing remarks.

[Patrick Goepel, executive]

Thanks, John.

We are pleased to report solid performance in the third quarter of 2024. Our ongoing commitment to business growth, technology advancements and expanding our product offerings have yielded strong progress in the first 9 months of 2024. As we work to create a more unified client experience, AsurePay will be the latest addition to our product portfolio. It is an innovative online banking alternative delivered through an intuitive mobile app for employees that features things like debit card capability, free ATM withdraws and paycheck advances plus more.

We have announced multiple solutions over the last few quarters to add to our client experience with products, which will help the small businesses complete background checks, uncover tax credits that they may be eligible for, ways to lower health care premiums and through an acquisition we added an applicant tracking technology to our portfolio, which will aid them in the hiring process. These additions will aid us in attracting potential new clients as well as cross-selling existing clients. We're a relatively young company in the human capital management space, and we're continuing to build out our capabilities as we plan for future growth.

In summary, we've delivered another solid performance in Q3 with 20% recurring revenue growth, bookings growth of 141%, a strong backlog, which grew over 35% from Q2 and over 250% from Q3 2023. We've executed well on our plans for acquisitions with 12 deals completed over the last 12 months that bring in approximately $15 million in aggregate ARR and our pipeline for future deals remains healthy. Reoccurring revenue as a percentage of total revenues in the third quarter was 98%, which increased from 81% in last year's third quarter and shows our ability to grow a high-value revenue stream.

Our guidance at $134 million to $138 million in revenues for 2025 implies double-digit growth without acquisitions and the headwinds from ERTC have dissipated. We look forward to the exciting opportunities we have the remainder of 2024 and into 2025. We will continue to provide innovative human capital management solutions that will help small businesses drive human capital managers -- management providers grow their base, and large enterprises streamline tax compliance.

Thank you for listening to our prepared remarks. So with that, I'll turn the call back to the operator for the Q&A session. Operator?

[Operator]

[Operator Instructions] Our first question is from Joshua Reilly with Needham & Company.

[Joshua Reilly, analyst]

So maybe just starting off, if you look at the lower revenue for the quarter than what was expected at the midpoint of guidance, maybe just some more color on what was different versus your internal plan entering the quarter? And as you think about the initial guidance for 2025, that implies about 13% growth at the midpoint. What gives you confidence based on your internal planning, that's the right number given there's going to be a headwind to float income most likely next year?

[Patrick Goepel, executive]

Yes, Josh, thanks for the questions. First of all, as I think about last year, the big questions were, hey, ERTC pause, how are you going to ever grow overhead, all that kind of stuff. We laid out a plan. And we think for the most part, we've executed fairly well.

I think as I look about the third quarter, first of all, we probably modeled in the area 95% reoccurring revenue or repetitive revenue. The difference around that 3% and 98%, 98% is not bad, and it's pretty good. But in a lot of cases, it was timing around some big deals in professional services. Over time, that will -- the backlog has grown quite a bit. So it's book-to-bill timing on some of these large deals. Professional services had an impact here in the third quarter.

And then as I look forward, there's a lot to celebrate. Sales was up 141%. Backlog is up 250%. I own the timing, and I screwed up. We got to yes on a lot of good deals. It's just they were a little bit delayed in a time frame where we're expecting a ramp. This is not a question of if, it's a question of when. And that probably was a quarter or two early here on some things.

That being said, some of the progress we're making around AsurePay, around 401(k), around some of the rounding out of offerings is very strong. The momentum in the marketplace, 141% sales growth, doesn't happen often. And then it's just the timing of some of these deals where we had modeled in kind of that July, August, then it comes in in September.

Should I have known better? Maybe. And I own that and I'll be better in the future. And when I think about as we had in the fourth quarter last year, I think we were in the 26 range with $1 million of ERTC. We're guiding to 30, 32. We're already kind of there. And if you just take implementing sales in the backlog, you get to that 12%, 13% pretty quickly.

So we're pretty confident. Yes, it's a timing pill that we all have to accept. But from a success of the business, it's not a question of if, it's a question of when.

[Joshua Reilly, analyst]

Got it. That's helpful. And then just maybe following up on the enterprise payroll tax. I've gotten a lot of questions on that over the last quarter. Maybe can you help us understand better like how long is the sales cycle there? How much of that is direct versus through partners? And what's the level of visibility that you feel like you have now that these deals are kind of progressing over the next few quarters?

[Patrick Goepel, executive]

Yes. In addition -- thanks, Josh. In addition to John Pence, I have Eyal Goldstein, who is our President, Chief Revenue Officer and is on the point of some of these solutions. But a couple of things.

First of all, we do have a couple of different models. Where we've been successful in the integrated channel is small business, payroll, right? Well, we don't compete, let's say, in the PEO market. And we've announced a really solid partner in Vensure and that's gone very well.

In the large end, we don't compete in the large offering of payroll, but we have some core competency in tax filing and money movement and tax filing. And we've had a lot of success. And we'll disclose names as we go live and go a little bit further, but we've been very successful.

So it's not a one size fits all. Where our model has been delayed a bit, it's sometimes the contract process. We probably have been used to a motion of around 30 to 60 days. In some cases, it's 90 to 120 on the contracting. And then where we also have done a really nice job of bringing people live within 60 days, if they're already on the current ERP solution. But in some cases, if they're moving to an ERP solution, we're at the whim of maybe an IT integrator, we're at the whim of them first installing the ERP solution and then the tax filing solution. So that's kind of the sense on book-to-bill.

And then the other thing is we have integrations with 27 other payroll companies. That's a big number, and that's 27 payroll companies that are bringing us, or will bring us, clients in the future, and they're doing a lot of the selling, et cetera. So our solution has a lot of legs or early innings. We got a lot of momentum. The timing will get better on, and I'll get better on it. But the good news is a good pipeline, strong implementations that have gone live that are referenceable. And this is more contracting book-to-bill, timing of ERP conversion versus anything else.

I'm going to -- just maybe Eyal, you're on the front end. Is there anything you want to add?

[Eyal Goldstein, executive]

Yes. I would say, Josh, the only other thing I would add is it's the combination of direct to enterprise Fortune 500 opportunities or customers as well as working with some larger system integrators that gives us the opportunity of some of these more one to many where we can do a deal with the integrator and ultimately, all of their clients as they come online, we get credit for and revenue from. So it's a combination of both of those models.

[Operator]

Our next question is from Bryan Bergin with TD Cowen.

[Jared Levine, analyst]

It's actually Jared Levine on for Bryan tonight here. First question here. Can you go over the underlying assumptions to your FY '25 revenue guiding, including what that includes for inorganic based on both planned M&A as well as already announced M&A here in FY '24?

[John Pence, executive]

Yes, I think the only thing for the '25 guide, we do have one deal that we're anticipating closing this quarter. The rest of the guide does not assume any incremental acquisitions post fourth quarter.

[Jared Levine, analyst]

What about employment growth, any macro conditions, anything more there to kind of shed light on in terms of those underlying assumptions there for '25?

[John Pence, executive]

I would say the only big assumption that we've played in is interest rates, right? So rough order of magnitude, we've historically been sitting on approximately $200 million of client funds. The way we look at it about 0.5 point is about, I think, about $1 million a year, so about $250,000 a quarter. So we've played into our models approximately like a 3.5% terminal rate from the Fed. So we're looking at roughly between -- and they will have some impact on the marketplace as well just because of the mortgage rates and it's a little bit more complicated. But the gist of it is, I think we have roughly kind of $1 million a quarter, we think of headwind into 2025 per quarter. So to give you some sense, that's one of the probably the key underlying assumptions we put in. I don't think we've modeled anything really differently in terms of employment.

[Patrick Goepel, executive]

Yes. If you think about same-store sales, it's relatively flat. I would tell you in small business, the biggest issue is access to people. If I look at a trade association, whether it's plumbers, welders even restaurant tours, they can't get enough people. And we're obviously trying to help them and with our value proposition, access to capital, access to people and compliance. But we've modeled kind of a flat. If we do get some upside, that's great.

[Jared Levine, analyst]

Got it. And then last question here. Can you talk about the drivers of this notable margin expansion you're pointing to for FY '25 here relative to your current FY '24 guide?

[Patrick Goepel, executive]

Well, just simply put, the sales up 141%. The backlog up 250%. Last year at this time, I think we had something like $19 million in backlog. We have $67 million right now. Some of this is just the momentum that we've had. If you think about the first quarter coming off ERTC, we're about 3.5% organic growth. And if you think about kind of where we were at the time, the sales motion pivoting from ERTC with a lot of new products, we had to take some time to train those products and roll those out.

One other stat that just if you think about what products we've added here over the last year is, first of all, a common user interface across all employees. We're having a common employer userface that we're rolling out. If you think of PEPM or per employee per month, our capacity beginning of the year was what I'll call a soft $40 because it was a $40 a month relative. We had some products that were relatively new. We're probably in the neighborhood now of about $165 per employee per month. So if you think about that capability, we've added AsurePay that we just announced here in November this month. We've announced the brokerage business, the recruiting product, preventative health, workmen's comp.

So we're really rounding off the offering. And like I said, we're relatively early business that's building out all these capabilities, and we have a lot of momentum. And then the sales backlog bode really well for the future here. And then coming off ERTC, ERTC now in the fourth quarter, I think we had $1 million contribution. Next year was about $1.5 million that we had this year, we're through that. So a tremendous amount of confidence.

[Jared Levine, analyst]

Got it. And then, John, real quickly, can you talk about the drivers to margin expansion you're pointing to for FY '25? It looks like a little over 3 points here, so pretty notable. So just be curious on those margin expansion drivers for next year.

[John Pence, executive]

Yes. I think we've been pretty consistent just in terms of this being a scalable business. With the topline, we don't expect to add a lot of extra cost to service that topline. We feel like a lot of that incremental growth on the top doesn't come with incremental costs, just by the nature of some of these deals. I mean when you sign some of these large tax deals, it doesn't change any rewrite of the code. It's just a lot of really good topline growth without a lot of incremental cost. So I think that's the primary driver. It's just scale. It's the same thing we've been saying all along. We think this business should be, as we start to crest $200 million, that we should at least be at a minimum of 30% bottom line contributor in terms of cash. So I don't think it's anything more than the way station along the way.

[Patrick Goepel, executive]

Yes. And maybe just if I could add, 2021, I think we were at 10% non-GAAP EBITDA. This year we're 19% or so, 20% last year. Next year in the guide, we're going to increasingly go up. And then if you think about some of the things we just talked about with the -- let's say, the employer kind of user interface and a common employee user interface. If you think about some of the validation tools and AI that we're rolling out, rework is going down quite a bit. The ability to scale operationally has gone down.

We're able to take out kind of some non-customer service sets at an increasing pace with some of our technology projects. So all of that is adding up to -- we have really visibility of margin expansion, but we're really early. We think we can do quite a bit more.

[Operator]

Our next question is from Eric Martinuzzi with Lake Street Capital Markets.

[Eric Martinuzzi, analyst]

Yes. I wanted to categorize the delta between the old 2024 revs and the new 2024 revs. And by that, I mean the midpoint. So you went from a midpoint guide of $126 million to a midpoint of $120 million. So $6 million in total. We came up short by about $2 million here in Q3 and obviously, that implies $4 million in Q4. So I'm hoping to put it in three different buckets here. You talked about, number one, lower revenues from new product introduction. Number two, a few large enterprise tax deals that slipped. And then number three, it sounds like pro services. So can you bucketize that $6 million?

[John Pence, executive]

Yes, I would just -- I'll give you my first point. I think I would tie the pro services to the tax deals themselves because most of that pro service is going to go with the install timing. So that's where I would then I'll let Pat kind of give you his feelings on those.

[Patrick Goepel, executive]

Yes, Eric, it's not a perfect science because as we think about it, but I would say just roughly, we're about 3% a quarter more repetitive than we thought we would be. And so if you think about third and fourth quarter, that's about $1.8 million or so.

Now whether we end up that perfectly or maybe we get some stuff started, and that $1.8 million almost exclusively is timing of some of the tax deals. And by the way, it's not that we haven't signed them. It's just when we get them started and get people and all that kind of stuff. So 1/3 of, let's say, that $6 billion or 30% is in the PS.

From timing in general, I would say we're probably roughly 1/3. So if you think about, let's say, 401(k), you think about preventative health, if you think of our pay card rollout, in general, some of the new products and the book-to-bill and our client adoption probably is roughly a quarter behind or so. Some of that varies based on those products. So the timing of some of the new products, I would say, probably is another somewhere around $2 million. We did have kind of a deal we thought we would have on the acquisition front. And that, I think, will not happen or if it does happen, it will be in 2025.

So if I look at where the ramp in the guide was, we've overachieved on the sales side. We've overachieved on getting backlog. The timing in a backlog is the other kind of remaining thing, but that's where if I were to look at it, it's about 1/3 in professional services, about 1/3 in the rollout, and then third, about timing. Maybe $1 million or so under one deal with acquisitions, it's probably 2025.

[Eric Martinuzzi, analyst]

Okay. And then just a clarification. Was there any ERTC revenue in Q3 of 2024?

[Patrick Goepel, executive]

Yes, I would say it was de minimis.

[John Pence, executive]

I think we had some, I think it was like $100,000, maybe $150,000 all in.

[Operator]

Our next question is from Jeff Van Rhee with Craig-Hallum Capital Group.

[Jeff Van Rhee, analyst]

Just a follow-up on Eric's question there. With respect to the tax deals that push that contributed to this, meaningfully this $6 million miss, what -- how many tax deals are we talking about?

[Patrick Goepel, executive]

Well, we have a large integrated deal where it could be as much as the -- 50 deals, right, or more. And so the timing around some of those moves. So if you think about it, they have different ERP platforms. They have Oracle SAP, Workday. And without getting too deep into that, we're over time going to be their provider. And so that provider is a kind of a licensed solution plus a professional services component to it. And so that is really kind of probably the biggest area.

There's been some other deals where there's some one-off bigger deals that they have to implement first on ERP solution, and then they go to tax, and they might have kind of one has Capgemini involved in it. So they have a consulting firm bringing them live once they go live, they go to us. They've moved some of those ERP implementations. But it's probably in the area of 50-plus.

[Jeff Van Rhee, analyst]

Okay. Okay. That's helpful. And then...

[Patrick Goepel, executive]

And just really quick, Jeff. By the way, there's parts of it that are starting to go live as we speak. So this is truly a timing thing, nothing more and nothing less. And I'll take ownership that I was either too optimistic or didn't do it -- didn't forecast it privately or publicly as well as I should have, but I will tell you. I mean, it's not like we didn't sign it. It's not like we don't have things going really well. It's just the timing of it.

[Jeff Van Rhee, analyst]

John, do you have a sense on free cash flow conversion in 2025 on the $32 million EBITDA midpoint?

[John Pence, executive]

Yes. I think just similar type answer that I would've give you in '24. I mean our big delta is between the adjusted EBITDA number and the free cash flow, or really software cap, which I don't see changing tremendously. So I think this year, we'll probably be capping about $10 million, right?

I think that the other big delta is commissions. And so I believe that we should be kind of in the 20s. We'll be stepping up from where we were this year in terms of free cash flow is a simple answer because I don't think there's a lot of other big delta between the two.

[Jeff Van Rhee, analyst]

The AR bumped up when you really got heavy into the ERTC, it's still elevated. Is there a scenario in '25, do you expect that to come down? Just talk about maybe your thoughts on AR for the year?

[John Pence, executive]

I hope so. I mean so we -- when they went through the pause of ERTC, it was truly -- not even a pause. It was like a freeze. So I would say between September of last year, kind of September 14 and August of this year, almost no movement really in terms of the IRS letting checks flow.

Early in August, and I would say, in September, we actually starting to kind of see that long jam break. We have visibility through our systems into the IRS. So what we have is like an early warning sign. So there's usually like about a 2- or 3-week lag between when the IRS says, "Hey, we're going to issue a check," and when they actually cut the check. So we have about a 3- to 4-week head start when we know the IRS is about to start releasing funds.

We've seen early signs of sprouts that we haven't seen for the previous 12 months. So I do believe that if the IRS kind of continues on its current trajectory, that number should come down. Hopefully, it's really is somewhat at their whim as to how quickly they start to kind of unload these things. But I do believe it's coming down. That's the major change in the AR balance that we're still waiting on.

[Jeff Van Rhee, analyst]

Okay. And then just two quick last for me. One on the debt side, as you continue to make acquisitions, just what is an acceptable leverage level that you think you would not be comfortable going over?

And then on the sales reps, I know last quarter, you said you were tracking for 130 by year-end. Where you end the quarter? Is 130 is still the right target?

[John Pence, executive]

Yes. So last question first. I believe that is still the right target. I think we're probably in the 115, 120, Eyal can correct me if I'm wrong, in that range at the end of the quarter. And then in terms of leverage, I think we'd probably be comfortable with about 2x. It's probably the max in terms of leverage on the business. And that should be plenty. If we continue to acquire at the current pace, I think that's plenty to cover that. But that's my guess. I mean, Pat, I don't know if you have a different opinion?

[Patrick Goepel, executive]

No, we're comfortable at that level. We think we have some opportunities to drive. And again, with the expectation that scale will drive margin expansion, we're -- that's our journey.

[Operator]

Our next question is from Brad Reback with Stifel.

[Brad Reback, analyst]

Pat, appreciate you taking ownership of the miss this quarter. Can you give us a sense what level of cushion you baked into 4Q?

[Patrick Goepel, executive]

Say that again, Brad, I'm sorry, I just want to make -- you faded out a little bit.

[Brad Reback, analyst]

Sure. Can you give us a sense of what level of cushion, conservatism you've baked into the 4Q guidance?

[Patrick Goepel, executive]

Yes. I mean I think when we look at it, we wanted to make sure that we built a foundation as we look in fourth quarter and 2025 that we had something to build off of. As far as visibility and starting work, we're not betting too much on the contract needed to be signed and then we get it implemented. So we're looking really at the backlog. We're looking at -- we do have one acquisition that we anticipate closing at a strong ROI in it. And then we have revenue that has already started that, let's say, it started for a month in the third quarter, it will roll in the fourth. So that's pretty certain. So the $30 million to $32 million we feel we should be able to hit and hit nicely. We're not betting on the come. I think we -- in retrospect, I think one of the things coming out of ERTC last year with a guide as people kind of said, hey, you're coming from a flat start on ERTC. We explained that scale was important and we're going to get there in multiple ways.

I do think our team has worked their butt off this year in getting that and largely executed. It's the timing of it. And so when we set the reset expectations here, fourth quarter and next year, what we want to do is not get ahead of ourselves. And then we took out acquisitions on the guide, which you coached us on and others, and now we have an opportunity to just be in a position where we can exceed expectations.

And then we also put in a plan, that John referenced that we expect interest rates to go down. So we're thoughtful about some of the minor headwinds that we have as we look at next year and fourth quarter.

[Brad Reback, analyst]

Great. John, free cash flow conversion has actually been negative through the first 9 months, I think, to the tune of $8.5 million. Can you kind of walk through what's going on there and how that reverses?

[John Pence, executive]

I think if you're putting in acquisitions, I think that's going to be the key delta to that number, right.

[Brad Reback, analyst]

I'm not. No, I'm only using OCF minus the cap software.

[John Pence, executive]

You're talking about off the GAAP balance sheet? So I mean, I don't spend a lot of time looking at the balance sheet movements, honestly, because of just -- it's just a timing issue from my -- I'm looking more from a bridge to the adjusted EBITDA number in my mind. I'm not really focused on the movements on the balance sheet as much.

So I'm happy to kind of spend some time -- I'm happy to help kind of bridge back to you, but I've not spent a lot of time trying to bridge the operating cash flows off the GAAP cash flow.

[Operator]

Our next question is from Greg Gibas with Northland Securities.

[Gregory Gibas, analyst]

Does your guidance assume that some of those large deals you spoke to on the tax side, that you kind of said were matter of when, not if. Does guidance for next year assume those kind of kick in into Q1 or likely later regarding implementation recognition?

[John Pence, executive]

I think it's a little bit of both, right? Some of these got signed in the second quarter, some of them got signed in the third quarter of meaning. I mean it's a whole cadre, right? So we have one, for example, that we expected to start in January of '24 that it went live in August, as an example, a large steel company, 20,000 employees. We've got -- as Pat mentioned, I think in his prepared remarks, we've got one of the largest grocery store chains that we expect to go live in January.

But some of that's a little bit out of our control. We right now are anticipating that one going live January in 2025. And then as Pat and Eyal referred to, we've got some large integrators that we're working with. We think that some of that is going to go in earnest this quarter. But again, some of it is in our control, some of it's not. We're a little bit at their mercy as to how quickly they can keep pace. So I would say some of it is in this quarter, some of it's into 2025.

[Patrick Goepel, executive]

Yes. Some of them, we have a license deal that we get some revenue now, but then we also implement through the 4 quarters of next year. So some of it is -- the timing is now. Some of it is quarterly over 2025. So it's not a one size fits all. I will say the pipeline is pretty robust. And the sales order metrics are very strong and then the backlog is strong. So it will go throughout 2025.

[Gregory Gibas, analyst]

Okay. Got it. And then I wanted to ask just, I guess, organic growth expectations implicit in your Q4 guidance and maybe for '25 as well? And I guess another way to ask too is the $15 million ARR, how much of that do you expect to recognize this year, or I guess, captured this year? Just trying to get a sense of within your guidance, kind of what's on the organic growth side?

[John Pence, executive]

Yes, I think I'm going to go -- I don't have it in front of me right now, but I think it's roughly high single digits of organic in the fourth quarter. It'll be -- and then the rest of it will be inorganic.

[Patrick Goepel, executive]

And then as far as acquisition rollover -- as far as acquisition rollover, we probably have somewhere around $6 million or so in that area of the $15 million and probably some headwinds on float. But the organic growth coming off of it should be probably in the neighborhood without acquisitions, 12%, 13% a quarter throughout '25.

[Gregory Gibas, analyst]

Okay. That's helpful. And I wanted to just kind of touch on the acquisition of HireClick. Could you kind of discuss the strategy or synergies there and maybe share any valuation metrics of that transaction?

[Patrick Goepel, executive]

Yes. I think -- and Eyal, maybe jump in here too. We have a value proposition for our small businesses that Asure will help them be compliant, whether it's payroll, tax filing as well HR so they can focus on growing their business. And then when we talk to small businesses, they want to be compliant because a change in legislation is very difficult. They also want access to capital, and we'll give them either access via 401(k) pretax program, health programs, tax programs, et cetera, and then access to people.

And within the acquisition of HireClick we partner with either local job boards or interface with national job boards where small businesses can stick out. And if they can stick out and hire people that can drive their business forward. So we have really good plans on growing revenue within HireClick. It's part of our value proposition, part of our bundles, we anticipate that we'll get a lot of momentum.

Eyal, anything you want to add?

[Eyal Goldstein, executive]

I would say, Greg, the only other thing I would add there as it relates to the recruiting piece and a key part of our value proposition is we're seeing a consistent theme, and there's data out there around job openings for small business. It's still in that 10-plus percent range. And so we're -- our customers, both prospects and current customers, are still dealing with -- looking for really good people to hire and consistently looking to fill job openings. So that's still a challenge for Main Street U.S.A. and our customer base and our ideal client profile. And so the technology is really critical there to help close that gap. And it also plays really nice with our HR compliance services as it relates to creating job requisitions, job descriptions, interviewing skills and hiring new employees as well.

[Operator]

Our next question is from Charles Nabhan with Stephens.

[Charles Nabhan, analyst]

Most of my questions have -- just have been asked, but you had cited a multiple of 2.6x on average for your acquisitions from the past 12 months, if I heard you correctly. Wondering if you could parse that out between the resellers versus what type of multiples you're seeing on ancillary solutions such as HireClick?

[John Pence, executive]

Yes. I mean I think from my perspective, I think 2.6x is a really good proxy, right? We've had some outside of the resellers that have been on the high end. And I would say we had one that was really, really -- very, very low end in terms of multiples. So I think it's still pretty much holds true that 2.6x is a good proxy for the overall mix. .

I don't know, Pat, if you have anything?

[Patrick Goepel, executive]

No, I think you're spot on. We had a -- the recruiting one probably was a little bit higher multiple. The brokerage business is a little bit lower. The resellers are in that area. We do kind of thoughtful around either a seller note or what have you to take care of indemnification issues. So we're right where we want to be in building out the solution set and as we get scale, obviously, we feel that we're going to grow revenues and EBITDA to have an arbitrage on that 2.6x. And for our perspective, they've done exactly what we wanted to do. And then organizationally, we've been able to implement them, and we think we have a really good foundation for '25.

Obviously, it's frustrating sometimes with timing. But -- like I said, we're really pleased with what we're doing here. Now we just got to get in the right position where I set the right expectations and the scoreboard shows it.

[Charles Nabhan, analyst]

Got it. And as a quick follow-up, I wanted to ask about the competitive environment, specifically what you're seeing from the larger legacy competitors and maybe anything different? Any changes in the competitive landscape down market as well?

[Patrick Goepel, executive]

Yes, I'll let Eyal touch on that.

[Eyal Goldstein, executive]

Yes. We're seeing the consistent theme that we've seen before, right? It's the big guys, ADP and Paychex really. We're not -- we're seeing some of the pays come down a little bit. But still, there hasn't been much change from a competitive landscape for us where we're playing in the tax business. There's ADP with their stand-alone tax solution, and that's primarily who we see in that part of the business as well.

[Operator]

Our next question is from Vincent Colicchio with Barrington Research.

[Vincent Colicchio, analyst]

Yes. Most of mine were answered as well. Pat, how did your bookings break down between new and existing clients?

[Patrick Goepel, executive]

We're about 70-30, yes. So I would say 70-30 new to existing. What I would say with the amount of -- if you think about what we're trying to roll out, we'd like to almost flip that over time. We think we have that opportunity. Some of it will be almost immediate in those opportunities. And then some of it's going to take through 2025 as we continue to build out technology and have programmic sales throughout the product line and almost have event-driven kind of sales. So we're working on that stuff, a lot of calories internally are working on that.

But what I would say and Eyal's been really thoughtful about how we drive kind of more and more cross-sell opportunities. And then the per employee per month, if you think about our capabilities, let's say, last year was roughly $40 per employee per month. Now we're somewhere in the area of $165. So we have an opportunity to really offer some of those.

Now, there's a stair-step approach around technology, event-driven marketing, kind of training the sales force, et cetera. So we're middle of the movie there, or maybe really early in the movie. But over time, we'd love to see the 70-30 flip to 30-70.

Now the ability to sell new logos is really a great position for us to be in. We're very pleased with those efforts. So we want -- if I look at flipping the model from 70-30 to 30-70, I don't want to slow down new logos. I just want to increase the wallet share of our current clients.

Operator, any further questions?

[Operator]

There are no further questions at this time. I'd like to turn it back to management for any closing remarks.

[Patrick Goepel, executive]

Yes. First of all, thank you. I know sometimes it's disappointing when you have kind of an immediate stock drop, et cetera. I just go back.

First of all, I want to thank the 630 employees. They've done a great job with Asure. They carry our banner each and every day. This is not a question of if, it's a question of when, and we're moving in the right direction. If we looked at last year at this time, there were so many questions around ERTC pause, all that stuff. We got through all that noise. We went on a journey that said, hey, we're going to replace ERTC revenue, and we did. And if you take a look at what we're doing internally, where sales are up 141%, where backlog is up 250%. When we're rolling out the kind of products we are and rolling out the wallet share, when you think about our technology team that's innovating each and every day, when you think about AI and what our ability to kind of grow margins that we put in 2025.

The only person here that screwed up was me. And I screwed up based on the wrong expectations, but I'll tell you what, we're not for the faint of heart. We're going to grow this business. We're going to grow it profitably, and we're going to do really good things. So I ask for your patience around that. You won't have to wait long, and I appreciate your time today. Thank you.

[Operator]

This concludes today's conference. You may disconnect your lines at this time. Thank you for your participation.