As the second quarter of the 2023 earnings season wraps up, the technology sector saw some overall improvements. According to Zacks Investment Research, 81% of the technology sector has reported earnings for Q2, as of August 9, 2023. Surprisingly, Zacks reported that 81.7% of those tech companies that have reported have beaten EPS estimates and 80% have outpaced revenue results.
However, total earnings did see a year-over-year decline of 2.4% and a revenue decline of 0.2%. This shows that analysts were not anticipating a strong earnings season going into Q2 and while a large majority of tech companies did end up beating analysts’ low expectations, revenue and earnings did still see a slight y/y decline.
Austin-based human capital management software provider, Asure Software (NASDAQ: ASUR), appears to be one of the few tech companies out there that not only beat analyst estimates but also reported substantial y/y growth. Let’s take a deeper dive…
Asure Reports 50% Y/Y Revenue Growth and 21% Jump in Recurring Revenues During Q2 2023
The HCM service provider reported revenue of $30.4 million during the second quarter of 2023, which represents a record y/y growth of 50%. Asure also saw an impressive 21% jump in recurring revenues to $23 million. Adjusted EBITDA saw a strong $5.5 million improvement to $6.1 million and gross profits skyrocketed 80% to $22 million compared to the second quarter of 2022.
“We delivered a historic performance for our Company in the second quarter with 50% organic growth in revenues and robust gains in operating margins, both of which are the primary result of technology enhancements and targeted sales efforts in our small business HCM and Enterprise Tax businesses,” said Asure Chairman and CEO Pat Goepel. “We are building on our strong momentum by advancing our technology through leading partnerships and integrating artificial intelligence to enhance our solutions. Technological evolution and regulatory change present tremendous opportunities for small businesses to grow and improve their operations, and Asure is committed to capturing these benefits for them.”
Management took the opportunity to raise its full-year and Q3 2023 guidance, which now estimates revenue coming in a range between $118 million and $120 million. Guidance for adjusted EBITDA for the year has also been increased to a range between 19% and 20%.
For the third quarter of 2023, management sees a revenue range between $26 million and $27 million on an adjusted EBITDA between $3.5 million and $4.5 million.
ASUR Raises $40 Million in Public Offering to Pay Off High-Interest Debt and Fund Takeovers
ASUR stock has seen an incredible performance over the past year, rising over 150% over the past year just after its recent strong Q2 earnings report. During this time, long-term shareholders have outperformed the overall market, while the company continues to report absolutely stunning top and bottom-line growth.
On August 16, 2023, Asure announced the pricing of a public offering, which will issue 3,333,333 new shares of its common stock at a price per share of $12.00. This equated to gross proceeds of $40 million from the raise once it is completed.
The news sent shares lower, even falling beneath the $12 offer price, as traders likely made emotional decisions based solely on the headline. However, let’s break down for a moment why this $40 million raise is not only good for Asure, but could pay for itself over the long term.
Capital Raise Proceeds Aim to Help Continue Asure’s Top and Bottom-Line Growth
First of all, let’s remember a key role of a public company’s management is to maximize shareholder value. The Asure management team has done an incredible job of this, as seen by the stock’s massive outperformance compared to the overall market over the past year, coupled with Asure’s top and bottom-line growth streak.
If a company’s shares have more than doubled over a relatively short period, it makes perfect sense that management would take advantage of the opportunity by raising capital at this higher valuation. While public offerings are often tossed aside and seen as negative, they are only negative if there is no sound reasoning for the funding.
In their press release, Asure clearly defined its purpose for the capital raise, which was primarily to help fund the acquisition or investment into “complementary businesses, assets or technologies.” In addition, proceeds would be used to pay its outstanding debt from its September 2021 Loan and Security Agreement with Structural Capital Investments III, LP, and Ocean II PLO LLC. This is important because Asure is currently paying a high rate of interest on this loan and an early payoff would provide an immediate boost to the company’s bottom-line results.
To recap, the funding proceeds are seen as critical for the company’s acquisition and investment activities, which in turn, could help boost revenue growth or top-line growth. At the same time, paying off high-interest debt immediately frees up cash and translated into a boost to bottom-line results. These are sound reasons to conduct a public offering.
Zacks Upgrades Asure Software to a #1 Rank (Strong Buy)
In an article from Zacks Investment Research dated August 7, 2023, the firm recapped Asure’s impressive Q2 2023 financial results. Zacks Research was personally estimating an EPS of $0.01 for the quarter, which was blown out of the water by Asure’s actual Q2 EPS of $0.11 per share.
Going into the release, Zacks’ rating on Asure stood at a Rank #3, which equates to a “hold” rating. However, an updated article from the firm dated August 14, 2023, shows Zacks has since upgraded shares of ASUR to a Rank #1 or “strong buy.”
Here is what Zacks had to say about Asure:
“Analysts have become notably bullish regarding its current fiscal year, with the $0.51 per share Zacks Consensus Estimate up 130% since last August…Asure Software has been a consistent earnings performer as of late, exceeding consensus earnings and revenue expectations in each of its last four releases. The growth is slated to continue, with expectations for its current year alluding to a 240% jump in earnings on 24% higher revenues. And looking ahead to FY24, expectations suggest a further 30% earnings growth paired with 8% higher sales.”
Conclusion
Asure Software continues to make all the right moves with regard to top and bottom-line growth and maximizing shareholder value. The growth machine continues to fire on all cylinders and management looks prepared to add more gasoline to the fire with a war chest of cash from the capital raise. Investors would be wise to further re-read Asure’s most recent press release detailing its $40 million capital raise in its entirety without any pre-existing bias simply because of the words “public offering.”
The Q2 2023 top and bottom-line growth speaks for itself. Management’s raised guidance coupled with Zacks’s increasingly bullish outlook only further highlights the potential for Asure as we head further into the second half of 2023 and 2024.
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