The Employee Retention Tax Credit (ERTC) program was paused by the IRS in September 2023, but that didn’t stop Asure Software (NASDAQ: ASUR) from reporting strong growth during the third quarter of 2023. In fact, the HCM provider’s core businesses reported year-over-year growth of 19% during the quarter. Despite its recurring revenue growth, shares of Asure have seemingly been overtly punished since the IRS’s announcement.

On September 14, 2023, the day the IRS announced the pausing of the ERTC program, Asure shares closed the day at $11.33. The stock currently trades at $8.53, as of January 10, 2024, which represents a decline of nearly 25%. The Street seems to have put significant weight on the ERTC program’s closure on Asure, yet it’s hard to find where investors gave the company the same upside premium when the program was going strong.

In other words, Asure’s stock gains over the past couple of years appear to have been fundamentally driven by a strong underlying growth in revenue. If you dig deeper into the past several quarterly results, it is evident that the core business has continued to account for a lion’s share of the overall top-line growth. Has the ERTC helped add to the core business’s growth over that period? Absolutely, but not enough to suddenly discount the core business. Let’s dig deeper.

Asure: Reviewing Past Several Quarterly Results

Before walking down memory lane, let us remind ourselves of Asure’s core business and what that entails. As a human capital management (HCM) service provider, Asure’s primary goal is to sell its HCM products and services, such as its payroll software, which helps companies not only manage their employee payments but also keep track of payroll taxation and compliance for workers that may be located in different jurisdictions. Other core offerings include imperative human resources functions, such as time & attendance, background checks, employment verification, earned wage access, retirement benefit offerings, compliance, and more.

All of these core businesses can be tracked and monitored through the company’s financial statements as recurring revenue. Notice there is an additional line item under revenue in the financials that is called “professional services.” This is where revenue derived from one-time services, such as the ERTC, are recorded. Together, recurring revenue and professional services add up to Asure’s total revenue.

Fourth Quarter 2022 & FY 2022 Results

On February 27, 2023, Asure reported its fourth quarter 2022 and full-year 2022 financial results. For Q4 2022, Asure reported a total revenue of $29.3 million, a growth of 39% y/y. Recurring revenue accounted for $24.1 million of its total revenue, which saw y/y growth of 25%.

On a full-year basis, Asure reported FY 2022 revenue of $95.8 million, or 26% growth y/y. Recurring revenue accounted for $86.2 million of the total revenue, which grew 21% y/y.

In summary, the core business (recurring revenue) accounted for ~82% of total revenue for Q4 2022 and ~90% of total revenue for the full year 2022.

First Quarter 2023 Results

On May 8, 2023, Asure Software reported first quarter 2023 results highlighting total revenue growth of 36% y/y to $33.1 million. Recurring revenue results accounted for $28 million or y/y growth of 22%

For Q1 2023, the core business revenue accounted for over ~84% of total revenue.

Second Quarter 2023 Results

Asure reported Q2 2023 results on August 7, 2023, which read 50% y/y growth of total revenue of $30.4 million. Recurring revenue for the quarter grew 21% y/y to $23 million.

Once again, the core business revenue accounted for a lion’s share of total revenue during Q2 2023 at over ~75%.

Third Quarter 2023 Results

This brings us to Asure’s latest reported quarterly results, which were released on November 13, 2023. During the third quarter of 2023, the HCM provider reported total revenue growth of 34% y/y to $29.3 million. The core business’s recurring revenue accounted for $23.8 million of total revenue, an increase of 19% y/y.

For Q3 2023, the core business’s revenue results accounted for ~81% of total revenue.

Looking Forward to Q4 2023 & FY 2023 Results and Guidance For 2024

While no official date has been set yet for Asure’s release of its fourth quarter and full-year 2023 results, the Q4 numbers will be very important for the market, as it represents a full quarterly period since the closure of the ERTC program. With that said it will be a clearer picture for investors to determine the company’s core business growth and its importance to Asure’s overall growth.

In the Q3 2023 release, management issued guidance for 2024 estimating a revenue range between $125 million and $129 million, on an adjusted EBITDA range of 20% to 21%. This compares to management’s FY 2023 top-line guidance estimate showing revenue likely coming between $118 million and $120 million.

With the resumption of the ERTC program still unclear at this time, management issued these 2024 estimates with that in mind. It can then be determined that Asure’s management continues to see its core business units driving overall top-line growth through the coming year.

Summary

Asure’s core businesses continue to be strong providers of the company’s overall growth. From Q4 2022 to Q3 2023, the company’s core business accounted for at least 75% of its total reported revenue. While ERTC and other professional services did provide some additional revenue growth points, the core units have continued to be the real drivers.

Despite these facts, investors have appeared to hang the IRS’s pause of the ERTC program heavily upon Asure, judging by the share price performance since the IRS’s announcement. The Street no doubt anxiously awaits the company’s Q4 2023 results to determine a clearer impact of the ERTC program’s halt on Asure’s overall growth. However, the writing has been on the wall now for over a year, stated clear as day within the company’s quarterly releases and financials…the core businesses are the clear drivers of growth at Asure.

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