Asure Software Can Gain From Small Client Churn Of Bigger Rivals Like Adp, Paychex: Analyst

Barrington Research analyst Vincent A. Colicchio had an Outperform rating on Asure Software Inc ASUR with a $15 price target.

Management recently participated in virtual calls arranged by Barrington with institutional investors. The company targeted small and mid-sized businesses (SMB) in the Human Capital Management (HCM) software and services market. 

In the SMB market, the company’s largest competitors are Automatic Data Processing, Inc ADP and Paychex, Inc PAYX. These firms create an enormous opportunity for Asure due to significant churn with their small clients. 

Several tailwinds drive demand and expansion of the HCM software and services total addressable market, including the SMB shift to cloud software, the need to better manage talent due to tight labor markets, advancements in integration, and increased cost pressures. 

The company’s bookings increased 234% Y/Y in Q4 on solid contributions from both direct sales and reseller channels, and the company experienced strong net revenue retention of 93%. 

Bookings were strong in HR compliance solutions/services, the Employee Retention Tax Credit (ERTC) program, and the Integration Marketplace. The company’s investments in new products, existing product enhancements, and sales force expansion have all contributed to the improvement in momentum. 

Asure introduced its Integration Marketplace in May 2022, which enables transactions between third-party service providers and clients’ employees through pre-built integrations. The company monetizes these relationships through revenue share, referral fees, transaction fees, API calls, and data storage. Initial partners include Equifax, Inc EFXH&R Block, Inc HRB, and Intuit Inc INTU

Management believes that its Integration Marketplace could represent upwards of 30-40% of Asure’s revenue over time. The company has 200-plus resellers using its software products, representing its acquisition target market. Since these resellers all use the company’s software platforms, any acquisition would have no data conversion, software migration, and user retraining. 

Asure’s EBITDA margins should expand over time as acquired indirect clients become direct clients, which generate better margins, and as Integration Marketplace revenue grows, which has a low cost of goods and acquisition costs.

Price Action: ASUR shares traded higher by 4.22% at $14.08 on the last check Thursday.


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