Asure Software, Inc. Q2 FY2026 earnings call

• General Growth: Organic growth hit 5% in Q2 2026, up 400 basis points from 1% in Q2 2025, but down sequentially from 7% in Q1 2026 due to seasonality. Growth was broad-based across business lines, with returns from prior investments in technology, product development, and AI. The firm expects to deliver double-digit organic growth in H2 2026. Contracted backlog remains at approximately $80 million, with 41% expected to convert to revenue over the next 12 months. No meaningful shifts in sales cycle length or competitive intensity were observed in Q2.

• Core Platform Milestones:

  • Enterprise Payroll Tax Management Platform: 2 million supported employees from partner Venture Employer Services are now live on the platform, meeting a key milestone. The opportunity pipeline remains robust.
  • Assure Central: A majority of the firm's 30,000 direct clients are now on the platform, meeting the prior quarter forecast. The number of clients purchasing multiple products increased 6% YoY. The firm is targeting an increase from an average of 2 products per client to 4+ over time to drive cross-sell growth.
  • AssureWorks (Administrative Services Outsourcing/ASO): The offering, which lets clients delegate payroll and HR compliance processes without the co-employment risk of traditional PEO models, continued to gain traction in Q2. The pipeline is growing, with strong reception from target small business segments (small hotel chains, restaurants, HVAC companies). The firm is actively expanding the dedicated sales team and training existing reps on the offering, which generates up to 5x the revenue of a payroll-only client.

• Sales Organization: The firm remains on track to reach 150 total sales reps by the end of 2026, focusing on hiring consultative sellers suited to full-platform sales rather than the historical transactional point-solution sales model. New reps are ramping faster than historical averages. The current existing customer:new customer logo split is 53%:47%, an improvement from last quarter, with a long-term target of 35% new logo / 65% existing customer expansion. Core HCM payroll new sales bookings grew 14% YoY.

• AI Initiative (Luna): Payroll and HR compliance is a high-stakes, regulated workflow not replaceable by generic AI, creating a durable moat for Assure's system-of-record model. AI acts as a growth and efficiency accelerator for the firm. Platform adoption of the Luna AI agent grew over 30% quarter-over-quarter (QoQ), and Luna interactions increased 38% QoQ. Luna now supports sentiment analysis for both transcribed voicemail (147,000 transcribed to date) and screened emails (196,000 to date). The firm is rolling out the Luna automation model from the already launched Canadian tax solution to U.S. payroll, U.S. tax, and HR compliance, shifting workflows from human-checked to AI-verified.

• M&A: No acquisitions were completed in Q2 2026, but the firm continues to actively evaluate opportunities and expects to close a few deals in H2 2026.

• Latham Acquisition Post-Close: Latham retention has matched the firm's pre-acquisition expectations, and the business has performed at or above forecast. Most planned cost savings have already been realized, with strong cultural and strategic fit. Cross-sell opportunities are already progressing, with additional upside to come in 2027.

Total Q2 2026 revenue was $37.1 million, 23% higher than $30.1 million in Q2 2025. Recurring revenue was $34 million, 19% year-over-year (YoY) growth, representing 91% of total revenue. Professional services, hardware and other non-recurring revenue was $3.2 million, up from $1.5 million YoY, with the increase driven by hardware sales from the Latham acquisition; this segment will see a $600,000 revenue headwind in H1 2027 as Latham transitions to a hardware-as-a-service model. Voting revenue was flat YoY with no further rate cuts expected in 2026. GAAP gross profit was $25.1 million (68% margin) vs. $19.9 million (66% margin) YoY. Non-GAAP gross margin was 73%, flat YoY. Net loss was $4.4 million, improved from a $6.1 million net loss YoY. EBITDA was $4.6 million vs. $1.4 million YoY. Adjusted EBITDA was $7.7 million (21% margin) vs. $5.2 million (17% margin) YoY, a 48% YoY increase with 400 basis points of margin expansion.

• Full-year 2026 revenue guidance is updated to $159 million to $163 million, with adjusted EBITDA margins guided to 24% to 25%. The low end of the adjusted EBITDA margin guidance was increased slightly from prior levels based on stronger than expected year-to-date results. Full-year 2026 is still expected to generate positive levered free cash flow in the mid-to-high teens percentage range.
• Q3 2026 guidance calls for revenue of $38 million to $40 million and adjusted EBITDA of $8 million to $10 million.
• No M&A-related revenue is included in current 2026 guidance, so any completed deals would be incremental.
• Management maintained the medium-term target of $180 million to $200 million in annual revenue with adjusted EBITDA margins of 30% or better, with long-term potential for margins to expand beyond 30% as scale increases and AI-driven cost reductions accrue.
• Revenue will benefit from typical seasonal tailwinds in H2 2026, and management is increasingly optimistic about 2027 results as existing strategic initiatives mature.

• Forward-looking statements are inherently uncertain, and actual results may differ materially from current expectations based on risk factors outlined in the firm's SEC filings.
• The transition of Latham to a hardware-as-a-service model will create a $600,000 revenue headwind in H1 2027.
• Large enterprise tax deals have extended and variable sales cycles, and revenue from new pipeline opportunities may not materialize in 2026 as currently expected.

Q: What is the current and future impact of AI on Assure's costs and revenue, and what is the outlook for sales productivity and long-term organic growth?

A: On the revenue side, AI enables targeted cross-selling by identifying trigger events (e.g., reaching the employee threshold for COBRA requirements) that signal demand for additional services, and helps identify prospects suited for AssureWorks. These use cases are already being deployed. On the cost side, Luna is already handling routine customer queries, freeing support staff for more strategic customer relationship work. Early-stage use cases like proactive churn identification via sentiment analysis are expected to improve retention, and further efficiency gains are expected in implementation and other operational areas. Management expects double-digit organic recurring revenue growth in H2 2026, and targets 25%+ productivity improvements for new sales reps in 2027, with long-term growth supported by the full-platform cross-sell strategy and tuck-in acquisitions.

Q: Why does full-year 2026 guidance imply lower overall growth than management's stated expectation of double-digit H2 organic growth, and how does AssureWorks differentiate from competitors' ASO offerings?

A: The lower overall guidance growth reflects a difficult comparison to H2 2025, which had unusually high non-recurring revenue from large enterprise tax professional services that is not repeated in 2026. Recurring organic growth is still on track to hit double-digits. Assure has offered managed payroll services as a core offering for longer than most competitors, has built AI (Luna) into the AssureWorks platform from the start, and already serves the target small business segment that needs ASO support, giving the firm an existing advantage over newer market entrants.

Q: Is the firm still on track to hit 150 sales reps by end of 2026, and what barriers exist to moving clients from 2 to 3+ products per client?

A: The firm is currently ~10 reps short of the end-of-year target, but has strengthened sales leadership, expanded recruitment, and remains confident it will hit the 150 target, with discipline to only hire candidates suited to the new consultative full-platform sales model. The firm is already seeing strong traction adding core adjacent products (time and attendance, HR, 401k) to existing core payroll clients, and is continuing to round out its full product portfolio to support the move to 4+ products per client over time.

Q: What is driving the upward adjustment to EBITDA guidance, and how has the Latham acquisition performed post-close?

A: The upward adjustment to the low end of EBITDA guidance solely reflects stronger than expected year-to-date performance through the first half of 2026, with no structural changes to the business or cost structure. Latham has performed exactly as expected post-close: customer retention matches pre-acquisition projections, revenue has met or exceeded forecasts, and all planned cost savings have been realized. Cross-sell momentum is already building in H2 2026, with larger cross-sell upside expected through 2027, and the transition to hardware-as-a-service will deliver long-term value even with a short-term revenue headwind.