Asure Software Inc

Good afternoon and welcome to Assure Software's first quarter 2026 earnings conference call. Joining us today's call are Chairman and CEO Pat Keppel, Chief Financial Officer John Pence, and Vice President of Investor Relations Patrick McKillop. Following their prepared remarks, there will be a question and answer session for analysts and investors. I would now like to turn the call over to Patrick McKillop for introductory remarks. Please go ahead.

Thank you, operator. Good afternoon, everyone, and thank you for joining us for Assure Software's first quarter 2026 earnings results call. Following the close of the market, we released our financial results. The earnings release is available on the SEC's website and our investor relations website at investor.assuresoftware.com, where you can also find our investor presentation. During our call today, we will reference non-GAAP financial measures, which we believe to be useful to investors, and exclude the impact of certain items. The description and timing of these items, along with a reconciliation of non-GAAP measures to their 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'll hand the call over to Pat in a moment, but I just wanted to take a moment to remind people of our upcoming investor relations activities. On May 13th, we are attending the 21st Annual Needham TMT Conference in New York. And on May 14th, the Fullerhan Loki One Conference, also in New York. On May 28th, we will attend the Craig Hallam Conference in Minneapolis. On June 23rd, we will participate in the Northland Capital Markets Conference, which is being held virtually. We also are in the process of scheduling some non-deal roadshows. Investor outreach is very important to Assure, and I would like to thank all of those that assist us in our efforts to connect with investors. Finally, I would like to 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 like to now turn the call over to Pat Geppel, Chairman and CEO. Pat?

Thank you, Patrick, and welcome everyone to Assure Software's first quarter 2026 earnings results call. I'm joined on this call by our CFO, John Pence, and we will provide a business update for Quarter 1, 2026 results, as well as our updated outlook for the remainder of the year. We are very pleased to report a strong start in 2026. First quarter revenues came in at $42.8 million, representing growth of 23% compared to Q1 of 2025. This performance reflects continued momentum across our core business lines and validates the investments we've made in our platform, Salesforce, and AI capabilities over the past year. Our organic growth rate for quarter one 2026 was 7%, compared with 3% in quarter one 2025, and 3.5% in quarter one 2024. This is a significant acceleration in a quarter, which historically has shown some seasonality. We're encouraged by the drivers behind it, increasing attach rates with our existing client space, as well as continued new logo wins. Given global uncertainty, we're taking a conservative stance on operating the business. However, we remain very bullish on the customer response to our platform improvements, and we believe we can deliver double-digit organic growth as we move through the remainder of 2026. Since the launch of Assure Central in October 2025, adoption has continued at a rapid pace, and we believe that by the end of the second quarter of 2026, the majority of our approximately 30,000 direct clients will be on the platform with the majority of our direct client base now on a single unified platform. We believe we're increasingly well positioned to accelerate cross-sell and and attach rates throughout the remainder of 2026. Our multi-product attach rates continue to improve. The number of clients purchasing multiple products in our payroll business grew by 15% in quarter one compared to quarter one of 2025. We continue to work toward our internal goal of moving clients from an average of two products to four or more products per relationship. Earlier this year, at our sales kickoff, We introduced AssureWorks, which is our administrative services outsourcing or ASO model, which allows clients to delegate key payroll and HR compliance processes to Assure. We are scaling AssureWorks thoughtfully, building sales, implementation, and support capacity based on early results. It's still early days. However, the reception has been very positive. Our pipeline is growing and we've started to win new clients. We're seeing interest across multiple types of buyers, small hotel chains, restaurants, HVAC companies are among the early adopters, which is consistent with our broader client base of Main Street businesses that need payroll and HR compliance support, but lack the internal resources to manage it themselves. We currently have six sales reps dedicated to AssureWorks, in the pilot effort and plan to add a few more in the near term. This offering is strategically important. Clients who adopt managed payroll and compliance services typically represent two to three times the revenue of a payroll-only client. Importantly, it sure works if it's not a PEO model. We're not taking on co-employment risk. So for clients constrained by the costs or rigidity of a traditional PEO, We believe AssureWorks is a compelling, flexible alternative. We are on track toward our full-year target of 150 sales reps and continue to invest in training and enablement. Sales leadership upon our President's Chief Revenue Officer, Al Goldstein, is driving focus on both new logo acquisition and multi-product cross-sell within our existing base. With the goal of transitioning our mix over time, towards approximately 35% new logos and 65% base expansion. Our new bookings and our core human capital management payroll continue at a strong pace in quarter one, up 13% versus last year, and our contracted backlog remains healthy at approximately 85.6 million. We expect to convert approximately 38% of that backlog over the next 12 months. are client-based, primarily small and mid-sized businesses in payroll-intensive compliance-driven industries remains resilient. We have not observed meaningful changes in sales cycle dynamics or competitive behavior in quarter one. I want to take a moment to reiterate our thoughts on AI and what it means for our business. Much of the disruption narrative applies to productivity and workflow software, Tools where AI can replicate or replace the core function of a software that the software performs. Payroll and HR compliance is not in that category. We move approximately $20 billion annually on behalf of our clients. And to do so, we hold money transmitter licenses in every state. It requires them a regulatory infrastructure that takes years to build. It represents a significant barrier to entry. We interface directly with the IRS, state and local tax agencies and banking institutions. Our clients carry seven or more years of employment history, complex multi-jurisdictional tax obligations and real-time compliance requirements where the margin of error is effectively zero. These are not functions that a generic AI layer can absorb. The regulatory complexity does not go away. In fact, it compounds. What makes it sure a system of record rather than a workflow tool is precisely this. We are embedded in the legal and financial infrastructure of our clients' businesses. Switching costs are high. Our revenue model is consumption-based on headcount, and payroll runs rather than a seat license, and our client base is concentrated in the frontline essential workforce economy, plumbers, hotel workers, tradespeople, those work is among the most resilient to automation. At the same time, we believe AI is a meaningful accelerator for us. Luna, our AI agent, has been adopted by greater than 15% of potential users today without any active marketing or onboarding from Assure. In quarter one, Luna interactions increased by nearly 50% over the prior quarter. To date, we have transcribed, categorized, and scored approximately 80,000 support calls for sentiment, and our ticket mining capability analyzes more than 100,000 cases monthly. These numbers reflect AI working across both the client-facing and operational sides of the business. deflecting support volume, enabling employees and administrators to self-serve across payroll, benefits, and compliance workflows, and driving continuous product and service improvements. The result is a smarter, faster, and more responsive organization without reducing the compliance expertise and accountability our clients rely on us to provide. Our last call, we told you that Luna could perform over 50 actions, live, audible, and permission control. Since then, we've proved the model at scale. Our Canadian tax solution is the clearest example. A fully automated Luna AI-powered pipeline that converted a traditionally manual compliance workflow into a proactive, continuous monitored system. Our more periodic checks continuous coverage, that architecture is now a blueprint, and we're systematically replacing it across U.S. payroll, U.S. tax, and HR compliance. This is not a feature rollout. It is a platform-wide operating model shift from reactive to proactive, from human check to AI verified, from process dependent to infrastructure driven. That same shift that makes AssureWorks possible. We can now take on the work itself, not just deliver the software, because the AI layer gives us the efficiency and the auditability to do it at scale without scaling headcount literally. Through AssureCentral, every payroll specialist works from a unified action surface. Discrepancies, missing data, pending filings require approvals. surfaced in real time, not buried in reports. Luna identifies what needs attention. Central delivers it to the right person at the right moment. Detection, notification, action, closed loop. These capabilities compound. Every compliance workflow we automate strengthens our models across the entire client base, And when you're processing approximately $20 billion in payroll annually, that compounding effect on system-wide intelligence is very meaningful. Internally, the same AI foundation is accelerating product development, sharpening sales intelligence, and improving support operations, all of which we expect to continue to expand globally. the margin profile over time. The result, higher accuracy, greater efficiency, and a structural lower cost to serve with human accountability preserved for every compliance sensitive decision. In short, we are a system of record business with compounding data gravity operating in a highly regulated compliance critical environment. This is an entirely different category than the SaaS segments where disruption concerns are most valid, and we remain confident in both the durability of our model and the opportunity that AI creates for us going forward. With that, I'd like to turn the call over to John to discuss our quarter one financial results in more detail and provide an update on our 2026 guidance. John?

Thanks, Pat. As Patrick noted, several figures discussed today are on a non-GAAP or adjusted basis. Reconciliations are available in our meeting and our earnings release and our investor presentation at investor.assuresoftware.com. First quarter total revenues were $42.8 million compared to $34.9 million in Q1 2025, representing growth of 23% year-over-year. Recurring revenue was Q1 2026 was $37.8 million compared to $33.2 million in Q1 2025, an increase of over 14% year-over-year. Recurring revenue represented approximately 88% of total revenue in a quarter. We believe that in 2026 recurring revenue as a percentage of total revenue will be in the low 90% range, and we anticipate it will continue to trend upwards in 2027. Professional services and hardware revenue was $5 million in Q1 2026 compared to $1.7 million in Q1 2025. The increase in non-recurring revenue was primarily due to hardware sales from our Latham acquisition and professional services tied to enterprise tax. Bullet revenue was relatively flat in Q1 2026 compared to Q1 2025. We have modeled two additional rate cuts in 2026, which we anticipate will be partially offset by continued growth in client fund balances. Growth profit for Q1 2026 was $30.5 million compared to $24.6 million in Q1 of 2025. Gap gross margin for Q1 2026 was 71% in line with Q1 of 2025. Non-GAAP gross margin for Q1, 2026 was 76% compared to 75% in Q1 of 2025. Net income for Q1, 2026 was 0.6 million compared to a net loss of 2.4 million in Q1 of 2025. EBITDA for Q1, 2026 was 9.4 million compared to 4.1 million in Q1 of 2025. Adjusted EBITDA for Q1 2026 was 12.3 million compared to 7.3 million in Q1 of 2025, an increase of 69% year over year. Adjusted EBITDA margin for Q1 2026 was 29% compared to 21% in Q1 of 2025, an increase of approximately 800 basis points. For the full year, we continue to expect to generate positive unlevered free cash flow in the mid to high teams range. which we calculate by taking adjusted EBITDA at the midpoint of our guidance range, less software capitalization of approximately 15 to 16 million and approximately 6 million in cash interest costs. The end of the first quarter with cash and cash equivalents of 19.2 million and debt of 68.8 million as of March 31st, 2026. Based on Continued positive momentum in our business, we are updating our full year 2026 guidance and also providing Q2 guidance. It's important to keep in mind that the first quarters are seasonally strong as recurring year-end W-2 ACA revenue is recognized in this period. Full year 2026 guidance, revenue of $159 million to $163 million, and adjusted EBITDA margin of 23% to 25%. due to 2026 guidance, revenue of $36 million to $38 million, and adjusted EBITDA of $6 to $8 million. Our cost structure, including CapEx and capitalized R&D, is expected to remain relatively stable on a dollar basis. With that, I'll turn the call back to Pat for closing remarks.

Thanks, John. Quarter 1, 2026 marks continued progress towards the inflection point we've been building toward. With Assure Central now substantially adopted across our direct client base, our Luna AI delivering measurable efficiency gains, Assure Works gaining early traction, and our sales force growing towards 150 reps, we're executing on the plan we've been sharing with investors. We believe we are at an important inflection point in the business where growth, and profitability are advancing together. This combination, top-line momentum, bottom-line discipline, at the same time is what we've been working toward, and we're very pleased to be delivering on it. We remain on track toward our medium-term target of $180 million to $200 million in revenues with adjusted EBITDA margins of 30% or better, a level we came within close range of during this quarter and in quarter four, 2025. And our longer-term vision, which we have discussed with investors, reflects the potential for margins to expand well beyond 30% as we achieve scale. AI continues to reduce our costs to serve while simultaneously expanding our market and revenue opportunities. We're excited about 2026. and remain committed to delivering value to our shareholders, our clients, and our stakeholders. Thank you for joining us today. And now, I'll send the call back to the operator for the question and answer session. Operator?

Thank you. We will now be conducting a question and answer session. If you would like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate that your line is in the question queue. You may press star two if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. We ask that analysts limit themselves to one question and a follow up so that others have an opportunity to do so as well. One moment please while we poll for questions. Our first question comes from Jeff Van Re with Craig Hallam Capital Group. Please proceed with your question.

Great, thanks. Thanks for taking the questions. Pat, just a couple quick ones for you. On Assure Central, I'm curious, you know, now that you're getting a little further into it, what are you observing with respect to the path of adoption as people get single sign-on capabilities and are getting exposed to more products? Just kind of curious what the paths of adoption are looking like so far.

Yeah, really, really pleased. You know, tax rates were up about 15% year over year. People are really getting into the flow of it. And I think more important than that, It's one of the reasons why we also introduced Assure Works. You know, the bigger story for us with small and medium-sized businesses is we can go to a small business and say, you know, hey, we'll give you the tools to manage compliance end-to-end across all products and human capital management, or we can do the work for you. And because we have the proof point of Assure Central where all the products are under a single pane of glass, the light bulbs are starting to go on. So I think we're early innings yet, but boy, we're really, really pleased. And then our acquisition of Latham, which we acquired in July, they're undergoing a sure central and they'll be largely done in the second quarter here. So really, really pleased with our sales motion, our customer service motion. And I, you know, the other thing that's coming out, which is interesting, is the prompts or the trigger events. So if you get to 20 employees and now by law you have to offer COBRA, it's almost a no-brainer to say, hey, do you want Assure to manage that for you as opposed to try to introduce that somewhere else? Or If you're in a state that 401k is a regulatory requirement, you know, hey, we noticed you don't have any 401k deductions. Would you like us to help you with that plan? It's a real easy conversation. So we're just getting started, but those are some of the things that are popping out quickly.

Yep, that's helpful. And in the deck, you talk about the expanding PEPM. Can you talk, I mean, I can see you're taking it from 15 in 2020 to $100 in 2026. But where, by your math, are you at this point in terms of Peplum? And any thoughts on, you know, 27, 28, trying to just get a sense? I know what the potential is, but where are you and where do you think you can be?

Yeah, you know, what I would say right now is, you know, we have kind of an internal goal that we're shooting for two products to four products. Because we have a direct model and an indirect model, etc., In the investor deck, we have 64% of our business in the small kind of mid-business, and it's a focus area for more and more products. We'll have a better kind of RPU, but from an intentionality perspective, we were kind of in the area $12 to $15 per employee per month. I think what you're going to see is a double here over the next three years or so. And you're going to see, you know, I would say we're pretty optimistic right now. But, you know, it is the first quarter. I think we'll have a better answer here when we get Latham in and probably on the second earnings call. But, you know, I would be disappointed that we don't do a double over the next, you know, two to three years here.

Yeah, I mean, you've certainly added an incredible amount of breadth to the product set over the last several years. So it makes sense. One last maybe for me on Latham.

tax season uh impact just what was the seasonal uplifting q1 from tax season you know w are you talking w-2s or are you talking float or you know no w-2s sorry you know we were probably up in the area 300,000 or so on you know w-2s and aca uh some of our employee count they have a um you know, a peplum environment where we don't bill separately for W-2s, but for the ones we bill separately, you know, it's about a 6% increase. And I would say anecdotally, float balances, you know, end of the quarter and double digit increase in float balances.

Got it. Great. Okay. I'll leave it there. Thank you. Thanks, Jeff.

Our next question comes from Joshua O'Reilly with Needham & Co. Please proceed with your question.

Great. Thank you for taking my questions here. I just wanted to start off on the last piece you were talking about there with the forms growth. You know, the 7% organic growth is pretty impressive versus, what, 3.5% the last couple years in the first quarter. How much of a headwind or a tailwind, I guess, was the forms growth in this March quarter versus the last couple of years? Because I know it's been a headwind the last couple of years, and I know you just threw out the 6% number. What was that referencing exactly? Was that the forms growth for the quarter?

That was the forms growth. So really, Josh, there was no headwind in forms growth. Maybe it's 1%.

Got it. And in the prior two years, there was somewhat more of a headwind. Is that the right way to think about it? The less of a headwind in this year?

Yeah, it If you think, you know, you had the great resignation and then you had kind of the great stay, you know, during a couple of those periods, turnover was really heavy, which would add more to W-2s. And then when you stay, there's a little bit less. So, you know, there was a headwind, you know, a couple percentage points in that area.

Got it. Thank you. And then on the Latham transition, the business model transition, how is that going? Because the – The hardware revenue was a little bit above my estimates here for the March quarter. And just curious, is that still on track with your expectations entering the year?

Yeah, I think so. I'm not sure that the hardware was that much up. I think we also had some pretty healthy professional services, Josh, with regard to some of the larger tax implementations. So I think from my perspective, the way the hardware was kind of in line with last year and nothing too crazy. In terms of the integration and the plan, I would say we're going to be in earnest the back half of this year and into next year. converting to that Haas model. So early stages, and we haven't started to see that transition, which will, again, obviously be really good for the mix of revenue, right? Turn it into recurring, but it'll put some pressure on the non-recurring side, right? So on the compares, we're going to be adding a lot more recurring revenue in and out a couple quarters, and you're going to see a decrease in non-recurring. Again, good for the health of the business, but it'll be a little bit of a transition in terms of the effects. That's what we expect to happen kind of in the next I would say 18 months, two years.

Yeah, and Josh, I would say really, really pleased with the Latham acquisition overall. It was absolutely the right acquisition for us. Our customers love it. And, you know, anecdotally, the install times and the coordination around multi-product implementations has gone really, really well.

Last point for me is on the enterprise payroll tax deals. Can you just give us – we've seen some kind of mixed feedback in the market about ERP migrations. How important is a cloud ERP migration for you, or just any type of ERP migration, for you to win business there? And can you still win some deals even if ERP migrations, you know, are in a period that's a little bit slower?

Yeah, first of all, you know, Josh, and I hope you appreciate this – In addition to analysts and investors, we have people from Team Red on the call who is our primary competitor. So I can't go too much in detail like I used to be able to because they've noticed us. But anyway, what I'd like to talk about there is, first of all, the market for tax is really compelling. We think we're, you know, miles ahead of the competition. I think we have a really good offering there, and we're going to continue to grow in that area. As far as ERP migrations or implementations, first of all, we do, you know, a lot of times you know, we are the tail, not the dog, in the sense that when somebody goes to an Oracle or, you know, UKG or an SAP or a Workday, what happens, you know, is we are the timing of some of those deals are when they do implement with ERP. So, you know, sometimes that can lengthen a install center, but install cycle, but it absolutely, you know, actually it's, The market right now for compliance and tax services, especially with how we go about it with AI, is very strong. Got it. Thank you very much. Real quick, Josh, Al Goldstein is here. We're lucky to have them today. You know, I don't know if you want to comment on that, you know, please.

Yeah, Josh. So we also have a really big opportunity, not only on the Greenfield new ERP deployments, but also the current install base. And we're doing quite a bit of work within the current base. And we've got such a long runway there as well. So we're not seeing any impact from what might be happening with the broader group around ERP in general. Thank you.

Our next question comes from Brian Bergen with TD Cowan. Please proceed with your question.

Hi, this is actually Jared Levine for Brian tonight. To start, can you talk about your managed service offerings, the recent announcements there, what you see in terms of the revenue opportunity, including the PEPM uplift specifically from those managed service offerings?

Yeah, I mean, first of all, it sure works. We're really excited about it. You know, the fact that You know, we could do it all for them or a customer doesn't necessarily have to hire a full time, you know, either payroll or HR professional and they can help us, you know, they can use us to help them. You know, forest from the trees, you know, we see an opportunity about $50 or so per employee per month. where, you know, we're doing the work for them. Now, you know, some of that can change based on the size and scale of the customer and the breadth of what we're doing. But that's the kind of opportunity we see with AssureWorks. We have had this in motion for quite some time. We had one of our resellers kind of pilot the program, and we've since acquired it. that reseller, and then we're rolling that model out to all across the country. You know, I would say it's more of a 27, 28 initiative, but I do think you'll see, you know, somewhere around, you know, kind of three to five million in opportunity in this year's revenue. But over time, it's going to continue to grow. And that's what's exciting for us. And you know, not only that, but when you can go to a customer, they don't need to go to a PEO or employee leasing to get all their kind of compliance and all their offering done, where we can do it for them or the same software that we're doing it for them, they can use internally. We think that's a real compelling message. And even if we don't get the entire business you know, we're going to get a good majority to business. So many times we'll pitch that, if you will, and they say, well, you know, maybe we'll start with HR compliance and we'll start with benefits or we'll start with payroll tax and time. So, you know, we think we're just getting started. We had six people offering or selling it today, but, you know, clearly we've exposed the sales organization and, We have a set of learning and development training going on to roll this out. So we're pretty bullish on this.

Great. And then the follow-up here in terms of the guidance. So it looks like you didn't pass through all of the quarterly revenue and adjusted EBITDA beat. Anything to call out there? And just also want to confirm there was no kind of incremental M&A since the last earnings here.

Yeah, no M&A. since the last earnings, and again, we try to kind of get you where we think you need to be for the rest of the year.

Got it. Thank you. Thank you.

Our next question comes from Eric Martinuzzi with Lake Street. Please proceed with your question.

Yeah, I wanted to ask about when the Latham folks come on to Assure Central, will that entire base be viewed as kind of a multi-product adoption customer base? In other words, should we see a spike in the percentage of customers when we have this same conversation every day?

Eric, what I would say it depends. We're, you know, in our business, what we do is we have some standalone channels You know, we'll do a standalone tax channel, for example, where we partner with other payroll companies. We won't cross sell without their permission into those kind of companies that we have relationships with. And then what we do with Latham is, you know, we have some other payroll companies that use Latham and are partnered with them. And, you know, we'll respect that the same way. But a large majority of the Latham customers, you know, will be in Assure Central. We're still going through kind of that floor, if you will. And those will all be available to cross-sell, et cetera. It hasn't really slowed us down because we prioritize Assure Central and the upgrades with the customers that have already been sold with the cross-sell of Latham products. So those... customers are already on Assure Central, we'll just continue to adopt them through the second quarter. It will by no question add velocity to our cross-sell approach and our attachment of those customers.

Got it. And then you talked about you're still on target for the 150 sales reps by the end of the year. You finished out at 118, I believe, at the end of 2025. Are we talking about kind of a linear progression on our way to 2026? In other words, I guess a better way to ask the question is, what's the sales headcount now?

Yeah, we're about 10 under where I really would like to be, and Al's with me, and he can comment on But, you know, for us, we've been really choosing quality. If you think about where we're going with Assure Central and where we're going with Assure Works, we're looking for people that really have a consultative sell versus, let's say, a product sale. And, you know, maybe, Al, you could talk a little bit about some of the candidates and the flow there. Yeah.

Yeah. So we've, you know, historically we've looked at more – small business, transactional sales professionals, and that worked well for us where we had point solutions and we're really selling more payroll tax deals than anything else. Now that we're selling more of the broader product, the complete product, and especially with AssureWorks, It's a much more consultative cell. It's a much more solution cell, much more disciplined around the sales process and needs analysis and demoing the product and the software, which we're really proud of these days. And so that just is a different caliber and profile of a sales professional. Now, the good news is, is the folks we're bringing in check all those boxes and they're actually ramping a lot quicker than historically what reps we're ramping at, but we're being more disciplined about who we're bringing in, and we feel confident we'll get to that 150 by the end of the year.

Got it. Thanks for taking my question. Thanks, Eric.

Our next question comes from Richard Faltry with Roth Capital Partners. Please proceed with your question.

Thanks. When you talk about accelerating to double-digit organic growth, can you talk maybe about the pieces that get you there? You know, presumably some of it's the headcount, but how much of it's ARPU and maybe how much visibility do you have into that acceleration, whether it's in pipeline, you know, retention rate changes, win rate changes, et cetera? Thanks.

Yeah, Rich, thank you. You know, definitely the attach rate numbers are really positive and we have pretty good retention on that. Candidly, you know, in the fourth quarter and first quarter, we did a lot of professional services work. And I would say that one time probably is the only thing that's noise in the numbers sometimes because, you know, we have been a little one time heavy. Now, that ultimately will be a very strong indicator for us, but short term, sometimes you have to grow over bigger compares on the one time. But what I would tell you is the ARPU, the attach rate, the number of reps, the rollout of Assure Central, the rollout of Assure Works, Assure Pay, you know, we're right down the, you know, we're early days, but I would tell you, you know, really good pipeline development, real good underpinning of the pipeline and real good focus on attach rates. You know, I can see from our deal alerts, you know, we've had a really exciting, not only first quarter, but second quarter. And I can see it just based on our hiring profile and our learning and development as people get up to speed. So, you know, we have pretty good visibility, but, you know, we're also, you know, want to be conservative in an environment that has a lot of global uncertainty. We, for that matter, really haven't, you know, pressed same-store sales or we haven't pressed, you know, a ton of employment growth or interest rate increases, right? So, you know, what we have tried to do is be conservative in our forecast, and hopefully, you know, we can upside and produce an outside income or outside goals in the second half.

And for follow-up, can you talk about the internal sort of use deployment of newer AI efficiency tools? How much do you feel that that can help you either hold the line on costs, in some areas maybe cut costs, to sort of bolster your EBITDA growth maybe in excess of what organic growth might otherwise argue?

Yeah, Rich, we're seeing it used all throughout the organization. I mean, there's really not an area that's not started to investigate and start to deploy it. We're using it in the financial organization, just basic stuff like doing variance analysis and helping on the forecasting. The operations team is using it to, again, interact with customers and make things more efficient in those interactions with the processing, the payrolls, sales teams doing a lot of work with the front end of you know, analyzing customers and getting a lot more effective and a lot more throughput. So I think, you know, we're seeing it throughout the organization. And I think it's really, really early days. It's pretty interesting. But you're exactly right. I think it's going to help. I don't think we're going to necessarily want to exit a bunch of people. But what we're going to do is we're going to kind of change the profile of what they're doing, right? So if somebody was more on the data entry side, interacting with the customer, that's going to go away or that's going to be much more diminished. They're going to be much more involved with making that customer happy, trying to solve their problems. And that goes back to the secure works concept, right? We're really going to be a lot closer and tighter with the people we've got servicing the customers and less on the data manipulation side of the business. So I think we can do that and not really change the cost structure, add to the top line, and ultimately, you're right, it's going to fall through to the bottom on EBITDA.

Maybe if you could talk about sales and marketing with AI.

Yeah, Rich. So on the front end, we're using it quite a bit as well. And we're doing a lot on the marketing side around content creation and around being able to put out much more thought leadership much quicker. And that's helped quite a bit for us. And then on the sales side, we're looking at quite a bit of tools. But what we've implemented already is some AI tools around the needs analysis and discovery. And again, as we do more of these larger deals in that 20 to 100 space, We're doing much more quicker research. We're able to get output much quicker around a certain company and maybe who they're competing with or their peers and help drive more of the front end of the sales process and making sure our reps are well-versed and knowledgeable when they engage with the prospect, as well as taking all of the data that they learn from an actual discovery or needs analysis and and being able to put a pretty quick deliverable and output with all of our services tied to that. And then the ROI and value from it. All of that now for us is done through different AI tools. It's helped speed up quite a bit of the process for us on the front end. And frankly, now we're leaning into some more technology around the actual outbound motion that we have around the demand gen and we actually think that that'll have quite a big impact on how many people were able to reach and having really good bespoke conversations with uh thousands more companies than we would normally have leveraging uh more human motion around the um business development side and then finally rich you know just operationally we quoted

You know, last quarter, about 80,000 transactions that Aluna assisted with and over 100,000 this quarter. And, you know, so that obviously helps us with scale. It helps the customer experience where they're changing their W4 withholding with Aluna assisting and that. So, yeah. I think what you're going to see is more velocity in the model, the financial model. I know in our long-term model, you know, we had 40%. We believe over time we can achieve 50, and that's all AI-assisted. Got it. Thanks.

Our next question comes from Greg Gibbous with Northland Securities. Please proceed with your questions.

Hey, good afternoon, Pat, John, Ale. Thanks for taking the questions. Could you discuss the pace of organic growth implied by your guidance to the balance of the year and maybe what your updated expectations perhaps are the same of R4 professional services and hardware on a go-forward basis?

Yeah, so Real quick, at the midpoint of the guide, I think it puts us at kind of roughly around 15% full year, year over year in terms of growth. I think it's going to be kind of split evenly. It'll be a second half between the organic and inorganic based on the guide. So I think they're obviously the upside. We don't have any acquisitions planned, so the upside to the numbers would be on the organic side right now as we're sitting today. And then on, yeah, sorry, go ahead. Go ahead. And what was the second part? I'm sorry, again.

Just professional services and hardware, considering it was a little higher than expected, but I know some of that is seasonal.

Yeah, I think it'll normalize back down to we're going to be in that kind of high 90% recurring for the full year. I do think this quarter was a little heavier than the rest of the quarters. Got it, got it.

And you maybe beat me to this one a little bit, but just on the outlook for reseller acquisitions. And you know, you mentioned nothing since the last earnings. Could you remind us on what's been done year to date and curious to hear your stance on you know, incremental strategic platform acquisitions? Or is the focus right now just more integration, expanding the Salesforce and cross sell opportunities and then, you know, even the Latham model transition?

Yeah, just really quick. I really feel pretty good about, you know, the components of our solution. You know, we've pointed in an area where, you know, we've strengthened the products around payroll and have done a really good job there. And then with the integration of Sure Central, you know, the development of Sure Pay, you know, we just announced that Sure Works here, but we've been working on that for a quarter. I really think we got our product kind of set, if you will. Now, to me, it's attachment rates, ARPU, revenue per unit. You know, we're really going to try to cross-sell, et cetera. You know, as a reminder, you know, I thought Ale did a wonderful job leading the sales organization. You know, historically, we're close to 70% new logo. You know, now we're closer to 50-50, and, you know, we're not dropping down new logos, right? Right. It really speaks to kind of broadening out the revenue. Now, that being said, you know, we do have a reseller kind of network, if you will, and we'll continue to add that. You know, you see and we publish some of the cost takeouts in that model, but also now that we have the products and services to cross-sell and attach, based on the reseller network. We think it's even more compelling to go that way. So I think you'll see a series of, you know, small acquisitions. I don't think you'll see anything major, but that'll be our focus here.

Got it. That's helpful. Thank you.

Oh, and to answer your question, yeah, the only acquisition we talked about on the last earnings call was done kind of in the January timeframe.

That's right. Thank you.

Our next question comes from Vincent Tolitio with Barrington Research. Please proceed with your question.

Yeah, Pat, could you talk to the health of your client base? Is it expanding, and are clients hiring in this environment?

That's a great question, Vince. I would say, in general, it's... I think people are cautiously optimistic. I think in some cases, depending where you sit, maybe oil prices has kind of spooked them a little bit or what have you. They definitely see a very strong opportunity in the business environment. In some cases, they have a stable employment workforce, which is great. They're trying to figure out and separate what they're seeing as good cash register opportunities versus, you know, if they listen to, uh, you know, a war or, or listen to, you know, all the kind of news, sometimes it's, it's a cause for pause. Right. And so I don't see employment growth growing a ton here. And some of it's just demographic, uh, you know, where you have a little bit of an aging population, you have as many people retiring as coming into the workforce, but I would certainly, uh, you know, I see a lot of opportunities. I think, uh, ale who's on the front line here would agree to that i think and uh you know for me it's a very stable thriving uh small business workflow workplace thanks for that and uh how should we think about the organic growth this quarter uh would you say it was broadly distributed across your core uh categories yeah i'd say so i think uh

You know, we're trying to get to a point where we describe the business and it's in the IR deck. There's a pie chart. I would say in general, most of the growth this quarter was probably on the ACM platform side of the business as opposed to enterprise tax. So that's the way I would think about it, Vince. I mean, I really think about that's the kind of the buckets that we're trying to describe the business. And so that's where the majority of the growth was this quarter.

And as far as, you know, as far as through the year, I think, attachment, tax rates, and RPU growth in small business is going to carry today. I think you're, you know, we've had some really good milestones of, you know, getting customers live and, you know, we see good prospects in the tax business that have continued to grow. You know, I think we have some professional services and hardware that, some cases we'll continue professional services as we implement. But as far as hardware, I think you'll see a moving of the mix from one time to reoccurring over a period of time, but we'll still have some one time. And then, you know, we have some non-strategic businesses that, you know, will over time not be as focused, but will continue to be with it. But really, it sure works. SureCentral, SurePay, you know, we're going to lean in there and then we're going to absolutely continue to grow our money movement and compliance offerings up and down the HR stack. Thanks, guys.

Nice quarter. Thank you. Thanks, Vince.

We have reached the end of our question and answer session. I would now like to turn the floor back over to Pat Kessel for closing comments.

Yeah, I appreciate each and every one of you from an investor perspective and an analyst. We have a great analyst community and Uh, they do a good job representing, uh, you know, a sure software. Uh, and then as far as if you've been an investor, uh, with us here a while, we'll continue to make progress. I think we're pretty consistent. Uh, you know, we have the investor deck on the customer website. I would say, you know, we've done some non-deal roadshows and with Patrick, uh, coming on board, you know, we're going to have, uh, some conferences here, uh, throughout the year and, uh, You know, definitely I'm coming to New York here soon on some investor conferences. So we look forward to meeting you and seeing you soon. And we're very thankful for you and just keep following our progress because we're pretty confident in our growth. Thank you.

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