ASUR - NASDAQ

Good afternoon, and welcome to Asure's Fourth Quarter and Full Year 2023 Earnings Conference Call. Joining us for today's call are Chairman and CEO, Pat Goepel; Chief Financial Officer, John Pence; and VP of Investor Relations, Patrick McKillop. Following the prepared remarks, there will be a question-and-answer session for the analysts and investors. I'll now turn the call over to Patrick McKillop for introductory remarks. Please go ahead, Patrick.

Thank you, operator. Good afternoon, everyone, and thank you for joining us for Asure's fourth quarter and full year 2023 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.asuresoftware.com, where you can also find the 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. A 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 the 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 current expectations. I will hand the call over to Pat in a moment, but I just wanted to take a moment to remind folks of our upcoming Investor Relations activities. On March 17 through the 19, we will attend the 36th Annual ROTH Conference in Dana Point, California. We also plan to do a few non-deal road shows later this spring as well. Investor outreach is very important to Asure, and I'd like to thank all of those that assist us in our efforts to connect with investors. Finally, I would 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 now turn over the call to Pat Goepel, Chairman and CEO. Pat?

Thank you, Patrick, and welcome, everyone, to Asure Software's fourth quarter and full year 2023 earnings results call. I am joined on this call by our CFO, John Pence, and we'll provide a business update for our fourth quarter and full year 2023 results as well as our outlook for 2024. Following our remarks, we'll be available to answer your questions. As you can see from our reported results, our strong momentum continued during 2023, with strength coming from solid execution across the business. Our total revenue growth in 2023 was 24% up versus the prior year. Excluding ERTC, our revenues were up 19%. Our reoccurring revenues grew 16% versus the prior year. Excluding ERTC, our reoccurring revenues were up 19%. Our net loss was $9.2 million, a $5.3 million improvement versus the prior year, and adjusted EBITDA was up 97% versus the prior-year period. Lastly, our cash from operations for 2023 was $18.9 million versus $13.7 million in 2022. We have multiple growth drivers in our business with HR Compliance, Asure Marketplace and our Payroll Tax Management solution showing very strong growth in 2023. We believe that over time, these business lines can become much larger contributors to our overall revenues, as our Payroll Tax Management offering continues to grow, it can contribute to our float balances growing as well. We continue to build on our momentum by advancing our technology through leading partnerships and launching strategic sales initiative, such as the bundling of our 401(k) products with payroll to drive new client additions. This particular initiative was launched a short time ago and the reception we have received thus far has been very positive. Many small businesses traditionally have not had the resources to offer 401(k) retirement solutions, but around 20 or more states in the U.S. have mandated these plans and many more have introduced legislation mandating 401(k) plans for small businesses. The U.S. government's SECURE Act 2.0 aims to increase employee participation and retirement plans by providing tax credits to support the setup of employer-based retirement plans, and Asure has the solution they need to set up those plans. We continue to advance our technology with partnerships as evidenced by the recent invitation to join the SAP PartnerEdge Open Ecosystem. The partnership with SAP will allow Asure to enhance its payroll tax engine by integrating with the SAP systems and streamline payroll tax processes for its existing SAP clients. Also, in today's press release, we mentioned we received Workday Global Payroll certification for integration into Workday HCM and Asure Payroll Tax Management. This solution helps large enterprises streamline processes, enhanced compliance accuracy and stay ahead of regulatory changes. The certification accelerates Asure's payroll tax business into the Workday Human Capital Management ecosystem. Our sales efforts during 2023 resulted in a 56% increase in new bookings versus the prior year, and we're pleased with the productivity per rep we're experiencing. We've expanded our sales force during the year to approximately 110 reps with plans to go about 130, and have been very pleased with the quality of new hires that we made. We're supporting our sales efforts with digital marketing, which will drive higher levels of sales leads and productivity in 2024. Based on our current business trends, we're reiterating our full year 2024 revenue guidance of $125 million to $129 million, with EBITDA margins of between 20% and 21%. As a reminder, this '24 guidance excludes any potential contributions from ERTC filing, but does include our plan to resume acquisitions in earnest. We have signed agreements to purchase approximately $7 million of annual recurring revenue and the pipeline is very strong. As we look at the business excluding ERTC from 2023, our guidance for 2024 implies a 25%-plus growth rate, which is very positive. Additionally, reviewing our growth, excluding ERTC for the past few years, we're witnessing solid double-digit growth in the implied 25% growth rate in our guidance of 2024 would be an acceleration of the rates we saw in previous years. Now, I would like to hand it off to John Pence to discuss our financial results in more detail as well as our quarter one guidance. John?

Thanks, Pat. As Patrick mentioned at the beginning of this call, several of the financial figures discussed today are given on a non-GAAP or adjusted basis. You will find a description of these GAAP to non-GAAP reconciliations in the earnings release that was made available earlier today. The reconciliations themselves are also included in our most recent investor presentation posted in the Investor Relations section of our website at investor.asuresoftware.com. Now on to the fourth quarter and 2023 results. Fourth quarter total revenues were $26.3 million, decreasing by 10% relative to prior year. Excluding ERTC, total revenues were up 15% from the prior year. Full year 2023 total revenues grew by 24% to $119.1 million. Excluding ERTC, total revenues were up 19% from the prior year. Recurring revenues for the fourth quarter grew 4% versus the prior year to $25 million. Excluding ERTC, revenues were up 15% from the prior year. Full year recurring revenues grew by 16% to $99.7 million year-over-year, and excluding ERTC, revenues were up 19% from the prior year. Full year and fourth quarter recurring revenues grew on the strength of HR Compliance solutions, Asure Marketplace and increased interest revenues with average client balances exceeding $200 million during the year. Net loss for the fourth quarter was $3.6 million versus $1.1 million during the prior year. Net loss for the full year 2023 was $9.2 million, an improvement of $5.3 million versus the prior year loss of $14.5 million. Gross margins for the fourth quarter decreased to 68% from 72% in the prior year. Full year gross margins increased to 72% from 65% in the prior year. Non-GAAP gross margins for the fourth quarter decreased to 72% from 76% in the prior year. Non-GAAP gross margins for the full year increased to 76% from 70% in the prior year. The decline in margins during the fourth quarter were driven by lower revenues versus the prior year as a result of lower ERTC revenue. Margin expansion for the full year was driven by growing high-margin revenue streams, continued progress with our efficiency initiatives and scale benefits from our growth. We continue to believe there is substantial margin upside over the longer term as the business scales. EBITDA for the fourth quarter was $1.1 million, down from $5 million in the prior year. EBITDA of $14.3 million for the full year was up 63% versus the prior year. Adjusted EBITDA for the fourth quarter decreased to $2.8 million from $6 million in the prior year, and adjusted EBITDA margin was 11% in the quarter compared with 21% in the prior year. Adjusted EBITDA of $23.3 million for the full year was up 97% versus the prior year. Adjusted EBITDA margin for the full year was 20% versus 12% in the prior year. Our cash from operations for 2023 was $18.9 million versus $13.7 million in 2022. We ended the year with cash and cash equivalents of $30.3 million, and we had debt of $4.3 million. Now in terms of guidance for the first quarter of 2024, we are guiding the first quarter revenues to be in the range of $30 million to $32 million. Adjusted EBITDA for the first quarter is anticipated to be between $6 million and $7 million. We are reiterating our 2024 revenue guidance to be in the range of $125 million to $129 million, with adjusted EBITDA margins of between 20% to 21% at these revenue levels. As Pat mentioned in his comments earlier, these guidance figures exclude any contribution from ERTC revenues, but assume a resumption of acquisitions. We are excluding ERTC given the uncertainty about the future of the program. The growth from our HR Compliance, Asure Marketplace are expected to continue to be strong contributors going forward. Also during 2023, we saw very good growth from our standalone Payroll Tax Management product offering as well. Our Payroll Tax Management product has multiple short term goals with the platform being offered as a service to large enterprises as well as HCM vendors. While the above mentioned are strong contributors to our growth, we also expect to drive growth through inorganic methods. We have signed agreements to purchase approximately $7 million of annual recurring revenue so far and the pipeline is strong. In conclusion, we are pleased with our performance in 2023 and the momentum we have built on the strength of private development, technology and sales. This gives us confidence in our forward-looking guidance. As we look at the business, excluding ERTC revenues in '23, we are generating approximately $100 million in revenues and the guidance we have given through 2024 implies 25%-plus growth for this year, which is a very healthy rate. If we look back, the core business grew 16% in 2021 to 2022 and 19% from 2022 to 2023. And then we look to guidance for this year, and you can see the growth rate accelerating assuming we achieve our goals. We are excited about 2024 and look forward to it being a breakout year for Asure, and driving profitable growth and leveraging the initiatives we have implemented across the business to generate sustainable growth and create shareholder value. With that, I will turn the call back to Pat for closing remarks.

Thank you, John. We are pleased to deliver continued growth in 2023, achieving 24% total revenue growth. We remain committed to creating products and technologies that make a difference for our customers. The continued improvement of our solutions over the last few years is being reflected by our continued growth and we're elated to see positive impressions from our client base as we are creating valuable solutions, which will enable them to focus on their core business operations. Our business has multiple growth drivers in HR Compliance, Asure Marketplace, Payroll Tax Management and our new 401(k) offering, while business owners face an increasingly complex world to operate in, and we're offering multiple solutions to these business owners to ease the demands on their time so that they can focus on the things that are most important. Our recent sales initiative in bundling 401(k) with payroll has gotten a positive reception thus far. The SECURE 2.0 Act give small businesses the funding they need to implement 401(k) plan, which many states are mandating now, and we expect more to pass mandates in the future. We also anticipate demand for our HR Compliance solution will continue to be healthy as businesses increasingly seek to supplement their internal capabilities with external experts who can help them navigate the increasing complexity of doing their business day-to-day. Asure Marketplace has been a strong contributor as well via our partnerships with Equifax, H&R Block and

Thank you. [Operator Instructions] Our first question today is coming from Joshua Reilly from Needham & Company. Your line is now live.

All right. Thanks for taking my questions here, and nice job on wrapping up the year team. Maybe just starting off on ERTC. I know we're moving on from that, but just to wrap up a couple of items. There's some proposed legislation to make the end date retroactive to January 31. I've been getting some questions. Have you guys still been submitting applications for ERTC, even while the program is technically paused? And has there been any cost associated with submitting these applications before you've actually generated any revenue there? Just maybe an update on a couple of those more technical items.

Yeah, Josh, thanks for the question. From ERTC, we're a processor on behalf of our clients. So, the IRS has paused. There has been some legislation whether they let the product or let the program run out in 2020 in April 15th, like scheduled, and then in 2021, April 15th to the following year is scheduled or will they retro it to January 31. That remains a question for Congress and the IRS. What we've done is we'll make sure that if somebody wants to file an ERTC claim, we'll process that on their behalf. And there are some, what I'll call, minor costs that are involved in that process. But really, we've kept out the revenue in our guidance going forward. And when the bill or potentially the legislation environment changes, we'll inform our customers as well as our investors alike, but we have taken it out of the guidance. And there'll be small run rate dollars. But we -- at this point in time, the volume of activity with ERTC has gone down quite a bit. We want to make sure that if somebody does deserve a refund, we'll process on their behalf, but that's kind of where we are in the program.

Got it. And then just two follow-up items on the March quarter guidance. First item being what are you assuming for W2 and forms revenue on a year-over-year basis? Are you assuming it's going to be flat or maybe even slightly down year-over-year? And how much is job switching impacting that revenue? That's the first item. And then just one other quick item on the March guidance.

Yeah. Josh, same-store sales is roughly flat year-over-year. There sometimes has effects of turnover, et cetera, the W2 and year-end revenue. And when we have W2 revenue, we have W2s, we also have ACA, and then we have kind of tax filing forms versus payroll forms. But the revenue is, I think, slightly up year-over-year. But if you kind of ballpark that in the high 4s, that's kind of where we are from a revenue perspective.

Got it. And then, what are you assuming also in the March quarter guidance for the H&R Block revenue? And can you just remind us if there was any H&R Block revenue last year in the March quarter? And then, any seasonality around how that might abruptly end when on April 15 or when the tax filing date ends? Thank you.

Yeah. The W2 revenue, whether it's Intuit or it's H&R Block, the seasonality is more in the first quarter as opposed to all year round, and that's just because personal tax returns is heavy emphasis on first quarter and with a little bit sliding into the second quarter. The use of the W2 follows that kind of process. We're probably talking about minor six figures, so a little over $100,000 of revenue in that kind of area, and that's up from last year. But all in all, that's not a huge contributor of our Marketplace revenue. We've announced some recent programs in the marketplace and H&R Block as well as Intuit will be a nice kind of program for convenience of our employees and getting their taxes done. But it's not a huge revenue stream for us.

Got it. Thanks, guys.

Thanks, Josh.

Thank you. Your next question is coming from Bryan Bergin from TD Cowen. Your line is now live.

It's actually Jared Levine on for Bryan tonight. In terms of 4Q and into 1Q so far, have you noticed any change in the demand environment or even the competitive environment relative to prior quarters?

On the first quarter, based on fourth quarter, I haven't seen a great change in demand. I would tell you, I think we're -- pretty robust demand. We're launching a number of new programs that we talked about, whether it's 401(k), the marketplace. We have kind of new capability in the area of benefits around receiving commissions as well. So, a number of different drivers for us, but demand environment has been pretty strong. I did come from our sales kick off here in the last month or three weeks, I should say, and I think people are pretty fired up, and I'm pretty confident that they can make their plans. So, I think we had a bit of a pivot in September 14 when the ERTC paused, but we have no shortage of opportunities with new product introduction, new technology as well as our bundling and people are quite frankly, pretty fired up. So, for us, it's been pretty positive.

Okay. And then, that competitive environment as well?

I'm sorry, Jared, you cut out for a second. If you could ask that question again?

Yeah. So, the second part of the question was in terms of the any change in the competitive environment as well.

No. We see, on a small end, we might see [indiscernible], which is a private company. We see ADP and Paychex. Those are the vendors we see. I would say similar to regional banking, compliance and money transmission licenses, the government is leaning in more and more, whether it's state or federal or ACH on a compliance environment. And we are seeing that there's a trend where the smaller providers that did payroll either as a service for their CPA clients or they were doing payroll now that they have to be licensed, there is a kind of a flight to companies such as ourselves because we're licensed and have expertise in money movement and tax filing. So, I think that's been a positive for us. But no super huge change in the marketplace. We see the same people that we saw last year.

Okay. Great. And then for my follow-up, what was the float revenue in FY '23? And then, what are you assuming in that FY '24 guide in terms of float revenue?

Yeah, we were a little under $9 million this year when it's all said and done, and that compares roughly to about 2.5% or so the year before. We've got a growth kind of a combination of two or three things that we're thinking about in terms of the forecast. Overall, we've modeled a 0.5 point decline midyear in our core business, but we see some growth in float as a result of a couple of different factors, right? So, we talked about acquisitions. When we acquire these businesses, we're going to take on their client, fund balances. And then -- and we've talked about it in the past about one of our key growth areas is on the tax service providing. That also comes with it a lot of client fund dollars. And it's actually one of the things that we do when pricing, we might forego some fee revenue just to get the client balances. So, it's definitely a part of our model in terms of that side of the business. So, I would say, in general, I think it's pretty consistent with the overall growth trend. So, if you think about, we've guided to 25% growth directionally from the core business. I would say that, that we expect kind of, between the acquisition, between those initiatives, we think that we're probably in that kind of same growth rate for float dollars next year.

Great. Thank you.

Thanks for the question.

Thank you. Next question is coming from Eric Martinuzzi from Lake Street Capital. Your line is now live.

Yeah. I wanted to focus on the acquisitions. Just for Q4, how much revenue was from acquisitions?

Yeah, roughly $0.5 million.

All right. And then you talked about the $7 million of ARR under contract. When are you expecting those deals to close? And how much are you paying?

So -- go ahead.

I was going to say roughly, we'll probably get -- of that $7 million, probably 75% of it this year. Some of it's going to hit beginning of March, some of it will hit beginning in April. So I think of that $7 million, maybe $5 million, $5.5 million will come in this year. In terms of I think where you're going next is in terms of what we're paying for it, we think we've been pretty judicious, I'll get -- I'll let Pat give a blended rate for that $7 million purchase.

Yeah. And I would say, roughly in that area of 2 times revenue. We did have a -- in our subsequent note in the 10-K, we had a little over a $5 million acquisition from a revenue perspective that we closed on a couple of days ago. And then, what I would say is the pipeline is very active. A number of March, April kind of starts as well as we -- remind you, we have about $200 million or so of acquisition targets within the reseller community, probably a pipeline right now of about $20 million or $25 million are actionable. So, we're kind of -- the pipeline is strong. We're executing on the plan and real confident that we'll get the revenue associated with that.

And again, I think we've been pretty transparent on this. This is definitely part of the model. We were happy to do the equity raise in the third quarter to pay down debt also give us this dry powder to start really prosecuting that part of the model. I mean it's really important to us, as you see, the adjusted EBITDA margin, and it's really important to get the scale. So, if we have to replace, let's say, $18 million for ERTC in 2024, that's an important part of that strategy. And I think that, again, if we can get it executed, we'll deliver the same margins.

Yes, John, the only thing -- Eric, the one thing I would add to John's $0.5 million is when we do acquire, especially the resellers as well as other payroll assets, we layer on the marketplace. We layer on tax filing dollars. The money movement, that's not in that $0.5 million. And clearly, we've instituted that as well. So that's part of our model. And traditionally, we've talked about acquisition economics from a cost reduction perspective. What we're pleased to be seeing is that we also get those benefits from a revenue perspective.

Right. But I'm just trying to get at a true organic. And you're telling me you acquired somebody two days ago, that's going to be $5 million of revs in 2024, then over $400,000 of your revenue in Q1 is from acquisitions. That's -- I just want to make sure I'm right with the math there, is that correct?

Yeah. If you're -- people ask for different reasons, but if you're triangulating from an organic perspective, we didn't have a lot of acquisitions prior to the fourth quarter. So that number is pretty pure, and then you got our answers from that.

Got it. Thanks for taking my questions.

Thanks, Eric.

Thank you. [Operator Instructions] Our next question is coming from Richard Baldry from ROTH Capital Partners. Your line is now live.

Thanks. Your OpEx from 3Q to 4Q was pretty flattish. And to get to the sort of the profitability we see or that you're guiding for next year, it looks like it'll be, call it, well controlled on the OpEx side. Are you at all concerned that given the organic growth you're seeing underlying the business that maybe you should be accelerating your hiring or spending on internal a little more than what seems to be implied in the results? Thanks.

I'll give you my perspective and I'll let Pat kind of go. I think as we talked about fourth quarter even as we were giving the guidance, we -- it was a pretty sharp pivot as we were planning ahead for the end of the year. We were trying to invest heavily in terms of our sales and ops to get ready for the next year. I would say that ERTC going away put pressure on the fourth quarter, but we don't see a lot of incremental costs going into 2024 from the fourth quarter, it's kind of my perspective. So I think we have to deliver the revenue, but I think that the cost structure is pretty stable.

Yeah. And Rich, I think it's a good point and one we talk about quite a bit at the management level as well as the Board level. In our investor deck, we did pop out more and more of the model. And I think what you're seeing in 2021, we had roughly 10% adjusted EBITDA as a percentage of revenue. This past year in 2023, we were fortunate to go to 20% at that kind of, call it, $119 million level. A model in -- for illustrative purposes, at $200 million, we think it's 30%. So, it's very much a scale business, and that's what we're focused on. What ERTC allowed us to do is invest in technology and payroll, and we're running at increased levels for that. Now, with ERTC, it was one-time revenue and you're kind of one and done. Here, it's allowing us to invest in a repetitive business model. So while this year, roughly $18 million or so was ERTC one-time revenue, next year, as we model with guidance, most of that revenue is repetitive revenue. So, you're going to see us really build a platform of growth that's repetitive revenue, and it's only accelerated in the last couple of years. From a cost perspective, what we've done is we've been able to really rightsize the scalability model. Primarily, we invested in our infrastructure with common service tools, Salesforce, NetSuite, AWS. We're starting to invest in AI, and we think we have some pretty good winners in that area. And then just the simplification of the business around bank accounts, money movement and the marketplace allows us to move where we can invest in our important asset around people, but also invest in efficiency and the scale outcome. So, we think we're well on our way and really pleased with the outlook here. So, I appreciate the question, but that's how we're looking at it today.

And in terms of revenue seasonality, from Q1 to Q2 is usually a dip because of the W2 type upswing in Q1. Do you think that at all different in terms of magnitude this year given sort of the mix changing in the business?

Yeah. I don't think it will be as dramatic also just because of some of the acquisitions, too, right? So, you're going to have some of that muted by the fact that some of these acquisitions and the revenues are going to start coming on. So, I'd say probably not as dramatic, is a simple answer.

Okay. And last for me would be more about the M&A pipeline. So, against the macro backdrop, it sounds like the ones you've done recently fit your targets really well. Do you feel like the targets you're going after in terms of valuation and cash flow capabilities, et cetera, are those sort of well within grasp of the pipeline you're looking at? Are they -- has that changed at all recently? Just how are you feeling about that? Thanks.

Again, my perspective on it, I think they are goldilocks, I think everything is going according to the model. And as Pat mentioned, there's this unique time for these small providers. I mean, the cost of doing business with the regulations that the various states are putting in place for the banking system, it's really having an effect on some of these smaller providers, whether they want to continue to stay in business and take the risk or do they think this is a better time to exit. So, I think it's a unique time in the space. We've embraced it in terms of trying to get our house in order in terms of being very compliant. We take it very seriously. It's hard if you're a small provider to afford some of that cost structure.

Great. Thanks.

Thanks, Rich.

Thank you. Next question today is coming from Jeff Van Rhee from Craig-Hallum. Your line is now live.

Great. Hey, guys, thanks for taking the questions. A few for me. On sales, what are you seeing in terms of the timeline for the reps to ramp to productivity? How has that changed in the last, call it, six months, 12 months?

Jeff, I think if anything, it's probably gone up a bit productivity and the quality of hire has gone up for us. So, we've been really pleased with that. I think some of it is the pace of change is quick. So in other words, if you think about kind of where we're at, we've had a lot of really good success in the marketplace and in tax filing as well as ERTC. We now are introducing 401(k). We have a medical benefits kind of product. And so, now you have new reps and new products. And in those times, the sale of a concept and then delivering that to a newer person sometimes takes a while to get to that area. The other thing I would say is -- and again, we're really, really happy with the quality of sales reps, but the area of tax filing when you start to go upmarket with SAP and Workday, now you're talking about a sale or a process or even a book-to-bill around implementation that takes a little bit longer. And the only reason for that is those customers have higher dollar revenue numbers, and they take a little bit longer to implement. But bookings, we had another really, really strong year. Ex ERTC, our bookings were up 40%. It gives us confidence to go to 130 reps. So, we think we have really good onboarding training. We have a lot of the right mix to get productivity up. I would just say we're throwing more at the reps from a product perspective. Part of our charm is that we give a lot of the products in the bag that some of the other companies don't where they isolate or go to a one product sale. We give our business people and our salespeople the opportunity to sell all the products in the bag. Sometimes that does take a little bit longer than if you were only selling one product, but we think it makes a more consultative and more value added in the future. And I'll tell you what, I couldn't be more pleased with our sales folks.

Good to hear. So, on Payroll Tax Management, you just referenced it a minute ago about these deals being larger and potentially taking longer. When do those deals start to show up and move the needle from a revenue standpoint? Would we -- should we start to think of low to mid seven-figure run rates by the end of the year? Or just, I don't know, help us size when do those deals start to move the needle?

Yeah. I mean, I'll give you one example. I have a company with 22,000 employees, and they'll start between March 1 and April 1. And that process has been going on about six months or so. We went live with 100,000-employee company last year, and that process took us almost a year from start to finish, but went live over six months. We have some pipelines of some, what Eyal call is, kind two-combo deals. And we think that, that will -- they'll start layering in towards the second half of the year, but we're in sales processes right now. So, yeah, no, I think you'll just see a consolidated ramp. And then, we've introduced what we call banking in a box and our Treasury Management solution that, in some cases, will partner with some of these deals as well that will increase the total addressable market as well as the deal size. So, we think we're positioned really nicely, and you'll see that throughout the year.

Yeah. It's great to hear on the Marketplace product as well. I think you referenced, obviously, Equifax off to a strong start, a little bit of contribution from HRB and

Yeah. I think just from our perspective, we look at the business three ways. We have our core business and growth that we're going to get momentum coming off that business. We have some enhanced initiatives that's a second vehicle and whether that's the Treasury Management, the 401(k), some of those newer products that we're working. And then, we have acquisitions which we layer some of our product offerings to. From a goal perspective, the $125 million to $129 million imply a 25% growth. In that initiative, probably 10%-ish or so is momentum that we've had over the past year. The growth rate of acquisitions we've kind of published somewhere in that 10% to 12%. And then some of these enhanced initiatives, whether you look at 401(k), we pulled 401(k) out of a Marketplace and made it its own separate products. So, you won't see -- to some extent, we probably took a little bit away from the Marketplace, but certainly, we'll grow the Marketplace well into the double digits. And then, from our perspective, it's probably too -- a little bit too early to call a target number just because we have a number of initiatives, whether it was the healthcare initiative, Recently, we did an acquisition, which expanded our capability and receiving commissions. So, we're kind of in the middle of the movie, Jeff. I think I'll give you a little bit more color here at the end of the first quarter. And we did one acquisition two days ago. So, I don't want to put targets that would limit us right now. I would say at the end of the first quarter, we'll come out with a clearer number.

Got it. Fair enough. Thank you.

Thank you. Next question is coming from Vincent Colicchio from Barrington Research. Your line is now live.

Yeah. Pat, do you have a booking growth number for Q4, if we exclude ERTC?

If we exclude -- well, for the year, if excluding ERTC, is 40%. And the fourth quarter specifically, if we exclude ERTC, we're closer to 50%. 56% I think it was in the fourth quarter. So that good, strong bookings, a lot going on in the business. And that -- and I think you'll see more bundling and the bundling initiatives is starting to pay off.

And as far as client companies, do they grow their employee base in the quarter? And what are your expectations for that in '24?

On client, we modeled roughly flat. We didn't get into it because if you think about the backdrop, you had the macro environment with either interest rates and people were modeling some people, depending what your belief was, it was either going to be a recession or growth, et cetera. We just modeled the flat area and then a 0.5 basis point cut in the second half on float. So, we don't get too worked up on a quarters or what I'll call same-store sales growth. And if we do get some of those hiring initiatives growing, that's kind of a benefit to the model.

And then do you have your bookings breakdown in the quarter between new and existing clients?

One of the things that we're working hard and we just had our sales kick off is we do about 65% to 70% new logos. What we want to do is even that out over time, we believe that we have an opportunity to continue to drive our base business. And we're having a lot of success with bundling. We want to make sure that we have that same bundling success. And one of the things that we're doing is making it easier to do business across the bundles with us. Some of the things that we're doing from a technology rollout strategy, we'll augment that and we'll get into more product-driven sales and kind of check the box sales. We're excited about those initiatives, but we're still early days. So, when I look at bookings and Eyal, who's our Chief Revenue Officer and President, he's done a fantastic job, one of the initiatives that we're trying to do is, we think that there's base sales growth that while we've achieved a lot of success in the model, we think we can even do better, and that's where we're going to work those percentages. We also have hired a couple of groups of people to really work on those bundling and those product-driven sales to continue to grow.

Thanks, Pat.

Thanks, Vince.

Thank you. Our next question is coming from Greg Gibas from Northland Capital. Your line is now live.

Hey, thanks, Pat and John. Thanks for taking the questions. Just to clarify, I think you were saying growth from acquisitions was 10% to 12% organically – inorganically. Is that right?

Yeah. I think what we said even with the -- when we were talking about the guidance for the full year, last quarter, we were implying roughly 25% growth or higher with kind of a split evenly between both organic and inorganic. So, I don't think that's changed. And again, it's never going to be perfectly linear, especially with acquisitions. They're going to come in as they get closed. But we still think that's the right way to think about the overall view of the year as that relative contributor.

Great. Yeah, just wanted to see if anything changed there. Appreciate it. And then, regarding the headcount and [ERC] (ph) count trends, wondering if you're seeing anything there. I think you said that you modeled 2024 guidance, just off of roughly flat. Has anything changed in terms of customer headcount or [seat] (ph) count, growth or decline?

No, we've not seen -- again, from my perspective, a significant change one way or the other in the last year or so in terms of the per employee or account of employees.

Got it. And I guess, lastly, just as I think about quarterly trends or seasonal, without ERTC I know that was kind of big on Q2, how would you advise us in terms of what 2024 would look like cadence-wise versus 2023?

So I think again, our guidance is $125 million to $129 million for the full year. That has no ERTC component in it. And that, if you think about '23, $119 million we just delivered, has approximately $18 million for ERTC in it, right? So, we're growing a base of $101 million to approximately $125 million to $129 million. So, that's kind of the way we're looking at ERTC vis-a-vis '24.

Yeah. And the only thing I'd say that $101 million last year or 2023 with $18 million of ERTC, ERTC was mainly one-time revenue, right? Because you had the 941-X and you had that process and it was one-time revenue. When you think about the bookings and sales of a repetitive revenue business, they build on each other. So, the $125 million to $129 million, what we're pretty excited is to grow that base. And then, when you think about fourth quarter, you start to grow that base, and we think we could exit in close to 30% growth. And when you have that kind of growth from a repetitive revenue perspective, now that leads into a multiyear growth strategy. And then, I'd just remind you, we're in a scale business. And in 2021, we had 10% adjusted EBITDA margins. 2023, we finished the year here, we had 20%. Pick the number at close to $200 million, you'll see 30%. So, we think we're really set up well for long-term [Technical Difficulty] and employees and clients alike. And so, I feel really good about the momentum that we currently have.

Yes. And I would just -- again, I think we made this point a couple of times, but just to reemphasize, the '22 to '23 growth, ex ERTC, was 19%, right? So it's just something to keep focused on. I mean the ERTC creates a lot of noise in terms of the numbers and the compares, but the core business, when you start to exclude it really is performing just fine. And again, it's going to perform great this year, we think. So...

Great. Thank you.

Thank you, Greg.

Thank you. We reached the end of our question-and-answer session. I'd like to turn the floor back over for any further or closing comments.

No, I'd tell you, really excited about 2024, came off some really good events around our sales kick-off and we had a group of high performers together. They see the momentum. They see the future of the business. We're very pleased with how we're positioned for 2024. And stay with us. Patrick mentioned, we're at the ROTH Conference here in March. We're going to do some non-deal road shows. So, we're going to get out to the community. We have a bunch coming up in May. So, we hope to see you soon, and I really appreciate your interest as an investor. Have a great day, and thank you.