ASUR - NASDAQ

Good afternoon, and welcome to Asure's Second Quarter 2025 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. [Operator Instructions] 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 Asure's Second Quarter 2025 Earnings Results Call. Following the close of the markets, 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 the 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 will 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 August 18, we will be hosting a virtual NDR with Barrington Research. During September, we will attend the Lake Street Conference in New York on September 11 and participate in the Barrington Research Virtual Conference on September 16. On November 20, we will be attending the Stephens Conference in Nashville as well as the Needham Technology Conference in New York. We also expect to schedule some additional non-deal roadshows this fall. Investor outreach is very important to Asure, and I would 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 that it will be made available for replay via a link available on the Investor Relations section of our website. With that, I would now like to turn the call over to Pat Goepel, Chairman and CEO. Pat?

Thank you, Patrick, and welcome, everyone, to Asure Software's Second Quarter 2025 Earnings Results Call. I am joined on this call by our CFO, John Pence, and we will provide a business update for our second quarter 2025 results as well as our outlook for the second half of 2025. Following our remarks, we'll be available to answer your questions. We're pleased to report that our second quarter revenues were solid, coming in at $30.1 million, an increase of 7% versus our second quarter prior year and excluding the impact of ERTC revenue growth was 10%. Our revenues reflect continued strong performance from our payroll tax management product and improving attach rates of our human capital management products. On July 1, we acquired the Lathem Time Corporation, and we are excited to have them as part of the Asure family. Lathem has a storied legacy as a pioneer in mechanical time clocks and a trusted name in workforce management for over a century. It was founded in 1919 by George and Louie Lathem, who began selling time clocks across the Southeast region of the United States and was still managed by the fourth generation of the family. The company has evolved from punch clocks in early years and transformed into a modern software provider, delivering intuitive cloud-based time and attendance solutions through its flagship platform, PayClock Online. We believe the combination of Lathem with our existing time and attendance business is a natural fit, which will allow us to achieve scale in this segment of the market. The acquisition reinforces Asure's commitment to supporting America's growing businesses with simple, effective tools to better manage their workforce and grow their business. The target customer base for Lathem, which has approximately 14,000 clients, matches well with Asure's focus on growing companies. The go-to-market strategy is very similar in nature and direct sales as well as strong reseller network is available to Asure. We view the time and attendance segment as a gateway to payroll processing and the rapid self-installation software used with the Lathem product, we believe we can accelerate our payroll sales and further drive the opportunity to have increased attach rates. AsurePay is an example of demand for such features such as earned wage access, where an employee's hours can be validated at the time clock or in the time and attendance system. We believe the clients of Lathem also are in need of many additional products Asure has to offer such as tax, HR Compliance, Benefits Administration, 401(k) and more. We expect the acquisition of Lathem Time Corporation to bring additional high-margin revenue to Asure. Our Payroll Tax Management product has continued its momentum as we go live with more clients each and every day, and our team has an active pipeline of new opportunities. AsurePay is a multiyear initiative, continues to make very good progress in its launch with thousands of cards ordered by our clients and more being activated every day. In just a few years, we've accomplished quite a bit as we have been busy building out capabilities with acquired point solutions. We're investing capital to integrate these point solutions for an improved client experience, which we expect to drive our attach rates higher and ultimately drive improved organic growth. While we're in the early innings of these efforts, we have seen some positive indicators such as improved attach rates during Q2 with an increase of 400 basis points versus the year ago period. Our suite of human capital management products is now stronger than ever and includes a well-rounded offering to meet the needs of growing businesses with Payroll Tax, HR Compliance, insurance, 401(k), time and attendance. The total addressable market for our products is very large, and we're working to capture increased wallet share. We feel our efforts can lead us to better service our client base of over 100,000 with the best experience in the human capital management industry, whether it's small growing businesses or an enterprise-level business. We want to be the provider of choice for our clients, offering everything they need from the first state of hire all the way through an employee's retirement. Our bookings for the second quarter declined by 53% year-over-year, primarily due to large enterprise deals, which were booked in the second quarter of 2024. Excluding those from comparison, we saw bookings increase 15% for the quarter. Our contracted revenue backlog is $82 million, up 68% versus a year ago and remains at record levels. Based on our current business trends, we're increasing our full year 2025 revenue guidance to a range of $138 million to $142 million in revenue with adjusted EBITDA margins of between 22% and 24% from prior guidance of $134 million to $138 million in revenue with adjusted EBITDA margins of between 23% and 24%. This guidance includes the anticipated impact of the Lathem Time acquisition. Now I would like to hand it off to John to discuss our financial results in more detail as well as our Q3 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. 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 second quarter results. Second quarter total revenue was $30.1 million, increasing by 7% compared to the prior year period. Excluding ERTC revenues, were up 10% from prior year period. Recurring revenues for the second quarter grew 6% versus the prior year to $28.6 million and were 95% of our total revenue in the quarter. With 7% total revenue growth in the quarter, our revenue results reflect favorable year-over-year comparisons driven by Payroll Tax Management and applicant tracking products. As we discussed last quarter, HR Compliance still faces some headwinds owing to ERTC-related bundling activity in 2023. And this negativity impacted our growth in the second quarter. Also, professional service revenue was a little bit weaker than we forecasted, though as we discussed on past earnings calls, this revenue can be impacted by the timing of enterprise implementations. Our organic growth was 1%. However, excluding a 4% downward pressure from HR Compliance revenue issues, organic was 5%. Summing up our buckets of growth, which are organic, enhanced organic and strategic inorganic, our growth was 13.5%, excluding the 4% impact to the organic I just mentioned. We believe that the second quarter was the low point for the impact of HR Compliance ERTC-related issues. Float revenue was down slightly versus prior year period due to previous rate reductions made to the federal funds rate. However, increased average fund balances have mitigated most of that impact. We continue to model conservatively for 3 more interest rate cuts this year. Our cross-selling efforts are continuing to show good results with our attach rates, which measures clients that take more than one product, growing again by 400 basis points versus the prior year second quarter. This will be a continued focus for us during the remainder of 2025. And with the recent acquisition of Lathem Time, we believe this will continue to help us drive acceleration of these attach rates. Gross profit for the second quarter increased slightly to $19.9 million versus $18.9 million in the prior year second quarter. Gross margins for the second quarter were 66% compared with prior year at 67%. Non-GAAP gross margin for the second quarter were 73% compared with the second quarter of prior year at 73%. We continue to believe that there is margin upside over the longer term as the business scales. Net loss for the second quarter was $6.1 million versus net loss of $4.4 million during the prior year. EBITDA for the second quarter was $1.4 million, up slightly from $1.3 million in the prior year. Adjusted EBITDA for the second quarter increased to $5.2 million from $4.1 million in the prior year, and our adjusted EBITDA margin was 17% in the quarter compared with 15% in the prior year. Turning now to the balance sheet. We ended the second quarter with cash and cash equivalents of $66 million, and we have debt of $67.4 million as of June 30, 2025. The Lathem Time Corporation acquisition, which closed on July 1, 2025, was with a purchase price of $39.5 million. This was paid in the form of $37.5 million in cash provided by the MidCap Financial facility, with the remaining $2 million being paid in the form of the seller promissory note. Now I'd like to provide the backdrop for our updated 2025 guidance. During the first half of 2025, we invested in our technology to improve the client experience, added to our sales force and invested in other areas of business to achieve our revenue and profitability goals. As we generate more revenue growth with relatively stable cost structure through 2025, we anticipate that we will experience greater operating leverage. We are modeling for higher interest expense with the newly added debt to our balance sheet. Our third quarter and full 2025 guidance is based on continued positive momentum in our business. Now in terms of guidance for the third quarter of 2025, we are guiding the third quarter revenues to be in the range of $35 million to $37 million. Adjusted EBITDA for the third quarter is expected to be between $7 million and $9 million. We are increasing our 2025 revenue guidance from $134 million to $138 million with adjusted EBITDA margins of 23% to 24% to now be in the range of $138 million to $142 million, with adjusted EBITDA margins to be in the range of 22% to 24%. As Pat mentioned in his comments earlier, these guidance figures include the anticipated impact of the Lathem Time acquisition. In conclusion, we are excited about the remainder of 2025 and look forward to 2025 as being a great year for Asure in driving profitable growth and leveraging the initiatives that we have implemented across the business to drive long-term sustainable growth. With that, I will turn the call back to Pat for closing remarks.

Thanks, John. We are pleased to have delivered solid results in the second quarter of 2025. During the first half of 2025, we achieved many accomplishments in growing the business, improving our technology and complete acquisitions, including a strategic deal of Lathem Time Corporation. We believe we've executed well on our strategy to deliver growth and will achieve scale benefits. While organic growth has been hampered during the first half of 2025 due to HR Compliance-related ERTC upsell activity, we believe that the HR Compliance headwind will be lessened as we move through the second half of the year. We're budgeting for increased capital spending as we work to integrate the point solutions we've acquired. And going forward, we're consolidating the point solutions to one user experience. And this will increase our per employee per month capabilities from about $15 per employee per month just a few years ago to $100 per employee per month today. The sales team is making very good progress in our efforts to cross-sell and to increase our attach rates, which during the second quarter increased by 400 basis points year-over- year. We believe the increased attach rates and the per employee per month capabilities over time will lead to improved organic growth. The team here at Asure remains focused on the goal of building and growing the business to achieve scale, which we believe will result in improved profitability with adjusted EBITDA margins of 30% plus at the $180 million to $200 million revenue level. We believe that with the positive momentum that we have in our business, combined with the record backlogs and recent acquisitions, we have good line of sight of reaching this goal over the medium term. We expect the business to generate positive cash flow this year, and our model suggests we could achieve the 30% level of adjusted EBITDA margins for the fourth quarter and potentially GAAP profitability, which would be an important milestone for this business. In summary, we're very pleased to have delivered a solid performance in Q2. Our increased guidance for the full year of 2025 reflects our expectation for continued growth in the high teens range. We have a very healthy contracted revenue backlog of $82 million, which had record levels versus last year's second quarter. We've experienced great momentum with our Payroll Tax Management product and are excited about the addition of Lathem Time to our business. We continue to feel the business is positioned well for the future. We'll continue to provide innovative human capital management solutions that help businesses thrive, human capital management providers grow their base and large enterprises streamline tax compliance. Thank you for listening to the prepared remarks that we had. So with that, I will send the call back to the operator for the Q&A session. Operator?

[Operator Instructions] We have our first question from Jeff Van Rhee from Craig-Hallum.

Pat, on the Payroll Tax Management, I know obviously, the RPOs and you can see you booked a lot of business there. I know the timing around those deals have been difficult to predict. Two questions. One, where is that business now in terms of revenue? And then two, you had some big deals you've talked about, I think, Kroger, Nucor and a number of others that were potentially 7-figure ARR. It doesn't look like those have lit up yet. Just catch us up on where you are now and how some of these big deals are flowing through. And if, in fact, they're all still there, has anything slipped out of the pipeline?

No, not at all, Jeff. Thanks for the question. Just on tax in general, one of the things, we're -- we do have competitors listening on these calls. So I want to make sure, and they try to use stuff like that against us. So suffice to say, from a backlog perspective, we've made really good progress. Some of them have been phased installs as they get one location, or they get one business line and then they go to another business line. So there's been a little bit of slippage from that, but there's no deals or anything that we've lost out of the backlog. And we've had some -- actually some really good. In fact, I talked to a number of them personally. And I think client satisfaction, we're right where we want to be. So I feel good about that. I would say just in -- a couple of them have phased as supposed, but nothing more, nothing less than that. I think as we look at the first half and then go into the second half, we'll get those backlogs installed that we have. They might be a quarter late in some cases or they're phased. But we're right on -- right where I want to be from a unit perspective. From a sales perspective, I anticipate having a couple of decent deals this quarter. We didn't have anything super meaningful booked in the second quarter, but certainly a couple already, I think, are going to be signed here in the third quarter. So the tax business continues to make progress. And we don't break out the tax business in general, but it's increasingly more of our revenue and some of its if you include float and don't include float and it's stand-alone, et cetera. So we'll keep updating you along the way. And then I think on the ERTC with HRC, our Human Resource Compliance product, that was a little bit of the miss in the first half of the year. John quantified that at 400 basis points. We are starting more than we're losing each month here in the second quarter, and we anticipate that in the third and fourth. So from a booking's retention perspective, that's in pretty good shape. We just have to -- we had to get through the cohort of the ERTC combined losses in that piece -- in that area, and we're largely past that.

Understood. And on Lathem, the -- talk to us about the business itself. What kind of growth rate are you inheriting there? What has that business done in the last few years? And then what is the impact that's coming in for the second half here? What is the impact on the outlook in terms of the revenue you're expecting from that?

Yes. I think just a couple of things. So we think Lathem is just spot on to where we want to go. Their client base and our client base, it's a really good match, feel really good about that. And one of the couple of things that they do is we have almost a same-day install, if you will, or a self-install. So we can get client revenue moving faster. We think we can get attach rates faster. They've grown in the area of 10%. And some of the -- if you step back and look at the business and the purchase price, we've been very consistent on our acquisitions, somewhere between 2 and 3x revenue. This one is like smack dab in the middle at about 2.5x revenue. And if you think of that, it's $15 million or so and $7 million in this quarter, $8 million in the next -- excuse me, $7 million in the second half of the year, $8 million in the first half of next year. And then what you look at from a revenue perspective is they had some business that is one time. For us, we're going to move more and more to a recurring model. So some of it's a little bit of apples and oranges. But if you think about it, it's a $15 million revenue play, growing at about 10%. And then for us, it opens the door to AsurePay, it opens the door to payroll, it opens the door to HR, a lot of cross-sell opportunities both ways. So we couldn't be more pleased and excited to have Lathem as part of the family.

We have our next question from Joshua Reilly from Needham & Company.

Just following up on the Lathem acquisition here. How should we think about the penetration of time and attendance solutions within your existing base of both direct customers and indirect customers? And how does this change the dynamic in terms of your ability to further penetrate that customer base -- or your existing customer base with time and attendance solutions?

Yes, great question, and I'll get John Pence into the conversation as well. But just one of the things that we improved our -- we believe we improved our IR deck or Investor Relations deck, and it's on asuresoftware.com But A couple of things. Our attach rates, we felt weren't as high as where we wanted them to be, and we saw the opportunity. We felt like we had a good time and attendance solution. But in some cases, it was a little bit more upmarket. And we wanted to look at that self-install, same-day install. And then how we're looking at it is in combination with earned wage access where you can work today, get paid today, you can get credit for your time and attendance hours, et cetera. And so what we're excited about is that capability. And I think attach rates can go up. And in the Investor Relations deck, we kind of lay out last quarter, we introduced 25% have two or more products. We're already up to 29%. We think we can increase that. And then from a PEPM model, our capability at $15 a couple of years ago, now we think we have close to $100 per employee per month. And time and attendance, I'd like to see that attach rate go way up. And I think it will with the book-to-bill and the time to install being a lot quicker. So that was part of the reason for the acquisition. We have about 15,000 direct clients. Lathem, in effect, doubles that opportunity here very, very quickly. So from a payroll time perspective, we think we have hit a home run here, and we're going to work right away on moving both the attach rates in both businesses as well as scaling up the PEPM journey or the per employee per month journey. John, I don't know if you had anything to add.

Yes, a couple of things. I think you talked about the 29%, I would say probably at least half of that is our clients that have time today with us. One of the things that was interesting about the Lathem business as we were talking and starting to learn about them, roughly 14,000 customers, really almost the same customer base that we're serving. And when you talk to them and try to understand why they lost customers, almost all the time, they were losing customers to an integrated payroll solution, right? So we think that there's a lot of opportunity inside of that base to cross-sell into it as well as Pat mentioned the product that they've got. You can go take a look at it. They've got a store on Amazon. You can see the clock they're selling. And what they've done is it's almost like a router. Everybody is taking a router home and try to set up the WiFi at their house. And so it's a little bit of a challenge. It takes a couple of hours to playing around hitting some buttons, but they've got the same kind of setup, right? So you take the clock, delivered by Amazon and an hour or 2 later, you've got -- you're up and running, you put your credit card down and now you've got a subscription to their service. It's a really, really slick system. Our install is nowhere close to that with our current setup. So we really thought it's kind of the wave of the future in terms of ease of use. We thought that there's a really nice attachment with the payroll, so you can offer time and payroll almost real-time setup. And then the last piece that we feel like is really interesting is they've already proven this out. They proved it out in the first week after we bought them. We have this AsurePay card. And you can now take a Lathem clock and punch in using that card, right? So it recognizes that AsurePay card. So now you have this almost vehicle to where the employees start to recognize their pay as they're punching in hourly. So we just think there's a lot, a lot of attachments here. That's a really nice overlap, and it really goes back to the story that we're trying to do is build out the suite of products and continue to take the customers down a journey where they have more and more value out of our ecosystem.

Very helpful. Just following up here, what are you seeing in terms of core payroll unit growth over the last couple of quarters, right? Because if you look at the 1.2% organic growth in the quarter, I know that doesn't tell the full story. So is it right to assume that like the core kind of payroll units are growing closer to that 5%, which is kind of the adjusted growth? Or maybe help us understand some of the moving parts.

No, I think -- I think that's exactly right. I think that's what you would see is on average is probably about 5% when you take out the impact of the headwind.

And then maybe just to follow one last point. What gives you confidence or what are you seeing in the numbers that -- to see the trajectory that the HR Compliance headwind is going to lessen in the second half? Is it that the renewals have gone through at this point primarily or through the second quarter and that the number of renewals declined significantly for those HR Compliance/ERTC deals? Or what are you seeing?

Yes. I mean -- I think we talked a little bit about this last time, and I'll let Pat kind of give his feelings. But we went out to market with the idea that we thought that there'd be a lot of goodwill created with -- I mean, the HR Compliance product is really, really strong. We went to market with the idea that, hey, if we also get these customers some money from the government, these guys are going to be loyal forever. It didn't prove out to be that way. So a lot more of these transactions were transactional in nature, right? They were just there for the free ERTC money and didn't necessarily buy into the value prop that we were hoping for with HRC. So what we know now is that cohort started to roll off, right, just because ERTC is kind of in the rearview mirror. And so we're kind of behind that cohort. And -- so anyway, that's what gives us confidence. And Pat [indiscernible].

Yes. No, it's nothing more than that, Josh. If I look at the cohorts and if you think about when ERTC was going strong, it was in that kind of '23, '24 area. And then when you think about as they've rolled off '22, '23 and then you got a year or so renewals, our average kind of renewal somewhere in close to 90% range. That cohort was probably somewhere in the 40s range. So as that's rolled off and then we get monthly sales number, monthly trip numbers, that cohort is less and less. And we're selling more than we're losing each month. And so now as that snowball continues, we'll be back to normal here pretty quickly.

The next question comes from Bryan Bergin with TD Cowen.

This is actually Jared Levine on for Bryan tonight. I guess to start here, how quickly can you drive revenue synergies with Lathem? And is any of that assumed in guidance?

No, I think we're hopeful that we can get the integration done this year, so in the next few months, where we're putting a lot of energy towards it. The guide does not consider a lot of cross-sell synergies right now. So we're going to focus on getting the product integrated, making a really good experience for the customer. and then figure out what does that mean in terms of upside. But no, I don't think we played a lot of upside into that for this part of the year. Fair, Pat?

Yes, Jared, I think you'll see '26, '27 be where a lot of the revenue comes in. There were some duplicate costs that has been played in this year and some of it will be taken up. We'll do some investment as well around the integration efforts because we do feel that there's such a book-to-bill and kind of revenue synergy, that kind of integration effort probably targeting towards the end of October. So we might get small amounts and if we do great. But really, it's a '26, '27 story.

Got it. And then I wanted to dig into the revenue guide update here. So you did raise the midpoint by $4 million, but Lathem was about $7 million. So in terms of that organic guide down, you did call out some professional services softness or coming in below plan in 2Q here. What kind of -- is that -- what's kind of contemplate for second half that drove that organic guide down? Is it more professional services or anything else to note there?

Yes. I think there really -- to me, there's three areas Jared. If we looked at the plan, it was really kind of $134 million to $138 million. If you take the $7 million out, it's $131 million to $135 million. I think the enterprise deals moving more to a phased approach in a couple of instances is probably some aspect of it. And then obviously, the ERTC, HRC, and I don't want to give you all the acronyms, but the Human Resource Compliance that was bundled with ERTC, we were a little bit late in getting that. When we guided last October, really getting and understanding the impact that, that will have this year. And then on AsurePay, actually, it's pretty good news. We have over 11,000 cards issued already. We have close to 100,000 activated -- excuse me, 1,000 activated. And we're pretty pleased with that, but it is a kind of a net margin revenue model. So we'll have a little bit of slippage this year in that. But outside of that, I think we feel pretty good about -- we took the guide down $3 million in that core business. Clearly, as we get the attach rates, if we go from 400 and increase the attach rates, we think we have some upside there. The book-to-bill around Lathem will give us some upside not only in time attendance, but payroll and potentially 401(k). So we think we've rightsized that. And then as far as the guide on EBITDA, we took about $1.5 million a quarter out late in the second quarter. And then as we look at third and fourth quarter, it's really a revenue EBITDA story that we believe we can achieve 30% adjusted EBITDA margins in the fourth quarter, and we have a shot at GAAP profitability, which I think is an important milestone. And then we're really set up next year, both from a revenue growth perspective and then an EBITDA and profitability performance.

We have our next question from Eric Martinuzzi with Lake Street.

Yes. Curious to know the pipeline expectations regarding the installed base. Put another way, you talked about the 14,000 Lathem customers against your 100,000 customer installed base. Do we have a sense of overlap there? Is there -- within that 14,000, for instance, how many are already Asure customers?

As far as we know, Eric, based on our initial review, very little. So there's a lot of upside, a lot of greenfield opportunities for us.

And Eric, the only thing I would add to that, in some of the cases, we did not have an interface with Lathem. So we've already kind of cross-channeled where they have Lathem and they have us, but maybe they didn't have an integration or what have you. I think there's huge opportunity in doing that. And then I also think there's some opportunity here where in certain markets, we didn't play in those markets because we had maybe a partnership solution, et cetera. We don't have to have a partnership solution anymore. We can go right to the Lathem integration. So I think that will be a huge opportunity for us going forward. So right now, not a lot of crossover. There's some, but because we didn't have a formal integration, we don't track it as kind of one system, it's almost two systems. But I think going forward, that's the opportunity.

Okay. And then second question is with regard to macro demand for the core payroll and HCM suite. Just curious, anything changed in the last 90 days with what you're hearing from channel partners, what you're hearing from direct sales reps on demand for the core product?

No, I think perhaps a little bit in April, where you had the Liberation Day and people are trying to figure out some of that stuff. But really, to me, the demand environment has been pretty good. We have a pretty good strong pipeline. When I look at marketing and some of the MQLs and SQLs, marketing qualified lead and sales qualified lead, I know we had a -- in a summer month here just recently, we had an all-time record that tied to some of the Big Beautiful Bill language. And any time there's change in legislation, that's usually good for a payroll company in general and the demand environment because people have to react to those changes. So as far as I can see, there wasn't much. I would say the quarter bookings was a little soft. And primarily, first of all, it was a really tough compare. But then two, I'm really confident in our pipeline going forward, both really in every market, we will continue to improve in this area. So I don't see the demand slowing down at all. I think it's been a pretty good environment.

We have our next question from Charles Nabhan with Stephens Inc.

I appreciate all the color around the moving pieces with the guide. I just had a quick one about the change in the margin outlook. It looks like you lowered the lower end by about 100 bps. Curious if that was attributable to a lower margin profile from the incremental Lathem revenues or if some of the other deals that were pushed out might have impacted that as well? Just trying to understand that movement in the guide.

I think you picked it up right. I mean there's a little bit of a margin decrement we think, in the near term with regard to some of the Lathem revenue that's going to come in relative to ours. We feel really good about it over the long term, but we -- there are some costs out that we're going to have to do over the next -- I think it's probably an 18-month process. And so that's put a little pressure just by the nature of their business. And then we've also got kind of a -- we're going to be going through a process where we probably modify the way they sell. So historically, they would sell a piece of hardware and then they would recognize the revenue on that hardware and then they would sell a subscription to the software. I think we're going to probably go down a path where it's more of an integrated sale where we sell the hardware and the software, but we do it over a subscription for both pieces. So I mean, there's just some change in models. And so anyway, that's -- I think you picked the right point. There's a little bit of final margin pressure from the Lathem deal.

Got it. And as a follow-up, I wanted to drill into the new bookings from the quarter. Just get a sense for what you're seeing from a product uptake standpoint, given the broadening of your product base over the past year or so, whether you're seeing more ARPU from some of the newer cohorts as well as if you're seeing anything different from a demand standpoint in terms of like the size of employers you're selling into?

Yes. No, that's a great question. I do think you're going to see us -- we have a small business kind of focus when you have all the products and services. But clearly, as we go, let's say, our average new sale was 20 employees, I think you'll see us go up a little bit. Now we'll continue to serve that kind of under 50 marketplace, but I do think we'll walk up a little bit over time. The capability, we see from partners sometimes, they might refer us a payroll tax solution. Well, now partners are saying, hey, bring payroll tax, time, recruiting, bring benefits, bring almost everything to the party. Now we're teaching people how to sell, service that. And then from a technology perspective, one user interface, integrating it, make it easier to do business. And we've rolled out already the Asure ID where we can recognize where those people are coming from and serve up products right away. That will be a continued focus. So in the investor deck, we said last quarter, we're going to really focus on attach rates. We went from 25% to 29%. I want to continue to drive that. And this Lathem acquisition, I think, is going to be really good for us. And then on the ARPU, I think you'll see us in '26 kind of focus on that as an indicator of progress given all the products and services. And then from a technology perspective, continue to make it easier and serve up product-led kind of almost a touchless integration of more and more products. We're going to continue to do that. So that will be a focus for us and then training. We're training the service people on how to service in a multiproduct environment. From a sales perspective, it goes from a, what I'll call a catalog sale or a product sale to a solution sale. And we're in the early innings of that but feel that we have the right tools in place, and we've been building for this moment. And then finally, scale. We think we have the benefits of scale and profitability, and we think we achieved that. We mentioned in the investor deck that at $180 million to $200 million in revenues, we should be at that 30%. With any luckier fourth quarter, we're going to do that and then also achieve GAAP profitability. So we're making a lot of progress, but there's a lot of stuff in motion.

We have our next question from Richard Baldry with ROTH Capital Partners.

You touched on it just a second ago lightly, but I wanted to ask about the cost synergies with Lathem. You said it might take something like 18 months. Do you think at that point, are they a higher adjusted EBITDA contributor because sort of the core company would absorb a lot of the G&A overhead that you don't need from them? Or do you think they're basically in line with your long-term model?

No, I think they're very accretive and add to the overall. So if you think that -- I think they can be 50% or higher when it's all said and done in terms of actual contribution. Now again, that's -- it's a combination, right, of taking costs out of our side as well as taking -- there's redundancies. We have a product support team supporting our product. We have engineers supporting our product. They have engineers. They have product support. So naturally, we'll consolidate the SKUs and the offering. So there's some really obvious ones. back office, right, G&A. I mean there's just a lot of obvious ones, but I think it can be a very healthy contributor to the long-term EBITDA.

The other thing, Rich, too, is from a revenue perspective, we're pretty excited about is we have, let's say, a 4-week or 5-week install. This could be a day install. So you get revenue quicker, it's easier, it's more scalable. We have the ability as we look at these products and services to self-install. Then if you think about the whole concept of earned wage access, which we have AsurePay, now, you can use the same, let's say, time card as your pay card. And you have that ability where, okay, you work today, you see a 4-hour shift and you want to get it in advance on those 4 hours, you can use the same card to do that. So lot of stuff here that's going to open up on value proposition, revenue strategy, where we're going in this marketplace and then the capability gives us a lot of shots both ways, whether it's the 15,000 direct payroll customers or the 14,000 time customers, I think we have the ability to do that. And then John mentioned, obviously, some of the redundancies, and we'll focus on that during due time. So good acquisition all the way around, a lot, a lot of potential.

Yes. And I'll just add one last kind of point, Rich. I mean you think about our customer, I mean, it's Main Street. We talked about it all the time, a lot of hourly employees. The applicant tracking system that we bought last year, similar, was geared towards that same market. So I think we're not taking things that are far afield. I think we're putting together a lot of really interesting combinations of solutions that are really geared towards this type of market.

Maybe to gauge the overlap, do you know what the typical headcount of a Lathem client would be, sort of a range maybe? And how similar is that to your own?

It's -- they're like almost spot on, right? They're in the kind of low teens.

Got it. And then last for me would be, this is a little larger scale acquisition than you tended to do. You have done in this space before. But how does that impact sort of your near-term appetite for other acquisitions? Does it slow down? Do you look at back sort of right- sized ones? How do we think about that broadly?

We've still got some line of sight to some of that we want to do this year. I don't think there's anything that's going to be -- this kind of move the needle in terms of huge revenue impact. But yes, we're going to still be active. After we consummated this transaction, we're still sitting a little bit less than $30 million in cash. So we've got room to still go do some stuff. So anyway, we're still going to be acquisitive. I would tell you, though, I think with this deal, we're going to probably -- we'll have some maybe this balance of this year, early next year, but I think we're going to also probably start to consume and integrate what we've got for a little while. I mean I think that's -- some of what Pat mentioned earlier in some of the cost reductions is a result of literally that. I mean we've done a lot of deals over the last couple of years and trying to rationalize some of that back office expense is I think what we need to -- what we'll plan on doing for the next foreseeable future.

We have our next question from Greg Gibas with Northland Securities.

I appreciate all the color on Lathem Time. I wanted to follow up there in terms of maybe what's involved or the steps involved with the integration and then realizing those revenue synergies? And maybe how much investment are you aiming to put towards that integration? And then just, I guess, secondly, along Lathem Time, kind of longer-term expectations on cross-sell or the attach rate that you see with both those client bases?

Yes. I think, Greg, thanks for the question. A couple of things, the longer-term attach rates on time specifically, let us get through the integration. And I think as we look at '26, we can have some pretty firm attach rate goals and numbers, and we want to prove that out. Job 1, 2 and 3 really is integration of Lathem and Asure as far as the integration between payroll and time, the integration between AsurePay, 401(k), et cetera, where we can get up and running quickly and offer those products. But that's the big initiative that we're working on right away. And then I think you'll see opportunities around attach rates. And if you think about it, we have the opportunity to fulfill a client's obligations on time instead of, call it, 4 weeks, we call it in less than 4 days, that in itself is a big kind of move for us, both from a sales implementation process and the ability for a customer to almost self-install, if you will, we think that there's huge opportunities there. So we're excited about it. We believe that's it. I think more to come in '26. And then we introduced in the investor deck, both kind of the revenue PEPM model, and we can give a little bit more color here as we look to guide towards 2026.

Got it. That's helpful, Pat. And then if I could, on organic revenue growth expectations in the back half, what's kind of implied there? And would you expect maybe the cadence to differ between Q3 and Q4?

Yes. I think just in general, if you think about how we thought about Lathem, where it's roughly $7 million in the second half or so, that would imply that I think last year, we were -- kind of we mentioned that we would grow about half organic and half inorganic. So if you think at $134 million to $138 million, we were trying to achieve double digits here in the second half. We do run into some tougher compares in the second half. But I think if you think about that single digits in the second half and as we integrate all our products and services as we're doing and get the attach rates up, we think that organic growth is the outcome of that. So we're set up to do that. I think this second half of the year, it would be in the single digits. But clearly, we're trying to grow attach rates and PEPM to get to a double-digit organic growth company. And then finally, as we've done some acquisitions here, obviously, you have to make investments in your front end of the business to continue to grow organically, and we're doing that. And one of the things we'll continue to grow kind of feet on the street. But more importantly, it's that cross-sell component because as we drive a bigger wallet share, we think that, that will lead us to scalable profitable growth. And then finally, as we look at the fourth quarter, I think if we can make a marker towards profitability and whether we get there or not, we're right there. And now we have the ability then, obviously, to generate cash, grow more and more revenue organically, and then we can continue to look at scale. These businesses are scale businesses and to put a stake in the ground that we can grow in a very profitable way is important for us as the long-term health of the business.

[Operator Instructions].

Okay. Well, operator, can I take it home?

Yes, sir, sure.

Okay. Well, listen, a longer call today. We had a lot of news to share. I feel like we've made tremendous progress in the business. I know some of you have been long-term investors, and we appreciate your interest in Asure, we're going to continue to build out and grow this business. We're making really good progress. It's not always straight up, but I'll tell you what, we're going to continue to move, and we have some milestones in sight that are pretty attractive to all of us, and we want to see those to fruition. So really appreciate your time today. Look forward to talking to you soon. Thank you.