Asure Software Inc (ASUR) 2021 Q3 法說會逐字稿

Good afternoon, and welcome to Asure's Third Quarter '21 Earnings Conference Call. Joining us for today's call are Asure's Chairman and CEO, Pat Goepel; Asure's Chief Financial Officer, John Pence; and Head of Investor Relations, Randal Rudniski. Following their prepared remarks, there will be a question-and- answer session with analysts and investors. I will now turn the call over to Randal Rudniski for introductory remarks. Please go ahead.

Thank you, operator. Good afternoon, everyone, and thank you for joining us for Asure's Third Quarter 2021 Earnings Call. Following the close of 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 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. 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 like to turn the call over to Pat Goepel, Chairman and CEO. Pat?

Thank you, Randal, and welcome, everyone, to Asure Software's Third Quarter Earnings Call. I will begin today's presentation with an update on our business performance and strategy, then we'll turn the call over to our CFO, John Pence, for a more detailed review of our financial results and outlook for the fourth quarter of 2021 and fiscal year 2022. We will then conclude the session with time to answer your questions.

We are pleased with our performance in the third quarter with revenues reaching almost $18 million, which was up 12% relative to prior year and up 5% versus prior quarter. Macroeconomic trends continue to improve in our markets, as is evidenced in the decline of the unemployment rate. I would say, though, there remains lingering softness in some areas owing really to the labor shortage that is affecting many small businesses across the country. However, overall, we are pleased to have grown our organic revenues 8% versus prior year in this economic environment, and our business is continuing to build positive momentum heading into 2022, driven by strong execution across the business.

I also want to point out that third quarter was an important step forward in terms of executing our strategy. We divested the space business, if you recall, in 2019 in order to focus our portfolio and resources where we can make the biggest impact. And that is on the human capital management solutions for small businesses who need a strong partner so they can run their business. Then, really, we repositioned the Board of Directors and the management team in 2020 and 2021 in order to strengthen the organization's talent and leadership skills so we could execute on this big opportunity. And in 2021, we're making targeted investments in sales, products and acquisitions so we can enhance growth and margins for Asure while providing our valued customers with leading-edge solutions that enable them to be successful in their core business.

The key to achieving the benefits of this strategy is execution. I believe we have the right people, the right resources, the right focus to successfully deliver against our long-term revenue goal of 20% growth in revenues, driven roughly by equally organic improvements and acquisitions.

So in terms of the 3 pillars of our strategy, which are sales expansion, product enhancements and target acquisitions, let's start with a discussion around acquisitions. In the third quarter, we acquired 2 of our larger resellers, one based in New Jersey and the other based in Vermont. Both companies were acquired on the last day of the third quarter and did not impact our results in this period. These resellers focus on providing payroll and related services to small- and medium-sized businesses within their territories. The acquisitions expand our direct operating territories providing cross-sell and upsell opportunities, and we will believe they'll be highly synergistic to our core business. We're really excited to bring these companies into the Asure family, and we expect them to be highly accretive to our business and our stakeholders over time.

Both companies currently utilize our payroll solutions, and accordingly, system conversion requirements are limited as we integrate their operations into Asure's platform. We expect that this should result in a smooth integration while we pick up new operating territories as well as experienced staff.

Acquisitions will remain an important part of our growth strategy, and we'll continue to be opportunistic in rolling up our reseller partners that white label our human capital management solutions. We'll also consider acquisitions of other payroll businesses that complement and expand our capabilities as we build scale and scope to our solution offerings.

Turning now to product. We're excited about the potential of our new Human Capital Management solution we introduced in the market that combines the best features of our small business payroll and HR solutions into a single new solution with advanced customer experience tools. This significant enhancement simplifies the onboarding experience, provides new tools for employer self-service option and now is part of our standard payroll offering.

Also, in the third quarter, we launched a new partnership with Employee Navigator. We both have integrated our payroll platform with their system in order to provide employers with seamless communications and tracking across our combined networks. In addition to providing a much more integrated data solution, this partnership should lay the groundwork to enable us to move forward with our ambitions in the broker referral space.

I also want to spend some time talking about our tax platform as well as HR for Health. Let's start with our tax platform. This is an asset we acquired in 2020. We feel it provides us with some outstanding differentiation in the Human Capital Management marketplace. We've had significant client interest in our new tax capabilities, particularly among larger enterprise who see the unique position that we have in the marketplace. This business has the potential to significantly expand our total addressable market and to open up new client segments for us. We'll keep you updated on the integration as well as the product development that this business is. We're optimistic about the ability for this to be an important driver of revenues in the future, not only with tax filing, in addition to the money movement opportunities this opens up.

HR for Health is another recent initiative we're excited about. This solution offers the health care industry full-service payroll and tax-filing services. We've had strong client interest for the solution, which is reoccurring revenues with a wholesale revenue model. It's growing and has a very attractive client retention characteristics. This solution has the potential to open up new end markets for us and to continue to grow our client base. So if you think of small dental offices, doctor offices, et cetera, that is the target audience here. It also fulfills our objective, and that enables clients to focus on running their health care practices rather than focusing on back office improvements. We deliver the improvements from them so they can run their businesses.

Turning now to sales activity. We continue to invest in our sales channels, our people and in lead-generation activity for those salespeople. At the end of the third quarter, we had 72 direct sales reps, up from 65 at the end of the second quarter and up from -- significantly from 31 when we started in 2020 after our space divestiture. At year-end 2021, we expect to have approximately 80 direct sales professionals.

The average tenure of our sales team now is 14 months. It's up from about 10 months at the end of last quarter, getting our sales staff to an average tenure of 18 months is an important milestone since, at that point, we see strong improvements in sales productivity, which then, in turn, drives revenues.

With our recruitment and training efforts that we're getting closer to that important achievement while we continue to focus on the small business segment. These investments in sales and marketing are paying off with total bookings up 43% year-over-year in the third quarter, while on a year-to-date basis, our small business bookings have doubled. I continue to be very proud of how the Asure team embraced these challenges and took a leadership role through the pandemic. For example, as part of our efforts to support more than 80,000 small business clients in navigating the complex COVID regulations, we introduced an employee retention tax credit, ERTC, solution to help them efficiently maximize this critical stimulus dollar program. I couldn't be prouder of our team as they have helped our clients file over $200 million in total tax credits at the end of the third quarter. These stimulus dollars can help our customers hire staff and grow their businesses. It also shows how our people and platform can respond to new and unique solutions and situations and deliver impactful solutions to our clients.

As an essential small business, Asure remains committed to helping more than 80,000 small business clients navigate unprecedented compliance changes and grow in a very challenging environment. We're committed to ethical business practices of values-based culture, innovation, social responsibility and leadership as well as our support for small businesses throughout the United States.

In summary, we're pleased with the third quarter performance. We acquired 2 of our larger reseller partners, made significant strides in our product strategy, continue to invest in our sales teams, deliver another solid quarter of growth in an economy that continues to experience new and significant challenges as we move past the pandemic. We're excited about our acquisition model. We believe our model works as we combine the acquired businesses with Asure's platform. We see the opportunity to drive significant value creation and enhance margins longer term so that our future revenues can be effective in driving higher levels of EBITDA and cash flow.

Now I would like to hand off to John Pence to discuss our financial results in more detail. John?

Thanks, Pat. As Randal mentioned at the beginning of this call, several of the financial figures discussed today are non-GAAP. You will find a description of our GAAP to non-GAAP reconciliations in the earnings release that was made available earlier today. And the reconciliations themselves are also included in our most recent investor presentation posted in the Investor Relations section of our website at asuresoftware.com.

Now on to the results. Third quarter revenue rose by 12% versus prior year and 5% versus prior quarter to $18 million. Recurring revenues represented 91% of our total revenue in the quarter. Recurring revenues grew by 7% versus prior year, and our nonrecurring revenues more than doubled on the strength of our ERTC service offering, which continues to generate significant client interest.

Interest on client funds was approximately $400,000 in the third quarter, flat from the second quarter and up versus prior year by approximately $200,000. Client fund assets on our balance sheet were $174.8 million at September 30 compared to $207.4 million at the end of the prior quarter and $199.3 million at the end of Q3 2020.

We are pleased with our gross margin performance. Our non-GAAP gross margin percentage reached 67% in the third quarter, which is up 70 basis points versus Q2 and up from 64% in last year's third quarter. This marks Q3 as the fourth consecutive quarter in which we have grown our gross margin percentage. This performance is owing to a return to revenue growth and cost-containment efforts and has occurred despite the headwinds from higher pay and benefit increases.

Non-GAAP EBITDA for the third quarter was $1.2 million for an EBITDA margin of 7%. The non-GAAP EBITDA result was 21% higher than prior year and 15% higher than the prior quarter despite the increase in salary expense as we absorbed pay and benefit increases following the implementation of temporary reductions related to COVID. Compensation represents approximately 70% of our cash expenditures, so these adjustments have made meaningful impact.

EBITDA comparisons also are affected by an increase in the number of sales representatives as we invest in the sales organization to drive higher revenues in future periods. While there are some headwinds in the third quarter expenses related to sales force expansion and pay restorations, we view these investments in our organization and people that we will deliver future results and are key to building momentum in our business. In order to manage these headwinds, we are accelerating our efforts to improve our operating margins by increasingly leveraging the scalability of our platform and to improve the cost efficiency. These are the economic drivers that underpin our acquisition strategy, our sales strategy and our product strategy.

Turning to the acquisitions. We acquired 2 resellers in the quarter for an aggregate purchase price of $38.9 million, which was paid $25.3 million in cash, $6.6 million in notes payable and by the issuance of 767,000 shares. The acquisitions have resulted in an increase in goodwill and intangible assets on our balance sheet. These acquisitions are important as we expect it will accelerate our capacity to grow operating margins over time, yielding the benefits of operating leverage and the scale we have built in the business to date. We have a balance sheet capability to make further acquisitions, and we'll continue to evaluate opportunities that fit our criteria and standards.

Continuing with the balance sheet. We ended the quarter with cash and cash equivalents of $11.5 million and had $39.7 million of debt, which is comprised of an initial $30 million drawdown from Structural Capital with the balance made up of seller notes from acquisitions. We achieved a critical milestone in the third quarter as we entered into a new $50 million term loan facility with Structural Capital. This facility is based on an advanced rate based on our pro forma annual recurring revenues. Now aside from the recurring revenue ratio, the facility has limited financial covenant compliance metrics. In a 4-year term, and we believe, when combined with our previously filed registration statements, we possess the financial structuring flexibility to pursue our previously stated strategy regarding organic and inorganic growth. We relied on the facility to complete the purchase of these 2 resellers in the third quarter. We've openly communicated our plans to pursue acquisition opportunities that meet our criteria, and this facility will help us to achieve our strategic goals.

We have also commenced a new partnership with Goldman Sachs that we are really excited about. This venture is made possible because of the closure of our credit facility with Wells Fargo, which enabled us to uncouple our credit facility from our money management activities. This has opened up new options for us with new partners and with new business opportunities. In combination with Goldman Sachs, we will be able to offer our clients state-of-the-art money movement and to move into new business areas such as real-time pay with one of the leading financial brands in the world. We also expect to benefit from their expertise in enhancing our investment returns as we invest excess client funds.

In the quarter, we also booked a gain of $10.5 million relating to the employee retention tax credit. We have filed amended returns for these credits and recorded a receivable for them in other current assets. The recognized gain relates to the activity in the first 9 months of 2021. This was booked as a discrete item in Interest Income and Other line in our statements and is treated as an adjustment of our non-GAAP reconciliations. While the continuation of this credit is part of the current debate in Washington, we expect to qualify for similar quarterly credit in the fourth quarter if the law is not modified.

Now I'm going to turn to guidance for the fourth quarter ending December 31, 2021. This guidance is offered with the backdrop of continuing challenging environment to predict future economic results, given the ebbs and flows of employment trends, COVID and the other economic challenges of today and considers the impact of our recent acquisitions. We are providing the following guidance.

Revenue for the fourth quarter of 2021 is expected to be in the range of between $20.5 million to $21 million. Non-GAAP EBITDA is guided to be in the range of between $1.5 million to $1.7 million. And non-GAAP EPS is guided between negative $0.03 and negative $0.05. For 2022 fiscal year, we are also introducing the following guidance. Revenue in 2022 is expected to be in the range of $85 million to $90 million. We also anticipate fiscal year 2022 non-GAAP EBITDA margin percentages and non-GAAP EPS to be in line with historical percentages and seasonal trends subsequent to the space divestiture. Consistent with our historical performance, we expect the first quarter of 2022 results will benefit from revenue generated by the annual preparation of federal reporting regarding employee-employer reporting of W2 income and ACA compliance.

Our strategy in this environment is to focus on cost levers that we can reasonably control, pursuing beneficial and accretive acquisitions, amplifying our core solution offerings by improving functionality and customer experience and by expanding our sales efforts to tap into market demand for innovating and trustworthy payroll HR solutions. With this stabilized foundation as a backdrop, we are pursuing exciting new product and service offerings to better serve our over 80,000 direct and indirect customers, and there are over 1 million employees.

So with that, I will turn the call back over to Pat for some final remarks.

Thanks, John. In summary, we are pleased with our third quarter performance. We continue to have good momentum in the marketplace as evidenced by our 12% annual growth rate in revenues and 5% sequential growth in organic revenue. We grew our non-GAAP EBITDA by 21% relative to prior year and 15% relative to prior quarter despite headwinds from restoring salary and benefits.

Our ERTC solution continues to have great traction in the market, and in total, our clients have filed for more than $200 million in ERTC credits. We launched a next-generation user interface of our small business payroll clients that combines our payroll and HR solutions into a single solution with improved user controls and a fresh, new look. We implemented a new integration with Employee Navigator that keeps employee data in sync, adds value to our solution and will enable us better to penetrate the broker referral marketplace. We completed 2 acquisitions that we're excited about and that we expect will be highly accretive for stakeholders over time. And we've diversified our sources to capital, which helps us drive the business forward for growth in both organic and inorganic revenues.

I am very proud of the execution of the Asure team, their commitment to our clients and to providing enhanced payroll and HR solutions that meets and exceeds their needs. With that, I'll turn the call over to the operator for the question-and-answer session. Operator?

(Operator Instructions) Our first question come from the line of Joshua Reilly from Needham.

All right. Congrats on the quarter, guys. Maybe starting off with the '22 guidance of $85 million to $90 million in revenue. What -- how should we think about the organic growth rate assumed in that number?

Yes, I don't think anything's changed. Josh, I mean from our historic guidance. I mean we're hoping for 10%. I think this number really don't anchor too much on 2022 right now. What we were trying to give you is a sense of where The Street was at historically for 2022 with the impact of these third quarter acquisitions. So I think more to come as we go through the budgeting process and as we sharpen our pencil for 2022, but we did want to give you some sense as to kind of what the impact of the acquisitions would be relative to kind of where we might have -- had us that for 2022. And we've not historically, at least since I've been here, been giving guidance that far out. So it was just an attempt to kind of give you some sense as to what we thought about the acquisitions.

Yes. No, that's helpful. And then how much of the gross margin benefit in the quarter is due to the ERTC product? And then how sustainable should we think about those revenues being? And does that create a headwind somewhat going into next year if there was some change there?

Yes. Definitely helped on the gross margin, right? So we didn't have a lot of people to service that incremental revenue opportunity, so that was impactful. I'll let Pat kind of address the kind of headwind comment.

Yes. I think, Josh, from my perspective, we set scale, and we've done a lot of improving in the business. So we have several initiatives that we think will be impactful in 2022 to gross margin, including some of the new product introductions, some of the centralization initiatives with AWS and even kind of refining how we go to business, including some of the robots that we talked about last quarter in the background.

And so we think that there'll be several initiatives that layer in. As far as ERTC, we were opportunistic. We felt like it was a great program. And any pluses this quarter, we think there'll be some plenty of positives to help mitigate that or improve on that next year.

Okay. Great. And then maybe I can sneak one more in on that line of questioning there. You hired a new CTO at the beginning of '21. Curious now as the M&A machine is kind of restarting, is there anything specific you can point to that you guys have done on the integration process on this side of COVID versus the acquisitions you made pre-COVID that's either going to make the integration go quicker and/or be more margin accretive?

I think a couple of things. So first of all, really, after the space business, we hired a new Board of Directors for the most part with Human Capital Management expertise. And I think they did a great job. Todd Waletzki, who came from CompuPay, was former President, so really in charge of some of the operational improvement initiatives going forward; and then specifically, your question, Yasmine Rodriguez, who's the CTO, who has a wonderful background in payroll and tax.

And really, we're pointing to several initiatives that we think will help over time, grow gross margins and help the acquisition integration. First of all, almost all now by the first quarter of 2022 or second quarter of 2022 will be on the same instance of kind of -- or the same platform within the AWS environment. So that's a real positive development for us. Two, I think, just the standardization initiatives that we have. Three, we talked about introducing the robots and really taking kind of the non-value-add work out of the employment kind of cycle where we can keep head count relatively stable but really do a lot more with production around the robotic effort. That was led by Yasmine as well.

And then finally, just kind of where we are within a product set, and we introduced kind of a new user interface. That will help us integrate going forward. We will do more stuff on the web. The customer will be able to do more in a successful environment. All of that will help us on the integration going forward. So it's not any one person but a series of initiatives that we've been planning for over the next couple of years.

Our next question comes from the line of Richard Baldry from ROTH Capital.

Sort of thinking historically, I feel like M&A tends to be a bit of a drag on adjusted EBITDA before integration optimization sort of brings up a new level. But against that backdrop, you're actually guiding for adjusted EBITDA to grow pretty solidly from Q3 to Q4.

So could you maybe talk about what gives you that confidence that those acquisitions aren't going to sort of pull back first before you go higher? And then how long should it take perhaps with an eye to your back-end integration being completed across the AWS platform? Do you think you can be faster at fully integrating the acquired entities now and in the future?

Yes. I think we can. I don't -- we have not modeled in all the synergies in the fourth quarter. Clearly, we are expecting that to bleed into 2022, and we would hope to kind of be done for sure by the end of 2022 with these integrations.

To answer your question about the drag, I think just to be clear, I think Pat mentioned about just the integration path. Historically, these companies are using our same software platform. And the difference -- I'm trying to think of a good analogy, but it's configuration. So it's the same use of the software, but think about Excel and maybe moving buttons around, right? So each one of these resellers might use our software just a little bit differently in the wild. And so what we're doing is we're standardizing the use case of our software internally amongst all our previous acquisitions, as well as when we bring across a new acquisition, they kind of come into our use case of the same software. So we're able to do the integration a lot quicker, get to the standardization a lot quicker and then we hope drive margins higher or quicker as well.

Yes. And I would just add, I'd point you to the first quarter acquisition. We did a smaller acquisition in the Northeast in January. If you look at our kind of head count and kind of where we've run the business here this year, we've added some salespeople, but the overall head count is down from where that period was and meaning we have absorbed that acquisition without head count over time. And we're 9 months from that acquisition. I think a similar kind of result over time will lead to a good result here with these 2 acquisitions.

Maybe last thing. Can you talk about the degree to which the companies you acquired, the resellers were growing themselves or if this is really more about the earnings integration, and you're not really thinking so much about the -- maybe productive sales capacity you're bringing onboard from those?

Yes. No, I think both were very well-run operators that were in the business a while. They both were growing. Now the backdrop of -- or excuse me, COVID, et cetera, but they were growing. And we anticipate that they will grow going forward, and we also believe that their expertise, coupled with being in business as a partner for a decade or so, will lead to a seamless integration.

Yes. And I think we've been pretty clear on this point. This last year has been challenging just from the standpoint. We're kind of at that breakeven point. And getting to scale is important to us. I think it affords us a lot more flexibility in what we invest in and the speed at which we invest. And so it's key for us, and I think we've been pretty transparent at this point that we do want to get to scale quickly. And that's why we did the deal with Structural. That's why we put the registration statements on file. Scale is important. We're not going to do things that are imprudent, but we do want to get to scale sooner rather than later. We think it's important for the business.

Our next question is from the line of Bryan Bergin from Cowen.

A question for you around client employment levels. So 2-parter here. So prepandemic employment level, can you comment on where average client size for you sits today relative to -- prior to COVID and how much more recovery you're anticipating over the next couple of quarters? And then I didn't hear it, but just the pays per control metric in 3Q. Sorry if you did disclose that.

Yes. Just from a client level of employment, let's talk at a macro level. Early in the COVID mindset, I think we lost 25 million as far as the United States of America jobs early. They had normalized about 10 million. Even though you see improvement in the economy and the jobless claims, we're probably 5 million or so out of the workforce. And we've done some IR deck modeling, et cetera, around that.

As far as pays per control, this quarter, we were at a little over 20. I believe as far as pays per control probably prepandemic, probably in the area of 22 or 23, and some of that has some noise in it. But that's the order of magnitude. I would say, this quarter, a slight tick up. And just in speaking to almost any business owner, they're looking to hire people. It takes two, though. You got to want to hire people, and then somebody's going to want to come into a job. And I would say Main Street America and small business in general were affected. Probably was a little bit disproportionately affected. So we're improving, but we're not quite there yet. John, I don't know if you have anything to add.

Yes. You hit the point I was going to make at the end. I do think that our client base is disproportionately impacted, and you hit the right metrics. There is a slide we added to the IR deck at this point. It kind of shows that 5 million gap still in unemployment return to normalcy. So even though unemployment rates have started to return, there's still -- you see in the news and all the analysts are talking about it, there's still a gap in the overall employment levels pre and post pandemic. I think we're still -- we have some upside in once it kind of gets back to normal.

Okay. All right. That's helpful. And then on -- as we think about these 2 acquisitions, are they in line with the acquisition economics that you've talked about on targets in the past? So I guess what are you expecting here in 4Q revenue contribution? I'm curious, too, is the client size larger than yours? You've been talking about mid-market pipeline here for a couple of quarters. I'm curious if this was in line with that.

No. I think pretty consistent customer base. In terms of revenue contribution, that's obviously reflected in the guidance we gave you at the $21 million to $20.5 million. The multiples we paid, I think we've been pretty consistent in this, and we talked about it in our IR presentation. Goldilocks scenario is 2x. We think that smaller deals will be close to 1x, and bigger deals could be closer to 3x. We want to kind of be in that 1 to 3 range. These were on the higher end in terms of size. So you kind of infer from that kind of where we're at.

Our next question will go to the line of Jeff Van Rhee from Craig Hallum.

Great. Pat, I think you commented just briefly, and I want to make sure I heard it correctly on the acquisition front. You said you were open to things, and I thought you were saying open acquisitions that are nonevolution of retailers or more, maybe a little bit of a variation on the typical model. So maybe just a clarification on that to start.

Yes. First of all, I think, obviously, we have a reseller network that is pretty powerful, and we think we have some opportunities to continue growth. We're also, though, feel pretty good about our ability now to start to get to scale. And as we get to scale, we think we have some other assets within the family that could be interesting. And one of them that we talked about was our acquisition of PCM where we start to have a stand-alone tax filing. We have some money movement. We think that there could be some opportunities as it relates to that.

And then if you talk to our customer base, there's an interesting -- some interesting cross-sell opportunities, et cetera. I think ERTC, just ability to get our customers to -- access to their money shows some of the ability that we can cross-sell. We think that there may be some other opportunities. I wouldn't -- we're introducing it. I think it could be -- highlight some opportunities. I don't have anything immediate, but as we turn the page to 2022, there could be an opportunity that would present itself.

Okay. That's helpful. And then on the HR payroll integrated offering, can you put a wrapper around that at all in terms of expectations? Does that drive ARPU uplift? Is it -- what is the impact of cross-sell ARPU adoption? Just how should we think about the impact of this new integrated offering?

I think, first of all, some of the things that Pat mentioned are really just ease of use and customer sat, right? So I don't think there's necessarily an ARPU uplift based on ease of use or for customer sat, but hopefully, that leads to higher retention rates.

I think on the cross-sell, I think Pat just kind of touched on a point that I think is pretty important. This ERTC was primarily sold into our existing customer base. And I think we had a pretty good penetration, roughly 10% so far, which is pretty healthy for something that's only been out there for about 5 to 6 months. So really, really attacked our customers and delivered tons of value to them. And I think it's kind of a proof point that as we get some of the other products that we've got better ready to cross-sell that we've demonstrated the ability to do that.

And so I think that's kind of where Pat's alluding to for 2022 is really want to spend some time honing some of the product lines that we've got in-house and making them a lot easier for our sales force to kind of take across the installed base. And I think, again, the acquisitions are an interesting point, too, right? So they're primarily just buying one product today. So like we're really going to focus not just on adding new logos, which obviously is always important, but really trying to make sure that we're delivering that ARPU increase and that value across our current customer base as well.

Yes. And the only point I would add is we're through the budget. They're just getting through the budget process. We'll wrap that up here. And then in March, we'll really talk about, I think, some more specific metrics. And frankly, we'll talk a little bit more about the product line because I think we're really increasingly excited about some of the opportunities as we look forward. So you'll see that in March.

Maybe one last if I could sneak it in, John, on the guide. And you said for FY '22 non-GAAP EBITDA margin and EPS were in line with historical trends prior to divestitures. Can you just maybe expand on that in a second? There's a lot of trends in there. Which specific trends or relations that you're calling out there?

Specifically kind of the bottom line, all right? So the percentage is -- there's a seasonal component to our EBITDA, which is pretty obvious, right? In the first quarter, we really, really pop a lot of the percentage and then it kind of trends just because of the absolute numbers down. So I think that's what I was trying to get across. And then EPS just ties right into that, right? So it just kind of has that same trend and always going to be much bigger in the first quarter. That's what I was trying to get across in that statement.

Our next call will come to the line of Eric Martinuzzi from Lake Street.

Yes. My question is regarding the Q4 guidance. Given the 2 acquisitions, the gross margin assumption here, you guys have been operating between 66% and 69%, just kind of going back here in the past 3 quarters or so. What should we think about for gross margin for Q4 with the acquisitions layered on?

I think we have -- hopefully, have a little bit of improvement over this quarter, but nothing heroic. I think I would expect us to continue to trend up based on some of the things that Pat mentioned, but nothing dramatic. I think probably flat to a little bit up would be the way I would look at it.

Okay. And you do -- you've laid out an aggressive goal. I mean you're -- looking backwards, you had an aggressive goal adding reps coming into the beginning of the year. You mentioned, I think, 72 now and another net 8 between here and year-end. We are kind of in that 7 weeks left in the year. Are these folks already kind of in the interviewing pipeline? Or are they yet to be identified, those incremental direct reps?

Yes. No, they're identified or in the process, let's say. We hope to finish the year around 80. I think we have a really good line of sight in that. I could see us then going up from there, and how much we decide on that will be March's guidance. But clearly, we think we have a line of sight to turning the year at 80 reps.

All right. And that is in -- the organic. We're not talking about inherited reps from the acquired companies.

It will be combined. Yes, I think the 80 would be both.

Our next question come line Vincent Colicchio from Barrington Research.

Nice quarter. Curious how wage inflation -- how do you see that impacting your business in the near term on the cost side? And also, in terms of pricing, is there any willingness to accept higher prices in the market?

We haven't had a lot of resistance on pricing, Vince. And then I think we're suffering some of the same issues that the rest of the market is on the lower end of the employees. The people that are on the customer service side, generally, are starting lower pay rates, right? So it's kind of an entry-level job, and those entry-level jobs are really where we're seeing more inflation across the board.

We think we're going to be able to manage through it just with some of the efficiencies that we're trying to get in the business. But we're still in the 2022 pledging process, but don't feel like it's going to be an inordinate headwind for us. But yes, we're definitely seeing it.

And I think the only thing I would add is I do think as we capture float, sometimes wage inflation from our customers, we'll have an opportunity to capture those dollars. And then ultimately, that could lead to more float revenue. But that's -- that will be kind of growing with the market. And so that's one area where we could see it, which would be a positive.

And then, Pat, if you can comment on pricing in terms of -- things you're looking at in terms of reseller acquisitions. I know there's some pressures on both ends. People -- folks think their assets are worth quite a bit more than they may be, on the one hand. On the other hand, there's potential capital gains tax changes coming. Are you seeing more deals that you can get done at economical value?

No. I think it's always a healthy discussion. And I do believe, first of all, as the nation and the marketplaces starts to stabilize coming out of COVID, and we're not quite there yet, but there's a little bit more certainty. And when you have certainty, you can make those value judgments together easier.

I would say there's some people testing the market. But from the same token, I think common sense is prevailing. And I feel like we have the opportunity to get some deals done here in the first half of the year. We're going to do the right deal and the right deal for this stage within Asure. But we think that there's opportunity to grow and to get scale, and we want to take advantage of that.

Any -- operator, is there any other questions?

I'm not showing any further questions, sir.

Well, thank you. I really appreciate everybody's attention on this call. We went into some detail. I wanted to make sure you understood the business. We think we have some pretty good momentum. For those of you that have followed us, we think we're headed into a pretty exciting 2022. I'm very pleased with the execution of the team and look forward to our update in March. So thank you. Have a great day.

This will conclude today's conference call. Thank you for participating. You may now disconnect. Everyone, have a great day.