Introduction to EBITDA and Adjusted EBITDA

EBITDA: A Key Financial Metric

EBITDA, which stands for Earnings Before Interest, Taxes, Depreciation, and Amortization, serves as a barometer for a company’s operational profitability. By stripping away the effects of financing, taxation, and non-cash expenses, EBITDA provides a clearer picture of how a company’s core business operations are performing.

Diving Deeper with Adjusted EBITDA

While EBITDA offers valuable insights, Adjusted EBITDA goes a step further. It refines the EBITDA figure by excluding non-recurring items and other anomalies that might skew the understanding of a company’s regular operational profitability. This metric is especially useful for investors who want to see a company’s performance without the noise of one-off events.

The Investor’s Perspective: Why These Metrics Matter

Beyond the Bottom Line

While net profit gives a snapshot of a company’s financial health, EBITDA and Adjusted EBITDA delve deeper into operational efficiency. They highlight how a company is performing at its core, excluding external factors like tax environments or financing structures.

Industry Comparisons Made Easier

For investors comparing companies within the same sector, these metrics level the playing field. They allow for a more apples-to-apples comparison by eliminating variables that might differ from one company to another.

Gauging Financial Robustness

A consistently growing EBITDA can be a sign of a company’s expanding operational efficiency, while a rising Adjusted EBITDA can indicate growth in core operations, free from the influence of one-time events.

Fourth Quarter of 2022

In the final quarter of 2022, Asure showcased its financial prowess with an 241% year-over-year surge in EBITDA, reaching $5.0 million. Their Adjusted EBITDA wasn’t far behind, marking a 159% increase year over year, totaling $6.0 million.

Transitioning to 2023: First Quarter Highlights

The first quarter of 2023 saw Asure continuing its upward trajectory. The company reported a 164% year-over-year boost in EBITDA to $6.8 million. Adjusted EBITDA followed suit, with a commendable 140% increase from the previous year to $8.2 million.

Mid-Year Check: Second Quarter of 2023

By the second quarter of 2023, Asure’s growth trend was evident. The company’s EBITDA rose by $3.44 million to $3.3 million . Simultaneously, Adjusted EBITDA experienced a 954% uptick to $6.1 million compared to the same period in the preceding year.

Looking Ahead: Guidance For Third Quarter of 2023 and Full-Year 2023

In the company’s second-quarter 2023 earnings release, the company provided revenue and EBITDA guidance for the third quarter of 2023 and full-year 2023.

The third quarter of 2023 estimates: Asure estimates revenue to come in a range between $26 million and $27 million on an Adjusted EBITDA range of $3.5 million to $4.5 million.

Full-year 2023 estimates: Before the Q2 2023 earnings announcement, management maintained full-year 2023 guidance estimating revenue between $111 million and $113 million on EBITDA margins of 17% to 18%.

After the strong Q2 results, management updated its full-year guidance to a new revenue range between $118 million and $120 million on an estimated Adjusted EBITDA margin range of 19% to 20%.

How Does Asure’s Metrics Compare to Competitors?

Asure is one of the few pure-human capital management (HCM), cloud-based software companies listed on a major stock exchange. As such, from a comparative financial analysis perspective, investors will have to compare Asure to mid-cap and large-cap rivals such as Automatic Data Processing (NASDAQ: ADP), Paycor (NASDAQ: PYCR), Paychex (NASDAQ: PAYX), Paylocity (NASDAQ: PCTY) and Paycom (NYSE: PAYC).

Using data from Capital IQ as of early August 2023, we can compare Asure to the companies listed above on an enterprise value-to-revenue (EV/Revenue), revenue growth, EBITDA margin, and revenue growth + EBITDA margin basis. See the graphic below for a clear breakdown of these financial metrics and how Asure compares to its larger competitors:

EV/Revenue Comparison:

First off, what is the EV/Revenue ratio and why does it matter? The EV/Revenue ratio is a valuation metric that helps to determine a company’s revenue compared to enterprise value. For M&A activity, the EV/Revenue multiple can be a meaningful fundamental indicator showing if a company is undervalued, fairly valued, or overvalued. In this case, the lower the multiple, the better the valuation.

From the data collected from Capital IQ, we can determine Asure’s EV/Revenue multiple of 2.5x demonstrates a much more undervalued state relative to its peers. ADP holds the next best EV/Revenue ratio at 5.5x, but it is still more than double Asure’s value. Paycom is comparatively the most  highly valued on the list with respect to EV/Revenue with a multiple of 9.5x.

Revenue Growth Comparison:

As seen above, Asure’s revenue growth stands toe-to-toe with its larger competitors, which in some cases, are more than double or triple the size of the Austin-based HCM provider on a market cap basis. In fact, Asure’s revenue growth over the past year has been double ADP’s results and 3x the results generated at Paychex.

EBITDA Margin Comparison:

We know EBITDA stands for earnings before interest, taxes, depreciation, and amortization, which is another way of saying operating profitability. Thus, the EBITDA margin measures a company’s operating profit as a percentage of its overall revenue. The higher the percentage, the higher the operating profits as related to overall sales.

Investors should not be too concerned with Asure’s EBITDA margin relative to these larger peers. As we have mentioned, these companies are more than double or triple the size of Asure and thus have the added advantage of scalability, systemizing, and other automation. For EBITDA margin purposes, it would be ideal to compare relative to companies with a similar market cap, but as we discussed, Asure is the only real pure HCM small-cap company listed on a major stock exchange.

Revenue Growth + EBITDA Margin Comparison:

Examining revenue growth and EBITDA margins together can help provide insight into a company’s growth sustainability. Using the Rule of 40, investors can quickly determine whether a company’s growth is sustainable or rather cutting into its profitability. The Rule of 40 states that a revenue growth + EBITDA margin value greater than or equal to 40% shows a company’s growth rate is sustainable.

Looking at the data above, we can see that Asure’s sales growth + EBITDA margin of 43% highlights firm growth sustainability, according to the Rule of 40. Furthermore, all companies listed in comparison reach this same conclusion.

Wrapping Up: The Bigger Picture

In conclusion, EBITDA and Adjusted EBITDA serve as pivotal financial metrics that offer a profound understanding of a company’s operational profitability, excluding the influences of external factors. Asure’s financial performance, as evidenced by its recent figures, underscores its robust operational efficiency and growth trajectory. The company has consistently showcased impressive year-over-year growth in both EBITDA and Adjusted EBITDA, with projections for the third quarter and full-year 2023 further solidifying its financial prowess.

When juxtaposed with industry giants in the human capital management (HCM) sector, Asure’s metrics, particularly its EV/Revenue ratio, indicate a more favorable valuation, suggesting it is undervalued relative to its peers. Moreover, its revenue growth competes commendably with larger competitors, and its EBITDA margin, while lower, is justifiable given the company’s size and market cap. The combined analysis of revenue growth and EBITDA margin, as per the Rule of 40, further attests to Asure’s sustainable growth. Overall, Asure’s financial performance and comparative analysis with industry peers highlight its strong position in the market and its potential for continued growth and profitability.

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