Participants

Patrick Mckillop; Vice President of Investor Relations; Asure Software Inc

Patrick Goepel; Chairman of the Board, Chief Executive Officer; Asure Software Inc

John Pence; Chief Financial Officer, Corporate Secretary; Asure Software Inc

Joshua Reilly; Senior Analyst; Needham & Company LLC

Eric Martinuzzi; Analyst; Lake Street Capital Markets, LLC

Charles Nabhan; Analyst; Stephens Inc.

Richard Baldry; Analyst; Roth Capital Partners, LLC

Gregory Gibas; Analyst; Northland Capital Markets

Vincent Colicchio

Presentation

Operator

Good afternoon. Welcome to Asure's first-quarter 2025 earnings conference call.
Joining us for today's call are Chairman and CEO, Pat Goepel; Chief Financial Officer, John Pence; and Vice President 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.

Patrick Mckillop

Thank you, operator. Good afternoon, everyone. Thank you for joining us for Asure's first-quarter 2025 earnings results call.
Following the close of the market, we released our financial results. The earnings release is available on the SEC's website and our Investor Relations website at investor.asuresoftware.com, where you can also find the investor presentation.
During our call, today, we will reference non-GAAP financial measures, which we believe to be useful to investors and exclude the impact of certain items. A description and timing of these items, along with a reconciliation of non-GAAP measures to their most comparable GAAP measures can be found in our earnings release.
Today's call will also contain forward-looking statements that refer to future events; and as such, involve some risks. We use words such as expects, believes, and may to indicate forward-looking statements. 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 May 13, we will attend the 20th Annual Needham Tech Media Consumer Conference in New York. On May 28, we will attend the 22nd Annual Craig-Hallum Conference in Minneapolis. On June 3 through 4, we will attend the Stifel Cross Sector Insight Conference in Boston, Mass.. And, finally, we will participate in the Northland Capital Markets Virtual Growth Conference on June 25. We are also working on a few non-deal roadshows during the month of May.
Investor outreach is very important to Asure. And I would like to thank all those that assist us in our efforts to connect with investors.
Finally, I would like to remind everyone that this call is being recorded. And it will be made available for replay via a link available on the Investor Relations section of our website.
With that, I would now like to turn the call over to Pat Goepel, Chairman and CEO. Pat?

Patrick Goepel

Thank you, Patrick. Welcome, everyone, to Asure Software's first-quarter 2025 earnings results call.
I'm joined on this call by our CFO, John Pence, and we will provide a business update to our first-quarter 2025 results, as well as the outlook for 2025. Following our remarks, we'll be available to answer your questions.
We are pleased to report that our first-quarter revenues were very strong, coming in at $34.9 million, an increase of 10% versus our first quarter, prior year. Our revenues reflect strong performance from our Payroll Tax Management products, as well as contributions from our payroll, benefits, and marketplace offerings.
We believe that our strong results this quarter are reflective of the investments we made in the business. We've invested in our technology to create a more unified client experience, as well as adding new products to our solution set.
Our Payroll Tax Management product has continued its momentum. And we've gone live with our first phase of our partnership with Strada. As you may recall from last quarter's earnings call, we discussed a deal with the large well-known audit tax and advisory firm.
We expect implementations from this client as well as others, such as venture to ramp up this year. We have hired staff ahead of this to ensure that we are ready for an increased volume throughout the year.
While speaking of our Payroll Tax Management product, I would also like to highlight that we recently announced new capabilities with a solution designed for large Canadian companies and global enterprises with employees in Canada.
This solution offers seamless integration of payroll tax services with major platforms like Workday, Oracle, and SAP. We're excited to offer clients this critical solution to enable to maintain strict compliance with the tax laws that they must adhere to the Canadian government.
AsurePay continues to be rolled out to our client base. We remain pleased about the opportunity. We plan to expand to wider groups, as this year progresses.
While still early in the product launch, we're witnessing very positive trends. An example is that greater-than-70% of our active card users are using it over 3 times per month. AsurePay offers businesses a competitive edge in the war for talent, as many employees are looking for more benefits from their employers.
With AsurePay, employees get an alternative online booking, delivered via a smartphone app, free ATM access, debit card capabilities, plus the ability to get advances under payroll checks and more.
As many of you already know, we have a multi-pronged approach to our growth strategy, which includes both organic, enhanced organic, and inorganic methods. We plan to continue this approach during 2025.
We recently entered into a credit agreement, which will provide us more additional capital to drive inorganic and enhanced acquisitions of this approach.
The enhanced component is comprised of us acquiring, primarily, our reseller network partners, in which we gain clients. Once these deals are completed, we focus on cross-selling opportunities, which can add to our profitability, as we scale the business.
Our team has been focused on driving increased attach rates. It is delivered, thus far early, in the year. And we believe that the rates that we should improve on will increase in the double digits, as the year progresses.
Our sales efforts during the first quarter of 2025 resulted in a 45% increase in new bookings versus the prior year. Our contracted revenue backlog has gone up 339% year over year to $82 million, which gives us greater insight into our outlook for the remainder of the year.
We have incurred incremental costs, as we've been preparing for the year ahead. However, as we look forward, we believe our cost structure to be relatively flat, going forward, as we experience improved profitability as the revenue growth continues to improve throughout the year.
Based on our current business trends, we're reiterating our 2025 full-year revenue guidance of $134 million to $138 million, with adjusted EBITDA margins of 23% to 24%. This guidance excludes any revenue from potential acquisitions.
The guidance for the full-year 2025 implies a double-digit growth rate, which we believe is positive.
Now, I'd like to hand it off to John to discuss our financial results in more detail, as well as our Q2 guidance. John?

John Pence

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 first-quarter results.
First -quarter revenues were $34.9 million, increasing by 10% compared to the prior year period. Excluding ERTC, revenues were up 13% from the prior year period. Recurring revenues for the first quarter grew 10% versus the prior year to $33.2 million and were 95% of total revenue in the quarter.
We achieved 10% total revenue growth, despite the wind down of the ERTC program revenues, which negatively affected our revenue growth by 300 basis points in the quarter. Our revenue results reflect growth in our payroll, tax, benefits, and marketplace groups.
HR compliance remains depressed, as a result of the ERT-related product attachment activity in 2023, although we expect relatively better performance in the back half of 2025.
Float revenue was down slightly, relative to prior year, owing to the rate reductions made in the fall of 2024 to the Federal funds rate. However, increases in our average fund balances and our laddered investment portfolio has mitigated most of that impact.
Gross profit for the first quarter increased to 9% to $24.6 million versus $226 million in the prior year, first quarter. And gross margins for the first quarter were relatively consistent with the prior year period at 71%.
Non-GAAP margins for the first quarter were also consistent with the first quarter of the prior year at 75%.
Net loss for the first quarter was $2.4 million versus a net loss of $308,000 during the prior period.
EBITDA for the first quarter was $4.1 million, down from $4.4 million in the prior year. Adjusted EBITDA for the first quarter increased $7.3 million, from $6.8 million in the prior year. And our adjusted EBITDA margin was 21% in the quarter compared to 22% in the prior year.
Asure's financial performance in the quarter reflects growth across most revenue groups. Here, I'd like to say a few words about our Tax and Benefits businesses, in particular, which we see meaningful long-term growth potential.
In Tax, our unique market position, dedicated sales, and technology investments have opened up new enterprise revenue opportunities that we have begun to capitalize on. We believe our enterprise tax solutions have multi-year growth opportunities ahead. And we are focused on making that happen.
In Benefits, we acquired an insurance broker record business in 2024 and are going after new business in this highly profitable segment. The 2024 introductions of new benefit solutions, including our 401(k) solution, are also contributing positively to our revenue growth.
Turning, now, to the balance sheet. We ended the first quarter with cash and cash equivalents of $14.1 million. Coincidentally, we had debt of $14 million, as well, as of March 31, 2025.
In April, we finalized a new $60 million credit facility and drew down $20 million, at close. We intend to use this facility to fuel our customer acquisition model.
Over the past 18 months, we have made 16 acquisitions. These have been mostly customer acquisitions but we have also had a few acquisitions to expand our product suite.
Guidance. First, I'd like to provide the backdrop for our 2025 guidance.
We have been focused on building on the capabilities of our solutions, expanding our solution sets, cross-selling into our base, and creating efficient platforms that will enable us to achieve our longer-term revenue and margin goals. These activities require investments in our sales team, investments in technology and in many other areas of the business.
At this point, we believe we have gotten a lot of the heavy lifting behind us. And so, we believe our cost structure will be more stable, going forward, into 2025, permitting more operating leverage from revenue growth to generate adjusted EBITDA.
Additionally, we expect revenue growth will accelerate, as we move through 2025. And our existing solutions gain traction and new solutions are introduced into the market.
As we go past these investments, we expect to see accelerated revenue and adjusted EBITDA generation, particularly in the back half of 2025. In addition, we will consider acquisitions that make sense from a strategic and tactical perspective, in order to cross-sell and expand our solution capabilities.
Now, in terms of guidance for the second quarter of 2025, we are guiding second-quarter revenues to be in the range $30 million to $32 million.
Adjusted EBITDA for the second quarter is anticipated to be between $5 million and $6 million. As we discussed on our last call, we expect EBITDA growth to be more subdued in the first half, as we invested in infrastructure to support enterprise deals, technology, and products.
We are maintaining our 2025 revenue guidance to be in the range of $134 million to $138 million, with adjusted EBITDA margins of between 23% to 24% at these revenue levels.
As Pat mentioned in his comments earlier, these guidance figures exclude any contribution from potential future acquisitions. Our pipeline of potential acquisitions remains strong. And we feel confident about reaching our objectives.
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 we have implemented across business to drive long-term sustainable growth.
With that, I will turn the call back to Pat for closing remarks.

Patrick Goepel

Thanks, John.
We are pleased to have delivered great results in the first quarter of 2025. Our business is experiencing positive momentum, as a result of the efforts that we made to improve our technology and broaden our product portfolio.
We believe we've executed well on our strategy to deliver growth. Our pipeline of opportunities remains bust, as the team here, at Asure, remains focused on the execution of those opportunities.
During our past earnings calls, we've highlighted a number of new product additions, such as Recruiting, Broker of Record, 401(k) and AsurePay, just to name a few. We're at different stages of these product launches.
However, we feel we're experiencing good trends, overall, given that some, like AsurePay, for example, are still in the early days of the launch cycle. Our team, now, has more opportunities to drive cross-selling activity, which can have a positive impact on margins.
We've witnessed examples of clients that were initially taking one or two products transition to using our full suite of offerings; thus, increasing our clients value proposition and, of course, our revenue.
Our attach rates -- meaning, clients that take more than one product from us have -- increased by double-digit percentages from last year's first quarter or first quarter of 2025. The sales team has made good progress on those efforts. And we have created some specialized sales groups, which will help drive those efforts in the future.
We anticipate that the increased focus on attach rates this year will result in further increases by year-end.
Achieving scale in this business is one of our main goals. And we believe we have a good line of sight into reaching that level of $180 million to $200 million in revenues over the medium term, whereby we would expect to see adjusted EBITDA margins of 30% or possibly more.
We're pleased to have recently signed a credit agreement, which will aid us in our efforts in driving the inorganic component of our growth strategy.
We have a robust pipeline of potential reseller acquisitions we'll continue to work on throughout the year.
We're meeting strides with our efforts in artificial intelligence. We're collaborating with Amazon Web Services or AWS. We're using artificial intelligence to better understand trends in our own customer interactions, our pipeline opportunities. And we prioritize those trends using AI for product development and a more proactive approach in supporting our clients.
Also, during last quarter earnings call, we discussed our AI agent, Luna, the industry's first AI agent for payroll and HR.
While there's lots of discussion on the macroeconomic front -- with tariffs leading stock market headlines -- we believe we're relatively insulated from any potential impact.
We have a well-diversified US client base Our revenues are more than 95%, recurring. We have modeled, conservatively, for employment growth and the impact of potential interest rate cuts in the future.
In summary, we're very pleased to deliver a strong performance in Q1. Our guidance for the full-year 2025 reflects our expectation for double-digit growth.
Our bookings growth during the first quarter was solid, increasing by 45%. We have a healthy contracted revenue backlog of $82 million, which is up 339% versus last year.
Our recurring revenues, which carry a higher value, are now greater 95% of total revenues.
We've experienced great momentum in our Payroll Tax Management product line, as well as contributions from our other products which include 401(k), Payroll, Benefits, and the Marketplace.
We expect improved performance of HR compliance, as we enter the second half of the year.
And on the cost front, as we think about the remainder of the year, we believe that the incremental expenses we incurred in preparing for this year have seen their peak and our cost should be relatively flat for the balance of the year.
Our focus on cross-selling additional products for two existing clients has shown very good early results. It will remain a focus, which we believe will lead to further improvement, as we move through the remainder of the year.
We believe we'll experience improved revenue growth and adjusted EBITDA in the second half of the year. And we feel that the business is well positioned for the future.
We will continue to provide innovative human capital management solutions that help businesses thrive: human capital management providers grow their base and large enterprises streamlined tax compliance.
Thank you for listening to our prepared remarks. With that, I will send back the call to the operator for the Q&A session. Operator?

Question and Answer Session

Operator

(Operator Instructions)
Joshua Reilly, Needham & Company.

Joshua Reilly

All right. Maybe, just starting off: What are you seeing, in terms of productivity, now that you've put in place some dedicated sales teams for some of these different product areas?
And I know it's early so, maybe, you can just give us a sense of when that might actually make a difference in the business.

Patrick Goepel

Yeah. Josh, first of all, thanks for the question.
We have highlighted attach rates as a primary driver. We think having the sales specialists drive attach rates is going to be important.
We mentioned that we had double-digit improvement. The overall tax rate, in the 20%s. And we've been going up 2% per year.
I'd like to see greater adoption. I think we're positioned well.
One thing that really gave me encouragement: we had an individual client that was about $4,000, annually. They were a payroll-only customer. And then, they bought Time & Attendance, 401(k), and HR Compliance. And all of a sudden, they're a $40,000-dollar customer. And then, within 15 days, they ended up engaging with us on our Broker of Record. Now, they're close to $120,000-dollar customer.
That was just a playbook that we've seen coming for a long time. Now, those deals are still early. But it's the exact reason we involved some specialists. It's the exact reason we build out the product suite.
We want to ultimately be the business owners' almost back office, if you will, to allow them to grow. And that would be a case study of what we'd like to see over and over again.
So real good progress. But we're early in the moving. We've got them trained-up. And, now, we're going to look for the fruits of the labor.

Joshua Reilly

Got it. That's on the comps, in terms of some of the benefits, still, which is great. How much progress have you made on maintaining HR Compliance with customers who have the ERTC and HR Compliance bundle? Maybe, you could just give some context, here, for investors on how this dynamic started and how it's playing out and what you see as the endgame for -- working that out for you?

Patrick Goepel

Yeah. I'll let John jump in as well. But a couple of things.
First of all, as you know, we have a core competency and tax filing. And we bought that tax system out from a purchase in 2020, in the middle of COVID. We then took that tax-selling product and, now, integrated it to all of Asure.
And then, when ERTC or the Em Retention Tax Credit came out, we sold that. And that's one-time benefit for clients where we were able to connect them to get money.
When we looked at it, we said, okay, we're providing those kinds of services, how do we help them over the long term and how do we catch that product? HR Compliance turned out to be -- we thought -- a very good product.
Well, typically, our average retention rates are close to $0.90. But what we did see is we thought the goodwill of EM Retention Tax Credit would stay. When we attached it to HR Compliance, our 90% or so average retention rates went down quite a bit.
So what happened was after a year of the services, people really wanted to get their refund. And they weren't used in the service like our cohort of HRC clients, normally.
So with that, we've now, in the second quarter, lapped that compare, if you will.
The second half, we can already see -- in fact, we're starting to see it in April, where we're starting many more customers than we're losing.
And we think the traditional growth, which over one year, even without ERTC, went from, call it, $3 million to a little over $8 million -- we think we'll be back on track with a strong second half; and then in '26, we'll grow double digits.
So that's how we see it play out. The worst is over from that cohort. And the cohort of just bundling in with our repetitive products, we see an advantage.
In fact, just had a very strong end of the first quarter and just underlying with the sales specialist -- our products.
I don't know, John, if you have anything you want to add?

John Pence

Yeah. I think you did a good job there, Pa, I think.
From my perspective, at the height of the ERTC sales efforts back, probably, Q4 or '23, we peaked in HRC. And so, I think what I tried to highlight in my prepared comments was that is a little bit of a headwind into the growth of the overall business.
But to Pat's point, we're back to the pre-ERTC levels and the run rate of that business. And so, the hope is that, now, that that compare is gone, you'll see the growth come back into the back half of the year, there.

Operator

Eric Martinuzzi, Lake Street.

Eric Martinuzzi

Yeah. I wanted to revisit your commentary, Pat, regarding tariff impact; just a macro high-level question.
You, guys, typically service-orient at SMBs. Any slowdown in pipeline, based on economic uncertainty, there?

Patrick Goepel

Eric, a really good question. I'm looking for it because I read the news every day. And if I listen to CNBC, I'm ready to jump off a bridge here.
But [Mainstream] America, we feel pretty good about that. I'll just remind you: we modeled about flat employment. So we don't have anything heroic in the assumptions.
We modeled a couple of rate cuts. And we'll see how that plays out in July and October.
But as far as sales cycles, the pipeline has been up. MQLs and SQLs are up quite a bit. Sales productivity was good.
I would say maybe deals have lengthened a bit on pipeline. But as we drill into it, I don't see anything abnormal or not.
I do think there's probably a question later in the year, as people work through inventory, et cetera, and the tariffs really kick in. But as far as our customer base and small businesses, we don't have anything aligned super strong to government contractors and stuff like that.
So right now, we've seen small business in action. And then, in some cases, I was talking to a pretty good customer, today, that was manufacturing in the heart of Middle America. They're talking about bringing some jobs back. And they think they have a competitive advantage because they're US-made.
So there's some cross wins around that. But, clearly, we're watching it pretty closely.

Operator

Charles Nabhan, Stephens.

Charles Nabhan

I wanted to ask about some of the investments you were making. I was hoping you could double-click on that, as well as talk about your product roadmap and how you think about that, from an organic and an inorganic standpoint.
You've come out with some interesting (inaudible) products over the past couple of years, including AsurePay. So just curious what next and how you're thinking about the road ahead, from product standpoint?

John Pence

I think we've been pretty transparent -- this is John -- on the strategy. We knew -- going into last year, we had a couple of gaps we felt in the overall suite.
We acquired the Broker of Record business and got fully licensed into the third quarter, beginning of fourth quarter of last year. So that's a pretty nascent business.
But the example that Pat rattled off just shows you the effect of being able to sell insurance into this base. And it's a pretty greenfield opportunity.
The (inaudible) tracking, obviously, is a front-end of a hiring process, right? So we rounded off that part of the suite.
So we really feel like we're getting to a point where we've got a very compelling, robust solution.
One of the things, again, that you touched on, too, there's a movement. I think the it's the IRS that's saying that they are going to quit cutting paper checks in fourth quarter of this year. So there's a movement to get away from paper checks.
Right now, in our customer base, we have -- just in our direct customer base, probably 40,000 people a month. They get the paper checks. AsurePay really, really ties into that.
So if you're an unbanked individual or you have a way to get your pay quicker, in a vehicle to move it around -- a lot easier and having to go and deposit a paper check. We think there's some compelling solutions there.
So that's on, just, the near-term products. We're going to always keep an eye on the resellers. And that's a key part of the strategy.
Because think about it, these, already, our customers. We just have an intermediary between us, right?
You have another business that's servicing them. So when we can bring these customers into our ecosystem, it goes back to the points that Pat was making earlier. We can start to have our sales team go in and start to attach other products.
And again, that's -- it's al, hopefully, tied together. We're building out the products to cross-sell into the base. We're trying to add the base (inaudible) price into the base. And that's the circle that we're trying to create.

Patrick Goepel

Yeah. And then, Charles, the only thing I'd add to that is everything we look at: it's [build-partnered] by.
You know, we decided to buy, in the case of Broker of Record and the Recruiting, from a partnership perspective.
AsurePay, we have gone with a partner. But we have the right source code.
And then, the only other thing I'd talk about: it really ties into the second half of the year. We do have operational efficiency in our technology.
We're rolling out, internally, a client life cycle management, where a customer can manage through the life cycle. So what that means is, today, you have different either departments or different people involved. It could be a credit check. It could be AML. It could be [PSA]. It could be --
-- just entering in the POAs for tax filing, will now, more and more, we'll let the clients be able to do that. Or if we do it, we have validation on the front, end where we know what good looks like.
And it doesn't enable us to go forward, unless you have the right stuff. So what that means is it cuts down on rework. It cuts down on people getting involved in the process. And it increases our scale.
So we're investing quite a bit. We think we have a really strong development team.
And as we continue to roll out Asure Central, now that we've rolled Asure ID; now, we get to know, like, if you come into our system, what products you have and which ones you don't have. And, now, we can drive towards event-driven marketing, where we have the ability to get to you about a product or a service, when that event qualifies you for it.
For example, if you hit 20 employees in your COBRA, you have to provide COBRA, by law. We'll offer to do that for you.
So those are some of the things we're working on. We're pretty excited about it.
We've worked towards this for a couple of years. And we think it's paying off, already, and will continue to pay off dividends for us for a long time to come.

Operator

Jeff Van Rhee, Craig-Hallum.

This is [Daniel Henschmann], on for Jeff Van Rhee.
Just on the acquisitions and the M&A vision, I believe it was two in the quarter. Just wanted to confirm that.
And then, looking forward, how should we be thinking about this, with the new credit facility? This is going to be a similar cadence to '24, accelerated delivery -- just, in terms of the appetite and the opportunity there, relative to '24, where M&A is headed?

Patrick Goepel

Yeah. I appreciate it. I'll let John jump in on the facility.
But just in general, we were pleased to get that done in April. I think, for us, year-end is a pretty tough part of the year. I do want to confirm, as telegraphed on last call, it was two acquisitions in the first quarter.
I think you'll see acquisition cadence ramp up, here, in the second half of the year. We have a pretty good pipeline.
Just based on the timing of payroll and sometimes the business of year-end where volume is pretty heavy, you'll see second quarter to be a little bit light. But third, fourth quarter, I think you'll see strong.
And then, with the facility, we have the ability to go after the deals we want to go after. I'm very pleased.
I think, sometimes, there's a little bit of pause on the macro. But all in all, pipeline is good. We'll continue to grow.
We have the people, the technology in place to execute; and we're pretty far along.
I don't know, John, if you want to talk about the facility or the pipeline.

John Pence

Yeah. The facility. We took down $20 million at the close. And it has the flexibility for us to go up to $60 million. It has been pretty -- I think we're all pretty clear -- we want to get bigger, quicker. And this is going to give us the flexibility to do that.
So we have a healthy appetite. We think we have a healthy pipeline.
Obviously, nothing to telegraph that we have ready to announce. But we put the facility, in place, to give us flexibility to go quicker, not slower. .

Richard Baldry

Great. That's helpful.
And then, just in terms of the tax deals, which seem like they continue to be some of the biggest opportunities, like Vensure.
When we're looking at how that's going to ramp into revenue and the opportunity there, what's the best thing for us to be watching? Is that the contracted backlog? The contracted backlog in the next 12 months? Deferred revenue bookings?
How should we be thinking about that hitting? What are the forward indicators? And what will be the signs of that ramping?

Patrick Goepel

Yeah. First of all, contracted backlog has grown a bit. And I think the percent, within the year, has grown as well. So I think, for now, we have $82 million. I think it was something like $31 million in this year. That's up and will continue to be up. So that is an area.
And then, some of these bigger -- whether it's Vensure, Strada, et cetera, they are phased installations and some of the PS work is being done. There will be some work over time, here.
And then, we announced that we had a large accounting partner. We've gotten a couple of small deals. And those are really to test the model. And I think in the second half, you'll see bigger opportunities.
But we'll let you know each quarter. I think the backlog is one tell.
John, if you have any other thoughts?

John Pence

Only thing I was going to suggest -- maybe, not everybody on the call is as intimate with the industry as you are, we are; maybe give a little bit color about Vensure and Strada just so they get a sense as to what, who those partners are?

Patrick Goepel

Yes. Strata is a good example. They're the former (inaudible) associates for Alight. They have customers that are big enterprise customers on Workday, Oracle, SAP. They've gotten four customers live, now, with us. So continue to grow throughout the year.
The nice thing about that is we go to those enterprise customers direct. And then, we have a solution set -- jointly, with Strata -- that we will continue to phase out through the year. And, really, strong opportunity and feel good about the partnership.
Vensure is a private company. Actually, it's funny. They're a little bit like us, in the sense that they serve about 2.3 million employees. They have a reseller network similar to us. And they have gone live with us, here. And we'll continue to grow throughout.
They have an ASO business, which is a payroll HR business, in addition to a PEO business. And so, we're excited with the opportunity to serve them. And it's gone very, very well.
And then, if you think about payroll companies, a lot of them will contract with other tax filing companies. We're unique in the sense that we're a payroll company that does tax filing but we also do tax filing for 27 other payroll companies.
I think you'll see us lean into that model more and more. We're talking to some pretty good-sized payroll companies, where they want somebody that knows payroll and they don't necessarily want to compete with them.
So if you think about where we are in the mid-market or the enterprise space -- or even the PEO space; where, the PEO, we don't play -- other companies like that are wanting to talk to us about back-end tax line because we know what good looks like with the 14,000 U.S. agencies that are locally; that you have to pay and remit your funds and you have to do your filings.
The 50 states. We have a CAF connection into the IRS. And so, we're unique in that aspect that we built this out. And we see this as a tremendous opportunity, going forward.

John Pence

Yeah. I would add -- Pat talked a little bit about the customer life cycle management, as an example. That's a tool that we built for our own internal use.
But the way our dev team built it, it's actually a product that can be sold to other customers. They need the same solution that they're going to service their customers.
So the way we've architected -- and we've done the same thing on some refactoring of our calc engine -- we've just created a lot of products that serve us and our customers but, also, allow for an extension to an embedded study, right?
So say, for example, I'm going to be in a vertical and I want to be (inaudible) of ERP solution for plumbers. We can incrementally add functionality that they don't need to go do in our area of expertise and be behind the scenes, almost -- I think about it like the source of truth in sales taxes, out of (inaudible).
I think we're trying to create solutions to where we can be invisible and be in a lot of different situations and you won't necessarily know that's us in the background.

Operator

Greg Gibas, Northland Securities.

Gregory Gibas

From a high level, I wanted to just see if you could discuss or go over the primary drivers of your expectations for accelerated year-over-year revenue growth in the back half of the year. Is it primarily attach rate and cross-sell driven?
I know that there's some impact from ERTC in the first half. But what gives you confidence in the full-year outlook?

Patrick Goepel

Yeah. Thanks, Greg.
First of all, ERTC, we talked about the cohort that was attached to (inaudible) resource compliance consulting. That's definitely going to grow in the second half. We see that already.
The contracted backlog has been growing.
And the second-half story: this partner we talked about with accounting. The first four deals, here, are starting. This quarter, we'll see bigger deals in the second half of the year.
Where we are on -- first of all, our cross-sell, attach rates are going up. I gave you the example around Broker of Record, as well as HRC and 401(k) attach rates.
Some of those is in the sales team's momentum. We feel pretty strong about that. So it's a combination of the sales team ramping in a big way, the backlog hitting the beach in the second half of the year, some of our partners -- John outlined some of the embedded strategy, we feel pretty good about.
And then -- or just a reminder: none of that includes acquisitions, which we just got a facility for. So I think you'll see some pretty good movement. And we feel good about what we're doing.

Gregory Gibas

Great. That's very helpful. And if I could follow up, as it relates to the hiring of additional staff and the other investments in infrastructure that you mentioned to support these enterprise deals.
How much of these increased costs are reflected in Q1 versus anything that is, maybe, to come or isn't fully reflected in financials, yet?

John Pence

Yeah. So I think, again, we mentioned this last call, we probably have an inflection point in the first quarter, with cost. We're going to try to run a business with roughly the same headcount we entered the year with.
And that's the biggest driver of our cost structure, right? It's our employees and those employee dollars.
So I think we had a little bit of a spike in the first quarter. We think it will get normalized back down to that headcount range for the balance of the year.
And so, that gives us, again, relatively flat to down cost structure for the back half of the year, with increasing revenues. So that's the impetus for the flow through.
So if the revenues come, we think the cost structure will produce those EBITDA margins in the back half.

Patrick Goepel

And if you think about -- we telegraphed some of these deals that are relatively new to us, whether they're acquisitions around Broker of record or Recruiting or they're some of the tax deals that we talked about, you don't bring some of the customers that we're talking about going live, with new people.
So what you want to do is to hire ahead of the revenue. We've done that over the second half of the year in the first quarter.
Now, that we have those people in place. Now, we have the opportunity to position and grow with scale.
And as the revenue continues to grow, we can grow without adding headcount because those areas of growth areas of the business that we didn't have (inaudible) in place, we now have.
So I think you'll see a lot of expansion in the model. This is what we've telegraphed all along.
Our long-term plan or midterm plan, $180 million to $200 million with 30% plus margins on how we define it, as adjusted EBITDA -- we're right on track to doing that. This will be a good proof point, by the end of the year.

Operator

Vincent Colicchio, Barrington.

Vincent Colicchio

Yeah. Pat, could you provide more color on the Canada tax product? For example, is there an early pipeline? What does competition look like, as well?

Patrick Goepel

Yeah. Actually, it's interesting, Vince. I appreciate the question.
Already, first of all, some customers that we had come in from Strada and Vensure, they had Canadian tax. So if you think of Strada -- in the case, those are enterprise customers. They had North American footprint. We could provide -- historically, the US taxes; now, we can buy Canada.
And then, the Vensure PEO group, they had a Canada PEO. And we have turned on that capability for them, as well, and their clients.
And then -- some of our clients have -- a lot of them are a bit close to cross-border, pretty good opportunity there.
And what I love about it, too, is we have a look and feel for the design with the team around Canada. It's a very modern look and feel. It's one that will continue to grow out throughout the organization.
So a pretty strong pipeline. We've already had some inquiries on it from just -- we haven't ventured into Canada yet compared to where we were. And, already, people are asking us.
And then, we already have already have a ready-made client base that is turning this on. So really pleased with the development organization and the capability here.

Vincent Colicchio

And then, lastly, any updates on the competitive environment?

Patrick Goepel

No. I think what I would say is: I think, from what I saw and have been seeing, our new engagements were really strong in the first quarter. Our pipeline and close rate was really good.
Sales cycles. Maybe, five to seven days elongated, which, in each segment, has different of avenues.
The enterprise space, we watch closely, just based on our tax deals and where we're at there.
But interest level is very high. I do monitor it just based on some of the volatility situation. But from our bread/butter marketplace, there's no change in the competitive environment.

Operator

There are no further questions, at this time.
I'd like to hand the floor back over to Pat Goepel for closing comments.

Patrick Goepel

Well, we had another quarter in the books. Really appreciate you, guys, listening in on the journey.
We do think it's a journey that has a lot of upside and a lot of the heights; of which, we haven't reached yet but we will and are. And it's a fun story for me to be involved with, as we continue to make progress.
We really appreciate your interest along the way and your investment along the way. So until next time. I know Patrick mentioned we have some pretty good investor outreach, here, over the next quarter. Look forward to talking to you soon.

Operator

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