ASUR — Q2 2026 Financial Report Analysis

Overview

Asure Software sells payroll, tax-filing, HR and time-clock software to small and mid-sized US employers, about 100,000 clients in all (roughly 35% direct, the rest through resellers who sell under their own brand). In the quarter ended June 30, 2026, revenue rose 23% to $37.1 million and the GAAP net loss narrowed to $4.4 million from $6.1 million. The growth figure needs context: Asure bought time-clock maker Lathem on July 1, 2025, so this quarter includes a business the year-ago quarter did not. The 10-Q puts most of the increase down to "our time and attendance solutions business," and management's own Q3 guidance implies growth slows to roughly 5–10% once Lathem is in both years.

At a glance

• Revenue $37.1M, +23%. Recurring revenue (subscription and per-employee processing fees) grew 19% to $34.0M. Hardware and services doubled to $3.2M, mostly time clocks.
• Adjusted EBITDA $7.7M, +48%; margin 20.9% vs 17.4%. Adjusted EBITDA is the company's preferred profit measure: earnings before interest, tax, depreciation and amortization, and also excluding stock pay and items it calls one-time. It landed near the top of the $6–8M Q2 range given in April.
• GAAP operating loss shrank to $2.4M from $4.7M, but interest expense more than doubled to $1.8M on the $60M MidCap loan taken in April 2025 to fund Lathem. That ate about half of the operating improvement before it reached net income.

The numbers

Percentage changes on the net loss and per-share loss are left out because a percent change between two losses is not meaningful.

First half 2026: revenue $79.9M (+23%), recurring revenue $71.7M (+16%), net loss $3.8M vs $8.5M, adjusted EBITDA $20.1M vs $12.6M. Q1 is always Asure's biggest quarter because year-end W-2 and Affordable Care Act form filings are billed then, so Q2 should be compared with Q2, not with Q1's $42.8M.

Where the growth came from

• Time and attendance. The 10-Q credits both the recurring-revenue increase ($5.4M) and the hardware increase ($1.6M) "primarily" to the time and attendance business, which is where Lathem sits. Asure paid $39.5M for Lathem. The filing does not say how much revenue Lathem added, so the organic growth rate (growth excluding acquisitions) cannot be computed from it. The CEO says organic growth "improved" but gives no number.
• Bought client lists. Asure also grows by buying the client books of small payroll bureaus. It bought one in the first half of 2026 for $6.2M (after seven for $20.5M in 2025). Those clients show up as recurring revenue, and their cost shows up later as amortization.
• Mix shift. Time clocks are a one-time hardware sale, so the recurring share of revenue slipped to 91.5% from 94.9%. That is lower-quality revenue than subscriptions, although clock sales tend to bring time-tracking subscriptions with them.
• Operating leverage, meaning costs growing more slowly than revenue. Sales and marketing rose 12% (more spending on lead generation) and fell to 25% of revenue from 27%. General and administrative expense rose 10% (headcount and contractors) and fell to 33% of revenue from 36%. This is the real source of the margin gain.

What the headline numbers hide

• Free cash flow was about zero. Operating cash flow for the first half was $7.2M, against a $3.8M net loss. However, Asure also capitalized $6.8M of software development (recorded those salaries as an asset instead of an expense) and spent $0.5M on equipment. That leaves roughly breakeven free cash flow before the $4.7M paid for acquired client lists. Corporate cash fell to $19.7M from $25.2M at year-end. Adjusted EBITDA of $20.1M for the half did not turn into spare cash.
• The gap between adjusted and GAAP results is wide. Q2 adjusted EBITDA of $7.7M becomes a $4.4M net loss through these items: $7.0M of depreciation and amortization, $2.1M of stock-based pay, $1.6M of net interest, $0.5M of tax and $1.0M of "one-time" items. Two caveats. Much of the amortization relates to client lists Asure keeps buying for cash, so it is a recurring cost of growing. And the "one-time" items are not rare: acquisition costs appear in all eight quarters of the company's own reconciliation table ($0.4M–$1.0M each), and settlement costs show up in every one of them as well (one quarter as a small net credit).
• Debt now weighs on the bottom line. Notes payable total $68.9M, including the $60M MidCap term loan at 8.74% (SOFR + 5%). Cash interest paid in the first half was $3.2M vs $0.5M a year earlier. Leverage is manageable: net debt of about $49M is roughly 1.2x the last four quarters' $39.6M adjusted EBITDA, and the loan covenant allows up to 5.5x. Still, interest now costs about as much each quarter as the company spends on R&D.
• Shares up 5.6%. The weighted share count rose to 28.7M from 27.2M, so per-share losses improved less than total losses.
• Balance-sheet items to watch. Contract assets (revenue earned but not yet billed) rose to $6.5M from $3.7M at December, much faster than sales. The allowance for bad debts is unusually large, at $9.7M against $13.1M of net receivables. It rose this half mostly because $2.5M of previously written-off balances were recovered, not because of new losses (the provision was $14K). One customer accounts for 15% of net receivables. The fall in deferred revenue (to $6.7M from $11.6M) is seasonal, the Q1 form-filing work being delivered, and matches last year's pattern.

Did last time's read hold up?

This is our first published analysis of Asure, so there is no earlier outlook of ours to check. Management's own April guidance did hold up. It guided Q2 revenue of $36–38M and adjusted EBITDA of $6–8M, and delivered $37.1M (the midpoint) and $7.7M (near the top).

Takeaway: Asure's 23% growth is mostly the Lathem time-clock acquisition, not a faster core business. Management's own Q3 guidance implies growth falls to about 5–10% once Lathem is in both years. The real progress is on costs: operating margin rose 8.9 points. But debt taken on for the deal now costs $1.8M a quarter, and free cash flow after capitalized software is about zero, so Asure needs to keep its margin gains to reach GAAP profit.

Outlook

Management's guidance (July 30, 2026):

What the guidance implies. Q3 2025 revenue was $36.3M, so the Q3 range means about 5–10% growth, down from 23%. Q3 2025 was Lathem's first quarter with Asure, so the acquisition boost ends in Q3. The full-year range implies second-half revenue of $79.1M–$83.1M, up about 5–10% on the second half of 2025. Full-year adjusted EBITDA of $38M–$41M implies a second half of about $18M–$21M, roughly in line with the $19.5M of the second half of 2025. So the margin gain management talks about comes mostly from the first half.

Our view. The cost discipline looks real: in the first half, sales and marketing fell to 22% of revenue from 25%, and admin costs fell to 31% from 35%. The bigger open question is organic growth, which management has not disclosed. Mid-single-digit growth after the Lathem boost ends would make Asure a slow-growing, indebted payroll business. In that case the case rests on margins and cash flow, which have not yet produced positive free cash flow. Three things to watch in Q3: whether revenue lands near the top of the $38–40M range; whether "one-time" costs finally shrink; and whether corporate cash ($19.7M, against a $10M minimum-liquidity covenant) stops falling. Funds held for clients ($178.9M) also earn interest that is booked as revenue, so Federal Reserve rate cuts would pressure the recurring line regardless of client growth.