Q2 2021 Paylocity Holding Corp Earnings Call
Ladies and gentlemen, thank you for standing by and welcome to the philosophy of Holdings Corp, second quarter 'twenty 'twenty, one fiscal year results conference call. At this time all participants are in a listen only mode. After the speaker's presentation. There will be a question and answer session. The asked the question during the session you'll need the press star one on your telephone.
Please be advised that today's conference is being recorded if you require any further assistance. Please press star zero and I would now like to hand, the conference over to your speaker today, Mr. Ryan Glenn VP of S. T a.
Sir please begin.
Okay.
And to pay lots of these earnings results call for the second quarter of fiscal year 2021, which ended on December 31, 2020, I'm, Ryan Glenn Vice President of <unk>, and Investor Relations and joining me on the call today is Steve Beauchamp CEO of Pelosity and Toby Williams CFO of Pelosity today, we will be discussing the results announced.
And our press release issued after the market closed on.
A webcast replay of this call will be available for the next 45 days on our website under the Investor Relations tab before beginning we must caution you that today's remarks, including statements made during the question and answer session contain forward looking statements. These statements are subject to numerous important factors risks and uncertainties.
Could cause actual results to differ from the results implied by these or other forward looking statements.
Also these statements are based solely on the present information and are subject to risks and uncertainties that can cause actual results to differ materially from those projected and the forward looking statements for additional information. Please refer to our filings with the Securities and Exchange Commission for the risk factors contained therein and other disclosures we.
We do not undertake any duty to update any forward looking statements also during the course of today's call. We will refer to certain non-GAAP financial measures. We believe that non-GAAP measures are more representative of how we internally measure of the business and there is a reconciliation schedule detailing. These results currently available on our press release, which is located.
<unk> on our website at <unk> Dot com under the Investor Relations tab and filed with the Securities and Exchange Commission.
Please note that we are unable to reconcile any forward looking non-GAAP financial measures for the directly comparable GAAP financial measures because of the information which is needed to complete a reconciliation is unavailable at this time without unreasonable effort.
In regard to our upcoming virtual conference schedule, Toby and I will attend the Keybanc emerging Tech conference on February 25th Steven Toby will attend the 2021 JMP Technology conference on March 1st and Toby and I will attend the Raymond James Institutional Investors Conference on March 2nd. Please let me know if you'd like to schedule time with us at any of these events.
With that let me turn the call over to Steve. Thank you Ryan and thanks to all of you for joining us on our second quarter fiscal 2021 earnings call. Our solid results continued and the second quarter of fiscal 2021 with second quarter total revenue $146 3 million and increase of 10, 5% versus the same quarter last.
Fiscal year, and coming in and $3 3 million above the midpoint of our guidance. Despite continued COVID-19 related headwinds.
Recurring and other revenue grew by 13, 6% and we continue to be pleased with our sales performance across our entire market amidst a still challenging macroeconomic environment with the resurgence of Covid cases, and as many states ramped up mitigation efforts through Q2. Despite these COVID-19 related headwinds, we still had strong selling season and are pleased to of star.
And more business. This January than last January as mentioned on our November call. Our sales teams have successfully pivoted to a virtual selling environment and continue to realize the benefits of improved web site performance and digital lead generation use of video of throughout the sales cycle as well as increased multi media connection points with prospects.
Including podcast and Webinars.
The accelerated investments we've made through the pandemic and digital marketing efforts include enhancing our website capabilities increased focus on search engine optimization and prospect nurturing campaigns will all continue to serve us well as macroeconomic conditions normalize.
Emily to last year, we continue to see unit strength coming from clients with under 50 employees as well as healthy momentum in the core and upper end of our market, which resulted in year over year total client growth of 19, 5% through Q2.
Channel referrals, primarily from benefit brokers and financial advisers. Once again represented more than 25% of new business. In Q2 led by increased use of virtual broker connection activities events and virtual gatherings that helped us maintain strong channel referral levels.
Adjusted EBITDA for the second quarter was $35 million or 23, 9% margin, which exceeded the midpoint of our guidance by $7 million. We are pleased with our ability to be efficient with our operational and G&A costs. While we remain focused on incremental investments and research and development and sales and marketing initiatives in fiscal 2021 to continue.
Our momentum and product and sales and of position us for driving future growth. Once we return to a more normalized macroeconomic environment.
Our commitment to product development, including sustained investment and R&D continues to be a key differentiator in the marketplace and we believe we offer the most modern platform and the market of more than 1 million businesses with between 10 and 1000 employees in the U S. We remain committed to providing industry, leading software by both expanding our product suite and adding features and.
Functionality to the existing products.
To that and in November we announced our acquisition of same page, which provides and all in one team collaboration solution that includes task management file sharing real time document collaboration and more we are now focused on building. The same page collaboration functionality into the Pelosity suite to support a broader set of HR team.
<unk> and use cases, which reinforces our commitment to delivering the most modern workforce suite of solutions. For example, we see an opportunity to enable greater team productivity on our platform within community our social collaboration platform with functionality of that provides for co editing of documents and task management on projects and initiatives as well as the.
The ability to communicate through direct messaging and video we believe these expanded capabilities together with the recent release of premium video will enable clients and their employees to better collaborate and elevate the remote work experience, while also increasing productivity and efficiency among teams.
Since its release just last quarter, we have seen many examples of how clients have utilized premium video throughout the organization from our clients CEO recording of video to provide insights to the remote employees about the recent companywide survey to the other clients, creating video job descriptions to bolster recruiting efforts our clients and their employees of our amp.
<unk> and their voice and the engagement experience with our premium video offering.
We also remain heavily focused on serving our clients. During this challenging time, our product and operations teams quickly mobilized in December to Digest, the consolidated Appropriations Act and its impact on our clients. We added functionality to our software to address these legislative changes and and automated fashion, including the extension of tax credit on leaf benefits.
From the FF CRA, the extension and enhancement of employee retention credits and updated eligibility requirements related to PPP loans among other changes.
In addition to the changing legislative environment. The second fiscal quarter is also a very busy time of year for our operations teams as they work closely with clients on year and processing of payroll W. Twos $2 95.
And annual tax form filing for federal state and local agencies I want to thank all of our employees for their hard work and dedication during this very busy time of year.
And the dedication of our employees was a key driver and Pelosity being ranked number nine unfortunate list of 100 fastest growing companies.
We also earn great places to work certifications during the second quarter.
I would now like the pass the call to Toby to review the quarters result, and detail and provide updated guidance.
Thanks, Steve total revenue for Q2 was $146 3 million and increase of 10, 5% with recurring and other revenues up 13, 6% from the same period last year as Steve noted, we were pleased to come and three 3 million above the midpoint of our guidance. Despite the continuing COVID-19 related headwinds.
Our adjusted gross profit was 68, 8% for Q2 with continued pressure from both COVID-19 and interest rate related headwinds.
We continue to make significant investments in research and development and to understand our overall investment and R&D. It is important to combine both what we expense and what we capitalize on a combined non-GAAP basis total R&D investments were 15, 9% of revenue in Q2 and on a dollar basis, our year over year investment and total R&D.
<unk> by 22, 3%.
On a non-GAAP basis sales and marketing expenses were 23, one percentage of revenue in Q2, as we remain focused on making incremental go to market investments and fiscal 'twenty one.
On a non-GAAP basis G&A costs were 13, 4% of revenue in Q2 versus 14, 9% in Q2 of last fiscal year, and we remain focused on consistently leveraging our G&A expenses on an annual basis.
Our adjusted EBITDA was $35 million or 23, 9% of revenue for the quarter.
Which exceeded our guidance by $7 million at the midpoint, we remain committed to progressing towards our adjusted EBITDA target of 30% to 35% of revenue once we return to a normalized macroeconomic environment.
And covering our GAAP results for the quarter gross profit was $92 8 million operating income was $6 4 million and net income was $9 6 million.
In regard to the balance sheet, we ended the quarter with cash cash equivalents and invested corporate cash of $232 3 million.
We're pleased with our performance in Q2, which included another strong quarter for our sales team, helping us beat the top end of our revenue guidance from a cost perspective, we remain focused on incremental investments to drive growth, while also identifying opportunities to demonstrate scale and operational and G&A costs and we are happy with the progress we've made to that and in Q2.
In regard to client held funds and interest income our average daily balance of client funds was $1 5 billion and Q2 and we're estimating the average daily balance will be approximately $1 8 billion and Q3, and we assume an average yield of approximately five to 10 basis points in the third quarter.
Before reviewing guidance I would like to provide some additional context on the current operating environment as Steve mentioned, we continue to be pleased with the performance of our sales team this fiscal year and this past quarter.
We are also pleased with the performance of our operational teams as we started more business. This january than last year in the face of a still challenging COVID-19 environment and our service teams continue to help clients navigate new legislation. Additionally.
Additionally, product differentiation, primarily driven by community premium video and LMS continues to be the number one reason why companies choose pelosity as we continue our focus on delivering the most modern platform and our market.
And regards to the ongoing impact of COVID-19, we continued to see double digit headwinds on recurring revenue growth primarily related to the sustained level of lower client employees on our platform within the quarter, we did see slight incremental improvements and client employees on the platform. However, the trend was not consistent on a monthly basis, we saw marginal.
The improvement in October November levels went backwards, then December saw a slight increase while January levels trended backwards slightly and the environment continues to be highly uncertain.
Finally, I'd like to provide our financial guidance for Q3, and full fiscal 'twenty, one which incorporates known and some estimated impacts related to COVID-19.
Our Q3 guidance includes the impact of the Covid related headwind of approximately three 5% of $4 million related to annual W. Two billing, which is fully recognized one time per year and our third fiscal quarter and is directly related to a lower level of hiring throughout 2020 across our client base, while growth and total clients through Q.
Two is up 19, 5% year over year January W. Two volumes were up only mid single digits the impact of Covid on overall workforce levels at our clients, including reduced hiring activity throughout 2020 resulted in lower W. Two revenue than we would see and a normalized macroeconomic environment.
In regard to employees per client our guidance incorporates the mild improvements we've seen from the depths of the pandemic, but no further increases during the remainder of the fiscal year.
For the third quarter fiscal 'twenty. One total revenue is expected to be and the range of $182 5 million to $186 5 million or approximately 6% to 9% growth over third quarter of fiscal 'twenty total revenue.
And adjusted EBITDA is expected to be and the range of $59 million to $62 million.
And for full fiscal 'twenty. One total revenue is expected to be in the range of $623 5 million to $628 5 million or approximately 11% to 12% growth over fiscal 'twenty, which implies approximately 22% revenue growth for the fourth quarter of fiscal 'twenty, one and adjusted EBITDA is expected to be and the.
The range of of $152 million to $156 million.
In conclusion, we are pleased with our Q2 results, particularly in the context of the current operating environment and we remain committed to investing and the business to ensure we are well positioned to regain our momentum once we return to a more normalized macroeconomic environment. Operator, we're now ready for questions. Thank you.
Ladies and gentlemen at this time for you asked the question. Please press Star then one key on your Touchtone phone is the.
The question has been answered the you wish to remove yourself you may press the pound key please standby, while we compile the Q&A Act.
Our first question comes from Brian Peterson with Raymond James Your line is open.
Hi, Joe and congrats on the results and thanks for taking the questions. So first off just higher level sort of COVID-19 in.
In terms of the go to marketing and it sounds like this is the really strong on boarding quarter. What lessons would you say that you've learned in terms of selling and on boarding costs. There was and I'm. Just curious if there's any goodwill on for Bob going forward and how you guys are relating to the customers.
Yes, sure I think as we said in the prepared remarks, we've been pretty happy with how resilient the sales team has been.
Obviously, theres a lot of industries and in the market that are affected by Covid and the shutdowns. It is a huge market for us and so the sales team I think has pivoted really well to focus on those industries that are less affected and then be able to deliver very similar client growth to what we had last year through the first six months of the year and so I think the lessons learned are that you can do.
A little bit more virtually.
And then maybe we would have done before and they've done a great job.
Really managing the whole sales process in a virtual fashion keeping people engaged and interested.
And I think that and we will get back to a time, where there'll be face to face with customers again, but we'll be able to leverage this experience that we have learned virtually to be able to sell and maybe a little bit more of a hybrid world post pandemic.
Thanks, Steve and maybe just another one when you think about the new customers that are coming for the platform has that changed over the last couple of quarters I'm. Just curious if the displacement Greenfield I'm just curious what you're seeing here in terms of the new customers added.
Yes, no I don't think of lot has changed I think you probably see a little bit less customers from the industries that are impacted the most just because they've got other bigger priorities in front of them, although you're definitely still see some customers from those industries like hospitality and making the move.
We were very automated in terms of how we interact with customers prior to the pandemic. So everything was being done remote our implementation specialists didn't typically spend much time on site, we have remote tools that we interacted with clients, we trained them that way and.
So I think all of that has been relatively seamless I think the last comment I would make is there was just sometimes there's a little bit more disruption on the client side.
And so we.
We've had to do some extra work for them at times to get them up and running and really making sure that clients are starting on time and theres, a little bit more delays because of COVID-19 and that might just because the person on the other and might have personal issues of their business might be more impacted and so we've seen and places where there is a little bit delay and starts but we're still able to get all of those customers started and do that.
Very efficiently.
Great. Thanks, Steve.
Thank you. Our next question comes from Scott Berg with Steven Your line is open.
Hey, Steven told me and Brian Congrats on the good quarter and thanks for taking the questions.
I guess, we got to hear Steve I.
And I know, we've talked over the last six months or so and it was certainly highlighted at your fall customer conference about engagement and your platform.
Increasing as as the pay of last three platforms kind of bit of central communication hub I guess as you look back over the last maybe nine to 12 months since the pandemic are you seeing that engagement.
Alter or make changes to what your customer retention rates are today.
Yes, that's a great question, we continue to have over 92% customer retention and I'm really proud of the job. Our team has done and staying engaged with our customers through this difficult time with a bunch of changes in legislation and a ton of questions from our customers and we're really happy with where we sit from an overall client retention perspective, so I do.
I think we've necessarily seen that move that needle meaningfully, but what we have seen though during the pandemic as customers start to use more of the features that we've delivered to them, particularly more of the modern features such as community. As you mentioned and then add on the video capabilities on top of that and so we see also other and.
Leaders within the organization start to use some of these capabilities so rather than just the HR team.
You might see their C level folks actually using our announcement capability and our video capability.
Or managers of their teams and interacting in groups and so it's been really interesting to see the types of activity, we see on our platform expand over the last calendar year.
Got it and helpful. And then I guess from a follow up question perspective.
You, obviously serve a customer base thats relatively wide at the end of the day of customers may be the slowest 20 employees and maybe have a few of their even smaller than that but certainly the customers that have 500000, and maybe more than 1000 employees and I guess as you look at that kind of span is there a segment or two that you've seen drive maybe better net new.
For additions over the last quarter or two we think the trends of pretty strong across the space in general, but interest one of those segments you would call out maybe particular, having better strength.
No I think the interesting thing is if you look at the unit growth and that's one of the reasons, we won't provide that data, it's pretty consistent with where we were last year and we're getting customers in call. It the under 50 market.
And at fairly similar rates from a growth perspective, the core market has been strong for us kind of that 50 to 500 space and then last year I think we called out. The fact that we were doing a little bit better than we had previously and that 500 plus base and I think that has kind of continued so I really feel good about the sales force is that we're seeing really resilience across the board and.
And that we're actually on boarding a very similar number of customers from a growth perspective, and we were last year.
Okay.
Great Thats, all I of thanks for taking on.
Thank you. Our next question comes from Terry Tillman with tour Securities. Your line is open.
Yes. Good afternoon, gentlemen, can you hear me okay.
Yes, we can.
Yes, I was just curious Steve maybe big picture question and I mean, the same pages interesting.
Because it kind of youre delving into potentially every desktop potentially usage all day long.
The collaborative work management is a pretty broad market.
What are the conversations like are you like Hey, you need to modernize your core HR and payroll and so we can help you of that Oh by the way and look at the same page thing.
And I'm not trying to sound flip it or anything, but I'm kind of curious about the same page because it actually does kind of gets you into another potentially interesting almost standalone market and then on a follow up.
Sure well I think the example, I would give you is when we first launched community one of the things that we thought our customers were asking for was the ability to really manage announcements because the reality is different parts of their organization might be using different tools and so the HR team wanted to be able to make sure. They were giving benefit updates they're announcing policy changes and they were reaching all of the employees and <unk>.
Making sure they get that notification on their phone and they click into the announcement and they get the analytics behind that and so that really drove us to actually create community. Because we felt like this announcement capability is going to be of the core of it that is exactly what we saw in terms of utilization. The interesting thing. We saw then what people wanted to actually include links to Youtube videos. They wanted to include.
The additional content they saw employees reacting sometimes of emoji, sometimes with comments and some of that kind of led us to believe.
Video could play a bigger role here, not just and announcements, but in broader communication across the platform because the HR teams really started to use it for communication and then the reason I give you that background as we introduce groups and the idea behind the group as it could be your team it could be.
On a group of people working on a project it could be just a group of people with the common interest and it could just be fun and we started to see increased utilization there and within those groups. We started to see people asking for collaboration opportunities and so that's what led us to look at St page capabilities and bring them into the fold. So that we could really enhanced.
Groups and collaboration capabilities and the reality is the way we develop product as we listened and we learn in terms of how our customers use it and then we just continue to add features based on their demand and I see that when we get to the point that we launched a collaboration capabilities on top of community within groups, we're going to learn how our customers use it and we're going to continue.
New to expand on it and Thats always been our product philosophy.
Got it understood and I guess my follow up is you are talking about digital marketing and it's fascinating through this pandemic on the <unk> selling and how it's evolving and it's really there's a lot of innovation going on but I'm curious from your perspective, you've been using probably plenty of digital marketing tools and the past, but in terms of refining and making new investments where are you.
Seeing some kind of payoffs or smart surveillance, whether it's.
It's driving more of that sub 50, or it's driving more traffic altogether and just is there anything to be said, maybe about the maybe the cycle time it speeds up with more automation, just any kind of takeaways of observation so far.
Yes, so I think Fortunately, we had done a pretty good investment in terms of our new website and some of the branding that we launch really last spring and we were able to leverage some of those capabilities to put more muscle behind our digital efforts. What I would say is you need a bunch of variety of content right. So we've got podcast available people we've done semi.
Ours and Webinars on legislation changes, we've done seminars and webinars on.
No social movements that you see and the industry and so you've really got to be able to connect of the topics that are real world and top of mind and you've got to do it and a variety of channels ebooks.
Email marketing all mediums and so I think that's something that we've expanded a fair amount through COVID-19, it's really.
We benefited from the lead generation that has come from it and then once you get that lead in and Youre working with that customer you've got to find other ways to stay connected during the sales process and I think probably one of the bigger surprises for us as we've used a lot of asynchronous video, where we're recording videos posted demo or after an initial meeting with our clients and we actually use our own video platform to be able to do.
That and that I think has really helped create momentum and keep that sales cycle, moving which as you know for us for average sized customer is still 30 to 60 days is still happens fairly quickly and so we've become a depth debt using all of those tools probably faster than we would have if it wasn't for the environment around us.
Thanks solid job.
Thank you thank.
Thank you and the next question comes from Brad Reback with Stifel. Your line is open.
Great. Thanks, very much Steven as you're talking to the existing customers any sense, what they're waiting for to start adding back employees what types of things Theyre looking at.
Yeah.
Yes, what I would tell you when we look at the data right because we've got a lot of customers and we examine where customers are significantly different in terms of whether it's the number of W. Twos, they produce which we called out the impact of that because they've hired last all the way throughout the year or are there just at a lower employment level you will find those ineffective.
Industries right you find those and hospitality you find those and retail you find those and all the places that you would expect and they're ultimately in many cases fighting different types of <unk>.
Restrictions that make it very difficult for their for their business to operate and so I think we feel optimistic that as the vaccine rollout continues to gain momentum and that businesses are allowed to open at capacity levels that was.
It was consistent with prior then we'll start to see the benefit from that but thats largely the message. We don't usually hear from clients, saying I'm waiting for something to do a whole bunch of hiring and waiting for my environment change around me and the customers to come back and then I'm going to back that up with the hiring I need.
Great. Thanks very much.
Thank you. Our next question comes from Matt Pfau with William Blair. Your line is open.
Hey, guys. Thanks for taking my question just one for me and I wanted to ask about the <unk> the.
The current Covid relief Bill that was passed under the Trump administration, you discussed that a bit and the functionality that you've added for that and then obviously, there's another one here.
Here potentially going to be passed on to the Biden and administration, but how does that impact you from a business perspective does it help drive new business do you see additional inbound when when these kind of deals get passed or is there additional revenue for you and associated with that at all.
So I think generally speaking any legislative change.
It's fairly challenging for the market that we serve to be able to manage absorb and understand and so you saw that all the way back to ECA and through the most recent legislative changes so we need to be there for our customers with content, we need to beat that usually call us and ask us more questions or E mail us and ask us more questions and so we've got to do a lot of training when that happens I think thats.
Really the placements of the biggest impact is to do a really good job for your customers. So they understand it because in this case they have to make choices in terms of.
What theyre going to do and reaction to that bill, particularly the first iteration of the bill and so that's something that we spend a lot of time on I wouldn't tell you that it's different I think ACA did have a bit of a tailwind into the market. When you go back several years ago I'm not sure that that's the case with what we're seeing right. Now. This has been enacted so quickly that everyone. Just has to go.
And the react mode, whereas something like ACA, you had a long time for prepare for it you had to think about how youre going to manage it. This is happening so quickly that I don't think its really of demand creation, but just really and opportunity to show. Your customers you know how much you can help them.
Great. Thanks, guys.
Thank you. The next question comes from Bryan Bergin with Cowen Your line is open.
Hi, This is actually true Levine on for Brian and I have two for use of first how does the bookings momentum progressed and the quarter. Following the record sales month in October.
Yeah. So I think overall, we've sold more than last year now last year, we were on a very strong pace prior to the pandemic, we were growing new bookings kind of 40% year over year, we're definitely not at that type of pace. We are still selling more than we did last year. So in some ways you do kind of set records when youre selling more and you do last year. So.
That momentum has actually continued year and is really important to us right till we start more business in January than any other month.
And then the several months prior to that as kind of our selling season, and we were pretty happy with the volume of customers that we were able to on board.
And you kind of see that through the first two quarters with nearly 20% unit growth and that momentum continued.
Through selling season.
Got it and then in terms of the new unit strength and the sub 50 employee space that you noted was the skew towards more emerging markets up 20 employees or was it pretty balanced between the sub 20, and then 20% to 50 in terms of new units.
What I would tell you is I don't think that the.
And the size of the customers has meaningfully change that we've been bringing on so that mix has been fairly consistent now admittedly the market as a whole has less employees right. So theres and employment impact of both of your current clients and the customers that youre, bringing on.
But other than that we've been focused on the same size customers and we've been having success from 20, all the way to 2000.
Thank you.
Thank you. Our next question comes from Mark Marcon with Baird. Your line is open.
And good afternoon, and congrats on the on the number of new unit wins, considering the environment I'm, just wondering just to be 100% clear. So when we talked about of 19% increase in terms of the the number of.
Units that were brought on.
Is that across the board and other words was it.
Primarily skewed by the below 50 or was it across the board in terms of being close to 19% I was just wasn't 100% right around that yeah. So to be clear through the second quarter. The number of clients that we have on the platform total clients was up 19, 5% year over year, So thats driven.
Mix of adding new customers and losses and ending count as at the end of December was up 19, 5% and I think to just answer your question specifically it is not skewed to any of the markets that we serve it's really kind of across the board of very similar mix to last fiscal year.
Great and then can you talk a little bit about the source of the clients just in terms of.
No.
ADP and paychex versus.
Some regional players versus do it yourself just what are you sort of from that perspective, yes.
Obviously, we look at that information.
And of what I would say is nothing stands out in terms of being an anomaly versus prior year is fairly consistent.
And then with regards to the the EBITDA guidance for the for the current quarter.
Should we think about that line.
How should we think about the gross margins and the impact in terms of having a slower increase in terms of W. Twos and $295 for obvious reasons in terms of employment.
Versus the step up in terms of investment both in terms of R&D and sales.
Yeah, Hey, Mark it's Toby I mean, I think you hit on the key elements. So one of our consistent themes throughout the year and.
And has been that we would continue to invest in in the business all the way through but specifically R&D investments and sales and marketing investments that we would continue to drive growth and from a I think particularly from a sales and marketing standpoint, we would have said pretty consistently through the.
Starting at the end of last year and through this year than in the back half of this year. We would continue to drive those types of investments and I think thats our intention and.
And so that is definitely part of the.
The EBITDA equation and in the back half of the year, but I think specific to your to your question on W. Twos, I mean, obviously for for everybody and the industry has included <unk> revenue is fairly high margin and so you feel the impact of that you would feel the impact of that any ways from a revenue standpoint, I think you feel a little bit of an outsized impact.
Because of the type of revenue that that represents.
I mean, I think that is.
So I think that has a probably a little bit heavier impact and then just the normal course of investments that we would have been calling out pretty consistently.
Thanks for the explanation and I appreciate it sure.
Thank you and our.
Our next question comes from Smart Samana with Jefferies. Your line is open.
And this is Jordan <unk> on for small and thank you for taking my question.
That's on the quarter.
The question on the competitive environment.
Previously called out that booking strength.
Amid startups is really strong with record new business formation, but are you seeing any of your competitors down market, whether public or private become more aggressive pricing of promos and capture share within that segment.
Sure. So I think when we talk about the lower end of the segment. The under 50, what I would tell you is not many of those are necessarily brand new businesses or startups. So we generally see businesses that they don't have to be super mature, but we don't necessarily get a lot of startup business, because we don't really focus and that under 10 market. So.
But we do pick them up kind of as they are growing and that has been pretty strong for us and that under 50 market in terms of competitive environment I wouldn't say there are either new competitors or <unk>.
Very different kind of pricing models that we're seeing and the marketplace I think it's.
Everyone feels a little bit of the Covid headwind just from the macroeconomic environment, but at the end of the day when someone's buying our platform and they pay us maybe a little more than $20000 of year. These are not big payments for those customers relative to the size of their business and so this isn't necessarily the place where youre going to save a lot of dollars and it's pretty important.
And that they have something that allows them to save the time and connect with all of their employees and so it ends up being much more of a product and service conversation and then of pricing conversation.
Got it thank you.
Thank you and our next question comes from Daniel Jester with Citi. Your line is open.
Hey, great. Thanks for taking my question on.
Premium video how the.
Health demand and out of the day relative to some other launches recently like surveys and all of that.
Yeah. So what I would tell you is it's been pretty similar to some of the other products I think something like LMS and recruiting are well known HCM modules that people will buy those both the accelerated fairly quickly for us and then newer products like surveys even looking at utilization on community.
<unk> and video premium those are newer concepts for the market as a whole and so they typically can take a little bit longer to drive the penetration, but in the backdrop of COVID-19 and everybody used to spending time on zoom and understanding the importance of video.
We've been really happy with the uptake for our January starts.
And then thanks and then for.
Toby just going back to your prepared remarks about sort of the longer term financial.
Aspiration for the business.
Do you get back on that path, just by lapping sort of the toughest of the Covid pandemic pressure and we should start to see you guys get back on that path later in calendar year 2021, or are you actually need to see and macroeconomic improvement and higher interest rates et cetera.
And so kind of get back on snack line.
Yes, yes, good question and I think there is some sense of a little bit of both I mean, I think when you start to lap the compares and.
As we look at our.
Next fiscal year planning.
We've talked about the ability to and you see some of this I think even in the implied guidance for Q4, and we said that in the prepared remarks around the implied revenue growth rate I mean, you start to see getting back on to that.
Getting EBITDA leverage trajectory that we would have been on pre pandemic and.
But I think we've also said.
Youre not going to snap back and.
Unless and until you see some of the employees on the platform come back and a real way, which.
To date, we just we havent seen and so I think both of those dynamics are very real in terms of how you think about the rest of this fiscal year and then as you turn over into fiscal 'twenty two.
Okay, and then just one last quick one on clarification on the guidance and what do you have in terms of macroeconomic change like stable employment base on the on the platform or any sort of improvement.
It's stable and I think we called out.
Pretty specifically and their prepared remarks, you've seen on a month by month basis. There has not been a consistent trend you'll have one month's step forward youll take a small step back and so we have seen.
The mild improvements from the depths of the pandemic, but in terms of our guidance for the rest of the fiscal year, we're not assuming any.
And the improvement to what we've seen so far this year.
Great. Thanks, so much.
Sure.
Mr. <unk> Your line is open for Ya.
Hey, this is matti on for Josh I, just had a couple of questions for you guys. When we recently attended a human capital Management Conference, we ticked up a greater focus on HCM tools like child care wellness benefits management performance, and our amount world and new talent acquisition messy.
<unk>.
I'm just wondering how much. This has played a factor into your new client conversations youre, having and if this could be one of those factors that ultimately improves your win rate versus the legacy players and I have a follow up.
Sure, Yes, so I think if you look at the the.
The last nine or 10 months here as we've operated in a pandemic world you, probably see a little less conversations in that recruiting bucket and finding talent and now Theyre clearly are industries that are still growing we're still adding employees as an example, and finding talent important but because of lot of these organizations are really trying to manage and a difficult environment I would say there is a little bit.
Less of that I think your point on wellness performance management, connecting with employees and a different way and keeping people engaged that is absolutely top of mind with customers and in many ways really trying to feature for us some of our more modern capabilities, whether its reward and recognition with impressions or our journal capability to really have of.
Real time conversation around performance versus waiting for that annual cycle, all play into that trend.
Yeah.
Great Super helpful and my second question is how permanent do you expect some of these work from home changes to be and have you seen any change and awareness or general interest and modernizing the human capital management solutions and some people start to go back to the office.
Yes, I do think that some of these trends will persist and a post pandemic world and that might manifest itself in terms of just increased flexibility that employees have so maybe in the hybrid scenario you might even have certain positions go completely remote and generally speaking people are becoming more comfortable with that the second part of your question is yes.
That does put a lot of pressure on the tools that you use because you're not having as many in person meetings youre, having hybrid meetings, where some people are in person and some people are remote and so finding ways to make sure that information is available at People's fingertips, where they whenever they need it I think is going to be really important and also having consistent communication across the board.
Becomes really important and and that's where we're emphasizing at Pelosity a lot of asynchronous video capability. So that information can be shared and can be digested without having back to back to back zoom meeting and creating that zoom fatigue, and so we think some of those trends are definitely going to persist long term and the investments that we've made and product will position.
With the most modern platform for the industry that we serve.
Thank you Super helpful.
Thank you and our next question comes from Robert Simmons with RBC capital markets. Your line is open.
Hi, Thanks for taking the question.
Most of the questions have been.
And asked but I was wondering how much the same page and factory guidance.
Yes, very minimal St pages.
Pretty small businessman handfuls of employees and no material impact from from a revenue perspective on the year for sure so pretty pretty minimal impact.
And then okay. So there's a lot of of probably a little bit margin dilutive for the road.
I mean.
And I'm not in any material way got it just given the size of it and the fact that it's the.
It's not cigna.
The significant from a revenue standpoint, there's very little impact got.
Got it thank you very much.
Thank you and our next question comes from Arvin.
The <unk> with Piper Sandler Your line is open.
Hi, Thanks for taking my question.
And I had a question about <unk>.
Longer term product roadmap.
Certainly.
And MFS and community, there's a launch two years back and now it's getting to the statements being used by more customers and then eventually you will find a way to monetize it.
But to basically of.
The product roadmap.
The discount for ordering our products on three to four years out so are there other sudden.
The large incremental investments, you're making on the product side.
And that you think will be monetized over the three to five years from now.
Yes, So I think we're always working in our product Roadmaps on things that we think are just going to be a better experience for our customers things that are going to drive scalability and our organization and then of course, new modules or features that we can monetize so there's always a balance approach towards those three categories, we don't necessarily come out and.
Issue.
Multi year product roadmap ahead of time for for competitive reasons, but I think we definitely clearly signaled that.
Being the most modern platform and really adapting to these new use cases that have been kind of thrust. Upon so many of our customers operating in a more remote fashion is key to that equation.
And currently I think the thing that we've called out is integrating same page and building that right into our application. So that those capabilities exist to allow our clients employees to collaborate and a more efficient fashion and.
As we drive towards monetization of community is definitely a key focus for us and we've seen very good success with our most recent premium video offering.
Great and then the.
The remarks, you talked about.
And kind of refocusing on EBITDA growth.
Growth expansion and the more normalized.
And if the macro environment.
And when.
And when you think on the embed ex.
The expansion and or how much of it will really come from a price price.
These increases.
Most of the operational efficiencies.
So what I would say we are focused as you mentioned investing and Toby mentioned this investing back and product and sales so that as we come out of the other side of this pandemic. We can continue with similar momentum that we had as we went and we entered the pandemic and you.
You can see that we're bringing on roughly 20% new customers and 19, 5% through last year. So we've got that sales engine continues to work.
Your point on EBITDA is a good one and as you see the way we've talked about this is we can return faster to those similar revenue growth based off of our ability to execute EBITDA might take a little bit longer for us to get back because you're comping. Some some areas like no travel for a period of time and then you start to get travel and gatherings and then obviously.
And each incremental employee that our clients add creates new revenue for us and theres not a lot of cost associated with that so of the employment environment returns. That's when you start to be able to build off of that EBITDA cycles. So we we obviously have not given guidance for next year, but we do think this happens and a bit of a two step process, where we can get back to that 20% plus.
Revenue growth and then we would step our way back into where we were from an EBITDA perspective, and then continue marching towards our long term stated range, which is 30% to 35% adjusted EBITDA.
Great.
Just lastly on it for me.
The last day of communicated and a variety of pricing.
No.
The non discounted pricing is around the.
$500.
Per employee per year.
Yes.
Relative to kind of talk about the next level or is it still too early to start processing and where the next next sort of net it yes.
Yeah. So I think we've periodically updated that over the last several years as we've launched products to market and so most recently, we went from $400 per employee per year to $420 per employee per year, and so we are definitely making progress towards that next milestone, which for us would be that $500 per employee per year, we will continue with the mindset as we.
Launched the product to market and we make it available that's when we'll kind of update the P. P y and.
Total available product and our portfolio.
Great. Thank you very much.
Thank you and our next question comes from Pat from Goldman.
<unk> from JMP Securities. Your line is open.
Great. Thank you, Joe and marine sick on for Pat.
As it relates to those investment plans and how you're thinking about hiring at this point.
And then secondly, given the same page acquisition can you remind us how you guys think about M&A. Thank you sure. So on the first point I mean, we're we're bullish about how our performance has been through Covid and we are in are the really the start of our hiring season right. Now so we do most of our hiring and sales and marketing.
Really in the spring and into the summer time, and so we're very active and the market bringing people on board.
And we'll give an update obviously at the end of year call in terms of what that year over year head count looks like but we we definitely feel like were and are positioned to add heads.
And that we've been able to have success in this environment and we want to come out the other side of it with momentum and then we can get a higher across the business for the rest of the supporting structure. I ahead of time, so that we've got people trained and ready to handle those customers as they on board. So I would say no change to our normal hiring pattern that we would have and any other given year.
From an M&A perspective, so for us it's all about the customer experience when it comes to product it really has to be and easy to use unified experience very seamless and so we're not looking to make acquisitions that are kind of bolt on products that are going to take years and years for us to integrate in fact, we look for smaller tuck ins and.
Areas, where we can truly integrate that and build that right into the product suite, where from a user perspective, there is absolutely no difference and and that team the bid grid team as it pelosity team that works on video and all of those modern experiences around that and that same page team will integrate with our teams that we're already working on things like community and they will just.
Allow us to move faster and that's the way that we kind of think about acquisitions. It's about driving ahead on the product road map and.
Creating great experiences, it's not really about acquiring revenue of our client basis.
Awesome Super helpful. Thank you.
Thank you and our next question comes from City Pentagon.
Your line is open.
Thanks for taking my question My apologies for this question asked all of it's important all of them, but going back to your comment on strong January sales versus last year.
And I understand that we are still not recovered back for the macro environment, but what's driving for your customer to switch the payroll and do the investment at this point and are you seeing strength and certain verticals over others.
Sure. It's a good question. So there's definitely verticals as we all know that are more heavily impacted from COVID-19 and so for those customers and you might imagine if you're running a restaurant with several locations and an environment, where you're operating at 20% capacity or you can only of outdoor seating is probably hard to prioritize the switch two of <unk>.
The role and HR platform and that kind of environment, having said that we have had success, bringing on customers in that vertical so it's not absent, but thats, probably not where we're seeing most activity. It's a huge tam for us so and we have hundreds of thousands of customers that we can go after so our sales force has been pretty effect of it pivoting the industries that might be a little bit less impacted and we've been able to drive.
Very similar unit growth, even though it might come from slightly different industries.
And then we did a year ago and the reasons for people switching they've always been product and service.
And that Hasnt changed some of the features that people are looking for some of the capabilities like community like video some of the newer capabilities that we've launched have become a more important part of the conversation.
And because of the pandemic and the nature of how people are getting their work done and then maybe a year ago.
That's helpful. So one clarification on the one you said about three and half of the $4 million in fact because of on W. Twos.
The process dilutive based on the number of employees and.
Or any part of the year.
So all of that.
And again.
Somebody is able to January for greater employee, but they are let go and do you still classes of it is for them.
Yes, generally speaking so if an employee has been with one of our clients. During the course of the year, we would process the W. Two for them.
And I think the what we're calling out and the script was it.
Which I think is somewhat obviously based on unemployment rates and the experience that we're probably all having day to day is to the extent that the number of employees on the platform are down to the extent that unemployment is up and people arent rehiring as they normally would through the course of the year because of that you would have fewer employees.
And being employed by our clients through the course of the year and therefore of fewer W. Twos.
Got it thank you so much.
Sure. Thank you and this concludes the Q&A portion of and I'd like to hand, the conference over to Mr. Butcher for any further remarks Greg.
Great. So I'd like to thank all of you for your interest and pay losses today and just take a quick moment to thank all of our employees. This is definitely the busiest time of the year for us.
And we've had a very busy January season and.
Toys are really kind of gone above and beyond to be there for our customers. So thank you to everybody.
Ladies and gentlemen. This concludes today's conference call. You may now disconnect everyone have a wonderful day.
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