Q4 2021 Paylocity Holding Corp Earnings Call

August 5, 2021

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Ladies and gentlemen, and thank you for standing by and welcome to GP Lock City earnings results call for the fourth quarter of fiscal 2021 at this time all participants are in a listen only mode. After the speaker presentation.

And there will be a question and answer session.

A question during the SASSA and you'll need the press star 1 on your telephone. Please be advised that today's conference is being recorded for you require any further assistance. Please press star zero and I would now like to hand, the conference over to your Speaker today, Ryan Glenn Vice President of S. DNA and Investor Relations. Please go ahead.

Good afternoon, and welcome to <unk> earnings results call for the fourth quarter of fiscal 'twenty, 1 which ended on June 32021, and.

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 on our press release issued after the market closed 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, which could cause actual results to differ from the results implied by the either other forward looking statements of.

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 in 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 do not undertake any duty to ups.

Any forward looking statements.

So 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 on our website at <unk> Dot com under the Investor Relations tab and filed with the Securities and exchange.

The Commission please.

Please note that we are unable to reconcile any forward looking non-GAAP financial measures for the directly comparable GAAP financial measure because the information which is needed to complete a reconciliation is unavailable at this time without unreasonable effort.

In regard to our upcoming conference schedule, and Toby and I will be virtually attending the Citi Global Technology Conference on September 13th and the Jefferies Software Conference on September 15th and we will be in person at the HR Tech Conference on September 29th and Las Vegas. 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.

Steve Thank.

Thank you Ryan and thanks for all of you for joining us on our fourth quarter and fiscal 'twenty..1 earnings call. We finished the year with strong momentum as Q4 and fiscal 'twenty..1 results came in ahead of our guidance our sales team had an excellent quarter and we exited the fiscal year with 28, 2% revenue growth in the fourth quarter.

Adjusted EBITDA for the fourth quarter was $37.3 million or 22, 2% margin and exceeded the top end of our guidance by $2.8 million for fiscal 'twenty..1 adjusted EBITDA was $170 million or 26, 7% margin. Despite the COVID-19 related headwinds and near zero interest rate environment.

Despite a very challenging environment, driven by Covid related restrictions our sales team had a strong year and we ended fiscal 'twenty, 1 with 28750 clients compared to 24000 and 450 at the end of last fiscal year and increase of 18% the.

Of the 18% increase and clients and fiscal 'twenty..1 was also aided by very high client satisfaction as revenue retention once again remained greater than 92% and at its highest level and a number of years.

Our value proposition of providing the most modern and comprehensive product suite and the industry continues to resonate and the marketplace New business starts and first time appointments continue to gain momentum and we're very pleased with the execution of our sales team across all market segments.

The strong sales execution is driving Q1 and fiscal 'twenty 2 revenue guidance to the highest levels, we've seen and a number of years.

Building off the strong momentum we've expanded our sales force for fiscal 'twenty, 2 by adding new sales reps, while at the same time investing and training initiatives and marketing and channel programs to drive productivity sales reps of increased by 18% from 498 and fiscal 'twenty, 1 to 588 and fiscal 'twenty 2 and.

Im pleased that were fully staffed heading into the new year.

As we move past the pandemic and into a more normalized environment Pelosity strong value proposition is also resonating with prospective employees, we're seeing very strong pool of talented candidates across the business, including and sales marketing and R&D. We plan to take advantage of this momentum as we staff up for fiscal 'twenty 2 and beyond.

We also continue to invest and our channel initiatives and we remain pleased with the consistency and our referral channel, which continued to deliver more than 25% of our new business in Q4 and full fiscal 'twenty 1.

In addition to and 18% increase and sales reps for fiscal 'twenty..2 we remain committed to continuing our investments and digital marketing and digital lead generation to support our go to market motion.

Our products focused on the modern workforce continue to see utilization growth and community. We saw on average of over 25000 announcements per month and our monthly unique visitors doubled here in fiscal 'twenty, 1 with hundreds of thousands of user interactions per month as reactions and comments from employees led the way.

As community continues to grow we see thousands of groups being created that allow for discussion and collaboration we see increasing potential in the use case as many groups created are centered around a team. We are looking to enable better team engagement and collaboration as the space to get work done and have already started leveraging this internally.

In addition to the growth and community survey usage increased significantly in fiscal 'twenty, 1 with an average of more than 1 million surveys launched each month and premium video usage of surpassed over half of million videos played across the product suite.

Our learning management product is similarly seen significant growth with over 200000 learning courses being completed per month by employees with nearly 90% engagement on all of video content recorded and uploaded leveraging our video product. We believe this continued momentum further demonstrates of video content across the suite is a powerful communications.

Tool.

And lastly, the Pelosity modern workforce index, or <unk>, which analyzes scores and tracks a company's progress and delivering a more engaging experience for their employees has been instrumental in driving client conversations and we're very pleased with the traction this tool is seeing and the marketplace.

Our commitment to product development continues to be recognized and the market with Pelosity ranking high on the <unk> crowd summer grid reports during the fiscal 'twenty..1 included being listed as a leader and 12 product categories. And addition to be recognized in the mid market and enterprise segments.

And the success. We've had is the company would not be possible without the dedication and commitment of more than 4000 employees, who worked hand in hand with our clients through a very challenging year. The strong culture. At Pelosity also continues to be recognized as we were once again named a certified great place to work will also ranking ninth and fortune 100 fastest growing companies list.

And.

The impact that the pandemic had on our employees clients and communities reaffirmed <unk> commitment to being a leader and social and environmental responsibility and corporate governance, and we have programs in place across our business to deliver on that commitment our diversity leadership council strive to create an environment that is focused on diversity equity and inclusion.

And we've created a required unconscious bias training program for our employees, which we also made available to our clients and our learning management product. Additionally, our employee resource groups are organized to give employees the chance to build community and connections voice their ideas and perspective personally develop and grow and shape, our culture to make a difference at work and and our.

Local communities.

And I encourage you to review the newly launched corporate social responsibility section of our website, which further outlines our commitment and efforts on this very important topic.

I would now like to pass the call. It the Tobi to review the financial results in detail and provide fiscal 'twenty 2 guidance.

Thanks, Steve before I review of our results I would like to congratulate Steve on recently, receiving another Glassdoor employees Choice Award, which honors the top Ceos in 2020, 1 among large companies congrats the very well deserved.

Total revenue for the fourth quarter was $167.5 million and increase of 28, 2% with recurring and other revenues up 28, 8% from the same period last year as Steve noted our sales team had a strong quarter and we were pleased to come in $4 million above the top end of our revenue guidance.

For the year recurring and other revenues were up 15, 7% and total revenue was up 13, 2% for the fourth quarter. Our adjusted gross profit was 69, 5% and for the year It was 75%.

We continue to make significant investments and 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 14, 5% of revenue and the fourth quarter compared to 16, 3% and the year ago quarter.

Full year total research and development investments were 14, 7% of revenue compared to 14, 3% and fiscal 'twenty on a dollar basis, our year over year investment and total R&D increased by 16, 3% and fiscal 'twenty, 1 when compared to fiscal 'twenty 1.

We continue to believe our investments in R&D provide us with valuable product differentiation and the ability to drive future growth on.

On the non-GAAP basis sales and marketing expenses were 25, 2% of revenue and the fourth quarter and 22, 9% for fiscal 'twenty 1.

On a non-GAAP basis, G&A costs were 14% of revenue and the fourth quarter versus 15, 5% and the same period last year.

Full year G&A costs were 13, 1% of revenue as compared to 13, 8% and fiscal 'twenty and we remain focused on consistently leveraging our G&A expenses on an annual basis.

Our adjusted EBITDA was $37.3 million or 22, 2% of revenue for the quarter, which exceeded our guidance by $4.3 million at the midpoint.

Our adjusted EBITDA for the year was $170 million or 26, 7% of total revenue we remain committed to progressing towards our adjusted EBITDA target of 30% to 35% of revenue once we return to a more normalized environment.

Briefly covering our GAAP results for Q4 gross profit was $108.4 million operating income was $9.1 million and net income was $11.9 million.

For the full year gross profit was $416.3 million operating income was $58 million and net income was $70.8 million.

And regards to the balance sheet, we ended the year with cash cash equivalents and invested corporate cash of $206.7 million.

We're pleased with our performance in Q4, which included another strong quarter for our sales team, while also identifying opportunities to demonstrate scale and operational and G&A costs and we're happy with the progress we made to that and in Q4.

And regards to client held funds and interest income our average daily balance of client held funds was $1.7 billion and Q4, we're estimating the average daily balance will be approximately $1.7 billion and Q1, and we assume an average yield of approximately 5 to 10 basis points in the first quarter.

Before reviewing guidance I'd like to provide some additional context on the current operating environment.

Steve mentioned, we continue to be pleased with the performance of our sales team this past quarter and over the last fiscal year and regard to the ongoing impact of COVID-19 within Q4, we saw a notable increase and client workforce levels and each of April may and June with July also seeing further improvement.

Finally, I'd like to provide our financial guidance for Q1 and full year fiscal 'twenty 2 for.

For the first quarter of fiscal 'twenty to total revenue is expected to be and the range of $171.5 million to $175.5 million or approximately 26% to 29% growth over first quarter fiscal 'twenty, 1 total revenue and.

And adjusted EBITDA is expected to be and the range of $37.8 million to $40.8 million and.

And for full year fiscal 'twenty to total revenue is expected to be and the range of $790 million to $795 million or approximately 25% growth over fiscal 'twenty 1.

And adjusted EBITDA is expected to be and the range of $209.5 million to $213.5 million.

In conclusion, we are pleased with our Q4 results and we remain committed to investing and the business to ensure we are well positioned to drive future growth. We're also pleased the guide fiscal 'twenty, 2% to 25% revenue growth at the midpoint, our highest revenue growth guidance to start of fiscal year since August 2016.

Additionally, the combination of strong revenue growth and adjusted EBITDA margin represented and our full year guide returns us to above the rule of 50 and fiscal 'twenty 2 operator, we're now ready for questions. Thank you.

As a reminder, if you had the question at this time, Please press star and the number 1 key on your Touchtone telephone and if your question has been answered for you wish to remove yourself from the queue press. The pound key please limit your question to 1 question and 1 follow up.

Your first question concerning the line of Scott Berg and Eden.

And company your line standard.

Yes.

Yeah.

Thanks, Steve Toby and Brian Congrats on the great quarter and thanks for taking my questions.

I guess, let's start off with the overall demand environment, we continue to hear the the.

And the customer demand kind of down market and your core areas really strong right now how would you say customer appetite is for buying products kind of across the across your product set though is it really just maybe replace and core HR and payroll or are you really seeing customers and I don't know instead of by the entire suite of upon.

Yes, I think we're seeing both so demand overall is pretty strong just in terms of looking at activity from the number of appointments that were having or.

The number of new sales that were bringing on board and then as we look at the products that people are buying we're definitely seeing more popularity and the places that we called out so all of our modern workforce initiatives surveys LMS, obviously communities for free product, where we're getting great utilization there, but that's been a big part of the conversation and the differentiation, it's a real tight labor market I think as everybody knows.

And so being able to have products to engage with employees is really resonating.

Got it and then from a follow up perspective kind of along the same line I know you all have invested more heavily over the last couple of years.

More back into the base any kind of color commentary on all of those efforts are going and in the last quarter.

Hey, Scott Tobey.

You're right, we've definitely and.

Put a little bit more muscle and more investment into our team and sales back into the customer base and I think.

All of the same things ring true with what Steve just said in terms of those products, which are most of which are a little bit newer resonating with our customer base as much as they are with.

New sales and so I think we're pretty pleased with the.

On trade and we're able to drive back into the customer base with those with those newer products I mean, it's definitely a smaller part of the overall.

The new sales and smaller part of the overall revenue, but we're pretty pleased with the demand we've seen there.

Your next question comes from the line of Terry Tillman the true lease your line is now open.

Yes.

Hey, guys. This is Joe Meares on for Terry Thanks for taking the questions.

Im wondering what youre seeing.

On the broker side and with regards to existing brokers and any opportunities to expand the broker network and then.

Do you think over the course of the next 12 and 24 months debt as part of the revenue this could expand the proportion of overall revenue.

Yes, we've been really consistent and the broker channel so even throughout the pandemic, we have been greater than 25% of our new business from broker referrals, which I think we were really pleased with because of lot of those visits prior to the pandemic were happening face to face.

We are back to some face to face activity, but a lot of it still happening virtually from of broker perspective, and so being able to deliver above that 25%. We're really pleased with I think going forward that continues to be kind of our target. It's a good mix in terms of self generated and broker referrals, we feel good about getting that mix kind of across our target market segment, and we've got a lot of initiatives.

Pointing out the brokers that will allow us to expand the number of relationships that we have but also deepen the relationships with existing providers, who sent us referrals on an annual basis.

Simple answer I appreciate it and then this is the follow up on it.

It sounds like demand overall is strong but I'm just wondering is.

With the way that the Delta Marion's playing out.

The demand is consistent across different parts of the country. As you are seeing any pockets of the warm.

And as fast or slow right now.

We certainly when you look at through the last year, we certainly saw some differences.

And your places would shut down and we'd see demand being impacted and those markets think early on and places like New York and California, and then as those markets opened up we would see a little bit of accelerated activity I think at this point and time, it's pretty much improving across the board.

And 1 of the reasons, we feel very bullish in terms of how things look as though of our sales teams are.

We're able to do well across the size segments that we serve and across all geographies like everybody. We all worry about what the impact of of Delta could be.

We have to go back to virtual were pretty adept at doing that in terms of selling we feel like we've got good momentum we feel like there is some pent up demand in terms of people, maybe not moving in certain industries for a while and so we're hopeful that we can continue the momentum despite some of the increases and delta.

Your next question comes from the line of Mark Marcon with Baird. Your line is now open.

Hey, good afternoon, Steve Toby and Ryan.

<unk>.

Great quarter, great year, particularly considering the circumstances I'm wondering can you talk a little bit about.

And the revenue performance both for this quarter and.

And for the guide with regards to a couple of aspects in terms of the number of employees per client just within the existing base how much of an increase did you end up seeing in terms of the employees per client and and and.

And what sort of revenue impact of that half and then secondly with the.

The full suite that you have there are certain elements that really appeal to some larger clients I'm wondering what youre seeing in terms of the average size of client.

Particularly in this last quarter.

Sure I'll start with revenue.

Yeah I'll start the second question first.

So we have been targeting top and of our market segment and many times, we go well above 1000 employees and we've got customers 5000 employees on our platform. We don't limit our sales organization. We're looking for the right fit and Youre correct. We have been adding some interesting capabilities that make us even more competitive at the top and are beyond our target market and we've seen good success I think.

If you go to last year, we were calling out those larger kind of more enterprise like clients as being a.

Really nice growth driver, even and Covid I think what's happened more recently as we're seeing acceleration and our core and mid market and even at the low end of our market and so and we're now feel like we're firing on all cylinders.

And then I'll, let Toby talk a little bit to how we view the pays per on our platform contributing to revenue growth, Yeah, Hey, Mark and I think what we've seen.

And is and building off of what we would have said on the last call I mean, we source.

Strength and momentum coming back on a month to month basis.

All through Q4, and we've seen continued momentum there through July as well and I think the right way to think about that in terms of the magnitude as we would've described the impact to our revenue growth through the course of the last.

The through Covid through last year Youre pluses.

And in most cases, and most quarters of double digit headwind and I think we said on the last call that we saw that coming down and I think we would of describe that for Q4 as being sort of a low single digit headwind so certainly progress.

Positive progress for sure.

Okay, Great and then can you talk a little bit about the the.

The solutions like community video.

The survey it sounds like the engagement levels are really high can you just talk about.

And what that's doing for client retention rates within the clients that are using it what's the attraction share.

In terms of the positioning with with potential new clients and and just monetization opportunities. Thank you.

Yes, so I think prior to Covid, we are marching down this path of really creating modern features that really kind of extended how we might traditionally view and HCM product and so we've had community and the market for a while we've had peer to peer recognition on a product called impressions and the market for a while and.

And.

We were continuing to make investments obviously, good timing from an acquisition of bid grid perspective, right at the start of the pandemic and integrating that into our suite now our premium video product and what we saw from the pandemic is really an acceleration of those trends. So individually individuals pre pandemic, we're having a hard time imagining themselves recording themselves imagine recording on a phone and sending out.

All of your employees or.

And actually using video in and asynchronous fashion to be able to communicate with employees versus zoom and what we're finding of our customers are much more comfortable of that because the expense. So many hours and zoom calls and communicating that way and.

The second part is it's a tight labor market right now and there is a war for talent out there and so making sure that you're engaging with your employees and communicating connecting gathering their feedback training and develop them has really risen and importance within our client base and so from that perspective, we have the products. We have continued to add the features that our clients are asking for it we're constantly.

And releases based off of their feedback so they get better and better.

And we're seeing the momentum of place like community, where we've had that product out and the market for several years, we're absolutely seeing clients were taking advantage of community turnover less and maybe a broader population because once every employee of the company starts touching and connecting with the product like that it just makes it much more difficult to move to a competitor.

Yes.

Once again, if you would like to ask the question. Please press star 1 on your telephone keypad and wait for Union to be NAV. Your next question comes from the line of Bryan Bergin Cowen Your line standard of the.

Hey, guys good afternoon, and thank you.

Wanted to ask a question on demand and whether you've noticed any improvement and the pace of client decision, making when it comes to switching.

Yes, I would say it feels more normal now I don't know for all the way back.

But during the pandemic lots of things of what happened in terms of new restrictions and that state would then take of project and put it on the shelf we had issues with some of the HR administrators that we're trying to actually implement our solution and they might have had something happened and the personal lives that would delay of them.

And so we were kind of working through that and all we've been quite friendly and making those decisions and.

And sometimes that would impact when they went live other times it might delay start dates were not really seen that and the market right now it feels very much back to the way. It was pre pandemic from a time to first appointment to final decision and implementation cycles.

Okay.

And then just around product attach and can you comment around and it's early but penetration rates, where those stand for premium video and on demand pay curious if youre seeing any greater interest for the on them and pay offering and then and.

And for premium video is a trending the same way you would typically expect in past modules above it and would you characterize that yes.

Yes, so I would have thought a year plus ago that premium video would probably be a little bit slower and uptake because we're really trying to push people for a more modern way to connect and communicate with employees.

Because of the pandemic and what I just went through earlier, we are seeing premium video on a very similar track to many of our other talent management products, which is really interesting on demand pay continues to grow we're happy with that and employee and logging and they can see real time exactly what they were and throughout the payroll period. They can request that payment. They can do it frequently throughout the period.

And we're seeing that grow its been kind of of constant growth and probably not quite at the pace of some of our other products, but we're still optimistic about the future and the opportunity. That's there because the customers that have used it and if it gives us really good feedback that they're employees love that opportunity and I think as you see the market for labor being tighter that feature becomes.

Something that we see heavy hourly workers of demand from from their employer.

Your next question comes from the line of Alex Zukin with Wolfe Research. Your line is now.

Hey, guys. Thanks for taking the question maybe just the first 1 I wanted to kind of zero and on the guidance because clearly this is the strongest guidance for fiscal year, you guys have ever given or for since the since a long time ago and I just wanted to kind of zero in on what gives you that confidence is that the demand environment is it the.

The significant opportunity for <unk>.

Larger from a cross sell upsell is it and Brian at levels coming back I, just wanted to zero and because given the uncertainty that there still is with delta.

It is quite quite exemplary.

And numbers.

Sure.

I would tell you that anytime that we give guidance it really first starts with.

What do we think from a sales momentum perspective.

And usually our ability to hit or exceed that guidance is largely due to sales performance. We do have some new variables with the COVID-19 in terms of looking at the employees on the platform, which for US is generally a pretty consistent number and something that is fairly predictable.

We have seen a pretty significant return over the last few months, we're not all the way back to pre pandemic levels because of that GAAP is a little bit smaller and we feel fairly comfortable with the momentum that we have and the sales force to be able to put forth. As you mentioned some of the strongest guidance, we've had and the last several years.

Understood and then if I, if I think about now and are kind of hopefully post pandemic environment.

Thank you.

Productivity improvements that you've seen in our remote selling environment and from a competitive standpoint, when you think about the lag.

Last year people, having hesitancy to make any big moves as they are and COVID-19 and and the pandemic and that kind of loosens up is there are there any vendors that you are seeing particularly stronger win rates against.

Versus maybe over the past 12 months.

I think we're in a bit of a unique position. When you think of some of the products that we've introduced and things like community. The premium video we've talked about a lot of the engagement oriented products, we think give us a really of different value proposition are really around the future of work and how we can play a role and that and.

And so we think that value proposition is resonating across the board no real callouts in terms of doing better or worse against particular vendor.

More than anything we're just feeling pretty good sales momentum across the board kind of the small end of our market and mid size the large and of our marketplace. We got good unit traction in terms of volume that we're bringing on and on top of that we're getting higher average revenue per sale with some of these products. So no call. It from a competitive environment is probably up to us from an execution perspective.

Your next question concerns the line of taxable the valence with JMP Your line Snoopy.

Oh, great. Thank you and.

Congratulations it's great to see.

So if you step back and look at the Big picture.

And what would you say are the top 2 or 3 things that that you want to work on for the next 12 months that pay a lot of steam.

Sure well, we still have a pretty large tam and are relatively underpenetrated in terms of that Tam and so you start to think about investments for the future long term.

So 1 is the tight labor market for staffing as really key not just staffing and kind of in the quarter, but for the year and beyond and so we want to make sure that we can bring on great software engineers, great salespeople of great people and our implementation and so there's a lot of activity going on right now from a hiring perspective, and a highly competitive environment and I've been really happy about how we've done in terms of bringing on tap.

And so that certainly that's number 1 I think number 2.

Really goes to some of the product strategy that we have and extending our capabilities from of water workforce perspective.

We're really seeing great activity on our platform and.

And that activity, we think we can translate to additional use cases.

And really help our customers and <unk>.

<unk> be great employers and really engage with employees and get the benefit of higher retention and so we really think that we're operating a great value proposition that goes well beyond just saving a little bit of time and that's what I'm really excited about the combination of bringing the talent on board and being able to extend our roadmap offering our clients much more valued and time savings.

And I'm sure you don't want to give too much away, but you wanted to give us a hint on sort of additional things you can do that you don't do today.

I think we talked a little bit about and the prepared script 1 of the things that has become pretty obvious to us the way customers are using our community platform is they're interacting the groups that we had capability of their interacting themselves as teams.

And they are asking for additional capability in terms of what they would like to do of the team we of all the data about the teams the people the positions the supervisors and so we're pretty interested with are seeing page acquisition, bringing incremental capabilities that certainly bleed into the collaboration space to be able to enable them to get the work done.

Your next question comes from the line of some of that <unk> with Jefferies. Your line's now open.

Hi, good evening and that.

And for taking the question, it's great to see the strong outlook, given all of that uncertainty and congrats on that maybe.

And maybe 1.

I know you guys said you are still going at the hiring salespeople.

And behind the opportunity that Youre seeing I am curious now that we're all kind of used to working from home is it changing either the type of or the geography, and which you are willing to hire a salesperson are there people that youre willing to hire that may not ever be back of of physical office, though it doesn't even matter if there if they are targeting a region.

They're never going to be in physically.

Yes, it's a good question I would say when you think of the smaller and of our market. The under 50 employee segment, we think Thats a real opportunity we have inside sales teams prior to the pandemic that we're focused on that but admittedly relatively small as we started to expand throughout the pandemic essentially every person you're hiring ends up being and inside sales per for some period of time.

But in that segment, we absolutely hired people with the idea that you would stay and side long term and that being able to close business virtually can be more effective and efficient I think as you move upmarket the broker network becomes a really important part of the equation being in market, having a common set of customers that you can talk to them about and potentially having back to face to face.

Events, we think is still critical so we remain focused on hiring and market outside of the very low and.

Great and then maybe a question on M&A and how the company is only done a handful of tuck ins, but.

They've proven to be successful I am curious if theres any change and maybe the M&A appetite.

As you look forward and think about maybe accelerating the product roadmap.

Yes, we are certainly open to it obviously, we've got a strong balance sheet and we've got a big opportunity in front of US. We're just highly selective is probably the right answer if you look at our premium video product at the end of the day. It feels like we actually built it from the ground up now we didn't build the video recording capability. We've got a great team that we were able to acquire that already did that but we really took the.

And to integrate the user experience and it's just like we would have built it ourselves and so keeping that user experience at the forefront.

As we continue to integrate something like St pages that exact same philosophy from the user perspective, it's absolutely going to feel like we built it and sometimes when we acquire something we have the rebuilt components to make sure of that that happens and we're very comfortable with that so we're going to continue to look for opportunity to do that where we can get really talented people.

We're able to integrate them into our teams and then be able to deliver a product that advances the roadmap hard to do that a ton of times of year and actually do that effectively. So it's certainly possible that we see some acceleration there that's not necessarily the goal it's purely opportunistic but I think look at our prior history is a good indication of how we think about those and.

And the type of opportunities, we would look forward to and the future.

And.

Your next question comes from the line of Brad Reback with Stifel. Your line canopies.

Great. Thanks, very much Steve overall, and how did you feel about rep productivity over the course of the fiscal 'twenty 1.

I think throughout the pandemic I use the word fairly resilient.

And I think Thats very true, we were able to sell more than the prior year and we certainly had more reps.

But we didn't have the same productivity that we were seeing pre pandemic. So pre pandemic as a reminder, we are hitting 40% year over year of growth in sales.

And then obviously that took a hit and and started to rebound and recover throughout the pandemic.

Sitting here today, you can see our forecast for next year, which we feel really good about and that's what the 18% more head count. So we feel really good about the trajectory of productivity right now and our opportunity to kind of get back to the momentum that we had pre pandemic and certainly driving productivity is absolutely part of our equation in terms of the growth formula.

And then maybe 1 quick follow up as we look forward post pandemic whenever that wraps up.

I think the structural growth rate of the market is better as people have sort of seen the challenges.

And that depend epic has brought on and the need to address them at a different way.

Yes, there are certain parts of our suite debt, probably structurally arent that different so at the end of the day, everybody had the do payroll and some way shape or form so I'm not sure of that maybe theres, a little bit of pent up demand because people didn't move and <unk> got some something that frees up but I think at the end of the day of lot of those core products you kind of needed to have before some of the newer stuff. We have we definitely are seeing more.

And now and I think we're probably early in that cycle of a customer saying Wow. This has been really hard to attract the talent I need at the tight labor market <unk> demanding things for me that I never saw prior generation I need to think about my HR platform as being much more modern and go well beyond just compliance and time savings.

And we think that those conversations will continue to accelerate over time and will create incremental opportunity for us to be able to add products like premium video that we probably would have never imagined for 5 years ago.

Your next question comes from the line of Daniel Jester with Citi. Your line standard.

Great. Thanks for taking my question I joined a little late so apologies if I ask something that would already have but Steve you mentioned higher revenue per customer is that reflective of sort of bigger initial land better cross sell of sort of more modules can you kind of pull that apart and as we go to the next fiscal year do you see anything changing in that and.

Mix of sales.

So we've been on a path for let's call. It the last for years to do.

More sales back to the client base.

I would tell you that we've incrementally grown that and I say incrementally, we've actually grown that relatively quickly, but starting from a very small base and.

So that is incrementally a higher percentage of our total sales every year I think Toby mentioned earlier, it's still a small percentage of our total sales.

But it is improving and we're seeing good traction within our client base with some of those new products. The biggest driver is still the units that we bring on that are new and the fact that we're able to sell them more and so from a land and expand perspective, we're definitely still heavily leaning on the on the land side of the equation.

Got you and then and then Ted <unk>, leaving and and he's obviously been a big strong partner of Yours can you maybe just philosophically talk about like what kind of lead or you think it's going to take to sort of take the products for the next level from that perspective. Thank you very much yes. It has been with us for 8 years and has done an absolutely phenomenal job.

And has decided to leave and and certainly take some time off which is.

Well earned I think in terms of everything he's been able to do for US I think from my perspective has created a great team. That's the most important thing and as all of you know who worked for me for a while I'm very involved personally and product and very involved with his team and so he will definitely be missed and that has big shoes that we have to fill but we want somebody that fits and culturally that can continue to focus on on our goal.

And to deliver the most modern platform and and he has left us with a team that's really strong and may require a little bit more of my time in the meantime, until we find somebody but I think we're going to be and pretty good shape from a product perspective, driving that strategy forward based on who he developed and hired.

Once again, if he would like to ask the question. Please press the star 1 on your telephone keypad and wait for you need to be announce your next question comes from the line at CD <unk>, we can issue and your lines of units.

Hey, Thanks for taking my question first 1 housekeeping item. So when you say of fire.

88 sales reps could you give me the breakdown of that and emerging market sales reps.

Yes, we don't provide segment based.

And head count by by sales reps.

But you could think about though the largest group of those sales reps being and kind of our core market kind of our mid major sized customers and some customers that are focusing on the larger and and the smaller and and both the larger and smaller and being a smaller number and we also have and inside sales group as well that fits into that smaller and bucket as well.

Okay. Okay, and then what do you think of investment and it looks like EBITDA margin is kind of flat year over year, So where do you plan to focus on this.

Is it more on the R&D side, I will sort of clarity about the investment.

So the first thing I would say is this year is an interesting year because the anniversary on Covid, where we didn't have any travel and conferences, we paused hiring for a while so certainly there was a bunch of things that we did to try to manage expenses through COVID-19. So anniversarying those does create a little bit of a challenge from a comparable perspective, but on the flip side, we've been really happy.

For about our investments, we've been making and product some investments, we've been making and sales and marketing it's taken us a while to ramp those up through through Covid and we've got really good momentum there and so because we've got great sales momentum, we got great momentum and the marketplace. We felt like this wasn't the year where were number 1 priority was focused on adjusted EBITDA, but to make sure of that.

Take advantage of the momentum we've got in the marketplace and and we certainly feel like that 30% to 35% of its still a target that we will achieve and.

From a long longer term perspective, and we will typically make progress to that on an ongoing basis is just this year. We think this as of year for us to focus on investment.

That's great. Thank you.

We have no further question at this time I will now turn the call net coal of the back to the mansion for closing remarks great.

Great well I want to thank all of you for your interest and <unk> and of course, Thank our 4000 plus employees for helping us and our customers through a very challenging year hope everyone have a great night.

Ladies and gentlemen, this concludes today's conference call. Thank you for participating you may now disconnect.

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Ladies and gentlemen, and thank you for standing by and welcome to the pay lock City earnings results call for the fourth quarter of fiscal 2021 at this time all participants are in a listen only mode. After the speaker presentation. There will be a question and answer session to ask a question during the session you'll need the press star 1 on your telephone please be.

By the 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 of today, Ryan Glenn Vice President of S. DNA and Investor Relations. Please go ahead.

Good afternoon, and welcome to the Pelosity his earnings results call for the fourth quarter of fiscal 'twenty, 1 which ended on June 32021, I'm, Ryan Glenn Vice President of SG&A, and Investor Relations and joining me on the call today is Steve Beauchamp CEO of Pelosity and Toby Williams CFO of philosophy today, we will be discussing the results now.

And our press release issued after the market closed on.

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, which could cause.

<unk> actual results to differ from the results implied by these or other forward looking statements also these.

These statements are based solely on the private information and are subject to risks and uncertainties that can cause actual results to differ materially from those projected in 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 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 on our website at Pelosity 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 measure because of the information which is needed to complete a reconciliation is unavailable at this time without unreasonable effort.

In regard to our upcoming conference schedule, and Toby and I will be virtually attending the Citi Global Technology Conference on September 13th and the Jefferies Software Conference on September 15th and we will be in person at the HR Tech Conference on September 29th and Las Vegas. Please let me know if you'd like the scheduled time with us at any of these events with that let me turn the call over to.

Steve Thank.

Despite a very challenging environment, driven by Covid related restrictions our sales team had a strong year and we ended the fiscal 'twenty, 1 with 28750 clients compared to 24000 and 450 at the end of last fiscal year and increase of 18% the.

And the 18% increase and clients and fiscal 'twenty..1 was also aided by very high client satisfaction as revenue retention once again remained greater than 92% and at its highest level and a number of years.

Our value proposition of providing the most modern and comprehensive product suite and the industry continues to resonate and the marketplace New business starts and first time of appointments continue to gain momentum and we're very pleased with the execution of our sales team across all market segments. The strong sales execution is driving Q1 and fiscal 'twenty 2 revenue.

Guidance to the highest levels, we've seen and a number of years.

I'm pleased that we're fully staffed heading into the new year as we move past the pandemic and into a more normalized environment Pelosity strong value proposition is also resonating with prospective employees, we're seeing very strong pool of talented candidates across the business, including and sales marketing and R&D. We plan to take advantage of this momentum as we staff up for.

For fiscal 'twenty, 2 and beyond.

Our products focused on the modern workforce continue to see utilization growth and.

And community we saw on average of over 25000 announcements per month, and our monthly unique visitors doubled during fiscal 'twenty, 1 with hundreds of thousands of user interactions per month as reactions and comments from employees led the way.

As community continues to grow we see thousands of groups being created that allow for discussion and collaboration we see increasing potential in the use case as many groups created are centered around a team. We are looking to enable better team engagement and collaboration as a space to get worked on and have already started leveraging this internally.

Our learning management product is similarly seen significant growth with over 200000 learning courses being completed per month by employees with nearly 90% engagement on all video content recorded and uploaded leveraging our video product. We believe this continued momentum further demonstrates of video content across the suite is a powerful communications.

And tool.

Our commitment to product development continues to be recognized and the market with Pelosity ranking high on the G to crowd summer grid reports during fiscal 'twenty..1 included being listed as a leader and 12 product categories. In addition to be recognized in the mid market and enterprise segments.

And the success. We've had is the company would not be possible without the dedication and commitment of more than 4000 employees, who worked hand in hand with our clients through a very challenging year. The strong culture of Pelosity also continues to be recognized as we were once again named a certified great place to work well also ranking ninth and fortune 100 fastest growing companies list.

And <unk>.

The impact that the pandemic had on our employees clients and communities reaffirmed pay lots of his commitment to being a leader and social and environmental responsibility and corporate governance, and we have programs in place across our business to deliver on that commitment our diversity leadership council strive to create an environment that is focused on diversity equity and inclusion.

And we've created a required unconscious bias training program for our employees, which we also made available to our clients and our learning management product. Additionally, our employee resource groups organized to give employees the chance to build community and connections voice their ideas and perspective personally develop and grow and shape, our culture to make a difference at work and and our.

Local communities.

And I encourage you to review the newly launched corporate social responsibility section of our website, which further outlines our commitment and efforts on this very important topic.

I would now like to pass the call. It the Tobi to review the financial results in detail and provide fiscal 'twenty 2 guidance.

Thanks, Steve before I review of our results I would like to congratulate Steve on recently, receiving another Glassdoor employees Choice Award, which honors the top Ceos and 2021, among large companies congrats the very well deserved.

Total revenue for the fourth quarter was 167.5 million and increase of 28, 2% with recurring and other revenues up 28, 8% from the same period last year.

Steve noted our sales team had a strong quarter and we were pleased to come in for million dollars above the top end of our revenue guidance.

For the year recurring and other revenues were up 15, 7% and total revenue was up 13, 2% for the fourth quarter. Our adjusted gross profit was 69, 5% and for the year It was 75%.

We continue to believe our investments in R&D provide us with valuable product differentiation and the ability to drive future growth on.

On a non-GAAP basis sales and marketing expenses were 25, 2% of revenue and the fourth quarter and 22, 9% for fiscal 'twenty 1.

On a non-GAAP basis, G&A costs were 14% of revenue and the fourth quarter versus 15, 5% and the same period last year.

Full year G&A costs were 13, 1% of revenue as compared to 13, 8% and fiscal 'twenty and we remain focused on consistently leveraging our G&A expenses on an annual basis.

Our adjusted EBITDA was $37.3 million or 22, 2% of revenue for the quarter, which exceeded our guidance by $4.3 million at the midpoint.

Briefly covering our GAAP results for Q4 gross profit was $108.4 million operating income was $9.1 million and net income was $11.9 million.

For the full year gross profit was $416.3 million operating income was $58 million and net income was $70.8 million and.

And regards to the balance sheet, we ended the year with cash cash equivalents and invested corporate cash of $206.7 million.

We're pleased with our performance in Q4 of which included another strong quarter for our sales team, 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 Q4.

Before reviewing guidance I'd like to provide some additional context on the current operating environment.

Finally, I'd like to provide our financial guidance for Q1 and full year fiscal 'twenty 2 for.

And adjusted EBITDA is expected to be and the range of $37.8 million to $40.8 million and for full year fiscal 'twenty to total revenue is expected to be and the range of $790 million to $795 million or approximately 25% growth over fiscal 'twenty 1.

And adjusted EBITDA is expected to be and the range of $209.5 million to $213.5 million.

Additionally, the combination of strong revenue growth and adjusted EBITDA margin represented and our full year guide returns of 2 above the rule of 50 and fiscal 'twenty 2.

Operator, we're now ready for questions. Thank you.

As a reminder, if you had the question at this time, Please press star and the number 1 key on your Touchtone telephone. If your question has been answered or you wish to remove yourself from the queue, perhaps of the pound key. Please limit your question to 1 question and 1 follow up your first question concerned of the line of Scott Berg.

And Jim and company your line standard.

Yeah.

Thanks, Steve Toby and Brian Congrats on the great quarter, and thanks for taking the questions.

I guess, let's start off with the overall demand environment, we continue to hear the.

The customer demand kind of down market and your core areas is really strong right now how would you say customer appetite is for buying products kind of across the cost of your product set though is it really just maybe replace and core HR and payroll or are you really seeing customers I don't know instead of by the entire suite upfront.

Yes, I think we are seeing both so demand overall is pretty strong just in terms of looking at activity from the number of appointments that were having or.

The number of new sales that we're bringing on board and then as we look at the products that people are buying we're definitely seeing more popularity and the places that we called out so all of our modern workforce initiatives surveys LMS, obviously communities the free product, where we're getting great utilization there, but that's been a big part of the conversation and the differentiation is the real tight labor market I think as everybody knows.

And so being able to have products to engage with employees is really resonating.

Yes.

Got it and then from a follow up perspective kind of along the same line I know you all of invested more heavily over the last couple of years to sell more back into the base.

And kind of color commentary on how those efforts are going and in the last quarter.

Hey, Scott Toby and I think you are right, we definitely and.

And put a little bit more muscle and more investment into our team and sales back into the customer base and I think.

All of the same things ring true with what Steve just said in terms of those products, which are most of which are a little bit newer resonating with our customer base as much as they are with.

And with new sales and so I think we're pretty pleased with the and.

Penetration, we're able to drive back into the customer base with those with those newer products I mean, it's definitely a smaller part of the overall.

On new sales and smaller part of the overall revenue, but we're pretty pleased with the demand we've seen there.

Your next question comes from the line of Terry Tillman the true with your lines and handled.

Hey, guys. This is Joe Meares on for Terry Thanks for taking the questions.

Im wondering what youre seeing on the broker side and with regards to existing brokers any opportunities to expand the broker network and then.

And do you think over the course of the next 12 and 24 months.

And as part of the revenue mix can expanded the portion of overall revenues.

Yeah, we've been really consistent and the broker channel so even throughout the pandemic, we have been greater than 25% of our new business from broker referrals, which I think we were really pleased with because of lot of those visits prior to the pandemic were happening face to face.

Back to some face to face activity, but a lot of it still happening virtually from a broker perspective and.

And so being able to deliver above that 25%. We're really pleased with I think going forward that continues to be kind of our target.

It's a good mix in terms of self generated and broker referrals, we feel good about getting that mix kind of across our target market segment, and we've got a lot of initiatives pointing out the brokers that will allow us to expand the number of relationships that we have but also deepen the relationships with existing providers, who send us referrals on an annual basis.

That's helpful answer I appreciate it and then this is the follow up on it.

Sounds like demand overall is strong but I'm just wondering is.

And with the way that the Delta variants playing out of it.

The demand is consistent across different parts of the country, if youre seeing any pockets of zone.

Faster slower.

We certainly when you look at through the last year, we certainly saw some differences.

And you places would shut down and we'd see demand being impacted and those markets think early on and places like New York and California, and then as those markets opened up we would see a little bit of accelerated activity I think at this point and time, it's pretty much improving across the board.

And 1 of the reasons, we feel very bullish in terms of how things look is that our sales teams.

Are able to do well across the size segments that we serve and across all geographies like everybody. We all worry about what the impact of of Delta could be.

If we have to go back to virtual were pretty adept at doing that in terms of selling we feel like we've got good momentum we feel like there's some pent up demand in terms of the people, maybe not moving and certain industries for a while and so we're hopeful that we can continue the momentum despite some of the increases and delta.

Your next question comes from the line of Mark Marcon with Baird. Your line is now open.

Hey, good afternoon, Steve Toby and Ryan Congrats.

Great quarter, great year, particularly considering the circumstances I'm wondering can you talk a little bit about.

On the revenue performance both for this quarter and.

And what sort of revenue impact of that half and then secondly with with the.

Full suite that you have there are certain elements that really appeal to some larger clients I'm wondering what youre seeing in terms of the average size of client.

Particularly in this last quarter.

Yeah I'll start the second question first.

If you go to the last year, we were calling out on those larger kind of more enterprise like clients as being a.

And I really nice growth driver, even and Covid I think what's happened more recently as we are seeing acceleration and our core mid market and even at the low end of our market and so and we're now feel like we're firing on all cylinders.

And then I'll, let Toby talk a little bit to how we view the pays per on our platform and contributing to revenue growth, Yeah, Hey, Mark and I think what we've seen.

Is and building off of what we would have said on the last call and me we source.

Strength and momentum coming back on a month to month basis.

All through Q4, and we've seen continued momentum there through July as well and I think the right way to think about that in terms of the magnitude as well.

We would of described the impact to our revenue growth through the course of the last.

And through Covid through last year Youre pluses.

And in most cases, and most quarters of double digit headwind and I think we said on the last call that we saw that coming down and I think we would've described that for Q4 as being sort of of low single digit headwind. So certainly.

Progress and positive progress for sure.

Okay, Great and then can you talk a little bit about the.

The solutions like community video.

On the survey and it sounds like the engagement levels are really high can you just talk about.

And what that's doing for client retention rates within the clients that are using it what's the attraction and.

Positioning with potential new clients and.

And just monetization opportunities. Thank you.

Yes, so I think prior to Covid, we are marching down this path of really creating modern features that really kind of extended how we might traditionally view and HCM product and so we've had community and the market for a while we've had peer to peer recognition of product called impressions and the market for a while and.

We were continuing to make investments obviously, good timing from an acquisition of the grid perspective, right at the start of the pandemic and integrating that into our suite now our premium video product and what we saw from the pandemic is really an acceleration of those trends. So individually individuals pre pandemic, we're having a hard time imagining themselves recording themselves imagine recording on a phone and sending.

And I would tell your employees or.

Actually using video and and asynchronous fashion to be able to communicate with employees versus zoom and what we're finding of our customers are much more comfortable of that because they've spent so many hours and zoom calls and communicating that way and the second part is it's a tight labor market right now and there is a war for talent out there and so making sure that you're engaging with your employees and communicating connecting gathering there.

Feedback training and develop them has really risen and importance within our client base and so from that perspective, we have the products. We have continued to add the features that our clients are asking for it we're constantly making releases based off of their feedback so they get better and better.

And we're seeing the momentum of place like community, where we've had that product out and the market for several years, we're absolutely seeing clients were taking advantage of community turnover less than maybe our broader population because once every employee of the company starts touching and connecting with the product like that it just makes it much more difficult to move to a competitor.

Yes.

Once again, if you would like to ask the question. Please press star 1 on your telephone keypad and wait for Union convenient and your.

Your next question.

And the lines of Bryan Bergin Cowen Your line is the MLP.

Hey, guys. Good afternoon, and thank you 1.

I wanted to ask a question on demand and whether you've noticed any improvement and the pace of client decision, making when it comes to switching.

Yes, I would say it feels more normal now I don't know for all the way back.

But during the pandemic lots of things would happen in terms of new restrictions and that state would then take of project and put it on the shelf we had issues with some of the HR administrators that we're trying to actually implement our solution and they might have had something happened and their personal lives it would delay them and.

And so we were kind of working through that now we've been client friendly and making those decisions and.

And sometimes that would impact when they went and lives other times. It might delay start dates were not really seen that and the market right now it feels very much back to the way. It was pre pandemic from a time to first appointment to final decision and implementation cycles.

Okay.

And then just around product attach can you comment around and it's early but penetration rates, where those stand for premium video and on demand pay I'm curious youre seeing any greater interest for the on them and pay offering and then and.

And for premium video is it trending the same way you would typically expect in past modules above it and would you characterize that yes.

And we're seeing that grow its been kind of of constant growth and probably not quite at the pace of some of our other products and we're still optimistic about the future and the opportunity. That's there because the customers that have used it have given us really good feedback that they're employees love that opportunity and I think as you see the market for labor being tighter that feature becomes.

Something that we see heavy hourly workers demand from from their employer.

Yes.

Your next question can spend of the line Alex Zukin Red Wolf Research your line is NAV.

Hey, guys. Thanks for taking question, maybe just the first 1 I wanted to kind of zero and on the guidance because clearly this is the strongest guidance for fiscal year, you guys have ever given or for free.

Since the since a long time ago and I just wanted to kind of zero in on what gives you that confidence is that the demand environment is it the.

The the significant opportunity for <unk>.

Larger from a cross sell upsell and Brian the levels coming back I, just wanted to zero and because given the uncertainty that there still is with delta.

It is quite quite exemplary.

The numbers sure.

Sure.

So I would tell you that anytime that we give guidance it really first starts with.

What do we think from a sales and momentum perspective.

And usually our ability to hit or exceed that guidance is largely due to sales performance. We do have some new variables with COVID-19 in terms of looking at the employees on the platform, which for US is generally a pretty consistent number and something that is fairly predictable.

Understood and then if I, if I think about now and are kind of hopefully post pandemic environment.

How should we think of.

Productivity improvements that you've seen in our remote selling environment and from a competitive standpoint, when you think about the last year people, having hesitancy to make any big moves as they are and COVID-19 and independencia and that kind of loosens up is there are there any vendors that you are seeing particularly stronger win rates.

And against.

Versus maybe over the past 12 months.

And so we think that value proposition is resonating across the board no real callouts in terms of doing better or worse against particular vendor.

More than anything we're just feeling pretty good sales momentum across the board kind of the small end of our market and mid size the large and of our marketplace. We've got good unit traction in terms of volume that we're bringing on and on top of that we're getting higher average revenue per sale with some of these products. So no call. It from a competitive environment is probably up to us from an execution perspective.

Your next question concerns the line of Pat all the valence with JMP. Your line is now open.

Oh, great. Thank you and.

Congratulations it's great to see so if you step back and look at the Big picture.

Steve What would you say are the top 2 or 3 things that that you want to work on for the next 12 months and payoffs team.

Sure well, we still have a pretty large tam and are relatively underpenetrated in terms of that Tam and so you start to think about investments for the future long term.

1 is it's a tight labor market for staffing as really key not just staffing and kind of in the quarter, but for the year and beyond and so we want to make sure that we can bring on great software engineers and great salespeople of great people and our implementation and so there's a lot of activity going on right now from a hiring perspective, and a highly competitive environment and I've been really happy about how we've done in terms of bringing on talent.

And certainly that's number 1 I think number 2 really goes to some of the product strategy that we have and extending our capabilities from a water and workforce perspective.

We're really seeing great activity on our platform.

And that activity, we think we can translate to additional use cases and.

And really help our customers themselves be great employers and really engage with employees and get the benefit of higher retention and so we really think that we're offering a great value proposition that goes well beyond just saving a little bit of time and that's what I'm really excited about the combination of bringing the talent on board and being able to extend our roadmap offering our clients much more valued and.

<unk> savings.

And I'm sure you don't want to give too much away, but you want to give us a hint on sort of additional things you can do that you don't do today.

I think we talked a little bit about and the prepared script 1 of the things that has become pretty obvious to us the way customers are using our community platform is theyre interacting the groups that we had capability of their interacting themselves as teams.

And they are asking for additional capability in terms of what they would like to do of the team. We have all of the data about the teams the people the positions the supervisors and so we're pretty interested with are seeing page acquisition, bringing incremental capabilities that certainly bleed into the collaboration space to be able to enable them to get their work done.

Your next question comes from the line of Tonight, and then with Jefferies. Your line's now open.

Yeah.

Good evening and thanks for taking the question, it's great to see the strong outlook given all of that uncertainty. So congrats on that maybe first.

I know you guys said youre still get at the hiring salespeople.

And the opportunity that Youre seeing I am curious now that we're all kind of used to working from home and it changing either the type of or the geography, and which you are willing to hire a salesperson and are there people that youre willing to hire that may not ever be back and for physical office. So it doesn't even matter if they're if they're targeting a region that they are.

Never going to be <unk>.

But in that segment, we absolutely hired people with the idea that you would stay and side long term and that being able to close business virtually can be more effective and efficient.

Think of as you move upmarket the broker network becomes a really important part of the equation being in market.

Having a common set of customers that you can talk to them about and potentially have and back to face to face events. We think is still critical so we remain focused on hiring and market outside of the very low and.

Great and then maybe a question on M&A and other companies the only done ahead.

Philip Tuck ins, but.

And they have proven to be successful I am curious if theres any change and maybe the M&A appetite.

As you as you look forward and think about maybe accelerating the product roadmap.

Yes, we're certainly open to it obviously, we've got a strong balance sheet and we've got a big opportunity in front of US. We're just highly selective is probably the right answer if you look at our premium video product at the end of the day. It feels like we actually built it from the ground up now we didn't build the video recording capability. We've got a great team that we were able to acquire that already did that but we.

Took the time to integrate the user experience and it's just like we would have built it ourselves and so keeping that user experience at the forefront.

As we continue to integrate something like St pages that exact same philosophy from the user perspective, it's absolutely going to feel like we built it and sometimes when we acquire something we have to rebuild components to make sure of that that happens and we're very comfortable with that so we're going to continue to look for opportunity to do that where we can get really talented people.

The integrate them into our teams and then be able to deliver a product that advances the roadmap hard to do that kind of times, a year and actually do that effectively so it's certainly possible that we see some acceleration there that's not necessarily a goal it's purely opportunistic.

And I think look at our prior history is a good indication of how we think about those and the type of opportunities, we would look forward to and the future.

Your next question comes from the line of Brad Reback with Stifel. Your line channel.

Great. Thanks, very much Steve overall, and how did you feel about rep productivity over the course of the fiscal 'twenty 1.

I think throughout the pandemic I use the word fairly resilient.

And I think Thats very true, we were able to sell more than the prior year, we certainly had more reps.

But we didn't have the same productivity that we were seeing pre pandemic. So pre pandemic as a reminder, we are hitting 40% year over year growth and sales.

And that obviously that took a hit and has started to rebound and recover throughout the pandemic.

Sitting here today, you can see our forecast for next year, which we feel really good about and thats with 18% more head count. So we feel really good about the trajectory of productivity right now and our opportunity to kind of get back to the momentum that we had pre pandemic and certainly driving productivity is absolutely part of our equation in terms of the growth formula.

And then maybe 1 quick follow up as we look forward post pandemic whenever that wraps up.

And you think the structural growth rate of the market is better as people have sort of seen the challenges.

That depends epic has brought on and the need to address them in a different way.

Yes, there are certain parts of our suite debt, probably structurally arent that different so at the end of the day, everybody have to do payroll and some way shape or form so I'm not sure that maybe there's a little bit of pent up demand because people didn't move and you've got some something that frees up but I think at the end of the day of lot of those core products you kind of needed to have before some of the newer stuff. We have we definitely are seeing more.

Demand now and I think we're probably early in that cycle of a customer saying Wow. This has been really hard to attract the talent I need at the tight labor market <unk> demanding things for me that I never saw prior generation I need to think about my HR platform as being much more modern and go well beyond just compliance and time savings.

Your next question comes from the line and Daniel Jester with Citi. Your line channel.

Great. Thanks for taking my question I joined a little late the apologies if I ask something that would already have but Steve you mentioned higher revenue per customer is that reflective of sort of bigger initial lands better cross sell of sort of more modules can you kind of pull that apart and as we go to the next fiscal year do you see anything changing in that.

Mix of sales.

So we've been on a path for let's call. It the last for years to do.

More sales back to the client base.

I would tell you that we've incrementally grown that and I would say incrementally we've actually grown that relatively quickly, but starting from a very small base and.

So that is incrementally a higher percentage of our total sales every year I think Toby mentioned earlier, it's still a small percentage of our total sales.

Gotcha, and then and then Ted gave us, leaving and and he's obviously been a big strong partner of Yours can you maybe just philosophically talk about like what kind of leader you think it's going to take to sort of take the product for the next level from that perspective. Thank you very much yeah. It has been with us for 8 years and has done an absolutely phenomenal job.

And has decided to leave and and certainly take some time off which is.

Well earned I think in terms of everything he has been able to do for US I think from my perspective has created a great team. That's the most important thing and as all of you know who worked for me for a while I'm very involved personally and product and very involved with his team and so he will definitely be missed and that has big shoes that we have to fill but we want somebody that fits and culturally that can continue to focus on on our goal.

Once again, if you would like to ask the question. Please press the star 1 on your telephone keypad and wait for you and need to be announce your next question comes from the line at the CD <unk> with <unk> your line for units.

Hey, Thanks for taking my question first 1 housekeeping item. So when you set for.

588 sales reps could you give me the breakdown of that and emerging market sales reps.

Yes, we don't provide segment based.

And head count by by sales reps.

But you could think about though the largest group of those sales reps being and kind of our core market kind of our mid major size customers and some customers that are focusing on the larger and and the smaller and and both the larger and smaller and being a smaller number and we.

We also have and inside sales group as well that fits into that smaller and bucket as well.

Okay. Okay, and then what do you think of investment and then it looks like EBITDA margin is kind of flat year over year, So where do you plan to focus on this and all of it.

Is it more on the R&D side, how sort of clarity about the investment.

So the first thing I would say is this year's and interesting year, because the anniversary on Covid, where we didn't have any travel and conferences.

And we paused hiring for a while so certainly there was a bunch of things that we did to try to manage expenses through COVID-19. So anniversarying those does create a little bit of a challenge from a comparable perspective, but on the flip side, we've been really happy about our investments, we've been making and product some investments, we've been making and sales and marketing it's taken us a while to ramp those up through <unk>.

And we've got really good momentum there and so because we've got great sales momentum, we got great momentum and the marketplace.

Like this wasn't the year, where were number 1 priority was focused on adjusted EBITDA, but to make sure that we take advantage of the momentum we've got in the marketplace and and we certainly feel like that 30% to 35% of its still a target that we will achieve.

From a long longer term perspective, and we will typically make progress to that on an ongoing basis is just this year. We think this as of year for us to focus on investment.

That's correct. Thank you.

We had no credit question at this time I will now turn the call debt call I'll go back to the management for closing remarks.

Well I want to thank all of you for your interest and <unk> and of course, Thank our 4000 plus employees for helping us and our customers through a very challenging year hope everyone have a great night.

Ladies and gentlemen, this concludes today's conference call. Thank you for participating you may now disconnect.

Q4 2021 Paylocity Holding Corp Earnings Call

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