Q4 2021 Paycor HCM Inc Earnings Call
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Greetings and welcome to the pay core HCI incorporated fourth quarter and fiscal 2021 earnings call.
At this time all participants are in a listen only mode.
A brief question and answer session will follow the formal presentation.
If anyone should require operator assistance during the conference. Please press star zero on your telephone keypad.
As a reminder, this conference is being recorded.
It is now my pleasure to introduce your host Bryan revenue.
Thank you Sir you may begin.
Good afternoon, and welcome to pay core HCM earnings conference call for the fourth quarter of fiscal year, 2020, one which ended on June 30th Nichol.
On the call with me today are I will Villard, Peco, Hei, Chief Executive Officer and Al.
Adam anti pay core Atms, Chief Financial Officer.
Our full results can be found in our press release issued today, which is available on the Investor Relations section of our website.
Today's call is being recorded and a replay will be available for the conclusion of the call.
Statements made on this call include forward looking statements regarding our financial results.
Customer demand operations, the impact of COVID-19 on our business and other matters.
Payments are subject to risks uncertainties and assumptions that are based on management's current expectations as of today.
It may not be updated in the future. Therefore, these statements should not be relied upon as representing our views as of any subsequent date.
We also refer to certain non-GAAP financial measures and key business metrics to provide additional information to investors.
Definitions of non-GAAP measures and key business metrics and a reconciliation of non-GAAP to GAAP measures is provided in our press release available on our website.
In terms of the agenda for today's call, where I will provide a quick overview of our fourth quarter results.
To review, our market opportunity and growth strategy.
I don't want provide an overview of our financial model a detailed review of our fourth quarter results provide our guidance for the first quarter and full year fiscal 2022.
With that let me turn the call over to Apple.
Thank you Brian.
I would like to welcome all of you to pay core Atms fiscal fourth quarter earnings call, which is our first since completing our successful IPO in July.
We are thrilled to be a public company with new stakeholders as we execute on our strategy to be the leading SaaS based cloud provider of human capital management solutions for small and medium businesses.
I'd like to congratulate everyone at pay core for all of their hard work getting us to this milestone and positioning us for even greater success in the future.
We will start by providing a quick overview of our fourth quarter and fiscal 2021 results, which were very strong on both the top and bottom line.
The great momentum we have in our business.
For the fourth quarter, we delivered.
Total revenue of 88 million up 20% year over year.
Total bookings of $33.0 million up 79% year over year and adjusted operating income of 200000.
For the full year, we reported.
Total revenue of $360.0 million up 8% year over year.
Total bookings of $116.0 million up 43% year over year and adjusted.
The operating income of $48 million.
And we ended the year with over 28000 total customers and more than 2 million customer employees.
Overall, our fourth quarter performance was the culmination of a very strong year for <unk>.
We successfully navigated the challenges associated with the COVID-19, pandemic and are seeing great momentum across all aspects of the business.
Since this is our first earnings call as a public company I would like to start by providing an overview of <unk> mission, our large addressable market opportunity.
And our proven strategy to accelerate growth.
Our mission is to provide HCM solutions that empower leaders to develop winning teams.
We know from experience that high performing companies are successful because a they are engaged employees and we believe the single most important driving force of employee engagement is effective leadership.
Our tools are built to enable C suite executives, HR and finance professionals and frontline leaders to streamline administrative tasks and shift their focus to building winning teams.
As we look at the market. We believe we have a tremendous opportunity for three reasons.
First the HCM market is massive with an estimated Tam of 29 billion.
The market can support multiple next generation winners.
And the incumbent providers are under serving this market with outdated technology.
In an overly complex user experience.
Conversely, <unk> has built a disruptive high performance cloud platform that is intuitively designed and purpose built for all leaders.
Our platform offers unrivalled depth and recruiting scheduling talent management talent development and workforce analytics.
Finally, we are executing on our proven growth strategy of expanding our market coverage increasing sales productivity.
Innovating new products.
Our 43% bookings growth in FY 'twenty, one demonstrated that our strategy is in flight in yielding great outcomes.
To provide additional insight into our core product offering our comprehensive cloud platform includes onboarding.
<unk> payroll tax filing.
Analytics reporting and mobility for both the leader and the employee.
We also extend our value proposition with three additional bundles that empower leaders in critical focus areas will providing incremental per employee per month or pepam revenue opportunities for <unk>.
Our talent management bundle provides leaders with the tools to create a workplace culture of continuous development by doing three things.
Finding and hiring the best people for their teams.
Kochi in developing their teams and rewarding top performers.
Our workforce management suite as frontline leaders the ability to match the right employees with the right skills in the right jobs and ensure they can accurately schedule in record time and attendance.
These are critical requirements that legacy solutions are ill equipped to handle in today's dynamic business environment.
Finally, our benefits administration bundle offers a robust set of tools that make it easy for a customer to unify to benefits administration platform of their choice with pay core.
Providing an open platform is a key pillar of our strategy and providing choice to our customers and broker partners is a differentiated component of our value proposition.
We understand that in order to maximize our platform strength, we also need a powerful go to market effort that empowers our sellers to win.
We have developed a comprehensive sales methodology that is focused on attracting and developing high performing sellers.
Providing them with a specific and repeatable selling motion.
And leveraging technology to increase their productivity.
Our go to market strategy is straightforward and actionable.
First we are aggressively hiring to expand our seller footprint with a clear focus on tier one cities, which are the 15, most populous markets in the U S.
Given our Midwestern heritage, we have historically had stronger sales coverage and smaller tier three cities, such as Kansas City, Raleigh and Louisville.
Conversely, we've had an enormous opportunity to expand in tier one cities, such as New York, La and San Francisco.
We currently have only 20% of our potential seller coverage.
We experienced fantastic success competing in tier one market in FY 'twenty, one and these markets delivered our highest win rates.
Over 50% of our FY 'twenty, one bookings growth came from tier one markets and we are confident in our ability to expand our presence in these large dense markets.
Secondly, our strategy of delivering technology and expertise for key industries is resonating in the market.
The needs of a manufacturer are different than a restaurant and we're delivering a solution designed for these industries.
Over 40% of our bookings growth in FY 'twenty, one was generated by our industry strategy.
Finally, engaging with brokers is an essential part of our growth strategy.
We have positioned <unk> as the HCM vendor of choice for the broker community by combining our prioritize client implementation with the benefit admin platform that the broker preferreds.
This empowers the broker to select the appropriate platform for their clients, while providing the insights tools and competitive differentiation they need to grow and retain their book of business.
We've seen great success with brokers, who referred more than 40% of our bookings in fiscal 2021.
Looking at our fourth quarter performance, we saw fantastic results from our go to market strategy.
Our booking success was broad based.
With strong new customer signings and great upsell activity across our installed base.
The success of our bundled strategy drove meaningful peplum expansion.
We ended the year with more than 370 sellers an increase of 6%.
Our primary focus for us in fiscal 2021 was enhancing seller productivity and we were notably successful in this area.
In FY 'twenty, two we are forecasting to grow our sellers by 20% to 25% with the majority of our new sellers deployed in tier one markets.
We increased the number of brokers engaging with pay core more than 40% year over year and now have more than 1300 active broker partners.
And this quarter, we launched a number of new product features including recognition, which is offered with our core product offering this.
This feature allows leaders and peers to recognize the efforts of their teams directly through the platform and providing leaders with another method of celebrating motivating and engaging their teams.
Our success in the fourth quarter provides a great foundation for even better performance in fiscal 'twenty, two and beyond.
We enter 2022 with a proven strategy and strong momentum across all aspects of our business.
Our focus this year will be to build upon our success by continuing to invest in our go to market team by adding sellers and increasing productivity across our existing team.
Further expanding our engagement with broker partners and making it even easier for them to do business with <unk> and executing on our product development roadmap to increase the value, we deliver to customers and make additional progress towards our three year goal of a 50 dollar pepam product.
Portfolio.
We have never felt better about our business and our ability to accelerate revenue growth.
We are in the early stages of Smbs, replacing legacy HCM solutions with modern cloud based solutions. This multibillion dollar market opportunity gives pay core a long runway to generate high levels of growth and profitability for the foreseeable future.
We believe we are in a great position to deliver significant value to our customers and shareholders over the long term.
With that let.
Let me turn the call over to our CFO, Adam Ante to walk you through our financial results Adam.
Thanks rule before I turn to our fourth quarter results I'd like to start by providing a brief overview of our financial model.
We have a highly visible and recurring SaaS revenue model nearly 90% of our revenue is subscription based through the sale of our payroll and HCM SaaS solutions and is generally based on the number of active employees a customer has in a number of products that they use.
About 6% of our revenue is annually recurring related to year end tax filings. We also have a small percentage of professional services revenue and finally interest income related to the funds we hold on behalf of our clients.
Interest income is a meaningful headwind to growth given the current rate environment, but has the potential to flip to a tailwind if rates rise.
We typically sign month to month contracts with our customers and we invoice at the time of service or monthly in arrears.
As a result, we have minimal deferred revenue and calculated billings is not a relevant metric for us.
So now we'll get to our results in more detail.
Total revenue for the fourth quarter was $88 million, a 20% increase year over year. This was the fastest revenue growth in the last 10 quarters driven by a combination of customer acquisition. Good upsell activity and the continued recovery in employment across our customer base as well as an easier prior year comparable.
Our business is directly tied to the U S labor market. So for the fiscal year 2021, we did experienced a material growth headwind related to the economic impact of COVID-19 on SMB companies in the fourth quarter. This headwind turned to a significant tailwind as the prior year experienced by far the most pronounced job losses due to COVID-19.
Easier comps contributed approximately four to five points of revenue growth in the fourth quarter.
For the full year, our net revenue retention was 88%. This is below our historic level in the mid Ninety's due to the impacts of Covid I just mentioned, but we saw significant improvement in net retention throughout the year as employment levels improved and net retention in the fourth quarter was nearly back to pre pandemic levels.
Moving down the P&L adjusted gross profit margin was 65, 4%, which was down from 69, 9% in the fourth quarter of fiscal 2020. The primary drivers of the change were an increase in amortization related to capitalized software and deferred contract acquisition costs as well as the anniversary of certain COVID-19 related cost initiatives.
And continued investments in our service organization to ensure a great experience for our customers.
We have a scalable and efficient model and are optimistic in our ability to return to gross margins above 70% overtime.
Turning to operating expenses adjusted sales and marketing expense in the fourth quarter was $32.0 million or 34% of revenue compared to 30% of revenue in the prior year period.
This increase reflects the proactive investments, we're making to expand our team of sellers across markets, particularly tier one locations.
Based on the success, we're seeing in total bookings in the early stage of this market opportunity, we intend to continue investing aggressively to build out our sales capacity.
Adjusted R&D expense was $14.0 million or 11% of revenue, which was consistent with the prior year.
Before capitalization, we invested 18% of our revenue in R&D and we expect to continue to make meaningful investments to support the expansion of our HCM SaaS platform and we will be introducing new products and features in fiscal 'twenty two and beyond.
Adjusted G&A expense was $23.0 million or 20% of revenue compared to 13% of revenue in the fourth quarter of 2020.
The increase in G&A expense was largely due to the incremental costs of becoming a public company. We expect to begin driving leverage on the G&A line in the coming quarters now that we have most of our public company costs on a run rate.
Adjusted operating income was $200000 essentially breakeven margin compared to 15% in the prior year period. The change in profitability reflects the drivers I mentioned above we have been a consistently profitable business and we expect the fourth quarter to be the low mark and profitability going forward. We are confident in our ability to invest for growth and deliver.
Attractive levels of profitability.
With regards to the balance sheet, we ended the quarter with $8.0 million in cash and $50.0 million of long term debt.
Subsequent to the end of the quarter, we raised $459 million in net proceeds from our IPO $260 million of which we used to redeem the series a redeemable preferred stock as well as retire our outstanding debt, we have a well capitalized balance sheet that provides ample liquidity to fund our growth investments and other strategic priorities.
We ended.
The quarter with $670 million in funds held for clients with average daily client funds of $779.0 million.
Interest income generated on these funds was $429000 or approximately 22 basis points.
Turning now to guidance, we will start with the quarter. We expect total revenue of between $179 million and adjusted operating income of between $1 million and $6.0 million for.
For the full year, we expect total revenue of $396 million to $400 million.
And adjusted operating income of between $30 million to $32 million.
There are a few things to keep in mind regarding our outlook overall.
Overall, we are optimistic about the growth opportunities and underlying trends in our business the growth in bookings in fiscal 'twenty. One will take 12 to 18 months to fully ramp into revenue and provides significant visibility to future growth.
We expect another strong year of bookings growth in fiscal 'twenty, two driven primarily by the expansion of our sales team as well as continued improvements in productivity. We believe looking at bookings on an annual basis is the most useful approach and we intend to provide an update on our bookings performance on our year end earnings call.
While we experienced growth from improved employment trends in our portfolio. During the fourth quarter, we are assuming a tempered level of employment growth in fiscal 'twenty. Two this is driven in part by uncertainty related to the Delta variant, we've not seen any business impact from it to date, but it is something we're watching closely.
It's also important to keep in mind that our comps get harder throughout fiscal 'twenty. Two this will be particularly true in the fourth quarter.
Our guidance assumes interest rates remained low and will continue to be a headwind to interest income through fiscal 'twenty two.
We will continue to invest in our sales expansion strategy in line with recent levels as we look to grow our sales head count by 20% to 25% for the year. We expect this investment to continue to drive front end growth as we drive towards sustainable 20, plus percent revenue growth over the long term.
And with that I will turn it over the moderator for questions.
Ladies and gentlemen, we will now have a question and answer session.
If you'd like to ask a question. Please press star one on your telephone keypad.
A confirmation tone will indicate that your line is in the question queue.
You can also start to if you would like to remove your question from the queue.
One moment, please where we now poll for questions.
Our first question comes from Mark Murphy Jpmorgan. Please proceed with your question.
Yes. Thank you very much congratulations on the fantastic bookings.
Trajectory of the interest guidance here, so overall, the broker channel bookings being up more than 100% during the fiscal year.
Pretty stunning trajectory during a COVID-19 impacted year could you walk us through the dynamics that are driving that broker channel success and how much runway you think is left to add more brokers.
Yeah. Thanks Mark.
A couple of things to point to first and foremost a little over a year ago, we hired a senior executive to run the broker program for Us and I think we put together a value proposition that combines preferred implementation for the brokers and our benefit.
Administration agnostic platform strategy, so we let the broker.
Pick the platform of their choice.
And that's resonating in the marketplace.
That combined with guaranteeing that theyre going to get a prioritized implementation for their client.
So we've seen significant success in the channel have increased each quarter and when we think about the long term opportunity here.
Have relationships with a little over 100 brokers today.
And there is 14000 in the U S and so we can go deeper with the existing brokers that we have.
And we will continue to attract new broker partners. So we think we're in the early innings of this strategy, we're continuing to press in on the broker channel and we expect it to continue to have meaningful contributions to our bookings growth in FY 'twenty two.
Okay great.
And then Adam I wanted to ask you could you remind us what percentage of the portfolio is priced on a <unk> basis today and just what.
What was that trend and pepper am I mean, I think if you think you are saying it was up through.
Q4 did you do you have any thoughts on just the magnitude of increase that youre seeing on the.
Peplum side the realized purple.
Yes, Hey, Mark so on the actual Pepam increase we're seeing an increase in sort of the mid single digits on a pretty regular basis, which you can see sort of each quarter in terms of the actual portfolio the size of the portfolio.
I would say about 90% of the portfolio heading into the year was priced on a per truck basis and we'd seen.
Continued trend.
Push more and more towards a bundled peplum strategy. So we're attaching more than 90%, 90% of our new deals are attached with a bundle or a pepam based strategy and we've seen that mix begin to shift from from closer to 90% down to about 80% of the portfolio is represented by the project. So.
Something that we expect to continue into the future for sure.
Excellent. Thank you very much.
Thanks Mark.
Thank you.
Our next question comes from Brandon Shah with Deutsche Bank. Please proceed with your question.
Great Congrats on a great start.
To a public company just in terms of your sales expansion strategy can you maybe talk about where youre seeing the most success from a productivity perspective, and then how can you ensure to maintain those levels of productivity as you extend that salesforce, 20% to 25%.
Sure.
So we had broad success across the entire geographic footprint in the past year that contributed to the bookings growth. However.
We had 91% growth in the fourth quarter in tier one markets.
So we're seeing significant.
Growth in the top 15 cities in the U S and we're going to continue to press in with head count additions throughout the year in those markets.
We feel really good about that.
I would say all in all good and all the market, but we have such an underpenetrated opportunity and the tier one markets that we're going to continue to outperform there for the foreseeable future.
Got it that's helpful. There and can you maybe just talk about what you've seen from a demand perspective since the IPO have you seen any tangible growth in your pipeline just given the brand awareness around your public.
As you know.
Yes, Paul I mean demand, we've always had strong demand in the pipeline I think.
30 year old company, I think what it's really helping us.
Is in competitive sales.
Situations.
That we're public now has added a little cache to the brand and so it's helped us with some of the larger transactions that were working on in Q1, and so I think it's been really helpful. We're taking advantage of all the positive press that we received in order to prime the pump for the demand in order to continue to generate alpha.
<unk> bookings performance in Q1 and on a go forward basis.
Great Congrats again.
Thank you.
Thank you.
Our next question comes from Samad Samana with Jefferies. Please proceed with your question.
Alright, Thanks for taking my question, Ryan Breath, and Ron for Smart I guess talk a little bit more about you mentioned earlier the majority a large part of your wins come from legacy incumbents in the market I'm. Just wondering if you can talk a bit more about how.
Switching cost compare there and where you see some value add in terms of pricing and other features there.
Yes, so I think.
We continue to see an outsized proportion over 80%.
Our wins coming from what we would consider legacy provider, so ADP and paychex in house solutions.
And it's really.
About user experience.
Is the primary reason cloud enablement.
And some of the talent modules that we've added a really attractive in the current work environment until the combination of modern easy to use solution.
In the cloud with a lot of the bells and whistles people are looking forward to attract and retain employees in this market.
Proving to be really successful.
Against the legacy.
User experiences that we're competing with.
Thank you for taking the time.
Yes. Thank you.
Thank you.
Our next question comes from Kevin Mcveigh with Credit Suisse. Please proceed with it.
Great. Thanks, so much in EMEA and my congratulations as well.
If I heard you right. It seems like 91% of the growth was in tier one markets.
How should we think about the bookings I know you talked to 12 to 18 months.
All things equal that imagine those are larger sized clients.
How should we think about the implementation of those and is there any way to maybe frame what the average cap amaze amongst some of those bookings numbers.
Yeah, Hey, Kevin.
I don't think we necessarily see a significant difference across tiers, meaning that the clients are larger in tier one I'd say that marginally may be true, but we don't see a significant difference we still we remain focused in our target segment of 10 to 1000, and then our field sales really focused.
In that 50 to 1000 segment so as we.
<unk> teams and the tier one markets I mean, we're still really focused on that and that 50 to 1000 segment.
And yes, I think that you will see.
Like Rod had mentioned over performance as we think about our win rate across tiers. I mean, we are more successful.
In those tier one markets.
And from a from a peplum perspective, it tends to be that you get a little bit better.
Price competitiveness when you when you get into those tier one markets rather than over where we have otherwise been waited like Louisville or.
Tier four market, where you have to be a little bit more aggressive.
That helps a lot and then in terms of client employees are they have they exceeded pre COVID-19 levels at this point.
How should we think about any thoughts as to what the guidance reflects some kind of the run off of federal benefits in early September if you factored that in at all.
Yes, I mean, so prior to Covid, we had just about 2 million employees, just under 2 million employees and heading into the fourth quarter and the primary impact of Covid. In April 2020, we really saw a pretty meaningful depression there drew.
Dropped about 6% seemingly overnight and it sort of ran back up through July, but we definitely since come back Q4 of last year was was the easiest.
I'd say the easiest comp that we're going to see just given the extra pressure that we saw in the labor market, but we've since since come back. We're just over 2 million employees now so slightly ahead of where we were heading into COVID-19 and we're seeing that underlying growth in the portfolio start to come back, which is which is clearly benefiting the Q4 growth.
Number in that 20%.
Okay.
Super Thanks, so much.
Thank you.
Our next question comes from Terry Tillman with Truth Securities. Please proceed with your question.
Hey, good afternoon, Thanks for taking my questions and I'll Echo the congratulations that was going to get on here and say.
<unk> heard my hometown of local mentioned on an earnings call, but now I'm going to say I've never heard of mentioned twice on an earnings call. So thank you for that.
Well, maybe the first question for you is the tier one opportunity.
Representation in those tier one markets as it sounds really key going forward and you talked about 20% to 25% solid growth as the target in FY 'twenty. Two so if you look at kind of at the end of 2022, if we kind of fast forward. How do you think you are in terms of representation in the tier one markets by the end of FY 'twenty two and then just how long is that you're only going to be to have better representation.
And then I had a question for Adam.
Yeah. So.
End of.
22 will be almost.
Double of what we were at the beginning of 'twenty. So, we're really accelerating head count growth into those markets.
I was just handed a new hire class yesterday I welcome all the new hires and I had a new hire manager from San Francisco, Washington.
Philadelphia, So I was really excited to see them there because we hired the manager first and then we wrap six to eight sellers around the manager so.
We are already moving ahead in those three markets. There was incremental teams and so we think this is at a three to five year play and just tier one markets alone, adding significant account every year.
And so we have really a long runway in tier one.
So we're going to continue to depress Intuit, Terry we think.
In five years, we still have upside in tier one and we still have opportunity to continue to round out our teams in tier two and tier three so.
We'll do that where we're trying to be efficient and taking advantage of a great leader or an emerging market.
Where appropriate but the head count opportunity.
Or is.
At a minimum of five year opportunity to continue to add in that 20 plus percent range of head count to continue to drive future bookings.
Got it thats, great to hear and I guess, Adam as it relates to the 20% to 25% solid growth there I was talking about.
I don't know how <unk> been doing so far into the new fiscal year I know, it's just a few months, but how do we frame or kind of lay out the sales and marketing expenses layering in through the year is it linear or how is that going to flow. Thank you.
Yes, hey, thanks Terry.
I think youll see a little bit of an increase in sales and marketing expense in Q4 of 'twenty, one right as we've begun to accelerate coming out of Covid and so I think youll see.
US come off of that step up with a similar increase in most of the hiring in this case is going to be towards the front half of the year. So we will start to see that.
That continue here over the over the coming coming quarters.
Then we will look to the second half of the year in terms of performance in the back half.
Whether or not we want to pull those head count forward.
Heading into FY 'twenty, three but yes, I think youll see that start here in Q1 and Q2 as we bring most of those hires forward.
Thank you.
Thank you.
Our next question comes from Brad Reback with Stifel. Please proceed with your question.
Great. Thanks, Hey, guys. How are you. So if my math right. It looks like growth in the fourth quarter was fairly evenly split by seat growth and Oracle games as we look forward given the significant amount of head count being added to the Salesforce should we think more growth comes from.
Head count your clients see versus pricing or do you expect it to remain fairly even.
Yes.
You're saying between the number of new deals versus the productivity of the sellers or are you thinking about overall revenue growth specifically.
Total revenue growth, if I think of pricing PDQ right. So yeah.
Yes, I think thats right I mean, so we are seeing I think it will probably be a little bit more weighted towards the actual number of employees versus just the rate growth. So.
We've been growing historically and that sort of low teens, and I think that youre going to see that plus as we continue to accelerate the revenue growth and then yes, I think youre going to see the balance of that come from the <unk> side of that equation as the average rates are.
Those clients are buying more and they're coming on at the bundled more complete sale at the point of sale, so yet, but I think more in the near term I think it is going to be weighted a little bit more towards the employee growth.
Great very much guys.
Thank you.
Thank you.
Our next question comes from Bryan Bergin with Cowen. Please proceed with your question.
Hi, guys. Good afternoon. Thank you.
I had a question on bookings. So I was just curious if you would comment on how bookings have trended in <unk>, thus far and can you talk about the demand environment by employer size, so above below and within your target market.
Yes so.
We continue to see strong demand in the marketplace as we've entered the quarter.
We're really confident we're going to have a strong bookings quarter.
And from a demand perspective.
Going back to Q4.
85% growth in the mid market space and.
And we define that as 50, plus and so really strong in our in our up market demand, we're seeing demand 50 to 1500.
And so we continue to take advantage of that opportunity and so a couple of years ago, we shifted the focus of our demand generation and our go to market motion.
From the low end of the market to the 250 plus and.
We're starting to really reap the rewards of that decision and seeing really strong demand in that segment.
Okay, and then just on fiscal 'twenty two outlook as you built the annual forecast can you just help us understand some of the revenue growth components as far as what you're expecting.
Unit.
Expansion, upsells and potentially kind of the pace per control. So we can understand that employment base recovery that you've assumed.
Yes, I mean, as we think about the employment base really coming back I mean, historically, it's run and sort of the low single digits and I'd say that we're still a little bit cautious and so we haven't really built it back to the the original.
Or sort of pre COVID-19.
Our growth levels.
So we would expect something a little bit more conservative in our in our plan at this point or in our projections at this point.
Than that low single digit number.
And then the balance of course, as we think about new business coming on.
Robert had mentioned, adding sellers in that 20% to 25% range, we really.
<unk> expectation that we will continue to accelerate bookings and of course, there would be some expectation around productivity level growth. So one important thing to note as you sort of balance in the bookings as well.
We grew our bookings level at about 22% on a two year compound growth rate and so.
We expect to accelerate and we intend to accelerate beyond that of course with the easier comps in 'twenty one.
Not not likely at that 43% range. So.
In either case, we will we will target to drive the sales and marketing.
Head count in 2025% range and would expect bookings to to perform <unk> and then.
Of course on the gross retention side, we've seen on our net retention side, we've seen net retention in that 88% range for the year historically was running in that sort of mid 90% range, 96% in 2019, and so we've seen that return pretty well in Q4.
<unk> have seen some improvement in lift here even into the first part of the year. So we would expect that to continue over the balance of the year.
Thank you.
Thanks, Brian.
Thank you.
Our next question comes from Brian Peterson with Raymond James. Please proceed with your question.
Hi, congrats on the quarter and thanks for taking the question just one for me. So reward you talked about some of the product expansion into three year roadmap to get to 50 Bucks.
What do you think that longer term outlook could be is there a potential ceiling on that maybe just talk about some of the puts and takes on what the portfolio could look like longer term. Thank you.
Yes.
Great question.
And I think.
The wonderful thing about ATM as a category is that peplum expansion its been proven.
<unk>.
My 30 years in the category.
So when we think about it over.
Over the next three years, we really believe $50 peppermint is within our sites.
And there are so many categories to extend upon that we don't think it's going to be capped at 50, we think it will continue to.
And whether it be in.
Other employer services or services for the employee.
Those different types of opportunities to provide long term expansion opportunities for us whether it be financial or physical wellness in those categories are brought in and.
Our target rich for ATM companies. So we think <unk> is in our three year window and we think that 50 is just a three year stopping point and we will be able to continue to expand from there.
Good to hear thank you.
Yep.
Thank you.
Our next question comes from Scott Berg with Needham <unk> Company. Please proceed with your question.
Scott.
Mr. Baird. Please proceed with your question.
Alright, Thats, probably better sorry about that it's 2021, I don't not Oracle cellphone apparently by now.
Congrats on a great quarter and thanks for taking my questions here.
I guess I wanted to start with what Youre seeing from a general sales environment. Today, if you look at the <unk>.
Deals that you're signing with new customers today versus say just before the pandemic are you seeing any differences.
The number of modules or what the packaging looks like in terms of out there.
Buying the pay core platform.
Yes, Theres a couple of dynamics that we're seeing Scott one is we continue to move our overall employee size up.
So we're continuing to sell.
Larger transactions in that 50 to 1000 space.
And then secondly, there.
We're selling a bundled solution.
We started at two years ago, we continue to evolve that.
And our bundle our core bundle has gotten bigger each of the last three years that we started and so we're attaching more products at point of sale.
And so we're seeing success lifting up our overall deal size and so a combination of more employees and more product and again were.
We're in the early innings of our of our expansion of bundles, but we've seen really good returns from the salesforce and demand in the marketplace.
Got it helpful. And then last question for me is the company is obviously going through a large re acceleration of.
Growth you're expected to with a number of sales adds coming up you had.
A detailed the numbers to grow at 2025% this year.
One of those reps coming from because it seems like every HCM company that that I talk with our payers trying to grow their head count at a higher rate for the half of last year.
Yes, so we changed the hiring profile.
After.
Our CRM Chuck Moller.
<unk> came in.
A little over a year ago, we changed our hiring profile and we're really looking for.
People with one or two.
Jobs and are primarily and call. It a high activity b to b sales role not necessarily software sales. So we haven't had it.
<unk> in demand of attracting those folks because we want to teach them both software sales and ATM sales and so we believe that's a winning formula for US we saw significant.
Advantages in productivity.
Third of trying to reprogram and existing software or ATM rep.
That are a harder again and be more expensive so.
He has been to kind of efficient in a different pond than everyone else.
Yes.
Congrats on a great quarter again.
Thanks.
Thank you.
Our next question comes from Pat Walraven from JMP Securities. Please proceed.
Great. Thanks, so much for the question. This is Jeremy rates have gone for Pat just to double click on the sales hires how long does it typically take to ramp the new sellers to full productivity and then secondarily can you just give us some color on how you're thinking about M&A. Thank you.
Yes, so I'll start with.
The sales productivity and with the new hire.
We have a shortened Onboarding program and our objective is to get people productive within in the first month.
Contributing however, in HCM and ERP core.
People see productivity lift between their first and second year.
And then sometimes you see a productivity lift between years, two and three and at that point. They are fairly defined about what their average is going to be but so youll see lift.
So the people we hire today their productivity will increase in FY 'twenty three.
They'll contribute in 'twenty, two but they'll contribute at an outside perspective in 'twenty three as far as M&A.
<unk> will continue to be opportunistic.
And curious.
As far as that.
We look at lots of different opportunities, we have a proven history.
Product tuck ins into a unified platform that has proven to be a winning strategy and so we'll continue to look at those and anything that's interesting.
It comes our way Adam anything you want to add.
Yeah, No I mean, we've seen that success and you've seen us do one or two annually with some really strong success around product specific tuck ins and so we'll continue to evaluate our need around.
<unk>.
Adding that product that fits well into our product suite. So we continue to evaluate those opportunities.
Thanks, guys.
Thank you.
Thank you.
Our next question comes from Mark Marcon with Baird.
Please proceed with your question.
Hey, Good afternoon, let me add my congrats bookings were really impressive can you talk a little bit about.
Which bundles seem to be the most are getting the most traction which ones you have the most hope for over the coming year.
The first question.
Yes so.
Our core bundle.
<unk> is a payroll HR suite of solutions.
And so that's our core bundle and then I would say, we attach workforce management at the highest level, obviously with time and attendance and scheduling being really important for many businesses that we serve although what we're most excited about is talent.
And with the expansion of our talent management to include coaching.
In developing and providing goal setting for associates, we've seen really strong attachment.
Of the product in the beginning of Q1.
And so we're excited about that opportunity and we think our talent bundle has an opportunity eclipsed the penetration rates of <unk>.
Our workforce management and benefits platform.
Attach rate in the foreseeable future.
That's great.
What percentage of attachment are you getting on the new bookings with regards to talent management bundle.
Yeah, Hey, Mark Yes, I mean, we haven't really shared per se. The attach rates I would say that they are they are attaching well. They are attaching how we're expecting them to and I would say that.
Over the near term, we would expect them to be one of our stronger.
Stronger products overall.
It's promising.
You were talking earlier about the.
The retention rate, obviously COVID-19 ended up impacting things. We've seen this improvement can you just talk a little bit about.
Some of the Kpis that you are seeing the forecast.
Retention and how youre thinking about it as we go into the fall.
In winter time period and.
What type of returns.
Yes, I think that the quarterly dynamics around net retention are interesting there's definitely some seasonal timing around January ads or losses in that case, some of the quarters, but I think that the theres expectation I mean, I think we're expecting to see that lift.
Regularly each quarter, especially as we get towards the back half of the year I think that theres going to be.
There should be some strong improvement there.
And of course, the underlying labor market is going to be the primary driver as that is beginning to rebound. So again, we saw some lift into Q4 of 'twenty. One we're seeing that maintain here in the first quarter and.
Given any any changes around the delta bearing in Covid, we would expect that to continue.
To rise throughout the balance of the year.
That's great and then can you just talk a little bit about salesforce retention, what youre seeing there, particularly with regards to.
The new hires.
A new profile that youre going for.
Number one and.
Let me leave it at that.
Yes so.
Salesforce retention has improved dramatically.
No.
April so we've gotten better each month and it really.
And Chuck's for sure our objective was.
To make sure we got the right profile set the right expectations, but right selling motion is in place.
And made sure we had the right people on the team and so we feel like we're in really good shape now and our retention levels and we expect them to be.
In the <unk>.
70% to 80% retention range for the year, which would be what we would expect.
Our mid market sales organization in the category.
That's great. Thank you.
Yeah.
Thank you.
There are no further questions at this time I would like to turn the floor back over to Ron <unk> for any closing remarks.
Yes, I want to thank everyone for your time today, we really appreciate it and we look forward to.
Spending more time with you over the next couple of days and months and we're really excited about our fourth quarter performance really look forward to having a great fiscal 'twenty. Two so look forward to talking to all of you. Shortly thank you.
Sure.
Ladies and gentlemen. This concludes today's webcast you may now disconnect your lines at this time.
Thank you for your participation and have a great day.
Yes.
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