Q1 2022 Paylocity Holding Corp Earnings Call

November 4, 2021

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 contained 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 these or other forward looking statements.

Also these statements are based solely on the present information and are subject to risks and uncertainties that can cause actual results to differ materially from those projected and afford looking statements for additional information. Please refer to our filings with the Securities and Exchange Commission the risk factors contained therein and other disclosures, we do not undertake any duty to update and.

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's a reconciliation schedule detailing. These results currently available in 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.

<unk> Commission.

Please note that we are unable to reconcile any forward looking non-GAAP financial measures to their directly comparable GAAP financial measures 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, Toby and I will be virtually attending the Stifel Midwest One on one conference on November 11th and the Needham SaaS. One on one conference on November 18th Steven Toby will also be attending the medium growth conference on January 11th. Please let me know if you'd like to schedule a time with us at any of these events.

To comply with regulatory mandates lastly, we released new diversity equity and inclusion tools, including a demographics dashboard, which provides real time visibility into the gender disability race generation and turnover distributions within their employee base and candidate data masking functionality within recruiting to help ensure a fair and <unk>.

Hiring process, we believe our product focus on Eni can help drive positive culture and business outcomes for our customers and early data from our clients shows that our focus on Eni can drive higher employee engagement retention and productivity.

During the quarter. We also completed the acquisition of Blue marble, a leading global payroll provider for companies seeking more control and convenience in managing and paying their employees outside the U S. The pandemic has accelerated the shift to a more remote workforce around the world with many companies increasingly looking for talent across the globe, particularly in such a tight labor.

Okay.

As we work towards fully integrating blue marble into the <unk> suite, we're excited about the opportunity to offer new and existing clients a unified solution to pay employees automate processes and maintain compliance and 150 countries around the world from a financial standpoint, we expect blue marble to represent less than 2% of our total fiscal 'twenty two revenue.

While providing a slight headwind to adjusted EBITDA of approximately 40 basis points, all of which we've incorporated into our updated financial guidance.

I'm also excited to welcome our new Chief Technology Officer, Ratchet low Honey, who recently joined US from Atlassian on September 27th in addition to holding senior technology roles at Atlassian.

Also had leadership roles at Netflix and Intuit, where he helped build and scale successful software platforms. I would also like to thank <unk> for his impact and dedication to <unk> as SVP of product and technology. Prior to his departure on October one Ted was part of the Pelosity team for more than eight years and was instrumental in our product strategy.

And growth and we will look forward to maintaining the significant momentum we have in product development.

Continue to leverage both virtual and in person broker meetings and events to help us maintain the strong source of referrals on a non-GAAP basis sales and marketing expenses were 24.1% of revenue in Q1, and we also remain focused on making incremental investments in this area of the business in fiscal twenty-two to drive growth.

On a non-GAAP basis, G&A costs were 13.1% of revenue in the first quarter versus 13.6% in the same period last year, we remain focused on consistently leveraging our G&A expenses on an annual basis.

And we're pleased to raise fiscal 'twenty two guidance to 29% revenue growth at the midpoint, which in combination with the adjusted EBITDA margin represented in our full year guide returns us to above the rule of 50 in fiscal 'twenty. Two operator, we're now ready for questions. Thank you.

Thank you, ladies and gentlemen, as a reminder to ask a question you will need to press Star then one on your telephone.

To withdraw your question press the pound key again Thats star one to ask a question. Please standby, while we compile the Q&A roster.

Our first question comes from the line of Scott Berg with Needham Your line is open.

Hi, everyone. Thanks for taking my questions for you guys to understand quarter.

Yes.

Hey, guys just a couple here.

First of all.

Steve We obviously tend to the customer conference will have some of the new product.

Innovations that are coming out there.

Pacifically in collaboration collaboration.

<unk> functionality with an HR, which is I feel like it was tried 10 years ago.

Describing his right from from an overall in terms of how we've described it for the year and in terms of the timing within the quarter. I mean, we only got a month of contribution from Blue marble. So I think that's that's that's how you'd think about it.

Excellent congrats on will be clear and extreme guys.

Thank you thanks.

Thank you.

Our next question comes from Atlanta, Brad read back what state Huh.

Okay.

Great. Thanks, very much Steve as we think about collaboration an employee engagement, becoming a bigger and bigger part of the story can you give us any sense of what daily active usage has looked like on the platform this quarter versus a year ago, how that's expanded.

Yeah. So I would tell you that we definitely have seen overall usage on the platform expand pretty significantly in its expanded beyond the traditional transaction. So yes, a lot of people used to look at their checks. They request time off their punching in there doing that in a mobile environment. Some of them are doing it on desktop and so those activities really have increased over time and that has become.

More popular.

As the self service environment for employees is just naturally expected in the marketplace, but what we've really seen in terms of the increase is coming from other places. So community is a great example, where our clients are actually using it to create announcements, they're creating question and answer groups that employees are interacting with and using.

And we're actually finding that not just the HR department is necessarily the ones that are content creators and so different groups are being created across the organization sharing employees stories and creating connections and so community is driven an increase in that daily active users stack.

Stat learning management also has increased significantly.

Surveys has been more popular over the last 18 months just harder to collect feedback from your employees and you can do that in a nice automated.

Fashion. So we've been really pleased with the increase it's certainly been much higher than what you would see in terms of overall number of employees on our platform or clients.

Excellent. Thank you very much.

Thank you.

Our next question comes from the line of fire.

Colin.

Good afternoon. Thank you.

On Salesforce productivity can you give us a sense on how that's progress relevant to your expectations and versus the prepandemic level.

Sure Yeah. So prepandemic I think as you recall, we were really seeing a nice improvement and Salesforce productivity. In fact, we had called out just prior to the pandemic the quarter prior we had actually.

That year, we had gone up almost 40% in terms of overall, new kind of sales growth, obviously that kind of took a dip throughout the pandemic I think the last earnings call. We talked about we're approaching this prepandemic levels.

And so I think that trend continues so we're continue to make improvement on that were very much starting to see this type of momentum that we had prepandemic from a salesforce perspective, which is one of the reasons that we called out you're going to see us really take advantage of the momentum we have in the market and continue to accelerate hiring we still do most of our hiring in the spring for sale sales folks.

But we try to get as many people as we can on board early and so we're going to continue to hire not only there but across the board because of the momentum worsening.

Okay, and then Toby a question on margin as far as some of the puts and takes there just first on the once you're out performance on the gross margin can you talk about the tailwind that drove that and then as we roll forward to two Q and look at EBITDA margin is implied to be down year over year versus the strong long queue outperformance.

I heard the 40 distribute margin, but aside from that can you just comment on some of the drivers to consider in <unk> in kind of the balance of the year.

Yeah, I think just building off what Steve said, a second ago I mean, you you saw.

Stronger we've seen hiring momentum through last quarter and through this quarter picked up a little bit.

Towards the in the back half of the quarter and we expect that to continue into.

The second quarter. So I think in terms of the puts and takes Q1 Q2 on margin. That's that's probably the biggest story is just timing that I don't think there's any there's no one time items or something like that to think about it's really just the timing of bringing in.

Some of the hiring the Steve was talking about we have seen great momentum across every area of the business from that perspective, and we expect that to.

To continue to continuing to to invest in that way as Steve just reference. So I think that's the that's really the story from Put-and-take perspective quarter to quarter.

Just to clarify does that is that throughout the income statement is gross margin remaining strong or does that also see a little bit of pressure.

Well I mean, I think we would expect from a gross margin standpoint, I think we're pleased with what we saw coming into Q1.

Year over year, and I think we based on on how we've got it from a revenue in from adjusted EBITDA perspective, I think we feel pretty good about how we're set up for the rest of the year on gross margin.

And I think that the Embraer is the 34% was a great result for us and we've got to make sure we hire across the board to be able to both service to customers that we're bringing on at an accelerated rate.

And at the same time, we're excited about the momentum so we actually want to make those investments because we're seeing good return on the investments, we're making in product and sales and marketing and so when you look at the EBITDA Guide.

It is different than it was in first quarter, because we want to take advantage of the momentum that we've got in front of us.

Okay. Thanks for all the color.

Okay.

Thank you.

Our next question comes from the line of Terry Tilman Choice Security. Your line is open.

Hey, everyone. This is Robert G on behalf of Terry.

And just following up on a couple earlier questions were curious about community premium video recognition solutions and really what type of traction are you seeing with that and any identifiable returns or increased engagement that customers can report or document.

It's a great question. So a couple of things I would say is.

We're really happy with the penetration rates that we're seeing so community is a free product. So that's really more driven by the utilization comments I made earlier, where we're seeing clients really use it to connect to their employees that would be more difficult in an environment, where they have people in the hybrid work environments or even completely remote.

We're seeing people kind of create groups. Some of them are work groups, where they're trying to get work done some of them are just culture driving groups, where they're trying to share stories.

And so that's really been powerful from a video perspective, we're really pleased with the attach right that we've got in terms of new sales. So that has been faster than we would have expected. We believe that that certainly has been helped just by the increased comfort level with overall video capabilities.

And we see a ton of video announcements is probably the biggest use case, where instead of me sending out an email or a post in community I'm actually going to record a video for all the employees.

Or for even subset or groups of employees.

And then that's going to get much better interaction. So we see videos get much greater views in our platform than if we just post with tax people comment they react.

And they are able to share that content more effectively and so that's probably the most common use case that we see with video.

That's great. Thank you congrats on a great quarter.

Thank you.

Our next question comes from the line of Mark.

And your line is open.

Hey, Good afternoon, let me add my congratulations.

Really took a quarter wondering if you can talk a little bit about what you're seeing in terms of both.

End of the spectrum in terms of your client base.

You've got to move to go down market.

Also a number of features that you've got it certainly would appeal to a larger clients. So what are you seeing just in terms of from our bookings perspective on the pipeline perspective.

Across the range of the various clients that you could end up getting.

What's the impact with regards to.

Adding blue marble those capabilities.

Where does that and talk to you. The most from the spectrum perspective, and then I'll follow up.

So I think what I'm really excited about as we're seeing momentum across all market segments and so our customers better below 50 employees. We're seeing both good unit traction in them actually also buying more product are.

Our core market really for US we always think about that is kind of a 50 to 500 space.

Same thing really good penetration of some of our newer products and adoption of some of the more modern tools, which I think is also driving some of the new business momentum in there from a differentiation perspective, and then lastly, your point is a fair one in terms of some of the newer things that we've added over time to appeal, a little bit more to some of the larger customers that is definitely.

He made us more competitive in that space.

Called that out a couple of times as being a strong part of the market for us.

Many times, we see customers up to 5000 employees adopt us.

<unk> is the vendor of choice and I think the second part of your question Blue marble definitely plays a little bit stronger in the over 100 employee segment, so where clients or get sophisticated enough where they might have a small number of employees in different parts of the world.

And it does also create some differentiation in terms of our ability to simplify managing more global employees and we also believe that that trend will continue over time is obviously, we move past the pandemic state and there's more mobility around the world and there's talent shortage here in the U S. I think more and more companies are certainly looking abroad, and so we do think that that will.

B a relevant solution across our segment with a little bit more natural.

Natural interest in the upper end of our market.

That's great and then can you talk a little bit about some of the new the new modules and improvements that you introduced.

You know at the conference it sounds like the time and attendance and scheduling rules that that incorporate.

A I M M O R. R. Certainly gonna be authentication Coca tracking is obviously in the news today, how are you thinking about those things and what they could end up adding.

Yeah. So I would tell you there's a few concepts in there. So one is really about transparency and control that you are trying to give back to the employee and so when you think of the scheduling capabilities. They want to be able to you know post shift that they maybe don't want to take they want to pick up extra shifts, it's really about putting that control back and the employees hands and giving them very much.

A gig like experience, which a lot of our customers are trying to figure out how to do and then the more intelligence you can put behind that in many ways to more comfortable a customer can be to make sure that they have the right people in the in the right shifts at the right time. So that's certainly a key theme that we're we're driving across the platform with scheduling being a good example.

All of that it also delivers interesting insights back to them. So you're not spending your time running reports and so we're going to continue to do that across the platform. The second theme I would just call. It is really the ability to do workflows and automate so many different types of experience in the Covid trackers, a great example, and I think one of the unique parts of our solution is yes, you can collect vaccination status you can use it.

Survey like capability to to get in front of each employee of them upload their vaccine card, but if you have a subset of your workforce to eat to test on a weekly basis is completely automated it automatically send out on the frequency that you want it will automatically promptly employee to collect the test results and so we see a lot of opportunities like that with workflows and Philip will forms to be able to automate.

So many of the things that our our customers and had to do manually his door.

How do these modules impact.

Are there a P P y.

Yeah. It is a great question, so I would say that right now the they're all differentiation at this point in time, we do see longer term there are some opportunities around workflows as we build that solution out further to potentially be incremental.

We have not necessarily done that yet we use COVID-19 tracker to really kind of introduce the capabilities, which.

We are going to include for free for our for our customers and I would say the same thing with the scheduling enhancements longer term there are some opportunities where we could continue to enhance that but at this point in time they are value at.

Great. Thank you.

Thank you.

Our next question comes from the lineup Pat Walraven Slick JMP security your line is open.

Check to see if you're on me.

Pat are you there.

I'm not getting a response.

Our next question comes from a lot of flat Peterson with Raymond James Your line is open.

Hey, this is chased out of them for Brian. Thanks for taking my question I'm. Just curious how you guys are seeing demand for the core products, where it's kind of a full suite and then just more broadly how are you I assume is switching environment are we back to prevent medical <unk>. Thanks.

Yeah, I think overall, we have been obviously pretty happy with the revenue growth, we were able to post the market is starting to feel.

Little bit more like it did prepandemic, where there's there's certainly a normal course, where our customer is going to have certain needs from an HTM perspective, they're gonna go to the market, they're going to evaluate typically a handful of providers and choose the best one that activity was definitely a little bit lower Jen during the pandemic and so we're.

We're kind of seeing pretty normal level of activity very much akin to what we saw a couple of years ago.

Okay. Thanks.

Thank you.

Our next question comes from the lineup Mat for maintenance with Jeffries. Your line is open.

Hi, Good evening, Thank you for taking my questions Steve.

I have a question for you that that we've been getting from investors.

And I think it's an interesting on which is.

When we think about the video offering and versus maybe our daily lives and this makes me think about how awesome are broadly.

And a lot of us doesn't work, we hadn't started either Microsoft office or in either outlook or are Bloomburg terminal, but it seems like your customers are increasingly maybe starting today inside of Pilosity, whether it's in the community is her forgetting time that from their employers are you seeing that is kind of.

But maybe gaining traction as the core starting plant for productivity workers in your installed base is that a good way to think about it.

Well I think where I would start from is the challenge that we heard from HR departments. When we started to imagine what community might be from a product perspective, as they were largely emailing their employees and if they had a subset of their employees that were as you mentioned on a bloomburg terminal or are in a slack channel. It wasn't all of their employees and so they didn't have a tool either an E mail that would actually reach every single.

One of their employees and so for US that's kind of where it starts which is you've got an HR team that instead of sending out a weekly or monthly newsletter. They actually are doing videos and posts and and reacting to comments from employees and getting kind of real time engagement with them with employees and so that kind of announcement capability and then you get all the analytics behind it in terms of how many people.

Will have interacted with it and you can share it and you can follow people.

That is really where it's all kind of started I don't know if I would say we're at the point, yet where people are starting their day, they're they're definitely spending a lot more time, there you get a nice notification on your phone you can click on that you can see a message from the HR team or from the CEO. The other second thing I would say to you as we are now starting to see not just the HR team use that so it could be a sales team.

That has a group of sales folks and they use that to post the results are they use that to make announcements and so this idea of it being a more engaging alternative to E mail for our clients for all company type of communication Q&A groups culture groups diversity equity inclusion groups, that's where we're seeing the most tracks.

And today.

Great and that kind of leads me to maybe a follow up question, which is.

Is it making it easier as you see more of that and more people.

Interacting in the system in terms of getting additional module usage and showing maybe the Oreo R. A y.

Add on modules as you bring them into the fold.

Yeah, I think that's a great point so of one of the reasons I think surveys has been up pretty significantly first of all it's an environment, where it's harder to get feedback, but secondly, you can really embed this into the way you use community, so whether youre doing pulled whether you're launching surveys and the ability to actually analyze that data quicker.

Quickly.

And then be able to then communicate back out to the organization in terms of what the results might look like from that survey. So that's an example, where we do think the community is absolutely driven higher utilization of surveys is driven higher utilization of videos and I would even say, it's driven higher utilization of LMS because there's so much of that content end up coming at you and videos you start thinking about what how.

Am I going to train my employees I can't send announcements and videos, but then I am training them with Powerpoint I've got to have a multimedia type experience for that and so we definitely have seen increases in utilization and all of those products.

Great I will stay here as a payback that was a really solid quarter.

Thank you [laughter].

Thank you.

Our next question comes from a line of Mac fought with them Blair. Your line is open.

Hey, guys. Thanks for taking my questions and congrats as well for me wanted to just ask about the challenging labor market and bolted in terms of how that's impacting employment levels within your customer base as well as if it's impacting demand for for any parts of your your sweet. Thanks.

Sure. So I think a lot of our customers would tell you. This has been the most challenging hiring environment and employee retention environment that they've seen we've heard that kind of loud and clear in terms of customer challenges.

And so I don't think that would be a surprise to anybody I do think that it does raise the importance of what an HR team is doing for your organization. It becomes very strategic you've gotta be able to find the talent that can drive your business objectives.

And I think HR being part of those board room conversations and being more strategic has become very important for a lot of customers today and I believe that that certainly then translate directly to what are the tools that the HR team is actually using to be able to kind of engaged with employees. What are the tools, they're using to recruit people and how are they differentiating themselves from.

The rest of the organization the second trend I would tell you is on the retention side, which has got to be able to find a way to really connect with employees.

And to engage with employees into collaborate and hear their voice.

And more and more customers are also prioritizing tools like that and this to me is just when you think about the future of work changing the pandemic.

Pandemic accelerated a lot of these trends and so we're just seeing our value proposition of having the most modern platform with all these not only HCM capabilities to automate but also all of these modern workforce tool that really engage with our customers and I would tell you. That's one of the big reasons, we're seeing the success and acceleration of revenue road.

Got it got it that's helpful and and in terms of employment levels I think last quarter you called out that you had seen improvement throughout the quarter did that continue in the first quarter or did those count that those improvements kind of level off.

Yes, we've continued to see improvement on a month to month basis.

Through the quarter and then into the first month or this quarter. So.

I would say from a magnitude perspective.

They've they've the magnitude is decrease in terms of what you're seeing in a month over month basis, but directional improvement has continued since last quarter in each month of Q1.

Great. Thanks, guys appreciate it.

Thank you.

Our next question comes from the line of city Pentagram miserable.

Hey, guys. This is actually meant to him and on the city's behalf. Congratulations on the solid print Jerry curious about the plans for blue marble.

Can take away that there's less than 2% of impact on fiscal twenty-two how do you feel so far about the integration and what could we expect for that trajectory as to Europe falls.

Sure. So I think our philosophy around any of prior M&A that we've done we really like to take the time to really fully integrate that solution and so from a user experience perspective, when you use video in our platform. It would be just like we built it in that video team kind of contributes to the overall usage across the platform in a way that is seamless to the user.

And we're taking our time and doing the same thing when we look at the collaboration capabilities with same page and so we're going to take the same approach with blue marble. We do have some mutual customers today, there's already a level of integration with the platform, but we've got big plans to be able to fully integrate that so from a user perspective, it would very much be a seamless experience and that obviously takes some time to do that and it's.

Important for us to be able to do that right. We do believe though as we do that and that will happen in stages and steps that that solution will become even better in the marketplace and create differentiation for any of our customers wear.

We're going to be able to handle all of the U S. HTM needs, but also then provide them a much better and differentiated global experience. So think about that happening in stages and with a little bit of patience, we're going to be in a situation where from a user perspective, they will be able to navigate and use the functionality seamlessly across our entire platform.

So it sounds like they're really not going to put something out there that for lack of a better phrase have but it's it's really a matter of making sure every all the ice or data cheese across it we shouldn't expect anything in the first half of next year.

Yeah, I think historically it often will take us something in the in the kind of 12 to 18 month range. We haven't made all the assessment here that could be in that range. It could be could be a little bit longer. We do have an existing integration. So that's automatically going to be available to clients. So we don't have to wait for us to be able to try to continue to add customers and I think you'll see.

Improvements more incrementally here, because that solutions already and market and we already have integration, but I think at a macro level for us to really integrate the solution, it's probably going to fit into the type of time windows that we've had historically.

All sensible plans. Thanks, so much got super helpful.

Thank you.

Our next question comes from the line of Alex Okay.

Please search your line is open.

Hey, there this is Alan a a coffee on for Alex that again, thanks for taking the question and congrats on the strong results or what are you guys seeing from a demand perspective, but has changed over the last few quarters, given you're seeing accelerating growth and larger outperformance vs. The quarter and I've just got a quick level.

Sure well I think your question asked about over the last few quarters I mean, so obviously, we called out the tailwind you get from more employees on the platform. So that has lessened this past quarter, but if you look at it over the last few quarters that certainly has been a nice tailwind I think the second part is the demand environment has started to return to pre COVID-19 levels. So when we.

Look at the new business revenue generated by our sales force, we're really happy with the momentum and the Salesforce. So we're obviously adding customers.

Salesforce productivity is getting back to that Prepandemic level. That's a huge driver and then I think the third thing is our clients are buying more product when they're coming on board and so a lot of the new more modern features are really resonating in the market and we're seeing the uptick in terms of their attach rate of those products increase and I think those three things in combination really have contributed to the accelerated revenue.

Understood. That's really helpful and lastly, how should we think about the incremental tam opportunity and incremental competitive environment, given the blue marble acquisition.

Sure I would say, obviously, we've got a huge tam already in a pretty small amount of penetration. So I don't think we really did blue marble because we felt like that was going to be a trend where people would have more interim national employees over time, it would be a point of differentiation to drive our solution. It's a fair question, there's definitely some incremental <unk>.

That's their but I would go back to the answer I, just gave which is going to take us some time to integrate this solution.

And we want to make sure that we've got the right product in the market for now if a customer actually has international employees, we can actually handle them.

In an integrated fashion, but we probably won't look to really try to size that Tam for you until we get further along in our product roadmap and deliver a more integrated offerings.

Got it well, thanks, again and congrats on a strong results.

Thank you. Thank you.

Our next question comes from the line of Robert Simmons with da David Your line is open.

Great. Thanks for taking my questions. So sequential growth quarter was very strong guidance for <unk> central is relatively low where there are some large one time revenue in the quarter on just one level.

No there weren't.

Other than the dynamics that Steve is described there was no one time items and by that I mean, we did continue to see.

Come back in terms of employees and the platform muted compared in magnitude to prior quarter, but that was still a tailwind and then just sales execution strong demand environment. I mean, those were the largest contributors to the I think the outperformance in the strong performance we saw in the quarter. So there's no. Other one time items and I think the in terms of the guy.

For for next quarter, I think it sort of fits in line with how from philosophy standpoint for sure, but I think in terms of how we would initially guided for for this quarter and others. So okay.

Right and then can you give me color on your new book, that's coming from by industry geography, as a client or anything else.

Well I think the interesting thing about our businesses is truly horizontal so we don't necessarily market.

Vertical or differently than one geography versus the next and so.

We're now seeing traction really on a national level I think as the.

The pandemic was in more of a recovery state, which obviously there is some element of that still that exist today, we would see different geographies being coming back at a faster rate than others. We don't really see that any more it's much more consistent demand across the board, where our sales teams, having strong pipeline activity in terms of appointments, obviously closing the business and driving it.

So there's really no call out for us by vertical market or geography, we're seeing across the board strength.

Alright, thank you.

Thank you are.

Our next question comes from the lineup of it.

With Piper Sandler Yeah. The line is open.

Check to see if you're on you.

Our van.

Yes, Hi, I was on mute.

Congrats on a on a good.

Corner.

Dot product development kind of.

Roadmaps and not so much the next six months spent more more in the medium term. The next two or three years and if you can fit that into essentially complete.

My new functionality, what do you have on the roadmap and then also hum.

Capable of that that capability perspective on it that's going to enhance your current.

Aren't offerings.

Sure Yeah. So I think we started this journey, even prepandemic, where we really wanted to re imagine all the HR processes and a much more modern fashion and part of that as as you think of <unk> entering the workforce and really being the first digitally native generation in the workforce, they're just not going to think about things the same way and so we started a journey several years ago with things like <unk>.

Beauty and then adding video that we just felt like we had to modernize that I think we're still in the very early innings of that.

And you start to imagine a world, where hey, if I'm on boarding myself to a brand new company, maybe I want to meet who my teammates are ahead of time, maybe I need to be able to learn a little bit of background from them, maybe I'd get up to speed quicker in terms of what they are already working on workflows is another great example, where there's so many opportunities and workflows to help clients automate so.

We see it.

A really great opportunity in front of us and what I would tell you we learn from how our clients use the platform and so we look at what they're doing we see the problems that they're trying to solve and we get great ideas can be able to continue to innovate and add to solutions. So there is there is not necessarily a problem in terms of finding the great opportunities, it's a matter of us being able to make sure that we.

We can deliver against those and continue to innovate, which we've had a great track record of doing.

Perfect just a point of clarification I know when you started community.

It was it was more like an add on feature as opposed to something a district, they are going to be able to charge for.

<unk>.

And does that kind of status scores or has that changed.

The ability to monetize.

Well I would say, we do kind of in some ways you get the monetization by differentiation, but discreetly monetize that has never been our strategy, we really think that the ability for HR teams to communicate and connect with every single employee is just part of the core value proposition you get with Pelosity. We have indicated over time, we will look at maybe more advanced features for.

<unk> monetization, that's still the plan, but nothing necessarily that immediately on the horizon that we've announced yet.

Okay, perfect and then.

Just one last follow up on this.

Some of your competitors channel talk about it.

Essentially on demand.

It does talk about kind of this.

Kind of some service are those are those as.

Yeah that sort of thing in Kashmir client base or not so much yet well.

Well, we were actually one of the first to market with an on demand pay solution. So any employee on our client or any any employee under platform who's client.

Subscribe to that service can simply go into their mobile phone. They can look at their pay from gross to net in real time throughout the payroll period and they can request part of that pay.

<unk> to be automatically put into their bank account and that's something that we've had out there for a long time.

It's been growing.

Nicely for us it's I think we've tried to temporary the expectations around that because it has been more gradual then.

Really exponential but.

Got great feedback from our clients great feedback from the employees, who are using that service and it has been.

Ah nice competitive differentiator in the market.

Yeah.

One last one made me think gradually you mean graduated in terms of age mango graduate in terms of the revenue.

Gradual in terms of employee usage, because clients have to turn it on and they have to be comfortable that the hours in the application that they have a process to make sure. Those hours are correct, but we're seeing a nice uptick in that and people are getting more comfortable with it and then gradual in terms of therefore gradual in terms of the number of employees that are therefore requesting that advanced in their pay.

And then the revenues tied to that same comment so we definitely have revenue associated with that.

And it's in many cases, it's usually a small fee that the employees paying at the time that they they transferred the dollars on the other hand, the employer can cover that for them.

Great. Thank you very much.

Thank you.

Our next question comes from the lineup Patois Ravenswood JMP Securities. Your line is open.

Thanks, So much has joined Mensa come for Pat So sorry last one on the acquisition but.

What about blue marble stood out the most to you and then second we begin this question and lots of investors, but what would you say are the key differentiators between you and the other monitored cloud solutions. Thank you.

Yeah. So I think on the first thing it starts with the trend that we started to see more of our clients have international employees and look for help in terms of ways to be able to manage those employees and get those employees paid so we that was increasing gradually over time.

And then as we started to think about the future state and as the world opens back up and as we see talent shortages. We felt like this was going to continue to grow over time and it looked like a great opportunity. It was an existing partner that we already had integration with so we had familiarity there and there's also scarcity of assets in that space and we thought that was unique.

Capabilities and so we were really excited to be able to bring that on board and we will invest in that overtime and integrate the solutions as I discussed earlier in terms of the biggest point of differentiation. It really comes down to it we continue to say we've got the most modern solution in the marketplace and the features that we have our unique that go beyond just simply our.

Meeting payroll in HR functions, but it also allows our clients to communicate collaborate and connect with their employees and drive their culture and.

Make sure that they are able to attract and retain the talent that they need and that ultimately the value proposition that we're offering in the market.

Super helpful. Thank you guys congrats.

Thank you.

I'm showing no further questions in the queue I will now like to turn the call back over to management for closing remarks.

Great well I appreciate all of your interest in Pelosity and of course, all the questions that you've got and as usual I would love to be able to take the opportunity to think are more than 4000 people for.

Obviously, a really challenging coupla years, but for a lot of hard work that have been put in to be able to produce the results that we were able to share with you today. So I hope everyone has a great evening.

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

Today.

[music].

Ladies and gentlemen, thank you for standing by and walk them through the pay lofty holding Corp, first quarter 2022 fiscal year results conference call.

At this time all participants are in a listen only mode. After the speaker's presentation. There will be a question and answer session to ask a question. During this session you will need to press Star then one on your telephone.

If you require any further assistance. Please press star Zero I would now like to turn the conference over to your speaker for today, Mr. Ryan Glenn you may begin.

Yeah.

Good afternoon, and welcome to pay lots of these earnings results call for the first quarter of fiscal 'twenty, two which ended on September 30th 2021, I'm, Ryan Glenn <unk> Senior Vice President of Finance and joining me on the call today is Steve Beauchamp CEO.

Pelosity and Toby Williams CFO Pelosity today, we will be discussing the results announced in 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 these or other forward looking statements.

Also 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.

The 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 the business and there is a reconciliation schedule detailing. These results currently available in 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.

<unk> Commission.

In regard to our upcoming conference schedule, Toby and I will be virtually attending the Stifel Midwest One on one conference on November 11th and the Needham SaaS. One on one conference on November 18th Steven Toby will also be attending the Needham growth conference on January 11th. Please let me know if you'd like to schedule time with us at any of these events with that let me turn the call over to Steve.

Yeah.

Thank you Ryan and thanks to all of you for joining us on our first quarter fiscal 'twenty two earnings call our value proposition of providing the most modern and comprehensive product suite in the industry continued to resonate with clients and prospects in Q1, as we exceeded the top end of our guidance by $6 2 million total revenue was $181 7 million.

Or 33, 8% growth over Q1 of last year, which represents our highest quarterly growth since Q1 of fiscal 2017 and recurring revenue and other grew 34, 1% as a result of strong execution across all areas of our target market.

Our sales team also continues to build off the strong momentum they had to end fiscal 'twenty, one and we are well positioned heading into the heart of selling season.

EBITDA for the first quarter was $46 1 million or 25, 4% margin and exceeded the top end of our guidance by $5 3 million.

While we are pleased with our ability to drive efficiencies within our business. We also continue to see our award winning and remote friendly culture resonating with prospective employees and we plan to take advantage of our strong hiring momentum throughout FY 'twenty two as we continue staffing across all areas of the business, including sales marketing R&D and operations.

In October we held our annual elevate client conference, where we virtually hosted a record number of attendees for the second year in a row, we highlighted a number of new product enhancements across our suite, including more tightly integrated machine learning capabilities within time and labor for new scheduling features like open shift, claiming scheduled rules and forecasting hours with <unk>.

Also look to digitize and improve our client's manual processes through expanded workflow capabilities that also serve as the foundation for the new Pelosity Covid tracker, enabling clients to collect their employees vaccination status and test results in order to comply with regulatory mandates Lastly, we released new diversity equity and inclusion tools, including a demographics.

Dash Board, which provides real time visibility into the gender disability race generation and turnover distributions within their employee base and candidate data masking functionality within recruiting to help ensure a fair and equitable hiring process.

We believe our product focus on Eni can help drive positive culture and business outcomes for our customers and early data from our clients shows that our focus on Eni can drive higher employee engagement retention and productivity.

During the quarter. We also completed the acquisition of Blue marble, a leading global payroll provider for companies seeking more control and convenient and managing and paying their employees outside the U S. The pandemic has accelerated the shift to a more remote workforce around the world with many companies increasingly looking for talent across the globe, particularly in such a tight labor.

Market.

As we work towards fully integrating blue marble into the Pelosity suite, we're excited about the opportunity to offer new and existing clients a unified solution to pay employees automate processes and maintain compliance and 150 countries around the world from a financial standpoint, we expect blue marble to represent less than 2% of our total fiscal 'twenty two revenue.

While providing a slight headwind to adjusted EBITDA of approximately 40 basis points, all of which we've incorporated into our updated financial guidance.

I'm also excited to welcome our new Chief Technology Officer, Ratchet Little Honey, who recently joined US from Atlassian on September 27th in addition to holding senior technology roles at Atlassian, Russia also had leadership roles at Netflix and Intuit, where he helped build and scale successful software platforms. I would also like to thank <unk> for his.

And dedication to <unk> as SVP of product and technology.

Near to his departure on October 1st Ted was part of the Pelosity team for more than eight years and was instrumental in our product strategy and growth and we will look forward to maintaining the significant momentum we have in product development the.

The strong momentum across our business has been recognized by third parties as Pelosity was recently named a fortune 100 fastest growing companies as well as being named inks inaugural list of best led companies for 2021, a big Thank you to our more than 4000 employees for everything they do for our clients to help US achieve these awards I would now like to pass.

The call to Toby to review the financial results in detail and provide updated guidance for fiscal 'twenty two.

Thanks, Steve total revenue for Q1 was $181 7 million, an increase of 33, 8% with recurring and other revenues up 34, 1% from the same period last year as Steve noted our sales team had another strong quarter and we were pleased to come in at $6 $2 million above the top end of our revenue guidance.

Our adjusted gross profit was 75% for Q1 versus 69, 4% in Q1 of last fiscal as we continue to focus on scaling our operational costs.

We continue to make significant investments in research and development and to understand our overall investment in R&D. It is important to combine both what we expense and what we capitalize.

On a dollar basis, our year over year investment in total R&D increased by 16, 1% when compared to the first quarter of fiscal 'twenty, one and we remain focused on making incremental investments in R&D throughout fiscal 'twenty two as we continue to build out the payoffs of the platform to serve the needs of the modern workforce in regards to our go to market activities.

Channel referrals, primarily from benefit brokers and financial advisers. Once again represented more than 25% of new business for the first quarter as we continue to leverage both virtual and in person broker meetings and events to help us maintain the strong source of referrals on a non-GAAP basis sales and marketing expenses were 24, 1% of revenue in Q1, and we also remain.

Focused on making incremental investments in this area of the business in fiscal 'twenty two to drive growth on a non-GAAP basis G&A costs were 13, 1% of revenue in the first quarter versus 13, 6% in the same period last year, we remain focused on consistently leveraging our G&A expenses on an annual basis.

Our adjusted EBITDA was $46 1 million or 25, 4% of revenue for the quarter, which exceeded our guidance by $5 3 million at the top end, we remained committed to progressing towards our adjusted EBITDA target of 30% to 35% over time.

Briefly covering our GAAP results for Q1 gross profit was $118 4 million operating income was $10 3 million and net income was $30 9 million.

In regards to the balance sheet, we ended the quarter with cash cash equivalents and invested corporate cash of $69 6 million, which includes the impact of the blue marble acquisition for $60 million in the quarter.

In regard that client held funds and interest income our average daily balance of client funds was $1 7 billion. In Q1, we are estimating the average daily balance will be approximately $1 8 billion in Q2, and we assume an average yield of approximately 5% to 10 basis points in the second quarter.

We're pleased with our performance in Q1, 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've made to start the year.

As Steve mentioned, we are successfully hiring across our business, including in key growth driving areas, such as R&D sales and marketing, particularly in the back half of Q1 and into the start of Q2. Additionally, given the strong execution across our target market. We continue to add staff and our operations teams to deliver industry, leading service to our customers.

In regard to blue marble, while we do expect it to represent a headwind to adjusted EBITDA margin of approximately 40 basis points in fiscal 'twenty. Two we remain focused on driving operational leverage within our business to offset this impact with that I'd like to provide our financial guidance for Q2 and full fiscal 'twenty two.

For the second quarter of fiscal 'twenty to total revenue is expected to be in the range of $185 5 million to $189 5 million or approximately 27% to 30% growth over second quarter fiscal 'twenty, one total revenue and.

And adjusted EBITDA is expected to be in the range of $39 million to $42 million.

And for full year fiscal 'twenty to total revenue is expected to be in the range of $815 million to $820 million or approximately 29% growth over fiscal 'twenty. One note. This represents an increase of $25 million to our initial guide for fiscal 'twenty two.

And adjusted EBITDA is expected to be in the range of $216 million to $220 million, implying an adjusted EBITDA margin of approximately 26, 7% at the midpoint and note that we are maintaining the margin percentage range. Despite the dilutive impact of Blue marble Inc.

In conclusion, we are pleased with our Q1 results and we're pleased to raise fiscal 'twenty two guidance to 29% revenue growth at the midpoint, which in combination with the adjusted EBITDA margin represented in our full year guide returns us to above the rule of 50 in fiscal 'twenty. Two operator, we're now ready for questions. Thank you.

Thank you, ladies and gentlemen, as a reminder to ask a question you will need to press Star then one on your telephone.

To withdraw your question press the pound key again its star one to ask a question. Please standby, while we compile the Q&A roster.

Our first question comes from the line of Scott Berg with Needham Your line is open.

Hi, everyone. Thanks for taking my questions Congrats on the strong quarter.

I guess I got a couple here.

First of all.

Steve We obviously tend to the customer conference love some of the new product.

Innovations that are coming out there.

Specifically in collaboration collaboration is.

Piece of functionality with an HR, which is I feel like it was tried 10 years ago.

The functionality Youre building in right now seems to be kind of a repeat of something that maybe it didn't work quite as well why is that collaboration functionality well suited today.

How are you going to sell the product going forward. Thank you.

Yes, it's a good question Scott. So I think if you take a step back and you really think about how work has changed significantly over the last couple of years and where it's going long term than I think it's really an opportunity to re imagine so many of the HR processes that have kind of been the same for so long and I would just first point to the use of video that we have and the traction that we're getting with video.

I don't think anyone would have imagine three years ago that video will become an integral part of how we kind of communicate and connect within an HR platform, but we've had great success in both our clients use it and then embedded in different parts of the processes, so including a job description of video job description and recruiting is a great way to to attract talent as an example, we think about.

That collaboration opportunity the same way, which ultimately there's going to be a lot of.

A lot of parts of the HR process that needs to be reinvented and it's going to require things like chat document sharing and editing communicating connecting with people across the organization and as remote work or hybrid models become more popular we think that.

This is the time, where that capability will be both useful.

And be really valuable to our customers.

Got it helpful and then from a follow up perspective Toby.

Look at the results in the quarter ever all the headlines and the numbers look really really strong. So how should we think about the blue marble impact to the quarter I get the less than 2% on my math tells me that $16 million or less for the year. So the guide up was obviously quite strong but any color on maybe the impact in the quarter.

Yes, I mean, I think your rough math that Youre, describing is right from a from an overall in terms of how we've described it for the year and in terms of the timing within the quarter. I mean, we only got one month of contribution from Blue marble. So I think that's that's that's how you'd think about it.

Excellent congrats on the quarter. Thanks again guys.

Thank you.

Our next question comes from the line of Brad Reback with Stifel. Your line is open.

Great. Thanks, very much Steve as we think about collaboration.

Employee engagement is becoming a bigger and bigger part of the story can you give us any sense of what daily active usage has looked like on the platform this quarter versus a year ago, how that's expanded.

Yes, so I would tell you that we definitely have seen overall usage on the platform expand pretty significantly and has expanded beyond the traditional transactions. So yes, a lot of people used to look at their checks. They request time off theyre punching in there doing that in a mobile environment. Some of them are doing on desktop and so those activities really have increased over time and that has become.

More popular.

And we're actually finding that not just the HR department is necessarily the one that our content creators and so different groups are being created across the organization sharing employees stories and creating connections and so community has driven an increase in daily active users.

<unk> learning management also has increased significantly.

Surveys has been more popular over the last 18 months just harder to collect feedback from your employees and you can do that in a nice automated.

Fashion. So we've been really pleased with the increase it's certainly been much higher than what you'd see in terms of overall number of employees on our platform or clients.

Excellent thanks very much.

Yeah.

Thank you.

Our next question comes from the line of Bryan Bergin with Cowen Your line is open.

Hi, good afternoon. Thank you.

On sales force productivity can you give us a sense on how thats progressed relative to your expectations and versus the pre pandemic level.

Sure, Yes, so pre pandemic I think as you recall, we were really seeing a nice improvement in sales force productivity. In fact, we had called out just prior to the pandemic the quarter prior we had actually.

That year, we had gone up almost 40% in terms of overall, new sales growth, obviously that kind of took a dip throughout the pandemic I think the last earnings call. We talked about we're approaching this pre pandemic levels.

So I think that trend continues so we continue to make improvement on that we're very much starting to see this type of momentum that we had pre pandemic from a salesforce perspective, which is one of the reasons that we called out youre going to see us really take advantage of the momentum we have in the market and continue to accelerate hiring.

They'll do most of our hiring in the spring for sale sales folks, but we try to get as many people as we can on board early and so we're going to continue to hire not only there but across the board because of the momentum we're seeing.

Okay, and then Toby a question on margin as far as some of the puts and takes there just first on the <unk> performance on the gross margin can you talk about the tailwind that drove that and then as we roll forward to <unk> and look at EBITDA margin is implied to be down year over year versus the strong <unk> outperformance.

I heard the 40 bps for Blue margin, but aside from that can you just comment on some of the drivers to consider in <unk> and kind of the balance of the year.

Yes, I think just building off what Steve said, a second ago you saw.

Stronger we've seen hiring momentum through last quarter and through this quarter ticked up a little bit.

Towards the back half of the quarter and we expect that to continue into <unk>.

In the second quarter. So I think in terms of the puts and takes Q1 to Q2 on margins. That's that's probably the biggest story is just timing that I don't think theres any there is no one time items or something like that to think about it. It's really just the timing of bringing in.

Some of the hiring that Steve was talking about we have seen great momentum across every area of the business from that perspective, and we expect that to.

To continue and to continue to invest in that way as Steve just referenced so I think thats. The thats really the story from a put and take perspective quarter to quarter.

Just to clarify does that is that throughout the income statement gross margin remaining strong or does that also see a little bit of pressure.

Well I mean, I think we would expect from a gross margin standpoint, I think we're pleased with what we saw coming into Q1.

Year over year, and I think we based on how we've guided from a revenue and from adjusted EBITDA perspective, I think we feel pretty good about how we're set up for the rest of the year on gross margin.

Yes, I think that the Embraer is that 34% was a great result for us and we've got to make sure we hire across the board to be able to both service the customers that we're bringing on at an accelerated rate.

It is different than it was in first quarter, because we want to take advantage of the momentum that we've got in front of us.

Okay. Thanks for all the color.

Okay.

Thank you.

Our next question comes from the line of Terry Tillman with Troy Securities. Your line is open.

Hey, everyone. This is Robert G on behalf of Sherri.

So great question. So a couple of things I would say is.

We're really happy with the penetration rates that we're seeing so community is a free products. So that's really more driven by the utilization comments I made earlier were seeing clients really use it to connect to their employees that would be more difficult in an environment, where they have people in the hybrid work environments or even completely remote.

We're seeing people kind of create groups. Some of them are work groups, where they're trying to get work done some of them are just culture driving groups.

They are trying to share stories.

So that's really been powerful from a video perspective.

Really pleased with the attach rate that we've got in terms of new sales. So that has been faster than what we would've expected. We believe that that certainly has been helped by the increased comfort level with overall video capabilities and we see a ton of video announcements is probably the biggest use case, where instead of me sending out an email or a post in community I'm actually going to record a video for all the <unk>.

Ploys.

Offer even subset or groups of employees and then that's going to get much better interaction. So we see videos get much greater views and our platform than if we just posted with tax people comment they react.

And they are able to share that content more effectively and so that's probably the most common use case that we see with video.

That's great. Thank you congrats on a great quarter.

Thank you.

Our next question comes from the line of Mark <unk> with Baird. Your line is open.

Hey, Good afternoon, let me add my congratulation.

So the quarter wondering if you can talk a little bit about what youre seeing.

In terms of both.

Ends of the spectrum in terms of your client base.

Move to go down market.

Also a number of the features that you've added certainly would appeal to larger clients. So what are you seeing just in terms of from a bookings perspective on a pipeline perspective.

<unk> the range of the various clients that you could end up getting.

What's the impact with regards to adding blue marble those capabilities.

Where does that impact you the most from a spectrum perspective, and then I'll follow up.

So I think what I'm really excited about is we're seeing momentum across all market segments and so our customers that are below 50 employees.

We're seeing both good unit traction in them actually also buying more product.

Our core market really for us, we always think about that as kind of a $50 to 500 space.

Same thing really good penetration of some of our newer products and adoption of some of the more modern tools, which I think is also driving some of the new business momentum in there from a differentiation perspective, and then lastly, your point is a fair one in terms of some of the newer things that we've added over time do appeal, a little bit more to some of the larger customers that is.

He made us more competitive in that space.

Called that out a couple of times as being a strong part of the market for us.

Many times, we see customers up to 5000 employees adopt.

You know us as the vendor of choice and I think the second part of your question Blue marble definitely plays a little bit stronger in the over 100 employee segment, so where clients get sophisticated enough where they might have a small number of employees in different parts of the world.

And it does also create some differentiation in terms of our ability to simplify managing more global employees and we also believe that that trend will continue over time as obviously, we move past the pandemic state and there's more mobility around the world and the talent shortage here in the U S. I think more and more companies are certainly looking abroad, and so we do think that.

That will be a relevant solution across our segment with a little bit more NAV.

Natural interest in the upper end of our market.

That's great and then can you talk a little bit about some of the new.

The new modules and improvements that you introduced.

At the conference.

It sounds like the time and attendance and scheduling rules that does incorporate AI.

AI and ml are certainly going to be a beneficial COVID-19 tracking is obviously in the news today.

How are you thinking about those things and what they could end up adding.

Yes, so I would tell you theres a few concepts in there. So one is really about transparency and control that you are trying to give back to the employee and so when you think of the scheduling capabilities they want to be able to.

Post shifts that they maybe don't want to take they want to pick up extra shifts, it's really about putting that control back in the employee's hands and giving them very much a.

Our gig like experience, which a lot of our customers are trying to figure out how to do and then the more intelligence you can put behind that in many ways. The more comfortable customer can be to make sure that they have the right people in the in the rate shifts at the right time. So that's certainly a key theme that we are driving across the platform with scheduling being a good example of that.

It also delivers interesting insights back to them. So you're not spending your time running reports and so we're going to continue to do that across the platform. The second theme I would just call. It is really the ability to do workflows and automate. So many different types of experience in the Covid tracker is a great example, and I think one of the unique parts of our solution is yes, you can collect vaccination status you can use a survey.

<unk> capability to to get in front of each employee have them upload their vaccine cards, but if you have a subset of your workforce that you need to test on a weekly basis is completely automated it automatically send out on the frequency that you want it will automatically promptly employ to collect the test results and so we see a lot of opportunities like that with workflows and Philip will forms to be able to automate so.

Many of the things that our customers have had to do manually historically.

How do these modules impacts the problem or the P. P y.

Yes, it's a great question, so I would say that right now the they're all differentiation at this point in time, we do see longer term there are some opportunities around workflows as we build that solution out further to potentially be incremental.

We have not necessarily done that yet we use COVID-19 tracker to really kind of introduce the capabilities, which.

We are going to include for free for our customers and I would say the same thing with the scheduling enhancements longer term theres some opportunities where we could continue to enhance that but at this point in time they are value add.

Great. Thank you.

Thank you.

Our next question comes from the line of Pat Walraven with JMP Securities. Your line is open.

Check to see if you're on mute.

Pat are you there.

I'm not getting a response.

Our next question comes from the line of Brian Peterson with Raymond James Your line is open.

Hey, this is Jason on for Brian. Thanks for taking the question just curious how you guys are seeing demand for the core products. We're starting the whole suite and then just more broadly how are you guys seeing the switching environment are we back to pre pandemic levels yet thanks.

Yes, I think overall, we've been obviously pretty happy with the revenue growth, we were able to post the market starting to feel a little bit more like it did pre pandemic, where there is there is certainly a normal course, where a customer is going to have certain needs from an HCM perspective, they're going to go to the market theyre going evaluate typically a handful of providers and <unk>.

The best one that activity was definitely a little bit lower during the pandemic.

So.

We're kind of seeing pretty normal level of activity very much akin to what we saw a couple of years ago.

Alright. Thanks.

Thank you.

Our next question comes from the line of Sumit from mining with Jefferies. Your line is open.

Hi, good evening, Thanks for taking my questions. Steve I have a question for you that that we've been getting from investors.

And I think it's an interesting one which is when we think about the video offering and versus maybe our daily lives and just basically talking about the I'll ask you more broadly.

And a lot of us going to work, we haven't started either Microsoft or an either outlook or our Bloomberg terminal, but it seems like your customers are increasingly maybe starting today inside of pay larceny, whether it's the communities are forgetting content from their employers are you seeing that is kind of.

Maybe gaining traction as the core starting point for productivity workers in your install base is that a good way to think about it.

Well I think where I would start from is the challenge that we heard from HR departments. When we started to imagine what community might be from a product perspective, as they were largely E mailing their employees and if they had a subset of their employees that we're as you mentioned on a Bloomberg terminal or in a slack channel. It wasn't all of their employees and so they didn't have a tool either an email that would actually reach ever.

The single one of their employees and so for US that's kind of where it starts which is you've got an HR team that instead of sending out a weekly or monthly newsletter. They actually are doing videos and post.

And reacting to comments from employees and getting kind of real time engagement with employees and so that kind of announcement capability and then you get all the analytics behind it in terms of how many people have interacted with it and you can share it and you can follow people.

That is really where it's all kind of started.

Don't know if I would say we're at the point, yet where people are starting their day there.

Spending a lot more time, there you get a nice notification on your phone you can click on that you can see a message from the HR team or from the CEO the or the second thing I would say to you is we're now starting to see not just the HR team use that so it could be a sales team that has a group of sales folks and they use that to post the results or they use that to make announcements and so this idea of.

It being a more engaging alternative to email for our clients for all company type of communication Q&A group's culture groups diversity equity and inclusion groups, that's where we're seeing the most traction today.

Great and that kind of leads me to maybe a follow up question, which is.

Is it making it easier as you see more of that and more people.

In the system in terms of getting additional module usage and showing maybe the ROI of.

Add on modules as you bring them into the fold.

Yes, I think thats a great point, so one of the reasons I think surveys has been up pretty significantly first of all its an environment, where it's harder to get feedback, but secondly, you can really embed this into the way you use community, so whether youre doing pulled whether youre launching surveys and the ability to actually analyze that data.

Quickly.

And then be able to then communicate back out to the organization in terms of what the results might look like from that survey. So that's an example, where we do think the community is absolutely driven higher utilization of surveys, it's driven higher utilization of videos and I would even say, it's driven higher utilization of LMS because theres. So much of that content ends up coming at you and videos you start thinking about well how.

Am I going to train my employees I can't send announcements and videos, but then I'm training them with powerpoints I've got to have a multimedia type experience for that and so we definitely have seen increases in utilization and all of those products.

Greg I'll, Steve you have some feedback that was a really solid quarter.

Yes. Thank you.

Thank you.

Our next question comes from the line of Matt Pfau with William Blair. Your line is open.

Hey, guys. Thanks for taking my questions and congrats as well from me wanted to just ask about the challenging labor market and both in terms of how that's impacting employment levels within your customer base as well as if it's impacting demand for any parts of your suite. Thanks.

Sure So I think.

A lot of our customers would tell you. This has been the most challenging hiring environment and employee retention environment that they've seen we've heard that loud and clear in terms of customer challenges.

And so I don't think that would be a surprise to anybody I do think that it does raise the importance of what an HR team is doing for your organization. It becomes very strategic you've got to be able to find the talent that you need to drive your business objectives, and I think HR being part of those boardroom conversations and being more strategic has become.

<unk> very important for a lot of customers today and I believe that that certainly then translates directly to what are the tools that the HR team is actually using to be able to kind of engage with employees. What are the tools, they're using to recruit people and how are they differentiating themselves from the rest of the organization. The second trend I would tell you is on the retention side, which is the guide.

To be able to find a way to really connect with employees.

And to engage with employees into collaborate and hear their voice.

And more and more customers are also prioritizing tools like that and this to me is just when you think about the future of work changing.

Pandemic accelerated a lot of these trends and so we're just seeing our value proposition of having the most modern platform with all of the not only HCM capabilities to automate, but also all of these modern workforce tools that really engage with our customers and I would tell you. That's one of the big reasons, we're seeing the success and the acceleration of revenue growth.

Got it got it that's helpful and in terms of employment levels I think last quarter, you called out that you had seen improvement throughout the quarter did that continue in the first quarter or did those kind of those improvements kind of level off.

Yes, we've continued to see improvement on a month to month basis through the quarter and then into the first month of this quarter. So.

I would say from a magnitude perspective.

The magnitude is decrease in terms of what youre seeing on a month over month basis, but directional improvement has continued since last quarter in each month of Q1.

Great. Thanks, guys I appreciate it.

Thank you.

Our next question comes from the line of Citi <unk> with Mizuho. Your line is open.

Hey, guys. This is actually Matt Diamond on cities behalf I'll Echo the congratulations on the solid trends very curious about the plans for blue marble.

You can take away that there is less than 2% of impact in fiscal 'twenty. Two how do you feel so far about the integration and what could we expect for that trajectory as the year unfolds.

Sure. So I think our philosophy around any prior M&A that we've done we really like to take the time to really fully integrate that solution and so from a user experience perspective. When you use video on our platform. It would be just like we built it in that video team it kind of contributes to the overall usage across the platform in a way that is seamless to the user.

And we're taking our time in doing the same thing when we look at the collaboration capabilities with same page and so we're going to take the same approach with blue marble.

We do have some mutual customers today theres already a level of integration with the platform, but we've got big plans to be able to fully integrate that so from a user perspective, it would very much be a seamless experience and that obviously takes some time to do that and it's important for us to be able to do that right. We do believe though as we do that and that will happen in stages and steps that that solution will be.

Some even better in the marketplace and create differentiation for any of our customers were.

We're going to be able to handle all of the U S. HCM needs, but also then provide them a much better and differentiated global experience. So think about that happening in stages and with a little bit of patients we're going to be in a situation where from a user perspective, they will be able to navigate and used functionality seamlessly across our entire platform.

So it sounds like there.

They are really not going to put something out there that for lack of a better phrase half base, it's really a matter of making sure every all the i's are dotted t's are crossed and we shouldnt expect anything in the first half of next year.

I think historically it often will take us something in the in that kind of 12 to 18 month range. We haven't made all the assessment here that could be in that range. It could be could be a little bit longer. We do have an existing integrations. So that's automatically going to be available to clients. So we don't have to wait for us to be able to try to continue to add customers and I think youll see improve.

<unk> more incrementally here because that solution is already in market and we already have integration, but I think at a macro level for us to really integrate the solution, it's probably going to fit into the type of time windows that we've had historically.

All sensible plans. Thanks, so much guys Super helpful.

Thank you.

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

Hey, this is Alan for coffee on for Alex Thanks for taking the question and congrats on the strong results here. What are you guys seeing from a demand perspective that has changed over the last few quarters, given you're seeing accelerating growth and larger outperformance versus the quarter and I've just got a quick follow up.

Sure.

Your question asked about over the last few quarters I mean, so obviously, we called out the tailwind you get from more employees on the platform. So that has lessened this past quarter, but if you look at it over the last few quarters that certainly has been a nice tailwind I think the second part is the demand environment has started to return to pre COVID-19 levels. So when we look at the new business.

Revenue generated by our sales force, we're really happy with the momentum in the sales force. So we're obviously, adding customers salesforce.

Salesforce productivity is getting back to that pre pandemic level. That's a huge driver and then I think the third thing is our clients are buying more product when they're coming on board and so a lot of the new more modern features are really resonating in the market and we're seeing the uptick in terms of the attach rate of those products increase and I think those three things in combination really have contributed to the accelerated revenue.

Both.

Understood. That's really helpful and lastly, how should we think about the incremental tam opportunity and incremental competitive environment, given the blue marble acquisition.

Ma'am, that's there, but I would go back to the answer I, just gave which is it's going to take us some time to integrate this solution.

And we want to make sure that we've got the right.

<unk> in the market for now if a customer actually has international employees, we can actually handle them.

In an integrated fashion, but we probably won't look to really try to size that Tam for you until we get further along in our product roadmap and deliver a more integrated offering.

Got it well, thanks, again and congrats on the strong results.

Thank you. Thank you.

Our next question comes from the line of Robert Simmons with D. A Davidson your line is open.

Great. Thanks for taking my questions.

Growth in the quarter was very strong guidance for Q2 sequential is relatively low.

Were there some large one time revenue items in the quarter.

Level.

No there werent.

Other than that the dynamics that Steve has described there was no one time items and by that I mean, we did continue to see.

Come back in terms of employees on the platform muted compared to in magnitude to prior quarter, but that was still a tailwind and then just sales execution strong demand environment. I mean, those were the largest contributors to the I think the outperformance and the strong performance we saw in the quarter. So.

No other one time items and I think the.

In terms of the guide for for next quarter, I think it sort of fits in line with how from a philosophy standpoint for sure, but I think in terms of how we would have initially guided for for this quarter and others.

Okay, Okay, great and then.

You gave some color on your new bookings coming from by industry geography, as a client or anything else.

Well I think the interesting thing about our business is truly horizontal so we don't necessarily market by vertical or differently in one geography versus the next and so.

We're now seeing traction really on a national level I think as the.

Pandemic was in more of a recovery state, which obviously there is some element of that still that exists today, we would see different geographies being coming back at a faster rate than others. We don't really see that anymore. It's much more consistent demand across the board, where our sales team is having strong pipeline activity in terms of appointments, obviously closing the business and driving it so.

Theres really no call out for us by vertical market or geography, we're seeing across the board strength.

Alright, thank you.

Thank you.

Our next question comes from the line of orbit were mainly with Piper Sandler Your line is open.

<unk>.

Check to see if you're on mute.

Yes, yes, sorry, I was on mute.

Congrats on a good quarter.

Just.

Wanted to ask on your product development.

End of <unk>.

Roadmaps and not so much the next six months, but more in the medium term. The next two or three years and if you can bucket that didn't.

So essentially kind of completely new functionality, what do you have on the roadmap and then also some of them.

Given that that capability perspective.

That's going to enhance your current.

Current offerings.

Sure Yeah. So I think we started this journey, even pre pandemic, where we really wanted to re imagine all of the HR processes and a much more modern fashion and part of that is as you think of Gen Z entering the workforce and really being the first digitally native generation in the workforce. They are just not going to think about things the same way and so we started a journey several years ago with things like <unk>.

Immunity and then adding video that we just felt like we had to modernize that I think we're still in the very early innings of that.

And you start to imagine a world, where hey, if I'm on boarding myself to a brand new company, maybe I want to meet who my teammates are ahead of time, maybe I need to be able to learn a little bit of background from them, maybe I get up to speed quicker in terms of what they are already working on workflows is another great example, where there's so many opportunities and workflows to help clients automate so.

We see it.

A really great opportunity in front of us and what I would tell you as we learn from how our clients use the platform and so we look at what they're doing we see the problems that they're trying to solve and we get great ideas to be able to continue to innovate and add to solution. So there is there is not necessarily a problem in terms of finding great opportunities, it's a matter of us being able to make sure that we.

We can deliver against those and continue to innovate, which we've had a great track record of doing.

Terrific and just a final clarification I know when you start up community.

It was more like an add on feature as opposed to something I'd, just simply going to be able to charge for.

Hi.

Has that been a status quo or has that changed.

The ability to monetize.

Well I would say, we do kind of in some ways you get the monetization by differentiation, but could discretely monetize that has never been our strategy, we really think that the ability for our HR teams to communicate and connect with every single employee is just part of the core value proposition you get with Pelosity. We have indicated over time, we will look at maybe more advanced features.

<unk> monetization, that's still the plan, but nothing necessarily that immediately on the horizon that we've announced yet.

Okay, perfect and then.

Just one last follow up on this.

Some of your competitors.

Talk about it.

Essentially on demand.

I'll just talk about kind of data.

And service are those are those as well.

Got it.

Sort of staying in touch wondering if client base.

So much yet.

While we were actually one of the first to market with an on demand pay solution. So any employee on our client or any any.

Any employee under platform, whose client <unk>.

Subscribe so that service can simply go into their mobile phone. They can look at their pay from gross to net in real time throughout the payroll period and they can request part of that pay to be automatically put into their bank account and that's something that we've had out there for a long time.

Been growing nicely.

Nicely for us.

We've tried to temper the expectations around that because it has been more gradual than.

Really exponential, but it's we got great feedback from our clients great feedback from the employees, who are using that service and it has been.

A nice competitive differentiator in the market.

Yes.

One last one maybe it's a gradual I mean gradual in terms of engagement a graduate in terms of the revenue.

And then the revenue is tied to that same comment. So we definitely have revenue associated with that.

And it's in many cases, it's usually a small fee that the employees are paying at the time that they transfer the dollars on the other hand, the employer can cover that for them.

Great. Thank you very much.

Yes.

Thank you.

Our next question comes from the line of Pat Walraven with JMP Securities. Your line is open.

Thanks, So much this is joanne brinci comfort Pat So sorry last one on the acquisition but.

What about blue marble stood out the most to you and then second we've been getting this question a lot from investors, but what would you say are the key differentiators between you and the other monitoring cloud solutions. Thank you.

Yes, so I think on the first thing it starts with the trend that we started to see more of our clients have international employees and look for help in terms of ways to be able to manage those employees and get those employees paid so we that was increasing gradually over time.

And then as we started to think about the future state and as the world opens back up and as we see talent shortages. We felt like this was going to continue to grow overtime and.

It looked like a great opportunity with an existing partner that we already had integration with so we had familiarity there and Theres also scarcity of assets in that space and we thought that it was unique capabilities and so we were really excited to be able to bring that onboard and we will invest in that.

Time and integrate the solutions as I discussed earlier in terms of the biggest point of differentiation. It really comes down to what we continue to say we've got the most modern solution in the marketplace and the features that we have are unique that go beyond just simply automating payroll and HR functions, but it also allows our clients to communicate collaborate and connect with their employees.

<unk> and drive their culture and make sure that they are able to attract and retain the talent that they need and that ultimately is the value proposition that we're offering in the market.

Super helpful. Thank you guys congrats.

Thank you.

I'm showing no further questions in the queue I would now like to turn the call back over to management for closing remarks.

Great well I appreciate all of your interest in <unk> and of course, all the questions that you've got and as usual I would love to be able to take the opportunity to thank our more than 4000 people for.

Obviously, a really challenging couple of years, but for a lot of hard work that have been put in to be able to produce the results that we were able to share with you today. So I hope everyone has a great evening.

Ladies and gentlemen. This concludes today's conference call. Thank you for your participation you may now disconnect everyone have a wonderful day.

Q1 2022 Paylocity Holding Corp Earnings Call

Request a DemoDemo

PCTY

Paylocity

Earnings