Q4 2022 Paylocity Holding Corp Earnings Call

August 4, 2022

Presentation, there will be a question and answer session to ask the question. During the session you will need to press star one one on your telephone.

I would now like to hand, the conference over to your Speaker, Ryan Glenn Chief Financial Officer, you may begin.

Good afternoon, and welcome to Pelosity his earnings results call for the fourth quarter and fiscal 'twenty, two which ended on June 32022, I'm, Ryan Glenn Chief Financial Officer, and joining me on the call today are Steve Beauchamp until the Williams co Ceos with Pelosity today, we will be discussing the <unk>.

As 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 present information and are subject to risks and uncertainties that can cause actual results to differ materially from those projected in the forward looking statements for additional information please refer to our filings with the.

The Securities and Exchange Commission for the risk factors contained therein and other disclosures, we do not undertake any duty to update any forward looking statements.

Also during the course of today's call, we will refer to certain non-GAAP financial measures. We believe that non-GAAP measures are more representative of how we internally measure the business and there is 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.

Commission please.

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 upcoming conference schedule I will be attending the Wolfe Research TMT conference in San Francisco on September eight the Stifel Executive Summit in New Jersey on September 12, and the Piper Sandler Tech Conference in Nashville on September 14th. Please let me know if you'd like to schedule time at any of these events with that let me turn the call over to Steve.

Ryan and thanks to all of you for joining us on our fourth quarter and fiscal 'twenty two earnings call. Our sales team continued its strong execution in the fourth quarter with total revenue growth of 36, 7%, marking our fourth straight quarter with more than 30% revenue growth as our differentiated value proposition of providing the most modern software in the industry continue.

To resonate in the marketplace.

For fiscal 'twenty, two total revenue was $852 7 million or 34, 1% growth our largest annual revenue growth since fiscal 2016.

Our strong sales execution was driven both by adding new clients and increasing our average revenue per client. We ended fiscal 'twenty two with 33300 clients compared to 28750 at the end of last fiscal year, an increase of 16%.

The 16% increase in clients in fiscal 'twenty. Two was also aided by very high client satisfaction as revenue retention once again remained greater than 92% and at its highest level in a number of years.

Average recurring revenue per client was over 25000 in fiscal 'twenty two compared to just under 22000 in fiscal 'twenty, one an increase of 16% as a result of increased employees on the platform and rising product attach rates across our client base.

We continue to attach more products at time of sale and have realized increased success selling back into existing clients as our products focused on the most modern workforce resonate across our entire client base.

Additionally, community usage continues to increase with the total number of monthly users growing more than 40% in fiscal 'twenty, two where video creation is increased by over 80%. During the same period. These increasing levels of engagement are driving tangible business impact for our clients with our proprietary modern workforce index showing that higher engagement scores correlate with.

15% lower turnover turnover and faster head count growth.

Our commitment to product development continues to be recognized in the market with philosophy ranking high on the G to crowd summer grid reports during fiscal 'twenty, two while community our social collaboration hub was recently named the best culture building solution within the employee experience category of the 2022 HR Tech Awards are.

Our strong culture and industry, leading software and exceptional sales and operational execution would not be possible without the dedication and commitment of our employees as we close out a very strong fiscal 'twenty two I'd like to thank all of our employees for a fantastic year.

I would now like to pass the call to Toby to provide further color on the quarter and fiscal 'twenty two.

Thanks, Steve the ability to attract and retain talent remains top of mind for our clients is the combination of a tight labor market and the challenges that come with managing remote onsite and hybrid teams are driving increased demand for HR technology.

These dynamics are reflected in increasing attach rates across our entire platform, particularly within our suite of modern workforce solutions, including recruiting learning management premium video and surveys overall, our differentiated value proposition of providing the most modern and comprehensive product suite in the industry continues to resonate in the marketplace.

The demand environment remains strong and our sales teams executed very well in fiscal 'twenty. Two in Q4 in fiscal 'twenty. Two we saw strong sales execution across our entire market driving healthy sales activity and setting us up for a strong fiscal 'twenty three.

Building off the strong momentum we've expanded our sales force for fiscal 'twenty, three by adding new sales reps, while at the same time investing in training initiatives and marketing and channel programs to drive productivity, which saw steady improvement throughout the course of the year announced at the head of pre pandemic productivity levels sales.

Sales reps have increased by 18% from 588 in fiscal 'twenty two to 694 in fiscal 'twenty, three and I am pleased that we are fully staffed heading into the new fiscal year. We also continued to invest in our channel initiatives and we remain pleased with the consistency in our referral channel, which continued to deliver more than 25% of our new business in Q4.

Full fiscal 'twenty two.

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

We continue to see strong demand across our target market and we're very pleased with the momentum of our sales team has built headed into fiscal 'twenty. Three. Additionally from a macro perspective key data points remained strong including workforce levels at our clients, which increased each month in Q4 and into July .

The strong culture at Pelosity continued to be recognized externally. This fiscal year as we were named to the ink best led companies list Fortune 100 fastest growing companies Forbes' best midsize employers Forbes' best employers for diversity and Forbes best employers for women.

Echoing Steve's comments I would like to thank all of our more than 5000 employees for a fantastic fiscal 'twenty, two which would not be possible without their dedication and commitment to our clients I would now like to pass the call over to Ryan to review the financial results in detail and provide fiscal 'twenty three guidance.

Thanks, Tobey total revenue for the fourth quarter was $228 9 million, an increase of 36, 7% with recurring and other revenues up 36, 2% from the same period last year as Tobi noted our sales team had a strong quarter and we were pleased to come and $9 4 million above the top end of our revenue guidance for the year recur.

And total revenue growth was 34, 2% and 34, 1%, respectively and as Steve mentioned in fiscal 'twenty to represent our largest annual growth since fiscal 2016.

Adjusted EBITDA for the fourth quarter was $59 3 million or 29% margin and exceeded the top end of our guidance by $6 8 million for fiscal 'twenty. Two adjusted EBITDA was $237 8 million or 27, 9% margin, resulting in leverage of 120 basis points versus fiscal 'twenty one despite the roughly 50.

Basis points of dilutive impact from the blue marble and cloud snap acquisitions.

We continue to be pleased by our ability to drive exceptional revenue growth combined with strong profitability.

On a combined basis or 34, 1% revenue growth plus 27, 9% adjusted EBIT margin puts us above the rule of 60 for fiscal 'twenty two.

We continue to make significant investments in research and development and to understand our overall investment in R&D is important to combine both what we expense and what we capitalize on a combined non-GAAP basis total R&D investments were 14.0% of revenue in the fourth quarter and on a full year basis total R&D investments were $13 seven <unk>.

Sent a revenue on a one off.

Basis, our year over year investment in total R&D increased by 24, 7% in fiscal 'twenty, two when compared to fiscal 'twenty one.

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

On a non-GAAP basis sales and marketing expenses were 23, 4% of revenue in the fourth quarter and 22, 4% for fiscal 'twenty two.

On a non-GAAP basis G&A costs were 13, 2% of revenue in the fourth quarter versus 14.0% in the same period last year full year G&A costs were 12, 9% of revenue as compared to 13, 1% in fiscal 'twenty, one and we remain focus on consistency consistently leveraging our G&A expenses on an annual basis.

<unk>.

Briefly covering our GAAP results. Our Q4 gross profit was $151 6 million operating income was $18 8 million and net income was $15 1 million for the full year gross profit was $565 6 million operating income was $84 6 million and net income was $90 8 million.

In regards to the balance sheet, we ended the year with cash and cash equivalents of $139 8 million with no debt outstanding.

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

In regard to client held funds and interest income our average daily balance of client funds was $2 2 billion in Q4, and 2.0 billion for fiscal 'twenty two.

We are estimating the average daily balance will be approximately 2.0 or $1 billion in Q1 with an average annual yield of approximately 80 to 100 basis points or approximately $4 million to $5 million of interest income in Q1.

On a full year basis, we are estimating the average daily balance will be $2 4 billion with an average yield of approximately 100 to 125 basis points or approximately $24 million to $30 million of interest income in fiscal 'twenty. Three. Additionally, please note that our guidance includes the impact of last week 75 basis point interest rate increase with.

Further assumption that interest rates will be approximately 3.0% as of calendar year end 2022, our guidance does not currently include any changes to interest rates in calendar 2023.

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

For the first quarter of fiscal 23 total revenue is expected to be in the range of $237 3 million to $241 3 million or approximately 31% to 33% growth over first quarter of fiscal 'twenty to total revenue.

And adjusted EBITDA is expected to be in the range of $55 million to $58 million.

And for fiscal 'twenty three total revenue is expected to be in the range of $1 billion $87 million to $1.092 billion or approximately 28% growth over fiscal 'twenty two.

And adjusted EBITDA is expected to be in the range of $314 5 million to $318 5 million, which represents a 120 basis points of leverage over fiscal 'twenty two.

In fiscal 'twenty, three we are guiding to a key milestone in our journey as we cross over $1 billion of revenue, while remaining focused on providing our clients with industry, leading software and World Class service. While also building a great culture for our employees, we enter fiscal 'twenty three with a high level of confidence in our ability to continue to grow and scale our business against the backdrop of a very.

A large and attractive addressable market.

I would also like to thank all of our people and teams across the business that made fiscal 'twenty two successful operator, we're now ready for questions.

Thank you.

As a reminder to ask a question you would need to press star one one on your telephone.

Ask that you limit yourself to one question and one follow up.

Please standby, while we compile the Q&A roster.

Our first question.

From the line of Scott Berg.

Great.

I'm, sorry, Scott Berg with Needham <unk> Company. Your line is open.

Okay.

Hi, everyone. Congrats on a great quarter and thanks for taking my questions.

Employers, we enter fiscal 'twenty, three with a high level of confidence in our ability to continue to grow and scale our business against the backdrop of a very large and attractive addressable market.

Not sure who wants to field desk, but let's start off with your outperformance in the quarter.

By what I see it looks like your best revenue in.

I would also like to thank all of our people and teams across the business that made fiscal 'twenty. Two successful operator, we are now ready for questions.

Leased five years, how should we think about that beat in the quarter. How much of it was driven say from strong sales strong implementations of new customers. There may be some incremental impact from interest income from a client.

Thank you.

As a reminder to ask a question you would need to press star one one on your telephone.

We ask that you limit yourself to one question and one follow up.

Yeah.

Yes, so I would say its really business execution that drove that theres, probably no big like onetime items to call out.

Please standby, while we compile the Q&A roster.

Our first question.

We've really had a great year end selling season, which builds into the quarter. So January is really important from a selling perspective also strong retention through that quarter and so as you kind of take the momentum from third quarter plus the strong performance in fourth quarter that was really the biggest driver in terms of getting us the revenue beat you mentioned.

Comes from the line of Scott Berg.

Sure.

I'm, sorry, Scott Berg with Needham <unk> Company. Your line is open.

Okay.

Hi, everyone. Congrats on a great quarter and thanks for taking my questions.

Not sure who wants to field desk, but let's start off with your outperformance in the quarter.

Okay. That's helpful. And then Tony I think you were talking about the number of sales reps going into the fiscal year here in the new year, how should we think about the growth of those swaps are you targeting a segment maybe.

By what I see it looks like your best revenue would be at least five years, how should we think about that beat in the quarter. How much of that was driven from strong sales strong implementations of new customers or maybe some incremental impact from.

New investments more than other areas or is it pretty well sprinkled out between kind of your strategic core historical segment than the larger segments, you're now starting to target more aggressively.

Interest income from client onto the quarter.

Yes, so I would say its really business execution that drove that theres, probably no big like onetime items to call out we had we really had a great year end selling season, which built into the quarter. So January is really important from a selling perspective also strong retention through that quarter and so as you kind of take the momentum from third quarter.

Yes, Scott So we grew reps overall, 18%, which is roughly in line with what we would have done historically and coming into this last fiscal year and I mean to your point I mean, it's pretty well spread across the different areas of the business. So I wouldn't say there was any specific concentration pretty pretty evenly split spread and growth rate, that's roughly consistent with what we would have.

The strong performance in fourth quarter that was really the biggest driver in terms of getting us the revenue beat you mentioned.

Done year to date, historically, I think setting onto some of Steve's points, new sales team executed really well and.

We're really happy with what they how they finished the year and came into the quarter I think we're pretty well set up for 'twenty three.

Okay. That's helpful. And then Toby I think you were talking about the number of sales reps going into the fiscal year here the new year, how should we think about the growth of those swaps are you targeting a segments maybe.

Great Congrats on a great quarter. Thanks again.

Yes.

Thank you please standby for our next question.

For new investors more than other areas or is it pretty well sprinkled out between kind of your strategic core historical segment. In this larger segment you are now starting to target more aggressively.

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

Yes, Scott So we grew reps overall, 18%, which is roughly in line with what we would have done historically and coming into the last fiscal year and I think to your point I mean, it's pretty well spread across the different areas of the business. So I wouldn't say there was any specific concentration pretty pretty evenly split spread and growth rate, that's roughly consistent with what we would have done.

Great. Thanks very much.

Okay.

I don't know who wants to take this but as you guys think about sort of what's going to be an incremental $25 million if not more of slow.

Interest income how do you sort of.

Strategize around.

It's invested versus what gets.

Historically, I think setting onto some of Steve's points, new sales team executed really well and we're really happy with what they how they finished the year and came into the quarter I think we're pretty well set up for 'twenty three.

Allowed to fall to the bottom line.

Yeah. Good question I think consistent with what we said in the past first about sizing our investments overall absent the interest environment and Thats kind of how we try to run the business on.

Great Congrats on a great quarter. Thanks again.

In a normal and abnormal environment, we're pretty excited about some of the investments we've made in R&D, we've talked about great sales performance, but part of that is because we've got a differentiated solution and the new products that we've launched are attaching at a nice rate and theyre actually having great success and so we think about going into next year and continuing to increase the investments in R&D based off the <unk>.

Thank you.

Thank you please standby for our next question.

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

Great. Thanks very much.

I don't know who wants to take this but as you guys think about sort of what's going to be an incremental $25 million if not more float interest income how do you sort of.

Why that we've been able to drive there at the same time, we will stay kind of aggressive about trying to grow the business and do that in sales and marketing.

And I think from a.

Strategize around what gets invested versus what gets.

You've got pretty nice leverage in the model in terms of what we've actually forecasted a lot of that does come from the interest revenue.

Sure.

Allowed to fall to the bottom line.

So that's really the way we thought about is let's fund our investments in sales and marketing R&D make sure. We've got the people that we need and we're hiring ahead when we need to.

Yeah. Good question I think consistent with what we said in the past first about sizing our investments overall absent the interest environment and Thats kind of how we try to run the business.

And I think when you put that all together you see most of the interest revenue ends up flowing down to the bottom line.

Normal and abnormal environment, we're pretty excited about some of the investments we've made in R&D, we've talked about great sales performance, but part of that is because we've got a differentiated solution and the new products that we've launched are attaching at a nice rate and theyre actually having great success and so we think about going into next year and continuing to increase the investments in R&D based off the road.

But we will look selectively for opportunities to make investments in those areas.

That's great and just a quick follow up I think early in the script you guys talked about increasing productivity in the sales force how much of that is coming from just better quality.

That we've been able to drive there at the same time, we will stay kind of aggressive about trying to grow the business and do that in sales and marketing.

They're close more business versus higher ARP, who because they're selling more product into larger customers. Thanks.

And I think the reality <unk> got pretty nice leverage in the model in terms of what we've actually forecasted a lot of that does come from the interest revenue.

Yeah. So.

So probably multiple levers is driving the productivity I think we called out on the last earnings call. We definitely have seen success at the higher end of our target market. So that is a contributor to <unk> growth at the same time. We've also called out this time than last time, just the newer products and the higher attach rates than what we expected thats. Another nice driver from an RFP perspective.

And so that's really the way we thought about it let's fund our investments in sales and marketing R&D make sure. We've got the people that we need and we're hiring ahead when we need to.

And I think when you put that altogether you see most of the interest revenue ends up flowing down to the bottom line.

Dave.

And so really we've been able to keep you saw the unit growth that we posted for the year kind of right in line with where we were on a pre pandemic level and so we've been able to maintain units in a similar fashion to drive a little bit upmarket for the higher end and just attach more products and I think that's the formula for success rate there.

We will look selectively for opportunities to make investments in those areas.

That's great and just a quick follow up I think early in the script you guys talked about increasing productivity in the sales force how much of that is coming from just better quality.

That's great thanks very much.

Okay.

They're close more business versus your higher <unk>, because they're selling more product into larger customers. Thanks.

Thank you.

Please standby for our next question.

Yeah. So.

Okay.

So probably multiple levers is driving the productivity I think we called out on the last earnings call. We definitely have seen success at the higher end of our target market. So that is a contributor to <unk> growth at the same time. We've also called out this time than last time, just the newer products and the higher attach rates than what we expected. That's another nice driver from an RFP perspective.

Our next question comes from the line of Terry Tillman with choice Youre line is open.

Yes, Thanks for taking my question and follow up and congrats from me as well.

Gonna be product centric. So I don't know if this is for you, Steve or who wants to jump on it but you know when you're in sales cycles and there is actually some meaningful competition.

Or is are things like community or video or some of these kind of new newer technologies that really help with our remote workforce and collaboration how often are they actually helping be kind of a decision factor to.

Dave.

And so really we have been able to keep you saw the unit growth that we posted for the year kind of right in line with where we were on a pre pandemic level and so we've been able to maintain units in a similar fashion drive a little bit up market for the higher end and just attach more products and I think that's the formula for success rate there.

Winning the business and then the second part is you have community in the market the community plus product.

That's great thanks very much.

What's kind of without tipping your hat like how do we see <unk> going from where it is now I think it's about 440, just any ideas at a high level of where we might go next and how you can enable these modern workforce. It. Thank you.

Thank you.

Please standby for our next question.

Our next question comes from the line of Terry Tillman with true Lewis Your line is open.

Sure. So I think on your first point, if you look at businesses really across America, one of the greatest challenges in today's environment with the low unemployment rate is just attracting and retaining talent and I think if you have conversations with Ceos and thats at the top of their list of things that they're focused on and so you'll have product like community in video and learn.

Yes, Thanks for taking my question and follow up and congrats from me as well.

B product centric. So I don't know if this is for you, Steve or who wants to jump on it but when you are in sales cycles and there is actually some meaningful competition. How is are things like community or video or some of these kind of newer technologies that really help with that remote workforce and collaboration how often are they actually helping be kind of a decision.

<unk> management and all of the features that go along with that it's really focused on employee engagement and making sure that those employees feel like they're attached to that organization. The communication is really transparent they can connect with people digitally which is more required in today's environment and so yes, I absolutely believe that that's part of the equation. We do we have to do all the other things right to write to.

Victor to.

Winning the business and then the second part is you have community in the market the community plus product.

Kind of without tipping your hat like how do we see <unk> going from where it is now I think it's about $4 40, just any ideas at a high level of where we might go next and how you can enable these modern workforce. It. Thank you.

To save them time, and make sure that we do payroll in an easy and simple way for everybody and so when you combine the ROI embedded in the core solutions and you overlay our modern workforce modules.

Sure. So I think on your first point, if you look at businesses really across America, one of the greatest challenges in today's environment with low unemployment rate is just attracting and retaining talent and I think if you have conversations with Ceos and thats at the top of their list of things that they're focused on and so you have product like community in video and learn.

We really believe that that's a big driver in terms of why we've got increased momentum in terms of revenue growth.

The second part of your question.

I think we have an opportunity in many of the modules to <unk>.

Launched maybe additional capabilities think of those as product line extensions and potentially monetize some of those.

<unk> management and all of the features that go along with that it is really focused on employee engagement and making sure that those employees feel like they're attached to that organization. The communication is really transparent they can connect with people digitally which is more required in today's environment and so yes, I absolutely believe that that's part of the equation, we have to do all the other things right too right.

And we've done that historically very successful and so we don't think that where cap rate now where we are for <unk> why we think we've got a good product.

Pipeline in our core products and then as we think of these more modern capabilities and the launch of community plus that does open up a whole new arena of things that we can add and potentially monetize so we feel good about the pipeline.

Thank you.

Please standby for our next question.

We really believe that that's a big driver in terms of why we've got increased momentum in terms of revenue growth the.

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

The second part of your question.

I think we have an opportunity in many of the modules to la.

Hi, Good afternoon. Thank you I wanted to just ask about the physical point there Alex So as you built the growth forecast can you talk about some of the puts and takes that went into that things like new sales attribution assumed client employment levels and then how are you thinking about as you go through the course of the year, particularly the second half of the year.

Launched maybe additional capabilities think of those as product line extensions and potentially monetize some of those.

And we've done that historically very successful and so we don't think that we're capped right now where we are for <unk> why we think we've got a good product.

In calendar 'twenty three.

Pipeline in our core products and then as we think of these more modern capabilities and the launch of community plus that does open a whole new arena of things that we can add and potentially monetize so we feel good about the pipeline.

Yes. This is Toby I'll start I mean, I think from a from a philosophy standpoint.

I think our guidance philosophy, and our building of the planned philosophy for 'twenty three is pretty consistent with how we've looked at.

It has historically.

Thank you.

I think our we have a lot of momentum I think couple of points. One is the demand environment. I think is maintained strength. The sales team is executing really well and so I think if you look at the momentum we had coming into Q4, we think that momentum carries into Q1, I think we have seen.

Thank you.

Please standby for our next question.

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

Hi, Good afternoon. Thank you I wanted to just ask about the physical point, Alex as you built the growth forecast can you talk about some of the puts and takes that went into that things like new sales attribution assumed client employment levels and really how are you thinking about as you go through the course of the year, particularly the second half of the year.

The strength in our differentiation in the market with all the product items that Steve just talked through so I think we viewed 23 is.

Continued strength from a demand perspective, and assuming the execution from our sales team a differentiation perspective maintained with the same guidance philosophy that we brought pretty much year in year out historically, yes, Brian I guess I'd just add from an employment perspective, as we talked about in the prepared remarks, we've seen continued improvement in each month.

In calendar 'twenty three.

Yes. This is Toby I'll start I mean, I think from a from a philosophy standpoint.

I think our guidance philosophy, and our building of the planned philosophy for 'twenty three is pretty consistent with how we've looked at it historically.

In the fourth quarter and into July as well, but as we have.

<unk>.

<unk> historically and thought about from a guidance perspective, no assumption around changes. So what we've seen is what we've guided to we have not assumed any further improvement or degradation in employment levels.

As we've said in the past that is sort of the discrete changes that would take us to the top end of guidance or somewhere within that range. So that's how we've thought about this year as Toby said very consistent guidance philosophy.

That momentum carries into Q1, I think we have seen.

The strength in our differentiation in the market with all the product items that Steve just talked through so I think we viewed 23 is.

I think this year, we provided some incremental details around interest income and yield an average daily balance to make sure that you all had a pretty good idea of what we're implying from a recurring revenue perspective. So as you put all that together and you look at the guide we feel really good about being call it 32% at the midpoint for Q1 and 28% for the year in <unk>.

Sure.

Even if you take out the impact of interest rates you are looking at very high 20% to 30% recurring in Q1.

Into July as well, but as we have.

Call it 25% or so recurring for the year. So feel really good about where we are to start the year and as Toby and Steve has said a lot of momentum from a sales perspective.

Okay makes sense I appreciate that detail by the way Mike.

Obviously as we've said in the past that is sort of the discrete changes that would take us to the top end of guidance or somewhere within that range. So that's how we've thought about this year as Toby said very consistent guidance philosophy I think this year, we provided some incremental details around interest income and yields and average daily balance to make.

Follow up just I think I heard 16% client growth can you give us a sense of whether was there any material change in average client size as you exited this year versus last year, just trying to reconcile the total revenue relative to that client count.

Yes, so I think just going back a little bit of history. If you think about where we were pre pandemic. We had recently expanded the efforts and the low end of the market. So kind of under 50 employees and so we had some folks dedicated to selling in that environment and that was really a couple of years prior to the pandemic and you saw client growth tick up we were kind of in that mid <unk>.

Sure.

<unk> had a pretty good idea of what we're implying from a recurring revenue perspective. So as you put all that together and we look at the guide we feel really good about being call. It 32% at the midpoint for Q1 and 28% for the year and even if you take out the impact of interest rates you are looking at very high 20% to 30% recurring in Q1.

Teens range for client growth then we expand into the under 50 market you saw that tick up and then now we're at the point as Tobi mentioned, we're really adding people across all the markets in a fairly uniform fashion. So the client levels kind of returned right back to where we were go back three or three or four years ago.

Call it 25% or so recurring for the year. So feel really good about where we are to start the year and as Tobi <unk> said a lot of momentum from a sales perspective.

Okay makes sense I appreciate that detail by the way.

So no real callout in terms of client size change because we've expanded upmarket and downmarket at the same time and so you see US right back on the same unit numbers that we had before we did call out last time and I mentioned it earlier, we have seen a little bit more success up market.

But when you also factor in the idea that we've expanded Downmarket and you end up roughly in the same spot from a average sized customer.

Okay, great. Thank you.

Thank you please standby for our next question.

Teens range for client growth then we expand into the under 50 market you saw that tick up and then now we're at the point as Tobi mentioned, we're really adding people across all the markets in a fairly uniform fashion. So the client level kind of return rate back to where we were go back three or three or four years ago.

Our next question comes from the line of Mark Mccollum with Baird. Your line is open.

Hey, good afternoon, Mike Congratulations.

<unk>, so a really strong quarter.

With regards to you know.

The upmarket, which you were just talking about Steve.

And so no real callout in terms of client size change because we've expanded upmarket and downmarket at the same time and so you see US right back on the same unit numbers that we had before we did call out last time and I mentioned it earlier, we have seen a little bit more success up market.

Can you talk a little bit about like who you are seeing in the competitive set and.

And what your win rates look like when you're when you're going up and the final you know rfps and.

What are the distinguishing like how much do they value community and engagement relative to say some of the other attributes like you are really strong.

But when you also factor in the idea that we've expanded Downmarket and you end up roughly in the same spot from a average sized customer.

Service scores things of that nature.

Okay, great. Thank you.

Yes, Mark So I think it's important to note that it's a competitive environment across all segments and so you've got some competitors like ADP that play in all size segments and that we regularly see in the marketplace and there are people that we see at the low end that you don't see a die and but it's pretty typical that somebody is evaluating two or three different op.

Thank you please standby for our next question.

Our next.

Comes from the line of Mark Mccollum with Baird. Your line is open.

Hey, good afternoon, Mike Congratulations.

Relations to a really strong quarter.

With regards to the.

And obviously, we want to be one of those options. The other thing I would say is we don't disclose specifically win rates, but theyre not that varied across the segments.

The upmarket, which you were just talking about Steve.

Can you talk a little bit about like who you are seeing in the competitive set and.

So we've had pretty consistent.

And what your win rates look like when you're when you're growing up in the final.

Consistent success in being able to sell in all those segments.

And then as you get larger.

Rfps and.

They get deeper on the functionality, so youre going to be demo ing. Each of your product modules are going to be looking at more specific use cases that they have it might be based off the vertical market or where that company is in their expansion.

What are the distinguishing like how much do they value community and engagement relative to say some of the other attributes like Youre really strong service scores things of that nature.

Yes, Mark So I think it's.

Or whatever is happening and so you just spend more time in the sales process. There is a little bit more from a demo perspective.

Wanted to note that it's a competitive environment across all segments and so you've got some competitors like ADP that play in all size segments and that we regularly see in the marketplace and there are people that we see at the low end that you don't see a die and but it's pretty typical that somebody is evaluating two or three different options and obviously, we want to be one of those options.

And each company is a little bit different I will tell you I get an opportunity to get in front of some of these prospects and we do hope some at our corporate headquarters and I am always in front of them and things like community or modern workforce index in the algorithm behind that the idea of having best practices built in to be able to engage with their employees at all really resonates because.

The other thing I would say is we don't disclose specifically win rates, but theyre not that varied across the segment.

These HR departments are stretch really things are having a hard time, finding talent and so theyre looking for different and new ideas and at the same time they want it real easy to use platform that can save them, some time and give them all the data that they're looking for and so it's really a combination of all of that.

So we've had pretty consistent success in being able to sell in all those segments.

And then as you get larger.

They get deeper on the functionality, so youre going to be demo ing each of your product module, they're going to be looking at more specific use cases that they have it might be based off the vertical market or where that company is in their expansion.

That's great and then with regards to you mentioned the monthly users being up by more than 40% in terms of community and.

Or whatever is happening and so you just spend more time in the sales process. There is a little bit more from a demo perspective.

And then video being up 80% what sort of take up rate is that in the new clients that you are just signing on now like what sort of penetration are you getting there and how should how are you thinking about pricing for those solutions as they're seeing such strong success.

Yes, so community our base version of community is free and available to all of our customers and so but.

But I think to all of our customers use that right away, where we got a pretty good take rate of them starting to use it for things like announcements and broad based communications to all of their employees.

HR departments are stretch really thin they are having a hard time, finding talent and so theyre looking for different and new ideas and at the same time they want it real easy to use platform, that's going to save them, some time and give them all the data that they're looking for it. So it's really a combination of all of that.

And then over time, we give them different ideas and we drive usage over time by building new features into the product and so it's a combination of driving higher utilization for new clients upfront and then just giving them.

That's great and then with regards to you mentioned the monthly users being up by more than 40% in terms of community and then video being up 80%.

Reacting to client feedback great things to use over time, and that's been the formula to drive utilization.

What sort of take up rate is that.

<unk>, we do monetize video and video has really gone in at a nice clip for us probably a product that maybe no one would have imagined four or five years ago.

In the new clients that you are just signing on now like what sort of penetration are you getting there and how should how are you thinking about pricing for those solutions as they're seeing such strong success.

And we see probably.

Think about it is roughly a third of our new customers.

Yes, so community our base version of community is free and available to all of our customers and so but I think to all of our customers use that right away, where we got a pretty good take rate of them starting to use it for things like announcements and broad based communications to all of their employees.

Using video right out of the gate, which we think is really really great for a product that's only a couple of years old.

That's terrific. Thank you.

Yes.

Thank you.

Please standby for Onyx.

Our next question comes from the line of Smart Samana with Jefferies. Your line is open.

Hey, guys. This is Jordan <unk> on for Steve Tobin, Ryan Congrats on the strong quarter and thanks for taking my question.

The client feedback great things to use over time, and that's been the formula to drive utilization.

So I wanted to touch on head count in your prepared remarks, you said that the.

Workforce your clients increased monthly throughout the quarter and guidance assumes no change in that going forward. So now that we have July in the rearview mirror.

<unk>, we do monetize video and video has really gone at a nice clip for us probably a product that maybe no one would have imagined four or five years ago.

And we see probably.

On head count growth, specifically are you seeing any slowdown or changes there into this quarter.

Think about it is roughly a third of our new customers.

Using video right out of the gate, which we think is really really great for our product is only a couple of years old.

On the growth side of head count there or any change in client job openings per se.

That's terrific. Thank you.

Sure I think so far we're seeing no degradation from a macro standpoint, and I think that goes across all the key sales metrics that we would look at it from a client based perspective, we continue to see a lot of strength as we as we talked about in the prepared remarks, each month of the fourth quarter. We saw increases in that held for July as well so feel good.

Thank you.

Please standby for Omics.

Our next question comes from the line of Smart Samana with Jefferies. Your line is open.

Hey, guys. This is Jordan <unk> on for Steve.

About the start of the year, obviously, we've talked about a lot of momentum from a sales perspective, and so far we're not seeing any of those headwinds at this point.

Steve Tobin, Ryan Congrats on a strong quarter and thanks for taking my question.

So I wanted to touch on head count in your prepared remarks, you said that the.

Great. Thanks for the color there and then a quick follow up not to beat a dead horse.

Workforce.

Clients increased monthly throughout the quarter.

And guidance assumes no change in that going forward. So now that we have July in the rearview mirror touching on head count growth, specifically are you seeing any slowdown or changes there into this quarter on the growth side of head count there or any change in client job openings per se.

Sales rep growth back to pre transaction levels looks great in terms of the timeline to ramp these reps to full productivity.

How does that timeline looking versus maybe pre pandemic and has that increased since maybe early 2020, when the pandemic hit versus now.

Yes, so lots of variables go into a sales rep productivity I think a couple of things that I would just call out so certainly as they gain experience they become more productive right. So we've had really good retention of our longer term sales folks may definitely produce at a higher level.

And then what we tried to do as we go into the year as we try to get the hires on board as quickly.

So that you're not hiring all your salespeople in your first quarter, but you try to go into the first quarter with most of your sales hires and we love to be able to do that and we're really well positioned going into this year. So you can get that kind of months on board a little bit earlier that can be a driver. So thats number one I think number two is the platform and how differentiated it.

At the start of the year, obviously, we've talked about a lot of momentum from a sales perspective, and so far we're not seeing any of those headwinds at this point.

Yes.

Great. Thanks for the color there and then a quick follow up not to beat a dead horse.

Sales rep growth Dr. Preventing type level is looks great in terms of the timeline to ramp these reps to full productivity.

So if you've got a differentiated story and you do a great job, bringing them onboard and training them. They can even going into this year. So you can get that kind of months on board a little bit earlier that can be a driver. So thats number one I think number two is the platform and how differentiated is so if you've got a differentiated story and you do a great job, bringing them onboard and training them. They can.

How is that looking versus maybe pre pandemic.

Has that increased since maybe early 2020, when the pandemic hit versus now.

Yes, so lots of variables go into sales Rep productivity I think a couple of things that I would just call out so certainly as they gain experience they become more productive right. So we've had really good retention of our longer term sales folks may definitely produce at a higher level.

Can ramp faster with that differentiated story and so I think both of those things are factors for some of the new hires that we bring onboard and.

Then what we tried to do as we go into the year as we try to get the hires on board as quickly.

And the experienced folks have just.

So that you're not hiring all your salespeople in your first quarter, but you try to go into first quarter with most of your sales hires and we love to be able to do that and we're really well positioned going into this year. So you can get that kind of months on board a little bit earlier that can be a driver. So thats number one I think number two is the platform and how differentiated is.

Shown us over time, but they are able to sell more each year, we've broken the highest amount any sales rep is sold every year for the probably the last five years and even more than that.

Great well again, congrats on the strong results guys.

Thank you.

Please standby for our next question.

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

Hey, guys. This is Ryan on for Alex. Thanks for taking the question just wanted to get a quick update on Blue marble, maybe first how the internal integration is progressing and then the traction with customers and then from a revenue standpoint, I know this year. It's about 2% of revenue are expected to be how are you thinking about that contribution.

Ramp faster with that differentiated story and so I think both those things are factors for some of the new hires that we bring onboard and.

Any experienced folks have just.

Shown us over time that they are able to sell more each year, we've broken the highest amount any sales rep is sold every year for the probably the last five years and even more than that.

And next year.

Yeah. So blue marble was acquired a year ago in September so we're kind of coming up on the anniversary and we're very happy with the integration I think the way to think about Blue marble is it's probably not a product that all of our clients need it's a product that a subset of our customers need in it the customers that have international employees.

Great well again, congrats on the strong results guys.

Thank you.

Please standby for our next question.

And we.

We have found integrating into the sales process for those that have international employees. It can not only be a differentiator, but obviously becomes an incremental revenue opportunity for us and so we're pretty happy with kind of the go to market integration. These things take longer from a product perspective. So we've definitely made progress, but we see a lot of opportunity to further integrate that going forward.

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

Hey, guys. This is Ryan on for Alex. Thanks for taking the question just wanted to get a quick update on Blue marble, maybe first how the internal integration is progressing and then the traction with customers and then from a revenue standpoint I know this year is about 2% of revenue are expected to be how are you thinking about that contribution.

And we've been really happy with that.

The team that we're able to acquire and bring onboard and the talent that we've got in a space that we think just naturally grows over time as globalization increases and people have more employees in different countries.

And next year.

Yes, so blue marble was acquired a year ago in September so we're kind of coming up on the anniversary and we're very happy with the integration I think the way to think about Blue marble is it's probably not a product that all of our clients need it's a product that a subset of our customers need in it the customers that have international employees.

Great and then just a follow up circling back on the macro question, obviously, not seeing any degradation, but how should we think about that moving forward you guys. Obviously issued a really strong guide, but how should we think about the level of conservatism that could potentially be built into that just given there is some uncertainty out there so.

And we.

Yes, I would tell you that we historically guide to what we see right in front of us and the nature of what we do is we look at how many people did you have a year ago that you were paying and how many people do you have now and if we look at that across the client base and we can see it every day every week kind of thing. So it is very real time in terms of us looking at that and I think there.

And we've been really happy with that.

<unk> that we're able to acquire and bring onboard and the talent that we've got in a space that we think just naturally grows over time as globalization increases and people have more employees in different countries.

<unk> point, our clients continue to add employees relative to where they were last year. We've also called out that this has never been like an accelerated recovery. This has been a gradual and slow. So these are small percentages that we see but it is positive.

Great and then just a follow up circling back on the macro question, obviously, not seeing degradation, but how should we think about that moving forward you guys. Obviously issued a really strong guide, but how should we think about the level of conservatism that could potentially be built into that just given there is some uncertainty out there.

So as Ryan mentioned, we just assumed kind of a flat environment for the balance of the year.

I have no idea, if that's aggressive or conservative to be completely honest with you. It's consistent with the approach that we've taken before you'd have to have a view on the macro economy to have an opinion there but from all the data that we see we feel like it's the it's the right approach for our guidance.

So.

Yes, I would tell you that.

Historically guide to what we see right in front of us and the nature of what we do is we look at how many people did you have a year ago that you were paying and how many people do you have now and if we look at that across the client base and we can see it every day every week kind of thing. So it is very real time in terms of us looking at that and I think to Ryan's point, our clients continue to add employees realm.

Great. Thank you and congrats again.

Thank you please.

Please standby for our next question.

Our next question comes from.

Ryan Peterson with Raymond James Your line is open.

Craig This is Jonathan on for Brian . Thanks for taking the question I, just wanted to double that or a dovetail on the blue marble question, obviously, we've seen a pullback in both public market and private market valuations just curious any update on your M&A appetite and the ability to accelerate that.

To where they were last year. We've also called out that this has never been like an accelerated recovery. This has been a gradual and slow. So these are small percentages that we see but it is positive and so as Ryan mentioned, we just assumed kind of a flat environment for the balance of the year.

Thanks.

Yes, I think we've been pretty consistent in terms of how we've approached M&A over time, I mean, I think we are.

Our view has been that we want to continue to grow the platform and many of the new solutions that we've launched we've we built.

Organically and I think the view on anything that we've done from an M&A perspective is we got it we have to have a belief that we can integrate anything that's got to be strategic and it has to be able to integrate onto the platform seamlessly both from a user experience perspective and from a data flow perspective, and I think thats. The approach that we've taken with anything that we've acquired and I think thats the.

Great. Thank you and congrats again.

Thank you.

Please standby for our next question.

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

Results that we produced as we look at any of the solutions that we've launched and so I think our view is that Steve.

Okay.

Hey, guys. This is chase Jonathan on for Brian . Thanks for taking the question I just wanted to double the dovetail into Blue marble question, obviously, we've seen a pullback in both public market and private market valuations just curious any update on your M&A appetite and the ability to accelerate the product roadmap.

Steve is talking about some of the differentiation, we've been able to drive through the modern workforce solutions. That's been the approach that we've taken and I think that approach would hold true as we look forward into 'twenty, three and anything that we might do going forward.

Yes, I think we've been pretty consistent in terms of how we've approached M&A over time, I mean, I think we've.

Great. Thanks.

Thank you.

Our view has been that we want to continue to grow the platform and many of the new solutions that we've launched we've we built organically and I think the view on anything that we've done from an M&A perspective is we got it we have to have a belief that we can integrate anything that's got to be strategic and it has to be able to integrate onto the platform seamlessly both from a user.

Please go to our next question.

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

Hey, Thanks for taking the question so.

This was your largest beat versus guidance.

Perspective, and from a data flow perspective, and I think that's the approach that we've taken with anything that we've acquired and I think that's the results that we produced as we look at any of the solutions that we've launched and so I think our view is that.

Years really going back to the Haynesville days other than rates going up what changed from when you last reported until today.

Was it a lot of pipe opening up and closing and going live in just those last eight weeks of the quarter was there a lot of sales back to base was there a pricing changes like what was the year that kind of surprise for you guys.

I don't think there is one big surprise.

I think we had a really great execution from a sales perspective, so that was incremental to what we had believed when we guided at the time. The the workforce remained positive throughout the quarter right and again, we kind of guide to be think about it relatively flat. So that is certainly helpful.

Great well thanks.

Thank you.

Please go to our next question.

Our next question comes from the line of Robyn <unk> with D. A Davidson your line is open.

Implementation team did a great job of getting everything started we didn't talk about that but that was also really positive in terms of getting the clients not only submitted but getting them up and running and started.

Hey, Thanks for taking the question so.

This was your largest beat versus guidance.

Years really going back to the days other than the rates going up.

And we had great retention over the last so there's a whole bunch of factors that really kind of went into delivering these results.

What changed from when you ask reported until today.

Was it a lot of pipe opening up and closing and going live in just those last eight weeks of the quarter was their auto sales back to base was there pricing changes like what was the surprise for you guys.

Got it and then can you talk to the impact of inflation is having on the business clearly not Q negative overall, given the margin expansion youre looking at for this coming year, but curious what you're.

We're seeing it on both sides of things.

I don't think there is one big surprise I think we had a really great execution from a sales perspective, so that was incremental to what we had believed when we guided at the time. The the workforce remained positive throughout the quarter right and again, we kind of guide to be think about it relatively flat. So that is certainly.

Yeah. It was a couple of different ways to think about that so one it absolutely having an impact on our clients in different ways, certainly wage inflation, which you see across all industries becomes challenging.

And so clients are trying to manage that we obviously manage that ourselves being.

An employer with over 5000 employees. So thats, certainly one dimension and that puts more pressure on the HR teams and the HR teams and are trying to figure out other ways to create differentiation and manage maybe.

Helpful.

Our implementation team did a great job getting everything started we didn't talk about that but that was also really positive in terms of getting the clients not only submitted but getting them up and running and started.

Maybe variable comp in a different way create incentives for employees really trying to keep them engaged and that kind of goes back to the value proposition that we are trying to tell people, we're not only going to save you. Some time, but we're going to really help you create an engaging environment for your employees.

We had great retention over the last so it's a whole bunch of factors that really kind of went into delivering these results.

Got it and then can you talk to the impact of inflation is having on the business clearly not Q negative overall, given the margin expansion you're looking at for this coming year, but curious what you're.

And each a little piece of differentiation hopefully helps you pick up your employee retention and the attractiveness that you have as an employer and I think thats part of the story.

We're seeing that on both sides of things.

<unk> environment has just been tougher in a tight labor market, but I think from a philosophy perspective, we've been pretty pleased with our ability to attract and retain talent, we've really been able to add hedge across the board talked about being ahead on sales. We've historically talked about really being able to also hire from an R&D perspective to areas that can be challenging so we haven't seen it so much.

And so clients are trying to manage that we obviously manage that ourselves being.

On the sales side, but we certainly see the impact of the client.

Thank you.

Not for our next question.

Okay.

Our next question comes from the line of Jason.

Now with Keybanc.

And each a little piece of differentiation hopefully helps you pick up your employee retention and the attractiveness that you have as an employer.

Dan.

Perfect. Thanks for fitting me in maybe just one question.

Our employee engagement and that was a really high priority among businesses last year with all the skilled labor shortages.

I think thats part of the story the inflation environment has just been tougher in a tight labor market, but I think from a velocity perspective, we've been pretty pleased with our ability to attract and retain talent, we've really been able to add hedge across the board talked about being ahead on sales. We've historically talked about really being able to also hire from an R&D perspective to areas that can be.

Do you view this focus and engagement is the driver for the upcoming fiscal year, and then Conversely, how might it change as a priority if save employee demand reaches more and more normal parity levels, yes.

So it's a good question I think that the pandemic accelerated some of the labor shortage that we see in the market. Today. However, if you take a step back and you think of the number of people entering the labor force each year with Gen Z versus the number of people exiting the labor force each year.

So we haven't seen it so much on the sales side, but we certainly see the impact of the client.

Thank you.

Not for our next question.

Okay.

There is less people entering versus exiting and you end up with this kind of shortage that naturally creates some level of tightening and so I think this is going to be a theme that will last a long time.

Our next question comes from the line of Jason.

Now with Keybanc.

Alan.

Perfect. Thanks for fitting me in maybe just one question.

Our employee engagement and that was a really high priority among businesses last year with all the skilled labor shortages.

It might not necessarily be as tight as it is now but I do think that because you've got less people entering the workforce more people exiting and we're going to have that over the next decade that just managing employees and the talent pool that you have in an increasingly knowledge oriented economy is just going to be a challenge for customers and we think that employee engagement and the message around that.

Do you view this focus and engagement is the driver for the upcoming fiscal year, and then Conversely, how might it change as a priority if save employ demand reaches more and.

More normal parity levels. Thanks.

Well really lost the test that lost over time and create the right differentiation for us.

Perfect. Thank you.

Thank you.

Please standby.

Our next question.

Yeah.

Our next question comes from the line of Daniel Jester with BMO. Your line is open.

Great. Thanks for taking my question.

Maybe a little bit of one from left field, but I'm wondering on retention have you looked at retention for your customers, who have sort of a hard back to the office policy over the past year, maybe how they retain the platform relative to companies that have now chosen to go permanently remote or hybrid or you're seeing any differentiation in rich.

It might not necessarily be as tight as it is now but I do think that because you've got less people entering the workforce more people exiting and we're going to have that over the next decade that just managing employees and the talent pool that you have in an increasingly knowledge oriented economy is going to be a challenge for customers and we think that employee engagement and the message around that.

Tension of Pelosity between those types of businesses.

So I don't know if I can answer that question directly because thats not something that we necessarily track there might be some indicators in our platform of clients that are a better or more back to work, but it would be difficult to get at that what I can tell you is the companies that are leveraging our digital communication tools like community that are doing more from a digital.

We will really lost the test that lost over time and create the right differentiation for us.

Perfect. Thank you.

Thank you.

Please standby.

Our next question.

Our next question comes from the line of Daniel Jester with BMO. Your line is open.

With impressions that are using video and when we compare those companies to the light companies and same industries. They do have a 15% higher retention.

Great. Thanks for taking my question.

Maybe a little bit of one from left field, but I am wondering on retention have you looked at retention for your customers, who has sort of a hard back to the office policy over the past year, maybe how they retain the platform relative to companies that have now chosen to go permanently remote or hybrid or you're seeing any differentiation in rich.

So I don't know the answer to that right I don't know if those companies are ones that are more remote or if it's a mix where theyre back to the office.

Can't answer the question directly but I can tell you that the tools that we have absolutely impact the customers, meaning those that are using them. The most do actually have better retention than their peers.

Tension of Pelosity between those types of businesses.

So I don't know if I can answer that question directly because thats not something that we necessarily track there might be some indicators in our platform of clients that are a better or more back to work, but it will be difficult to get at that what I can tell you is the companies that are leveraging our digital communication tools like community that are doing more from a digital.

Great and then maybe just a couple quick ones for Ryan.

First on cloud snap in Blue marble are they going to be dilutive or neutral in sort of the guidance for the year ahead, and then maybe just can you talk us through the mechanics of the interest rate increase on the float balances I guess why if the if you have a 3% sort of baked in by year end why couldnt that yield potentially go higher.

<unk> with impressions that are using video and when we compare those companies to the light companies and same industries. They do have a 15% higher retention.

Quicker.

Sure. So on your first question around Blue marble and cloud snap all of that is factored into the guidance. So when you look at what we're guiding on a full year of 120 basis points of leverage we are incorporating any remaining headwind, although as you start to anniversary both of those acquisitions here in the in the fall and early winter should have don't have that same grow over challenge, but that is factored into.

So I don't know the answer to that right I don't know if those companies are ones that are more remote or if it's a mix where theyre back to the office.

Can't answer the question directly but I can tell you that the tools that we have absolutely impacts the customers, meaning those that are using them. The most do actually have better retention than their peers.

<unk> and I think as we look back at 22 really pleased to be able to see 120 basis points of leverage with that headwind that you that you referenced but that isn't the guide already.

Great and then maybe just a couple quick ones for Ryan.

First on cloud snap in Blue marble are they going to be dilutive or neutral in sort of the guidance for the year ahead, and then maybe just can you talk us through the mechanics of the interest rate increase on the float balances I guess why is if you have a 3% sort of baked in by year end why couldnt that yield potentially go higher.

<unk> point I think on interest income, we're obviously starting to see improvements in interest income on client funds as rates go up so as you look at sequentially Q4 $2 million of interest income. If you look at the detail in the prepared remarks, we're expecting $4 million to $5 million in Q1, so that will double sequentially and then when you look at the full fiscal year.

Quicker thanks.

So the $30 million or so in the top end versus $5 million. This year. So we're obviously seeing a tailwind there and I think over time as well.

We will work with our banking partners to continue to push for higher rates, but I feel like we're seeing that tailwind and as I said, certainly we will look to look to beat that 100 to 125 basis points. That's in the guide.

Don't have that same go over challenged but that is factored into guidance and I think as we look back at 22 really pleased to be able to see 120 basis points of leverage with that headwind that you that you referenced but that isn't the guide already.

The last element there is as we've talked about historically there is a timing element here right. As you see rate increases there is a period of time before those factor in for US. So the 75 basis points. We saw last week, we don't have that yet in our accounts right. So that's going to take some period of weeks before that factors in and then the remaining rate increases that get us to that.

3% those are sort of in the fall and into the early part of the winter. So again those are smaller but period of time there. So when you look at on a blended basis, we think probably 100 125 basis points is a good point to start the year, but just like everything else, we bought to be able to be in a spot where we can over perform.

So the $30 million or so and at the top end versus $5 million. This year. So we're obviously seeing a tailwind there and I think over time as well.

We will work with our banking partners to continue to push for higher rates, but feel like we're seeing that tailwind and as I said certainly we will look to look to beat that 100 125 basis points. That's in the guide.

Great. Thank you very much.

Thank you.

Please standby for our next question.

Our next question comes from the line of albeit many with Piper Sandler Your line is open.

Hey, Thanks for taking my question.

I'm not sure if you already provided this but.

Okay.

Provided.

The aggregate to workforce at existing clients did that.

Expand or does that contract.

3% those are sort of in the fall and into the early part of the winter. So again those are smaller but period of time there. So when you look at on a blended basis, we think probably 100 125 basis points is a good point to start the year, but just like everything else, we'd love to be able to be in a spot where we can over performed.

Sure. So we've got over 33000 clients and the average sized customer is a little more than 100 employees and one of the things that we called out as workforce levels are up slightly and so what that means is we take the same clients that we had a year ago. We look how many employees do they have do they have more or less employees.

Great. Thank you very much.

That has since we've gotten through the pandemic steadily been improving.

Thank you.

Please standby for our next question.

<unk> increased the call here was in the quarter and even in the month of July that is continue to increase small percentages smaller numbers, but it is positive.

Our next question comes from the line of albeit with Nanny with Piper Sandler Your line is open.

Terrific.

Hey, Thanks for taking my question.

Even if we were to go to a point that that number does shrink.

I'm not sure if you already provided this but.

Can you provide.

I just wanted to confirm the bigger driver for revenue growth is new logo adds.

The aggregate workforce at existing clients to that.

And selling additional products at existing clients those are the two biggest.

Expand or does that contract.

Biggest levers for growth as opposed to like number of employees.

In aggregate.

Yes, like when you think of number of employees on the platform are growing by a material percentage right. It's relatively small.

Very small actually so.

It's a slight help for us from a revenue growth perspective, when thats growing the other context I'd like to give people. If this is a weird GDP kind of environment, but if youre in a normalized environment and GDP is growing at a couple percentage points. We don't get a couple of percentage points of employees added it's usually a little less than GDP.

That has since we've gotten through the pandemic steadily been improving.

<unk> increased the call here was in the quarter and even in the month of July that is continue to increase small percentages smaller numbers, but it is positive.

Terrific.

Even if you were to go to a point that that number does shrink.

And so that kind of gives you kind of the context. It is very very small.

I just wanted to confirm the bigger driver for revenue growth is new logo adds.

Terrific and then just a separate question.

On community and video creation Youll have typically it explicitly.

And selling additional products at existing clients those are the two biggest.

Explicitly charge for it but now that you are seeing greater adoption.

Biggest levers for growth as opposed to like number of employees.

You are charging for it or is that somewhat.

In aggregate.

Yes.

So our plan has always been we believe strongly that employee engagement is going to be really important for a long time and so in the base product you automatically get engagement tools within community. We added video as a premium product that we do charge for and then more recently, we added community plus which has a bunch of other.

Yes, like when you think of number of employees on the platform are growing by a material percentage right. It's relatively small.

Very small actually so.

<unk> two.

To engage with your employees in a different fashion and we see thematic Lee theres opportunities over time to kind of expand in that engagement space.

And so that kind of gives you kind of the context. It is very very small.

And so youll see us continue to add features capabilities drive utilization and over time look for monetization opportunities.

Terrific and then just a separate question.

On community and video creation Youll have typically it explicitly.

Perfect. Thank you.

Yeah.

Thank you.

Explicitly charge for it but now that you are seeing greater adoption.

Ladies and gentlemen, this concludes our Q&A session I would now like to turn the call back over to management for closing remarks.

Are you charging for it or is that somewhat.

Yes.

Yes, just take a quick second to thank all of you for your interest in Pelosity, we're pretty proud of the year that we had in fiscal 'twenty two and looking forward to continued success in fiscal 'twenty three have a great evening.

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

<unk> two.

To engage with your employees in a different fashion and we see thematic Lee theres opportunities over time to kind of expand in that engagement space.

And so youll see us continue to add features capabilities drive utilization and over time look for monetization opportunities.

Perfect. Thank you.

Thank you.

Ladies and gentlemen, this concludes our Q&A session I would now like to turn the call back over to management for closing remarks.

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

Q4 2022 Paylocity Holding Corp Earnings Call

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