Q4 2022 Paycor HCM Inc Earnings Call
[music].
Greetings and welcome to the pay Corps fourth quarter and full year earnings call. At this time all participants are in a listen only mode. A question and answer session will follow the formal presentation.
If anyone should require operator assistance during the conference. Please press star zero on your telephone keypad.
As a reminder, this conference is being recorded.
Now I'd like to turn the conference over to your host Rachel White, Vice President of Investor Relations.
Good afternoon, and welcome to <unk> earnings call for the fourth quarter of fiscal year 2022, which ended on June 30th.
A call with me today are <unk>, Chief Executive Officer, and Adam <unk>, Chief Financial Officer or financial results can be found in our press release issued today, which is available on the Investor Relations section of our website today's call is being recorded and a replay will be available on our website. Following the conclusion of the call statements may.
And this call include forward looking statements related to our financial results products customer demand operations impact of COVID-19 on our business and other matters. These statements are subject to risks uncertainties and assumptions are based on management's current expectations as of today and may not be updated in the future. Therefore these statements should.
Not be relied upon as representing our views as of any subsequent date. We will also refer to certain non-GAAP financial measures and key business metrics to provide additional information to investors.
And this shows that non-GAAP measures and key business metrics and a reconciliation of non-GAAP to GAAP measures is provided in our press release on our website with that I'll turn the call over to rollout. Thank.
Thank you Rachel and thank you all for joining us to discuss <unk> fiscal fourth quarter and full year results.
Revenue growth continued accelerating culminating with 26% growth for the quarter.
Our highest in recent record and 22% growth for the year.
We exceeded the top end of our revenue and profitability guidance by 7% and over 100% respectively.
In our first year as a public company, we have consistently demonstrated revenue growth acceleration and following two years of significant investment in our client experience starting to expanding margins year over year in Q4.
I would like to thank our employees for their dedication and contribution to our performance.
Fantastic results are not possible without them.
Our differentiated value proposition.
Bill for leaders and configured by industry.
She needs to resonate in the market.
This quarter, we introduced a new tagline.
Powering leaders.
It reinforces our commitment to empower frontline leaders to be more effective so they can deliver enhanced business results for their organization.
To further enhance our unique industry configuration, we launched nearly 20 industry specific product features and over 20 industry integrations this year.
Our go to market execution has been excellent as we continue to make significant progress expanding our sales coverage, winning with broker referrals and growing purple.
The competitive dynamics have remained consistent and demand remained strong resulting in robust bookings growth of 24% year over year.
Over 80% of our new business stems from legacy providers, including in House Regional service bureaus, and legacy providers ADP and paychex.
Win rates are at record levels, which is the result of the strong demand for our open modern cloud platform focused on leaders and configured by industry.
In a competitive labor market, we increased sales head count, 23%, we have established sellers in all tier one markets today, and we will continue expanding coverage in these markets for the foreseeable future.
To further leverage our strong sales and marketing flywheel and promote pay quarters brand on an unprecedented national scale.
We secured exclusive naming rights for Cincinnati Bengals Stadium for the next 16 years.
Given the powerful viewership of the NFL Stadium will reached a largest audiences in America.
The sponsorship includes signage hospitality and advance our community, giving initiative and other multimedia assets.
We have been headquartered in Cincinnati for over 30 years, and a long standing partner of the bangles.
As long time fans. This is a proud moment for our employees and our community.
Finally, we continue to expand our modern HCM suite and that May increase pepam $3 or 8% this year to $42.
And the last year, we released over 1200 features powered by the inclusion of more than 500 customer ideas into our solution demonstrating our commitment to delivering a world class client experience.
Leveraging powerful API pay course, modern extensible platform enables rapid development and partner integrations.
The developer portal has been highly utilized since its launch in February with partner integrations growing by 26% in FY 'twenty. Two. Moreover, we grew the total number of API end points available in our system by 57% year over year.
This investment is paying off and greater connectivity and integration for our customers with total API usage growing 148% since February .
Looking ahead to FY 'twenty, three we will maintain our focus on winning share in the SMB space delivering sustainable 20, plus percent revenue growth and expanding margins.
We intend to do so through a relentless focus on execution further penetration in tier one markets and continued peplum expansion.
We are pleased with our HCM suites competitive positioning and are now focused on leapfrogging innovation.
With that I'll turn the call over to Adam to discuss our financial results and guidance.
Thanks for all I'll review, our fourth quarter and full year results and then share our outlook for the first quarter of next fiscal year. As a reminder, my comments related to financial measures are on a non-GAAP basis.
Total revenue for the quarter was $111 million, increasing 26% year over year, our highest in recent record revenue growth was driven by continued acceleration in new business strong adoption of our bundled pricing strategy and growth of our partner program. We exceeded the top end of our revenue guidance by 7% and significantly outperformed our adjusted operating in.
Come guidance through diligent investment management.
For the fiscal year total revenue was $429 million, increasing 22% year over year, our bookings grew 24% versus the prior year, reaching $142 million and setting us up nicely for continued revenue growth into FY 'twenty three.
The majority of revenue growth stems from new business wins, and cross sells driving expansion in the high single digit percentages inorganically, but market growth in the low single digits.
The success of our client experience and product investments net revenue retention reached a historical high of 98%. Additionally, our focused partner expansion in the last year, such as income and employment verification services and automated background screening is increasingly contributing to our business and we expect continued growth.
The number of employees on our platform increased 15% annually to a record $2 3 million our average customer size increased to 77 employees in Q4, an increase of 9% year over year as we continue to shift away from the micro cigarettes and accelerate growth more clients with more than 100 employees for.
For the quarter adjusted gross profit margin improved to 66, 1% versus 65, 4% a year ago adjusted gross margin, excluding depreciation and amortization was 76, 6% for the quarter and increasingly over two points year over year.
Sales and marketing expense was $37 million or 33% of revenue compared to 34% a year ago. The sustainability of our revenue growth hinges on driving new business through expansion of our sales teams and marketing programs, primarily in tier one markets sales head count increased 23% to approximately 460 sellers this year.
And we expect to add sales resources at a similar pace next year.
On a gross basis, we invested $18 million in R&D or 16% of revenue slightly lower than 18% a year ago and in line with our long term targets. Our team continues to efficiently add new functionality through organic development partnerships and best in class product tuck ins that enhance client value expand our pepam opportunity.
G&A expense was $18 million or 16% of revenue down from 20% in the fourth quarter of 'twenty. One we intend to continue to progressively drive G&A down as a percentage of revenue. Following this year's improvement of 37 basis points.
While our primary objective remains sustainable 20% plus revenue growth, we intend to steadily expand margins as we scale. The business, we increased quarterly operating income of $9 $2 million or an eight 3% profit margin compared to just 2% last year, the greater than 800 basis point expansion was driven by thoughtful investment management.
As we've grown the business.
Shifting to the balance sheet and cash flow this quarter, we generated $5 million of free cash flow compared to a consumption of $21 million last year as we scaled the business. We ended the year with $133 million in cash and no debt.
This quarter, we generated interest income of approximately $1 $3 million on average client funds of just under $1 billion as overnight rates have increased with the fed rate increases. Our overall effective rate was 52 basis points for this quarter compared to just 16 basis points last quarter.
Turning to the outlook for FY 'twenty three we continue to be positive about the momentum in the business strong demand environment and <unk> leadership position in the HCM market. The labor market has remained tight and while we continue to closely monitor the macro environment. Our guidance assumes continued strong demand.
Generated about 50 basis points of interest income in the fourth quarter and expect that rates more than double in the first quarter as overnight rates start to benefit from the fed funds rate increases.
Current rates, we estimate interest income will be in the low $10 million range for the full year.
For the first quarter, we expect total revenue of between 112 and $114 million or about 23% growth at the high end of our range and adjusted operating income of between four and a half and $6 million for the full year, we expect revenue of between $510 million to $516 million or 20% growth at the top end of our range.
And we anticipate adjusted operating income of $58 million to $61 million.
In summary, we made significant progress since you're scaling and Reaccelerate. The front end of the business. We continue to press into a leader in industry focus that is resonating with clients. We remain enthusiastic about the trajectory of the business and opportunities to capture market share while expanding profitably.
Less than 2% share of about $29 billion total addressable market, we have significant runway for continued growth and with that we'll open the call for questions operator.
Thank you.
Ladies and gentlemen at this time, we will be conducting a question and answer session. If you will.
Like to ask a question. Please press star one on your telephone keypad and alcohol and a confirmation tone understood. Your line is in the queue you.
You May press star two if you'd really like to remove your question from the queue for participants using speaker equipment and may be necessary to pick up your handset before pressing the star keys, one moment, please while we poll for questions.
Our first question comes from a line of Mark Murphy with J P. Morgan. Please proceed.
Yeah. Thank you very much and congratulations on a fantastic finish to the year.
<unk> role I wanted to start by asking you it.
Which elements of pay cores differentiation do you think are making the biggest difference and when you look at your win rates in the current environment, but she said are have been increasing.
I'm wondering if it's more of the industry specific focus the focus on leaders I'm also wondering how often is the real time payroll processing engine.
Coming up in those conversations and and maybe making a difference versus some of the competitors that might still be running in more of a batch mode.
Thanks Mark.
I think it's a combination of all three.
Industry clearly pans out.
We're generating you know over 50% of our bookings.
In the four key industries that we're focused on our win rates you know are at the highest levels in those four key industries. So.
So I would say you know of one industry definitely stands out. However, you know that the talent elements of a leader messaging are also you know appealing.
Two our end markets people are really interested in how to attract and retain people in this labor market. So that tends to be a significant advantage as well as well and then lastly.
You know we've had a real time processing engine for a long time.
Our employees have been able to see their paste up 72 hours before payroll for years. So like some of the some of the you know employee service tools and some of our competition you know or are are really leveraging and driving in the market. We've had for years and we don't know when.
That table Stakes. So I think it's really helped us from that perspective, the ability to have you know a really flexible payroll engine has eliminated the need for those kind of tools in the market for our customers.
Okay wonderful. Thank you for that and then the other question I had was are you able to.
Could you help us with the size of the largest organizations that you might've been landed during Q4 and then just at the other end of the spectrum.
Maybe Adam if the if the macro backdrop slows in the next 12 months is it is it safe to say that your bookings targets aren't materially reliant on.
That sub 10 employee segment at this point, where where customers can be more economically sensitive just given the given the way you've mixed up market.
Yeah, Hey, Mark so well to both questions. When we sign a lot of clients that are over 1000 employees and at the top end of our range, but none of them represent even a half a percent of our overall revenue. So there is quite a bit of.
Versification, there across all of our clients and none individually worth necessarily you know talking through I would say from a bookings perspective in that micro segment, we're definitely not relying on that as we think about the overall bookings targets in our go to market strategy. I mean, we definitely closed business in that sub space in that sub 10 space in that micro segment.
But it's not a material and overly material part of where we were we go to market and our of our overall composition of our bookings.
Thank you very much.
Thanks Mark.
Our next question comes from the line of Gabriela Borges with Goldman Sachs. Please proceed.
Hi, Kelly on for Gabriela first question, just on adoption trends across newer products, such as expense expense management and developer part or what are you seeing there and how much of your new products, helping drive that far out.
Yeah, what we're seeing like with expense management. Our go to market strategy is really to build it into our core HCM bundle and so it helps to lift overall pep and overall tie or overall attached for that product as it is included in the bundle. So we continue to see really strong adoption of our core HCM bundle, we sell that more than 90.
Percent of the time to new business in terms of broader adoption. We continue to list. The number of models that are our clients are buying and so we're selling you know somewhere between that two and three on average across our entire portfolio to new business. They're buying you know two to three closer to the midpoint of that range.
In terms of number of new models that they are attaching so we continue to see good lift from the addition of these new products that we're bringing in to the overall attach of our bundled pricing strategy.
Okay. Thank you so my question well.
And then just a follow up follow up on that.
Super impressive.
But where do you see that going forward you I mean, what do you think you can do to kind of drive that even higher on and what do you see as the main library that bad.
Two years maybe.
Yeah, I mean, there's a couple of key levers one is the underlying gross retention and so as we continue to lift gross retention over time Youll see that the number has room to continue to improve and then you know one of the bigger drivers is as we continue to release, new product and create more compelling bundles and pricing strategies, we continue to see lift from that social cross sell.
Which hasn't been our primary focus thus far and so as we continue to drive additional cross sell there there's room for it to continue to improve from where we are today.
Yes.
Okay, great congrats on the quarter.
Thank you thanks Kelly.
Our next question comes from the line of Samad Samana with Jefferies. Please proceed.
Oh.
Congrats on a strong end to the fiscal year, maybe first one for you Adam just I.
I think I heard you say low teens of millions for the float revenue I think that implies somewhere around let's call. It 18 ish percent for for the rest of the business as far as scrap does one I just wanted to.
To check if that was right from a housekeeping perspective in Q.
It seems like you guys are a stones throw of getting to the 20% plus type of level. The company is looking at and I'm. Just curious, maybe what would need that to happen above and beyond the sales growth or the bookings right.
It gets you there on a full year basis in fiscal 'twenty, three just trying to understand kind of what went into that.
Yeah. I mean is this we think about the full year guide right, where we're sort of the longest point of the year right. Now we did guide to almost 23% at the top end of the range for Q1. So we feel good about that and it's just going to be continued the continued demand environment.
And the opportunity to.
To drive additional bookings and the flow through of those bookings to revenue and then of course, you know like.
We talked about that additional cross sell and in the pricing strategies that go along with that so a lot of the things that contributed to the upside that we saw here in Q4, it's really just about continued execution of those strategies through the balance of the year and looking out at this 0.4 quarters in advance and saying where do we feel comfortable with the guide again, we feel really good.
About the guide to the to the 23% revenue growth here in Q1.
Great and then maybe just a follow up for a urologist, if I think about that the growth in the total sellers it.
Yeah.
Your seller base are now actually larger than even some of your maybe your larger peers I'm. Just curious when you think about either the type of sales person, we are able to hire or the productivity that you're assuming for for this year.
Do you need to go out at the same level or what's driving that and should we think bookings might accelerate as a result of that.
Yeah I think.
You know overall you know we've continued to add sellers and this year you know as we said we added 23%.
And the majority of them will contribute significantly more next year than this year.
And so obviously, we believe we will have in our bookings lift in bookings growth from the ramping of the new sales associates that we hired this year. We are focused on a really big large end market with approximately 10% of the market has shifted to the cloud.
So the modern cloud solution. So we believe that we still have plenty of runway.
To add sales headcount and more focus on adding 20 plus percent sales head count for the foreseeable future.
Put it in perspective, you know, we believe that we have about.
A third of the country covered the way we would cover it if we had unlimited head count and so we have two thirds of the market to continue to cover them with incremental sales adds for you know over the next you know pilots here so.
So we think there's tons of opportunity in the market and we're going to continue to invest and take advantage of it obviously, we will look for ASP.
Growth. This year, we were able to add 23% head count and grow ASP, 1%, which is hard to do so kudos to the sales team for being able to do that and we're going to continue to focus on execution to drive those great results in the future.
Great has Joe borrow visited your office yet.
Got it.
Congrats on expanding that partnership yeah. Thanks again guys.
Thanks Juan.
Yeah.
Our next question comes from the line of <unk> Shah with Deutsche Bank. Please proceed.
Great. Thanks for taking my question and congrats on the impressive results yet again, just following up on the last question.
On that.
Sales coverage going forward it looks like Youre at 28% tier one sales coverage and in this year you talked a little bit about this but like how should we think about that going forward next year.
And should we expect you to continue to see a similar type of ramp that you saw from from this year versus last as we think about FY 'twenty, three and maybe FY 'twenty four.
Yeah, I mean, so we're going to continue to press into that you know a similar growth rate in terms of the number of sellers that we add in so we were in that 23% growth you don't Wanna be again in that 20% to 25% growth range in.
In terms of the new head count and what Youre going to see out of that is most of those sellers are going to go into the tier one markets still which is going to continue to press that tier one coverage ups. So 28% today and there's opportunity to continue to expand that like Rod had mentioned really for a handful of years at the rates that we're talking about continuing to grow we do add sellers insights here.
Two tier three markets in other markets as well as in our small market and client teams. So it's not it's nothing we only add sellers in tier one it's just that a big portion of them are going to continue to go into those markets to expand coverage.
That makes sense and just on a separate topic I mean, you talked about in your prepared remarks over 'twenty kind of industry specific product features like which products and which industries are seeing the most resonate well with customers and how do you think about just the vertical adoption you've seen thus far.
Yeah, We had we had strong growth in all four of the industry, a health care manufacturing food and beverage and special services and I would say the product innovation that we delivered into the platform. This year was really focused on three different areas. The hiring process of recruiting process and a lot of specific timing.
Labour functionality for those specific industries.
Great. Thanks for taking my questions.
Thank you.
Yes.
Our next question comes from the line of Terry Tillman with tourists Securities. Please.
Please proceed.
Yeah, Thanks, Hey, Raul, Adam and Rachel Congrats as well from me on the strong fourth quarter and the full year maybe.
Maybe the first question just relates to tier one markets are you still have a lot of opportunity to add more capacity and get coverage, but in those tier one markets that you're starting to actually have them kind of make a name for yourself are you seeing kind of balanced momentum across all of those newer kind of tier ones or are there. Some areas that seem like there are kind of more rising to the top end and really lean.
The charge and then I had a follow up question.
Yeah. We've had we've had strong growth Terry across you know all the tier one markets I would say that a significant portion of our growth came in in the large Texas cities and large California cities.
And so those those two markets multiple markets had been particularly strong for assist this fiscal year, but we've seen really strong momentum in Florida strong momentum.
And they ended the year in the in the northeast. So we feel really good about where we are in each of the big segments and starting to power up and as the teams in those areas.
We've been able to really bifurcate, our marketing campaigns to really drive significant awareness into these tier one markets through a variety of different solutions, whether it be Pandora Youtube.
Just you know connected TV advertisements and so it's really helped.
You know us drive awareness in those large markets.
Got it thanks for all of it I guess, Adam just my follow up question relates to anything you can share on how we should think about free cash flow for either the quarter for the full year and I don't know if maybe there's a way we can look at it in relationship to non-GAAP operating income or just any help on how to think about free cash flow. Thank you.
Yeah, Hey, Thanks, Terry Yeah, I mean, we haven't given specific guidance on free cash flow, we want to continue to expand our free cash flow and you'll see it move with adjusted operating income over time and so its been running about 10 points 10 to 15 points in terms of free cash flow margin behind adjusted operating income and so that disk that this can.
That additional spend is really into the product in into.
The cost of acquisition and so you'll continue to see those investments play through like the like the product investments and the cost of acquisition for both sales our implementation resources and that will put that sort of 10% to 15% pressure.
From adjusted operating income down to adjusted free cash flow.
Okay. Thanks.
Thanks, Eric.
Our next question comes from the line of Bryan Bergin with Cowen. Please proceed.
Hi, This is actually carried on for Brian Tonight Tonight, but have you seen any impact on employment levels within your existing client base to date and then what are your employment growth assumptions for our fiscal 'twenty three.
Yeah, Hey, Joe Yeah, so within the base I mean, we've seen that continued labor market growth and that really in the low single digits and we haven't seen a ton of change I'd say at the at the macro level within our portfolio of course specific verticals or specific industries, maybe reacting a little differently. We saw a lot of come back.
A lot of bounce back from.
The REIT or the restaurant and food and food services segments manufacturing played through pretty well. This year healthcare played through pretty well a lot of the areas, where we put where we focused our industry play out but that's all in sort of resulted in that low single digit organic growth and we haven't we haven't considered any a you know of the.
The overall demand environment, we haven't considered anything necessarily different as we think about our guidance into the future.
But again in this case, it's really only generating something in the sort of low single digits overall and I'd say like from an overall shift perspective. So we we we also track hourly shifts again, it's sort of tracking right along with the overall market and what we've seen in the labor market more broadly.
With the exception really in that micro segment, where I think the micro segment squeezes, just a little bit faster and.
And squeeze a little bit faster enterprise segment, but in our target market and that tend to 1000 segment. It's it's remained really strong.
Got it and then in terms of we heard the strong and are 98% where did our gross revenue retention and client retention land for our FY 'twenty two.
Yeah, we havent shared gross retention, specifically or client retention specifically the net retention is really how we manage the business more broadly.
Say that gross retention was really.
In line with with where it's been historically and is not one of the bigger contributors to the increase that we've seen in net retention just meaning honestly that gross retention will continue to be a tailwind as we continue to improve the business and the client experience that we've invested in over the last couple of years, So youre going to continue to see that that benefit and its been gross retention.
<unk> has been really right in line with where you would expect just given some some of the competitor discussion in terms of where they put a gross retention in knowing that our portfolio is just a little bit smaller in terms of the average size of our employees per client the argos potential sort of trend with what you would expect.
Got it thank you.
Thank you.
Okay.
Our next question comes from the line of Scott Berg with Needham with Needham. Please proceed.
Hi, everyone. Congrats on the quarter and this is Michael Rackers I'm on for Scott Berg today.
You've talked a bit about the larger average new customer size with the majority of new bookings coming from customers with more than 100 employees is that trend kind of continuing to the same extent today.
How should we think about that dynamic moving forward.
Yeah. So I mean overall, what youre seeing in the portfolio is that our average employees per company continues to grow and we ended the year at about 77 coming off of about 70 from last year. So we're seeing good improvement.
And that's really the combination of two things one is that we are seeing the micro segment continue to flatten and not grow it in the outsized rate so you're seeing the benefit as we sort of shift more towards the 10, plus and 100 plus segment and then as we add additional business, we're really adding that new business from the mid market is coming in at one <unk>.
That's sort of 150 range with clients that we sell higher than that and then some lower than that but on average you're seeing sort of a $1 50 to $1 60 in terms of the average client size. So both of those dynamics are really helping to lift the overall size of the portfolio.
Great and then a little bit on a module adoption, which I know you've mentioned earlier, but maybe how does that look in tier one cities versus some of your more established smaller markets. I mean, maybe looking at talent management, specifically I mean are the trends in adoption.
And the tier one market is pretty similar to the established smaller markets or is there any kind of a disconnect there.
Yeah, Michael in his role in the tier one markets, we're seeing slightly bigger pay sizes and slightly more attach than we do in tier two three or four market. So.
You know, it's really positive for us and it's reinforcing our desire to continue expanding in those markets.
Great. Thank you.
Thank you.
Our next question comes from the line of Brian person with Raymond James. Please proceed.
Yeah.
Hey, guys. This is Chris on for Brian Thanks for taking the question.
And I'm just curious how is linearity in the quarter and as we're already two months through the September quarter have you seen any changes thus far.
In terms of the overall demand environment of the portfolio.
Yeah.
Yes.
No I would say no nothing significantly different than we wouldnt otherwise capture in the guidance that we just shared I'd say that the demand environment has remained strong and what we see in the broader labor market.
And the tightness of that labor market is playing through to our portfolio. So there's nothing that we're seeing right now in that although were we continue to to stay on top of it we continue to be on the watch out for macro changes and won't of course theres a lot of discussion around it. We just haven't seen anything inside of the portfolio or any sort of change in the demand environment that would make us.
Sort of expect anything different especially over the next three six months so.
No change is playing through our portfolio today.
Got it and then on the incremental interest income as you kind of think of coming through to fiscal 'twenty. Three how do you think about reinvestment of that high margin kind of revenue into growth initiatives first letting that kind of flow through to the bottom line.
Yeah, absolutely I mean, it's definitely an opportunity for us as we think about continuing to invest in growth initiatives, expanding our sales and marketing engine and making those investments back into our product. So we're looking for opportunities to make those investments.
In marketing and demand Gen and back into the product to continue to accelerate the front end of the business. So we're sort of tentatively targeting maybe 50% of what we're seeing in the interest income to fall through and looking for opportunities to invest the other half of it I would say that's not specific guidance that we're giving as much as that.
It's how we're sort of targeting to manage the business. If there's additional opportunities that we find that we think are strategic and add to the long term value of the business and we're going to continue to make those investments.
Alright, thanks, and congrats on a great quarter.
Yeah, Thanks, a lot.
Okay.
Our next question comes from the line of Brad Reback with Stifel. Please go ahead.
Great. Thanks, very much for all as you think about the marketing efforts do you need additional high profile deals like the Pac 12, and the stadium deal or have you sufficiently raise your profile at this point, where it's incremental going forward.
Yeah, I think we significantly raised our profile, we evaluate a lot of opportunities most of our peers are investing in.
Sports marketing, whether it be golf or patching is on NBA teams or.
Those are NBA stadiums those type of things. So so we felt like.
It was something that we want to do to raise our overall profile. The Pac 12 was unique.
To the West coast expansion.
Bengals naming rights is really unique to you know the scarcity of an NFL assets. There you know essentially 30 stadiums you know 28 that actually have naming rights.
It's the most popular sport in the U S. So we felt it was a unique opportunity for us to.
To invest in both our community and expand our brand nationally.
So I think we have definitely raised the brand we don't need to invest more into the brand for next 12 to 18 months from that perspective, I think it gives us a little runway to take advantage of the incremental impressions and demand that all create for the channel.
That's great and then just a quick follow up Adam given your commentary over the course of this call with respect to the environment. It would appear that your forward guidance is the same level of historical conservatism.
Going forward. Thanks.
Hey, Brian Yes.
We want to continue to <unk>.
Consistent with how we've.
Guided and how we think about we're not changing any sort of philosophy, our philosophy about our overall guidance methodology.
Want to be prudent and we're going to continue to look for opportunities to continue to execute well. So that that's how I would say we continue to guide how we want to be consistent with historical performance. The best we can.
Perfect. Thanks very much.
You bet.
Oh.
Our next question comes from the line of Mark Mark home with Baird. Please proceed.
Yeah.
Let me add my congratulations.
Was wondering what percentage of the of the new sales are coming from the tier one markets at this point.
Yeah.
Yeah, we're seeing close to or just over about half of our mid market sales are coming from tier one markets. So we've seen a laggard success and like roll had mentioned in the southwest and the West Coast, we've seen a lot of growth and improvement from those markets, which have contributed to that overall performance.
That's great and then I would assume that that could accelerate particularly as you continue to increase your head count there and I would imagine that the people that you've put in place have an opportunity to ramp other productivity levels, even more because they're relatively new is that correct.
Correct Yep Yep.
Yeah, that's right like roll had mentioned we saw Hum you know I would say marginal ASP improvement on the whole and as you're adding so many sellers you would expect at some level that your asp's declining and so to hold that flat into 'twenty, two with an opportunity now to leverage a lot of these newer sellers into their productivity ramp or the second.
Or are there significantly more productive so youre going to see that hopefully in the west on the southwest continue, but then really across the entire country, so lots of opportunity to drive.
Productivity in two to 'twenty three for sure.
That's great and can you talk a little bit about the broker channel you've got about 40% plus of your bookings coming through referrals and the broker channels.
How how much expansion would you expect from here.
How are the broker referred deals relative to the other deals at this point.
Yeah, I mean brokers remain.
Significantly high close rate.
So that's the reason why we're so focused on the channel.
We're slightly over 40% and our overall bookings and in the mid market specifically.
It's over the mid fifties so.
Significant.
Ponant of our sales go to market motion and we continue to see increases.
And the number of referring brokers nearly 15% increase year.
Over a year.
And we're just scratching the surface I mean, we're literally dealing with about you know somewhere between 10 and 15% of the addressable opportunity in that segment.
Thanks Mark.
Our next question comes from the line of Pat <unk> with JMP Securities. Please proceed.
Oh, great. Thank you.
Hey, Rob well can you walk us through the.
The strategy for increasing the price per employee per month, I mean, if we look on the website. We can see you know for below 50 employees. The core is $8 and complete. This 14, so maybe explain how how pricing tiers fit into that and and how it works for the greater than 50 employees.
Yeah, Hey, Pat we have a couple of different strategies and in that small market, which we've sort of identified as under 50, we have a more subscription based model that has a base fee and then a per employee per month fee and that basically starts at $100 and then there's a peplum fee that gets you all the services based on.
How much youre looking to consume.
And Theres a couple of different versions there that can take you up to over $200 for a base fee plus 12% to $15 per pump. That's really the under 50 segment and then as you go above 50, those clients tend to look for a broader suite of services. They start picking up time, and labor management, they'll pick up benefits and talent management more.
More deeply and so that's where we expand to.
The four bundles that we offer within HCM core bundle, that's now $20 and then benefits talent and time and labor management.
Great and then if I could ask sort of related to that but last quarter you guys talked about introducing the expense management solution, how is that going in and what would you like to add to that feature wise overtime.
Yeah, So we put that into our ACM core bundle, which lifted it from $18 to $20 and we're still not at over 90 plus percent of the time to new business. So we're seeing really good adoption. There we don't sell it in a stand alone fashion as of right now and we will continue to.
That's in that product over time to drive functionality.
Great Alright, thank you.
Our next question comes from the line of Daniel Jester with BMO capital markets. Please go ahead.
Great. Thanks for taking my question I was wondering if you could talk to us a little bit about what are the trigger events that are getting customers to really engage.
I look at your results and your peers. It seems like the last six to nine months have been just an extraordinarily good environment to sell into.
So I'm wondering if there's commonalities amongst your customers, especially the new ones in terms of whats getting them to engage now relative to other parts in time and how confident are you that youre going to be able to sustain that going forward. Thanks.
Yeah. Thanks, Dan.
Trouble.
Think one of the biggest drivers.
You know coming out of the pandemic has been cloud adoption.
Overall, and I think you know our end markets are served.
You know by Chr O Cfos and Ceos that may have thought the cloud was a step too far for ATM processing.
And during the pandemic you know they all use the cloud for a lot of new method.
Methods of communication in and talking to their children or grandchildren et cetera.
And they started to work remotely as well and so I do think that's really opened up a window for the modern cloud HCM providers to take share from the legacy providers and I think youre seeing that over the last three quarters as as the markets opened up you know our bookings have accelerated and are ready.
<unk> has accelerated with it.
In the modern cloud and I think the combination of that and our ability to deliver real time solutions.
<unk> around talent that.
That are helping companies cope.
With the new modern workforce, whether it be recognition tools pulse surveys the ability to communicate and do one on ones virtually all of those tools are built into pay course, modern cloud solution and are helping drive adoption.
Great. Thank you very much.
Thank you Dan.
Okay.
And our next.
Comes from the line of Robert Simmons with D. A Davidson. Please proceed.
Hey, guys, great quarter, and thanks for taking my question.
I mean, what what are the biggest drivers in the quarter relative to guidance.
What what surprised you the.
Yeah.
Yeah.
I think that we ended up seeing just a quite a quite a few of those initiatives that we're executing on come through really well, so new new business of course, the biggest contributor to our overall growth.
But we're seeing over performance from some of the strategic pricing initiatives that we've been running some of the partner programs and of course interest income.
All came through with new business continues to convert well it really ended that.
All of those initiatives, we're really hitting on all cylinders as we went into ore as we exited the quarter. So we saw a lot of the performance come through for for quite a few of the initiatives.
Got it and then can you talk about the the impact of inflation on your business on both the.
Revenue side and on the call the question.
Yeah. So on the cost side I mean, we see.
The labor market like wage inflation of course across the business, but not in an overly material way, we see it in some of the new hires but I think a lot of that has actually come down a bit as it was sort of running into the December time period was quite a bit harder and we've seen that wage inflation sort of softened just a little bit in terms of its.
On the business from a revenue perspective of course, it impacts payroll companies and he seem companies quite a bit more more directly. So we continue to see overnight rates increase as they get closer and closer to the fed funds rate.
And we're seeing those we generated about 50 basis points of interest income in the quarter and will continue we will see that rate, probably close to or more than double into Q1.
And that's really the positive sign from the the increase in the input inflation and interest rates increases.
Got it thanks guys.
Yes.
Thank you this.
This concludes our question and answer session I would like to turn the call back to ROE Villard for any closing remarks.
Thank you again for joining US Tonight. We appreciate your continued support we are enthusiastic about the accelerated momentum in the business as we head into the next fiscal year, we look forward to staying in touch and seeing a number of you at Stifel Deutsche Bank in HR Tech events. This quarter have a great evening everyone.
Thank you. This concludes today's conference. Thank you for your participation you may now disconnect.
Yeah.