Q1 2023 Paylocity Holding Corp Earnings Call
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Good day and welcome to pay lots of these Holdings Corporation first quarter 2023 fiscal year results conference call. At this time all participants are in a listen only mode. After the speaker presentation, there will be a question and answer session.
Ask a question during the session you will need to press star one one on your telephone you will then ear an automated message advising that your hand is ranged please.
Please be advised that today's conference is being recorded I would now the conference over to your Speaker, Mr. Ryan Glenn Chief Financial Officer. Please go ahead Sir.
Good afternoon, and welcome to pay lots of these earnings results call for the first quarter of fiscal 'twenty, three which ended on September 32022, I'm, Ryan Glenn Chief Financial Officer, and joining me on the call today are Steve Beauchamp, and Toby Williams co CEO as a philosophy today, we will be discussing the results announced in our press release.
Issued after the market closed.
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.
Or 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 Securities and Exchange Commission for the risk factors contained therein and other disclosure.
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 philosophy.
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 measure to their directly comparable GAAP financial measure because the information which is needed to complete a reconciliation is unavailable at this time without unreasonable effort.
In regard to upcoming conference schedule, Steve and I will be attending the Needham virtual SaaS conference on November 17th and Toby and I will be attending the credit Suisse Technology Conference in Scottsdale on November 29th and the Needham growth Conference in New York on January 11th. Please let me know if you'd like to schedule time with us at any of these events with that let me pass the call over to Steve.
Thank you Ryan and thanks to all of you for joining us on our first quarter fiscal 'twenty three earnings call. Our strong sales momentum continued into fiscal 'twenty three with recurring revenue growth of 35, 7% as our differentiated value proposition of providing the most modern software in the industry continues to resonate in the marketplace.
Revenue was $253 3 million or 39, 4% growth over Q1 of last year and exceeded the top end of our guidance by $12 million.
In September we held our annual elevate client conference, where we hosted a record 4000 clients prospects and partners for more than 100 virtual and in person sessions over the course of two days to prevailing topic throughout the conference with the need to leverage software tools to connect employees processes and data more efficiently across the organization.
Theme of connected HR has become increasingly important for companies as it remains difficult to find attract train and retain top talent and a tightened labor market.
We highlighted several new product enhancements across our suite that are specifically focused on driving a more modern connected HR experience at both the employee and company level.
Our employees neutrals within community such as the ability to create announcements through a mobile device add multiple attachments and schedule postings in advance will ensure clients are able to engage with their employees wherever and whenever they want within.
Within premium video our new video hub offers a centralized location for managing reviewing editing and sharing.
Engaging content, both company wide and within a specific team.
Lastly, our newly released my insights feature allows clients to create edit and save multiple dashboards each dedicated to drilling down into specific dataset or use case.
At elevate we had the opportunity to connect with clients that are leveraging many of these solutions to drive a more tightly connected HR experience, including a financial services client with 300 employees, who are saving over $200000 from operational improvements informed by our data insight tool and a manufacturing client with over 1000 employees that is driving.
A 70% reduction in employee turnover through a combination of community service and impressions.
The strong momentum across our business continues to be recognized by third parties as Pelosity was recently named an overall leader for all 12 product categories in the G. Two fall 2022, Great report. This marks the 16th consecutive quarter, where Pelosity has achieved the leader ranking and includes recognition across all segments.
A big thank you to our employees clients and partners for helping create the best elevate conference. We've had to date and we can't wait to see everyone back again next year.
Now I'd like to pass the call to koby to provide further color on the quarter.
Thanks, Steve the desire of our clients and their employees to drive a more connected HR experience continues to be reflected in key utilization metrics across our modern workforce solutions, including community where in Q1, we once again saw strong growth in the number of posts announcements and comments.
We also continue to see similar trends in terms of content creation across both our premium video and survey products as clients look to increasingly connect with their employees through more engaging mediums collectively these trends continued to provide a catalyst for a significant sales momentum driving strong sales execution across our entire market in Q1, and setting us up for a strong.
Fiscal 'twenty three as we head through selling season.
In addition to our recurring revenue growth interest income on client funds continues to rise as a result of the sustained interest rate increases from the federal reserve given the large market opportunity in front of us the strong execution of our sales team and the success, we're seeing in product usage and adoption, we plan to reinvest a portion of this upside back into key areas of the business.
Including people product and marketing to help drive future growth, we remain committed to continuing our investments in digital marketing and our channel initiatives, which once again delivered more than 25% of new business in Q1, as well as incremental product investments as we continue to innovate and deliver the most modern platform in the industry, we continue to see strong demand across.
Our target market and we're very pleased with the momentum in our sales team coming into selling season.
From a macro perspective, while we have seen a modest increase in workforce levels through October of this fiscal year. The rate of increase has leveled off which we have reflected in our Q2 in fiscal 'twenty three guidance.
The strong culture at Pelosity continues to be recognized externally as we received the great places to work certification for 2022 and were named to Fortune's Best Workplaces in Chicago built ins Best places to work in Chicago, and the best and brightest companies to work for in the nation.
Boeing Steve's comments I would like to thank all of our more than 5000 employees for a great start to fiscal 'twenty three I would now like to pass the call to Ryan to review the financial results in detail and provide updated fiscal 'twenty three guidance.
Thanks, Tobey total revenue for the first quarter was $253 3 million, an increase of 39, 4% with recurring and other revenues up 35, 7% from the same period last year as Steve noted our sales team had a strong quarter and we were pleased to come in $12 million above the top end of our revenue guidance.
Gross profit was 72, 1% for Q1 versus 75% in Q1 of last year, representing a 160 basis points of leverage as we continue to focus on scaling our operational costs, while maintaining industry leading service levels.
We continue to make significant investments in research and development and understand our overall investment R&D. It is important to combine both what we expense and what we capitalize on a dollar basis, our year over year investment in total R&D increased by 44, 9% when compared to the first quarter of fiscal 'twenty, two and we remain focused on making incremental investments in R&D throughout fiscal.
<unk> 23, as we continue to build out the <unk> platform to serve the needs of the modern workforce.
In regards to our go to market activities on a non-GAAP basis sales and marketing expenses were 23, 9% of revenue in the first quarter and we remain focused on making incremental investments in this area of the business in fiscal 'twenty three to drive continued growth.
On a non-GAAP basis G&A costs were 12.0% of revenue in the first quarter versus 13, 1% in the same period last year and we remain focused on consistently leveraging our G&A expenses on an annual basis.
Our adjusted EBITDA for the first quarter was $66 6 million or 26, 3% margin and exceeded the top end of our guidance by $8 6 million and represented 90 basis points of leverage versus Q1 of fiscal 'twenty two.
Briefly covering our GAAP results for Q1 gross profit was $168 7 million operating income was $7 1 million and net income was $30 4 million.
In regards to the balance sheet, we ended the quarter with cash and cash equivalents of $65 5 million and no debt outstanding. Additionally in August we increased our liquidity through expanding our existing revolving credit facility to $550 million. We're pleased with our performance in Q1, which included another strong quarter for our sales team, while also identifying opportunities to.
Great scale and operational G&A costs, and we are happy with the progress we've made to start the year.
In regard to client held funds and interest income our average daily balance of client funds was $2 1 billion. In Q1, we are estimating the average daily balance will be approximately $2 2 billion in Q2 with an average annual yield of approximately 170 basis points on a full year basis. We are estimating the average daily balance will be $2 four.
With an average yield of approximately 190 basis points.
Please note that our guidance includes the impact of this week's 75 basis point interest rate increase and an assumed 25 to 50 basis point increase in December but does not currently include any changes to interest rates in calendar 2023.
Finally, I'd like to provide our financial guidance for Q2 and full fiscal 'twenty three for the second quarter of fiscal 23 total revenue is expected to be in the range of 257 million to $261 million or approximately 32% growth over second quarter of fiscal 'twenty to total revenue and adjusted EBITDA is expected to be in the range of <unk> 63.
5 million to $66 5 million.
And for fiscal 'twenty three total revenue is expected to be in the range of $1 $1 2 billion to $1 127 billion or approximately 32% growth over fiscal 'twenty two.
And adjusted EBITDA is expected to be in the range of 336 million to $340 million, which represents 220 basis points of leverage over fiscal 'twenty two.
In conclusion, we are pleased with our Q1 results and we're pleased to raise fiscal 'twenty three guidance to 32% revenue growth at the midpoint, which in combination with the adjusted EBITDA margin represented in our full year Guide places us above the rule of 60 in fiscal 'twenty three.
Operator, we're now ready for questions.
Thank you.
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You May then.
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As a reminder to ask a question you will need to press star one on your telephone please standby, while we compile the Q&A roster.
Okay.
And our first question will come from the line of Scott Berg with Needham <unk> co. Please go ahead.
Hi, Congrats on a fantastic quarter and thanks for taking my questions.
A couple here first of all impressive revenue beat in the quarter your best percentage be it as I can tell in at least five years and you maintained 36% recurring revenue growth again, a five point more difficult comp. So that was that was great.
But how should we think about that.
Strength in the business today is this purely related to volume in terms of number of deals that you are out there winning GT.
Just to be really really strong or is there a mix around maybe <unk>.
<unk> with customer size look youre added focus.
Targeting larger customers today, helping benefit that growth.
Yeah. So I think overall, it's really coming from the strength in execution in our sales team and that comes from the two places you talked about adding new customers to the platform still the biggest driver for us and we're having really good success across all the markets that we serve in terms of being able to do that and I think the second point you bring up is average revenue per customer has been an increase.
And we continue to get momentum from that and that happens in a couple of different ways first having new products and selling more of those products both back to existing customers and new customers and then on top of that the upmarket initiative that we've been talking about over the last year continues to be successful. So you see some of those larger clients, having an impact to that average revenue per customer as well.
Got it helpful and I guess someone's got to ask the macro question at least even couple of reports I have tonight and others over the last two weeks SMB in certain areas certainly shown some weakness out there.
You all service the market Thats kind of SMB I think the low end of your enterprise squarely in what part of that segment you aren't seeing any pressure there or are you seeing any changes that might be interesting to call out the numbers suggest that all but.
Sure I'd ask it yes.
Yes. It is.
Obviously, an important question in this type of climate, what I would tell you from a demand perspective, obviously, we're really happy with the result, and we've got a lot of sales momentum in sight, our selling season right. Now as you know January is a big time for starts so.
No evidence of slowdown from that perspective, and then I think the other part is looking at our clients and as we mentioned in the prepared remarks, we did have a little bit more employees on the platform. When you look at kind of a same store sales measurement, although that has slowed pretty significantly versus prior periods.
But it is still slightly positive and so it seems like the clients that we have are pretty resilient.
At the moment.
Great. That's all I have thanks for taking my questions.
Thank you one moment for our next question.
And that will come from the line of Brad Reback with Stifel. Please go ahead.
Great. Thanks, very much Steve on that last point around sort of client clients, adding employees.
Moderating are there any specifics around geographies or verticals anything you can dig into there.
So our client base is pretty diverse with over 30000 customers really representing all industries, we do try to slice and dice it and look at it in different ways, there's really not much to call out.
At all realistically.
Been pretty consistent across the board there are some variations in the industries that you might expect but it is relatively small.
And overall as we put we looked at the current situation. We included that in the guidance. So we certainly didn't didn't think that that was going to change going forward and it's a pretty overall pretty moderate fairly flat.
That's great and then switching gears the credit facility that you guys.
Entered into in August maybe some thoughts around.
The strategic rationale there.
Yes, I think yes.
Just from our perspective, we had put the original credit facility in place a few years back and just what was was there as part of the capital structure as we have continued to grow and scale the business and I think what.
What you saw us doing was reflecting nothing more than sort of an update of that reflecting the growth that we've seen in the business. So we upsized that but.
I think it just is.
<unk> now has the same no different and as it was upsizing that.
I think somewhat opportunistically, just given the growth in the size and scale of the business.
That's great thanks very much.
Thank you one moment, Sir our next question.
And that will come from the line of Terry Tillman with choice.
Great. Thanks for taking the questions. This is Robert on for Terry starting off here on the mobile side of things roughly what percentage of Pelosity as full platform capabilities can now be carried out on a mobile device. So how does mobile development fit into the overall research and development cycle and then I have one follow up thanks sure.
No.
Think about it from both.
A manager and employee user so we've got millions of employee users on the platform. They use it for a wide variety of of capabilities and most of that activity today more of that activity happens on mobile than it does on the web.
And they can do pretty much anything they can do on the web on mobile when it comes to the administrator in the HR administrator Theres definitely capabilities. They take advantage on our mobile application, but if youre thinking about bigger more complicated things running payrolls managing your payroll you've got customers have to do complex approvals and workflow.
Those a lot of that still occurs on the web mostly because of preference in terms of where you can actually most efficiently get that done but part of our strategy long term is to continue to invest in mobile first and everything that we build can be done on your on your phone and increasingly so we're seeing more and more of our clients employees and manage.
Yours do most of their activities from a from a mobile perspective, so that continues to be an area of an R&D investment going.
Great and then just following up how should we think about the potential tam surrounding newer automation capabilities, such as scalable forms or is it still too early to tell and in general how are you all thinking about monetization in this area.
Well, we've had a great history of being able to not only create a differentiated product and really kind of modernize the experience for our clients, but also have new skus that we can monetize over time and so we've more than doubled the amount of product that we can sell since our IPO and we've got a pretty robust roadmap of new initiatives that we're working on.
And things like collaboration the ability to automate your workflows. Those are concepts that are going to be an important part of our new product strategy. We don't have a habit of announcing those products until they're ready and end market and until we actually get feedback from our clients and we really believe strongly as client as a co creator. So I think thematic Lee you're on the right idea collab.
Ration workflows automation is definitely there and we are pretty excited about some of the initiatives. We've got in flight. Our clients are taking advantage of some of the Philip of forms capabilities Youll see that often in our Onboarding application is probably the primary place, but theyre also using it at in workflows today.
Great. Thanks, Congrats on the quarter.
One moment for our next question.
And that will come from Patrick Wall Ravens with JMP Securities.
Hi, Owen on for Pat. Thank you for taking the question and congrats again on the strong quarter.
So I'm wondering about a little bit about competition with cloud providers can you give us a brief update on the competitive landscape.
Sure.
Would say from a macro perspective, theres not a lot of change.
It is a competitive environment, we typically are competing against.
One two maybe even three different providers as we as we are winning deals and bringing clients over to the market. We see the biggest players. The most just like you would expect I don't think it's any different than the market share that they have we feel like we've got a differentiated value proposition. We've got modern capabilities that don't exist in any of our competitive set and we think that our.
Ability to back that up and partner with our clients. That's the key part to the value proposition.
We've been able to be very successful obviously with the revenue growth that we were posting here being able to win clients in all markets, but nothing new from a competitive perspective.
Awesome. Thank you and then I guess kind of looking further back at 2008, and the great recession impact on ultimate software.
About four quarters of decreased growth 2008 through early 2009 I was wondering if you thought that experience is kind of instructive, but predictive for help philosophy, you would handle a potential recession.
Yes, I mean, I think the best sort of guideposts for for anything like that is really what we've just come through from a pandemic perspective, I mean, obviously the cause of the macro economic impact was different but I think what you saw from us through the course of the pandemic was first of all commitment to our employees and our clients and I think what you also saw from US was running the.
Fairly consistently with how we had been preceding the pandemic in terms of continuing to hire across the business continuing to invest for future growth in product and sales and marketing and operations and really across the whole business. So.
I think where we sit today, we feel like we just had a really strong quarter. We're really pleased with the sales execution that we're seeing.
The competitive dynamics in the market that Steve referenced in the differentiation really resonate resonating with our clients and prospects and so I think.
Any macroeconomic uncertainty I think we would approach it in very much the same way we did through throughout the course of the pandemic with a lot of consistency and continuing to invest in the business for future growth.
Awesome. Thanks, so much.
Thank you one moment for our next question.
And that will come from the line of Samad Samana with Jefferies. Please go ahead.
Hey, guys. This is Jordan <unk> on for some odd Steve Toby Ryan. Thanks for taking my question and congrats on the strong results.
I think the first question wanted to ask is on the macro I know everyone has been kind of focused on this morning jobless claims came out showing a decline the labor market remains pretty tight. So in terms of this past quarter do you have any trouble hiring quota carrying reps how did that come in maybe versus expectations.
Yes. So obviously, we continue to grow and we're looking for great people to join our teams and that's across the board. So sales certainly are hiring it's not our primary hiring season for sales, we typically really ramp that up after year end, but we opportunistically, we're bringing people on all the time I would say across the board including sales were.
Really happy with our ability to have a value proposition for employees that they're excited about and getting really talented people to come on board and is still fairly competitive market. So that includes places like research and development.
Sales and a lot of our teams that have to support our customers. So staffing levels are strong going into year end, which is important because it's a really busy time of year and I think from a sales perspective, we've got a nice head start.
Before we really start to ramp up hiring after year end.
Great and then maybe this is for Ryan if I take a look at the gross margins your adjusted gross margins and I back out the contribution from Florida. It looks like the core gross margin of the business increased pretty substantially year over year. So I'm curious can you maybe comment on what's driving that strong expansion within the core business ex float.
Sure. So yeah, obviously really happy with the increase in margin in the quarter I think about 160 basis points, including the impact of interest income and to your point, some really nice leverage even ex interest income and I think for US that is continued focus on scaling the business and driving leverage and efficiencies automation and those teams.
And we continue to drive against that game plan. So.
I think as we step back and look at the quarter's results from a profitability standpoint felt like we executed against our game plan of leverage in margin and G&A and you saw the incremental investment and growth driving areas of the business that primarily being sales and marketing and R&D.
Great well again, you guys. Congrats on the strong results and I appreciate the time.
Thank you.
Thank you one moment for our next question.
And that will come from the line of Bryan Bergin with Cowen.
Hi, guys. Good afternoon. Thank you I wanted to dig into the strong sales force execution, you really seem to have kind of reached another level here. So what do you attribute the notable step up in this execution that you're seeing.
Yes, so I think it probably put it into two different categories I think first and foremost.
The product is really resonating in the marketplace. If you think of the challenges of today being able to find attractive people that youre looking forward being able to retain them.
It's still a challenging labor market and so when you have tools that don't just automate your processes, but actually allow you to engage and drive a different culture and really create the right environment for collaboration clients are seeing real value in that equation and so I think it's really helping us win from a product perspective, Thats number one I think number two the sales team.
It's really executing on all cylinders and so that's getting people hired and trained and making sure that they take that value proposition and tell the story and create differentiation.
And so it's really a combination of having a great story to tell and having a sales force that is firing on all cylinders as as you mentioned.
Okay.
And then just I guess, where do you stand now in the penetration of some of the newer products. So community Plaza premium video just enter into your total client base today.
Penetration levels gotten too.
I think the way we like to think about that is if you take the total amount of product that we can sell meaning if a customer bought everything.
And you do the math based off of roughly our average client size, which would give you directionally. When you look at the total number of clients youre going to get to a number that is call. It.
Approaching 60% up to two thirds in that kind of range of all available product that we can sell to our clients and so we're going to continue to add new product on top of that and so we think there is still a fair amount of runway to take that higher and sell exactly products that are newer surveys premium video community plus.
And still get penetration into some of the product we've had for a while that can still go higher so our inside sales team is an area that we've invested in for several years now and we continue to invest that at even a faster rate than the rest of our salesforce, we still get most of our revenue from new customers, but that will continue to become a more meaningful part of our growth equation.
Okay I appreciate the color. Thank you.
Thank you one moment for our next question.
And that will come from the line of Mark Marcon with Baird. Please go ahead.
Hey, good afternoon, and congratulations on the stellar results here.
Elevate you had 4000 prospects and.
Existing clients, how many were prospects and what was the what was the element that ended up gaining the most attention that you're most excited about with regards to prospects and then.
What are you most excited about in terms of selling into the existing base.
Right now where they were really focused.
Focused sure. So I think on your first question, we definitely cater that event towards current clients. There is a lot of content for current clients. Both in terms of industry trends, what's happening and then of course, how to use our product.
Better manage their HR teams create more engagement culture, that's really the and the idea of really trying to connect that across all of the challenges that they might have in the business.
Typically see less than 10% of the attendees would be prospects as the kind of way to think about it. It's usually people that are in the evaluation cycle and near the tail end and can see some value in that agenda.
And we get a lot of newer customers that attended as well so.
It was a great event for us virtually we've been able to host even more people than we've been able to do in person and.
Super successful I think you had a second part to that question too.
Of the existing clients.
What are the modules that we're gaining the most.
And in terms of being added on and how are you thinking about that in this in this key selling season about <unk>. You said you mentioned you increased your inside sales force.
Cited about selling.
Yeah. So I would say, we're definitely seeing increased product penetration rate across the entire portfolio. So it is not really being outstripped by just one or two different modules, but as you might imagine some of the things that are newer are things that our customers might not necessarily new we had.
Definitely seeing things like video with higher penetration than need to collect more feedback from our from our customers and our survey product has also seen a nice uptick.
Recruiting has been strong for really for a while now it's obviously been a tough labor market. So that product gets even more important but even things like onboarding and automating that.
Smaller clients or even seeing value in that whereas when we released that three or four years ago. It was definitely towards the upper end of the market. So it's pretty across the board in one of the challenges that you find is when you've got 30000 plus customers you've got to keep them educated knowledgeable of all the new things that you are creating and elevate becomes a good opportunity to do that.
That's great and then you acquired Blue marble back in September of last year, how much did that end up contributing in the quarter.
And what was the organic growth rate this quarter and then.
How much of a contribution that you end up getting this quarter from an.
An increase in terms of the number of employees per client within the existing base.
Sure Marc I can take that so as we talked about at the time of the acquisition the blue marble impact was less than less than 2% of revenue. So that was the impact on a full year basis, obviously this quarter.
We had a full quarter impact of blue marble, whereas last year.
It was just the one month, so that was incrementally helpful. But it's in the one to two point range.
And then from a macro standpoint, we did see some some positive growth in workforce levels as tobi had called out.
And we haven't called out exactly what that specifically was but it was somewhere into the mid single digits year over year, where that number has trended versus last year. So incrementally helpful. But it has leveled off.
Terrific. Thank you so much.
Thank you one moment, Sir our next question.
And that will come from the line of Dan Jester with BMO capital markets. Please go ahead.
Yes, thanks, good evening and thanks for taking my question. So in the prepared comments, you talked about making some incremental investments.
Using the benefit from from higher float income to make them.
Can you talk.
Just about sort of what that could be is that hiring is that advertising top of the funnel activities and sort of what are the sort of the gist.
Variables that you're thinking about.
To deploy that that incremental capital.
Hey, Dan I mean, I think we talked in the prepared remarks about that being comprised of investments in people and marketing and product and I think that's pretty consistent with.
Past situations, where we've had a rising.
Great environment and decisions to invest back into the business to drive future growth. So I think consistent strategy consistent deployment from an investment perspective, there and I think it is across all those areas in some sense. It's continue.
Continuing to hire to support the growth of the business, obviously, great quarter, and we're pretty bullish on the year and so it'll be continuing to.
Invest throughout the course of the year to support the growth of the business certainly we've talked previously about incremental investments in product and I think have a long history of putting dollars back into our product teams and driving incremental <unk> over the course of time and then I think we've also talked about incremental investments in things like digital lead Gen.
From a marketing perspective, and I think those are all the types of things that we would look to deploy.
Incremental dollars into as we look at the balance of the fiscal year.
Got you that's very helpful context, I appreciate that and then maybe just one.
For Orion stock based comp in the quarter.
Very different than the trend that we've seen over the past year is there anything you can call out is this a new level that we should be thinking about or is there any one time things going on there.
You'd mentioned thank you.
Sure. So I think there's some timing elements with within the quarter for sure. We have expanded our restricted stock program to a broader array of our employee base.
Youll see that normalize a bit as the year goes on last year I think SBC was about 12% of revenue. It may tick up slightly this year, but not not changed materially and I think as we look at some of the other elements around equity compensation, whether that is burn rate or overhang feel really good about where those fall versus our broader peer set so may see a slight.
Pick up with that expanded program, but beyond that nothing I'd call out.
Great. Thank you very much.
Thank you one moment for our next question.
And that will come from the line of Citi Pan of grassy with Mizuho. Please go ahead.
Hi, This is Alex on behalf of city Alright, I just wanted to ask have you assumed a worsening of the macro environment in your guidance and what would the unemployment rate to go up to to have a significant effect on your recurring revenue.
How much is there a reason that FY 'twenty three revenue guidance assumes.
The increase in revenue.
Revenue.
And I also wanted to ask him as he moves upmarket where competitors are you running into and how does your differentiated switching help you win deals and if the macro environment worsens out would you pull back more asinine versus R&D.
Alright, you're going to test my memory here I am going to do my best but I think the first question was related to what we assumed in guidance from a macro standpoint, and I think consistent with how we've treated it historically, we've guided to what has been in front of us. So.
Toby's comments in the prepared remarks, we did see a bit of growth between July and October although it certainly normalize from the increase we saw prior to that so we took that into account we did not assume a degradation going forward and I think the way that I would characterize that as it would take a pretty significant downturn.
From a macro standpoint to materially impact our revenue results, obviously feel really good about the momentum that.
That our sales team has headed into the selling season, we feel really good about where we are from a retention standpoint, so certainly something that we're watching closely but feel like.
As we watched that theres nothing that I would call out as a near term risk, although it's certainly something that we're watching closely.
Maybe if you can repeat the next part of that question jump in on the last couple of airports I think in terms of the upmarket competitive landscape and then investments in the rest of the year given the macro I think maybe hitting the macro 0.1st.
Our perspective, historically has been that we will continue to lean into sales and marketing investments and investments in products, which was your question and I think that that certainly is the case. This year, we're looking to deploy some incremental dollars there and I think even in the face of Mac.
Macro downturn as we saw in the course of the pandemic, we still look to invest in those areas. Those are really the growth driving areas of the business and.
On a longer term basis. Those are those are important investments for us.
And then in terms of the competitive environment.
We've announced over the course of the last year or so slight push up market, which is really driven by.
Our clients and prospects taking us there it's been a growing part of our business and I think the competitive environment there.
I don't see it changing going back to Steve's comments earlier haven't seen any great shift in that.
Over the last six months or so.
Alright, thank you.
Thank you one moment for our next question.
And that will come from the line of Robert Simmons with D. A Davidson. Please go ahead.
Hey, Thanks for taking the question I was wondering if you could talk about how blue marble is performing are you seeing it help you win new clients or are you cross selling into your existing base.
And then how far along in the integration process are you.
Sure.
If you go back to the original thesis part of the idea of bringing blue marble onto our platform was the idea that people would be more open to working globally as remote work started to increase in popularity.
So what we see is clients that are predominantly in the U S are on an increasing rate have employees in different countries and so thats, where blue marble really enters the equation because you can get them paid through blue marble software and the.
Partners that we've got around the world that help us get that done. So we definitely have felt like thats been a nice differentiation for those customers that have employees outside of the U S.
We're pretty integrated from a go to market perspective.
Part of our operation teams are continuing down that integration path product, obviously naturally takes a little bit longer because you've got different platforms youre kind of connecting its a fairly seamless experience for customers today, but there's a lot. We think we can still do.
Enhance that experience and I still believe that over time.
We will have more and more employees internationally. So we were very happy with the performance. So far I think there's actually still a lot of.
<unk> in front of us though.
Got it great and then can you talk about.
The impact of inflation on the business.
Question.
Yes, so I think the impact on inflation as much as it has a macroeconomic impact and potentially has an impact in terms of number of employees. Our clients will have so if we hit a recession and historical recessions you've seen clients not.
Not necessarily adding employees, but maybe they've got fewer employees and so that because we get paid on a per employee per month basis that directly impacts. Our revenue you can obviously traced back to the pandemic and that happened precipitously and then recovered it would be much lower based off historical recessions, but that would be impact number one on the flip side when you're in a high inflation environment obviously.
No that the fed tries to get inflation down by raising interest rates and so we benefit from interest rates with ends up being a bit of a hedge to the first impact and the last thing I would say is people have to be able to still have employees. They have to be able to get payroll done they've got HR processes that are must do items and they want them to be more efficient so.
From a selling motion perspective, we've been pretty successful in prior recession environment being able to kind of grow through that and still make sure that our value proposition is important to customers.
Got it thank you.
Thank you all for participating in today's question and answer session I would now like to turn the call back over to management for any closing remarks.
Yes, just to wrap things up I just want to thank everybody for all your interest in Pelosity and of course.
The other opportunity to thank all of our 5000 employees for the hard work as we enter our busiest time of year. Thank you very much.
This concludes today's conference call. Thank you for participating you may now disconnect.
The conference will begin shortly to raise your hand during Q&A you can dial star one one.
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Yeah.