Q2 2023 Paycor HCM Inc Earnings Call

Hello, and welcome to the pay court second quarter 20 twenty-three earnings fall if anyone should require operator assistance. Please press star is zero on your telephone keypad.

Question and answer session will follow the formal presentation. As a reminder, this conference is being recorded it's not my pleasure external call over to V. P of Investor Relations Rachel White Rachel. Please go ahead.

Good afternoon, and welcome to pay for its earnings call for the second quarter of fiscal year 2023, which ended on December 31st on the call with me today are also aren't junior <unk>, Chief Executive Officer, and Adam Anti <unk>, Chief Financial Officer, our financial results can be found in our press release issue today, which is available on the Investor Relations section of.

[noise] website today's call is being recorded in a replay will be available on our website. Following the conclusion of the call.

Statements made in this call include forward looking statements relieved to our <unk> products customer demand operations in fact of COVID-19 on our business and other matters. These statements are subject to risks uncertainties. Some 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.

[noise] upon us representing her views as of any subsequent dates. We also will refer to certain non-cash financial measures and cheapest Miss matrix to provide additional information to investors definitions of noncombat shirts, and keep as nice as my tracks and a reconciliation of non-cash to get my shirt is provided in our press release on our website with that I'll turn the call over to roll.

Thank you Rachel and thank you all for joining us to discuss pay cause physical second quarter results Hey.

Hey course, modern open platform with differentiated tools for leaders in industries continues to resonate with clients and went in the market.

Revenue grew 29 per cent this quarter driven by record bookings and the ongoing pepam expansion.

Adjusted operating income margin increased by over 300 basis point you over here.

And we believe there are significant opportunities to drive further expansion as we scale.

Based on these robust results and are optimistic outlook for the remainder of the year, where once again, raising our guidance, which Adam will discuss in more detail.

Our go to market motion continues to deliver excellent results as we strategically expand sales coverage in tier one markets leverage influential broker relationships and continue to grow our average deal size.

We are ahead of schedule it fails hiring and already the low end of our 20 plus percent sell her head count growth target for the year.

We like our sales staffing level and will continue to evaluate additional hiring in the second half.

We offer the only modern cloud platform.

Powering frontline leaders to be more effective by providing the insights and tools required to source attract develop and retain their employees.

This quarter, we introduced the core leadership dashboard.

Provides actionable information to help transform managers into effective frontline leaders.

The core leadership dashboard surfaces real time employee insight and evaluate the leadership effects of this by gathering feedback on how well the coach optimize and engaged their team.

Arms are these insights companies won't understand liter effectiveness and being able to tailor ongoing leadership development.

Given the continued tightness in the labor market, our clients top priority remains finding and retaining talent.

This quarter, we close there's plenty acquisition.

And began beta testing pay course smart sourcing.

It's leverages, the AI to simplify and streamline the sourcing efforts.

Front line leaders to find skilled and diverse talent.

Interest among our client base has been robust and early feedback is extremely positive.

With the addition of pay of course smart sourcing our full suite of solutions is $44 tap on and it's the most comprehensive 18 offering available in the S. M B market.

Our platforms modern architecture enables rapid integration of point solutions, such as tall, any app that provide deeper functionality than traditional sweet providers.

Nearly 90 different public a P I N points available to power integrations Peco.

<unk> offers the most modern interoperability solution with a broad array of partners for our clients.

We are incredibly proud pay car was distinguished as a top workplace USA by enter gauge for the third year in a row.

And her Gage as top workplaces program has a 15 year history of surveying over 20 million employees tell build in brand top workplaces.

Well results are based on 15 cultural drivers that are proven to predict high performance against industry benchmarks.

This award underscores our commitment to exemplify the cultural best practices that impact of social engagement and business performance.

Let me close by reiterating how confident we are about pay cause outlook the.

The labor market remains tight as non-farm payrolls continue to increase.

Job openings are elevated levels.

And workforce participation remains low.

Modest changes in unemployment our job openings are unlikely to materially impact our business as most of our revenue growth is derived from new business in the market is still in the early stages of adopting modern cloud based ATM solutions.

Furthermore, H T. M is highly defensible as our value proposition is mission critical to attracting paying and retaining great talent, while also driving a compelling return on investment for our clients.

Lastly, I would like to thank all pay core associates for their efforts through this calendar year, and especially our implementation support and success teams who.

During our busiest time of year provided an amazing your inexperience for our clients.

With that I'll turn the call over to Adam to discuss our financial results and guidance.

Thanks for all I'll discuss our second quarter results venture our outlook for the third quarter in fiscal year. As a reminder, my comments related to financial measures are on a non-GAAP basis.

We had another strong quarter, delivering total revenues of $133 million up 29% year over year, a recurring revenue growth of 22 per cent, marking the fifth consecutive quarter of 20 plus percent revenue growth, we exceeded the top end of our revenue guidance by 4% and significantly outperformed hour adjusted operating income guidance as we can see.

You to scale the business.

The majority of revenue growth continues to be from new business wins, 90% of our revenue is derived from companies with between 10 to 2500 employees, where we continue to see outside growth.

Effective pepam increased 11% year over year, which includes cross sale as well as pricing initiatives such as the conversion more clients to our latest product bundles and it also includes the impact of higher wonder adoption at the point of sale.

In addition, we're pleased with the progress we're seeing across our partner program as we continue to expand our interoperability platform.

The number of employees on our platform increased to more than $2.3 million up 9% over the prior year and we exceeded 30000 customers. Our average customer size increase the 70 employees at the end of Q2 up from 74 in the prior year as we continue to focus our resources in the mid market with clients above 100 employees.

However, on a sequential basis organic customer growth has been essentially flat following strong growth earlier in calendar 2022.

We shipped our portfolio up market, we continue to see moderation, an employee growth and the micro segment, while the number of employees in the mid market and enterprise segments increased 11% year over year and net retention continues to trend favorably.

Oh, just a gross profit margin, excluding depreciation and amortization improved to 77.9% an increase of about a point and a half year over year as we continue to scale the business.

Sales and marketing expense was $42 million or 32% of revenue comparable to levels a year ago. We continued to strategically expand our sales teams and marketing programs, primarily in tier one markets, we'd like the current level of spend and continue to evaluate investments to ensure that they will deliver an attractive return, but we have the flexibility to quickly pivot if we were.

To see a change in the demand environment.

On a gross basis, we invested $23 million and R&D or 15% of revenue a similar level of last year and in line with our long term targets. We continue to focus on efficiently enhancing our modern platform to deliver on our leaders strategy, whether it's through organic development partnerships or acquisitions.

G&A expense was $19 million or 14.5% of revenue down a point and a half from 16% in the second quarter of 2022, we intend to progressively drive G&A down as a percentage of revenue as we scale the business.

What we can do to focus on building a sustainable 20 plus per cent revenue engine. We're also steadily expanding margins as we scale. The business. This quarter adjusted operating income increased to $18 million or 13% profit margin of more than 300 basis points from the 10% last year, even while continuing to expand investments in sales and marketing.

And R&D.

Shifting to the balance sheet and cash flow this quarter free cash flow was a 3 million dollar spend compared to a negative $7 million last year, we remain on track to deliver on our plan to be free cash flow positive for the full fiscal year, we closed the quarter it was $72 million in cash and no debt.

Turning to climb funds this quarter, we generated just under $8 million of interest income on average client funds of about $1 billion and effective rate of just over 300 basis points.

In terms of our outlook for the second half of the fiscal year, we remain optimistic on the HCM demand environment or guidance assumes no material change in the broader demand environment or labor market, which has been fairly consistent and flat organic employee growth among existing customers for the balance of the year.

For the third quarter, we expect total revenues of between 155 and $157 million or 28 per cent growth at the high end of the range and adjusted operating income of between 35 and $36 million.

For the full year, we expect revenues of $539 million to $545 million or 27% growth at the top end of the range and.

And we anticipate adjusted operating income of $75 million to $78 million.

With respect to interest income, we expect our effective right to increase marginally in the third quarter to about 330 basis points at today's rate. We expect interest income will be in the range of $28 million to $30 million for the full year on average client fund balances of just over $1 billion we.

We still plan to reinvest a portion of interest income as we've discussed this year to accelerate our product roadmap and expand our marketing programs and invest in infrastructure. However, we will look to drop any incremental interest income beyond that to the bottom line, which will increase our full year outlook on margin and cash flow.

Overall, we're pleased with our strong quarterly performance and ability to raise guidance again, we've driven increased profitability three consecutive quarters are differentiated platform focused on leaders continues to win in the market as a mission critical application. We believe in the durability of the category and our opportunity to continue capturing share with the expanding.

<unk> 32 billion dollar HCM market.

That will open the call for questions operator.

Thank you will now be conducting a question and answer session if you'd like to be placed in the question queue. Please press star one at this time a confirmation total will indicate your lines and the question queue. If your direction move your question from the queue. Please press star two one moment. Please while we pull for questions. Her first question today is coming up.

From Gabriella Bush's from Goldman Sachs. Your line is now alive.

Hi, Good afternoon. Thank you really you mentioned the ways in which the business continues to perform in this environment. So I figured I would ask the question directly are you seeing any negative impacts are offsets because of the macro.

You know today, we haven't seen any changes in our overall demand environment things have been fairly consistent and they've been fairly consistent across all of our sales segments.

So to this day.

We've seen strong demand.

<unk> gave her a little but one thing I would say is that we've we've just seen a little bit more softness and that organic customer growth and that sort of micro segment really small segment under 20 employees.

Besides that there's there's really nothing else that we're seeing.

Excellent the follow up that I have is on higher thing came out normalized cross I know that very consistently now you've been dying north of 20 per cent recurring revenue even on more difficult Hum. So how do you think about essentially getting to twenty-five percent. How do you think of that potentially accelerating a hiring further.

That puts and takes that could potentially put you back down to 15% that are out of your control. So just a little bit more on how you think about minimum is crap.

Yeah, I mean, the way that we think about it is that it's about the broader demand environment, our ability to grow the sales organization at pace and do as well so that we continue to drive the profitability in the overall return out of that investment across a sales channel and you know we feel like there's sort of a natural limit in terms of that 2025.

Per cent headcount growth, which is what we've been targeting for the last couple years and and so you know as we think about our ability to grow faster than that we just haven't seen.

We've seen that operationally, it's just a little bit more complex or there becomes a point of diminishing returns and and I think that there's so in that 20 per cent plus range for US right now is where we feel comfortable in terms of building that sustainable sales you know engine to drive that growth and then the opportunity will be to continue to expand that sales.

<unk> organization in the efficiency of that span the even further so you know.

The way that we talked about a couple of years ago and over the last two years now has really been about being consistent and the sales execution developing this engine in this flywheel that can continue to grow and so it's just about continued execution over the next couple of quarters to stay about 20 per cent I think yeah. The other dynamic Gabriel is is that we will continue to add pepper.

Along the way. So you know, we really think about it as two key components to drive consistent sustainable longterm growth is our ability to continue the advil head count and our ability to continue to expand our pet and our average heals us and so you know we we feel confident we've made great progress moving into you know the 20 plus per cent.

[noise] range, and we're going to continue to execute and focus and obviously we want to continue.

Improve our performance over time.

And I'll make some thank you.

Thank you.

Thank you next question today is coming from some art Samara from Jeffries. Your line is not alive.

Hi, good evening, Thanks for taking my questions. So my first <unk> if for Adamawa, either one did you see effective pepam grow out of 11% year over year really strong.

I know you mentioned a few factors Adam such as higher by no adoption that could cost up but I'm curious if you could maybe help us think about in the quarter, which of those factors had the greatest contribution and if that's any change from what you've seen in the last few quarters.

Yeah. He's months, Yeah, I mean, what we see is it that it's really the combination of three key things like we mentioned right. The the the conversion and that subscription bundle, we see higher adoption of the point of sale, we see pricing initiatives as well that that go into that and and I would say, it's sort of a combination of all three each quarter. It fluctuates a little bit depending on the initiative that's going in.

But broadly and over the last couple of quarters, it's been fairly consistent close to a third across each of those items. So there's not one item that necessarily sticks out one of the other we it's been pretty consistent and and we've seen you know really good execution across those three dynamics.

Great and may be wrong, well for you. It sounds like hiring is F. For sales is on track to where you're expecting maybe could you touch on and that and just sales productivity has that metric trending, especially as you as you onboard more and more at a at a large scale.

Yeah. So hiring has been really strong retention spend excellent which is really helped us to get into a really solid asking perspective and productivity.

<unk> you know as we would expect our our new people produce.

A lower rate and they they slightly dragged down the overall productivity based on the outside is hiring but.

But by and large our tears are operating you know as well you would think from a tenure perspective, our first year bucket are checking your bucket and then beyond two years. So we feel really good that you know the flywheels working were Onboarding people successfully and you know we're we're focused on execution.

Great Super helpful. A great just to get the results.

Thank you thanks.

Alright. The next question is from your from Barbershop from Deutsche Bank Goodbye was their life.

Hi, everyone. It's Nicotra bobbing. This evening, thanks for taking the question and congrats on the strong quarter looking back on new sales in the quarter was there any changing composition of those deals say any of their size industries or module spot and yeah start there.

Yeah. Thanks, Nick.

I I would say again, we we had consistent results across all segments I would say that we saw you know stronger results you know above 500 employees than traditional so the products really shifting and we're seeing a lot of traction up market, which is you know.

Newer for us than maybe others and you know that's the primary dynamic that we saw this corner I mean, essentially you know all of our segments are operating.

<unk> has designed and we saw a little more take and that 500 space from a module perspective, you know talent continues to fly off the shelf and you know, we're seeing high attach rates and we actually charged for it. So it's it's been a great opportunity.

For us and we're really excited about it it's differentiated and it's winning in the market.

Great and then it just with the success of some of the sports partnerships that you've had or are you thinking about your marketing investments going forward.

Yeah from from a marketing perspective, you know obviously so the the sports partnerships has provided some great air cover we're getting significant awareness and it's it's really been a positive for pay corps as a whole and helping us as we expand nationwide.

Nationwide I would say you know we're continued to focus on you know all facets other marketing engine and really looking to continue to help you know streamline entry into all these new markets and so we're really focus on connected T V and driving add through that we're focused on.

Continuing to increase.

No our traffic online and so I think all of those things are helping drive carpal tunnel awareness, we're seeing record impressions record traffic to pay core dot com and record lead. So we feel really good that the actions that we've taken in the marketing team has done an amazing job driving brand.

In these big relationships and making sure that we're maximizing aarau RLI on them.

Great. Thank you.

Thank you next question is coming from Terry Tillman from Truest. Your line is not alive.

Hey, good afternoon row Ottoman Rachel Thanks for taking my question I guess the first question is just <unk> I think you said in your prepared remarks that it was a record bookings is that for two Q or is that for any quarter.

It was a record for <unk>.

Okay. Thanks.

And I was curious about.

Tier one markets any specific call outs, whether it's kind of TFC markets, Texas, Florida, or California, or any other tier one markets that kind of stand out in terms of kind of where you are versus what your expectation was and I'm I'm curious in those markets since you've had some time now.

What a win writes a new seller productivity like in those tier one markets versus your <unk> sweet spot.

Yeah. So we've seen you know significant growth over 100 per cent growth in L. A San Francisco, South, Florida, and the D. C marketplace. So those four or stand out for us and you know as a whole are when rates.

For our new sellers are on par with the wind and rain for our overall sales organization. So the sales operation seems doing a fantastic job of getting people up to speed on our value proposition.

And enabling them with the tools required to be successful out of the gate. So that that's a real positive component for us.

Thanks.

Thank you Sir.

The next question today is coming from Brian Bergen from Cowan. Your line is now alive.

Alright, it's actually Jarrett I'm surprised tonight in terms of year to date net revenue or ketchup performance, how does that compare year over year in terms of your FY twenty-three guy does that embedded change relative to F y 22.

Well, so they've ever attention has been performing well I would say, it's been fairly consistent quarter over quarter. It's been it's been trending well and yeah Q1 of last year, while while any one quarter isn't necessarily a good match metric here I'll never attention.

Q1 of 22 actually was rather low for us as we were going in and sort of coming growing over some of the COVID-19 challenges. So on a year to date basis, it's technically up but it's been really consistent over the lies you know call. It five quarters now so we we feel good about the never attention and and of course, our expectations around that are included in our guide.

Okay, Great and then in terms of the calendar. Once you form filings are you expecting a year over your tailwind relate to those form filing activity in anything different there than to compare this year either quote on quote on your and your basis to be mindful in terms of that outlook.

Yeah, I mean, I'd say that it it's looking like it's going to be fairly consistent with where it was last year. We were we were wondering if we were gonna see a little bit of an acceleration, but it's been really consistent with where I would sort of expect it to be from pre COVID-19 levels. So it looks like it's normalized well and I and I think there's <unk> driven you know more more dynamic.

Weekly by overall employee retention right before our customers our customers employees retention, which has been maybe a little bit more consistent this year and back in line with pre COVID-19 level. So nothing I don't think that we would expect anything to look different as it has you know materially from any from any of the prior sort of pre COVID-19 years.

Great. Thank you.

Okay sure.

Thank you next question is coming from Scott Berg from Reading the company line is ally Mmm.

Alright, what address in the next quarter and thanks for taking my questions I guess I have a couple first of all.

Payroll and H T M. In general Yeah at least demand for these solutions kind of on all customer say good level, it seems to be holding up extremely well today and much better than.

There are software segment, so I think that most of us on this call cover.

As you look at the.

Kind of what's going on under the covers any idea why in particular today is just you know just great H T M environment versus others that are seen that softness.

Yeah, I think a couple of things one is.

Some of your other software.

Compensate you cover we're not Atlanta and expand so there's not.

Not any requirement or expectation that you're going to add more seats so to speak.

One secondly.

The category as a whole has changed over the last decade, and it's really added some really powerful modules around recruiting around attracting around retaining employees and so in this hyper tight labor market I think that's.

Been a big driver of accelerated demand secondly, you know cloud solutions, an ATM kind of lag behind the adoption rate of some other you know solutions that you would cover and so we didn't have this explosive demand out of the gate and I think COVID-19.

Really helped open up the eye to the people that buy our solution that you know a T. M. In the cloud is something that can be helpful to their organization. So I think the combination of the the the cloud acceptance in our category. The additional modules that we're adding that are that are.

Helping other facets of the organization outside of traditional finance or traditional H R have really made the solutions more powerful and more attractive and you know again you know the three modern players and our space combined have you know somewhere between eight and 12% sure. So that there's a real.

Big Pie of legacy solutions still available for us to continue to convert overdue a more modern solution and I think that's why you're seeing really strong demand you know across the board.

Got it helpful. And then from a follow up perspective, you mentioned your sales hiring is is on track and you've already achieved the low end of your outrage as you look at the placement of those individuals. This year I know tier one cities had been the focus but these hires are you looking at you I'm putting them in and.

Maybe different geographic locations or customer segments, and what you are six or nine months ago, just see that there's any slight change to your strategy relative to the current demand transfer Sir.

No I mean, we're still really focused on you know the majority of the people are hiring are <unk>.

Focus on what we would call 50 to a thousand segment <unk> 2500.

And yeah, we have package, where we have wrapped center focused on 250 employees and above.

But you know ultimately you know we're still in the early innings of coverage.

And the fact that you know we're still you know while we cover the entire market. You know, we we have opportunities to continue to add you know, we we have opportunities to nearly double our current sales organization in order to secure what we would consider optimal coverage. So we have a long runway to go if we want to add her.

<unk>, we can continue to do that and we'll look at different designs Scott whether it's you know 50 to 250 or 50 to 2500 or 250.

2500, there's a lot of different ways and market to look at it and yeah, you don't Wanna be robotic in your approach to the market. So we'll we'll we'll look at all different options and our objective is to maximize or L. T V. The cat.

[noise] great. Congrats again, that's all the questions I think.

Thanks, Yeah.

Thank you next question is coming from Brian Peterson for Raymond James and your line is in our lives.

Hey, Thanks for taking my question is just one for me, it's actually a bit of a follow up to Scott's question, but there's a lotta metrics that you have given in terms of pepper and it grows in bookings and everything else but.

To understand how the pipeline looks if you look at those embedded opportunities in the pipeline like what are you seeing in terms of the pet boom in the module adoption I, just kind of love to understand what you're seeing in terms of the opportunities that we should be expecting <unk>. Thanks, guys.

Yeah, Hey, Brian Yeah, I mean, when we look at the pipeline I'm not sure that it looks any different than what we've seen historically and I think that's the big thing of course is every everybody bars payroll everybody gets the sort of H T. M core platform. That's tables, six now and part of that that bundle adoption at the point of sale that we talk whether we've been talking about and.

And then we continued to expand our talent Sweet now with the addition pick where smart sourcing and that's only acquisition is going to continue to expand that sounds solution and we're already seeing uhm interest and really strong demand around that solution really early days. So I think that's where we're seeing you know we're seeing a lot of growth, we're seeing a lotta girls in the portfolio come from town.

<unk>, we continue to see our enterprise segment, and a <unk> and a larger end of our customer segment looking for more talent solutions, which continue to drive you know that a D. S up and continue to drive pep them up it where where the payroll historically has been you know a lower part of that right. So I think that's what we see the same thing inside of our our.

Or pipeline excuse me is that that continues to grow with more and more customers looking for <unk> solutions.

Great. Thanks.

Thanks, a lot.

The next question is coming from Patrick Walgreens from JMP Securities. Your line is now alive.

Hi, everyone. Thanks for taking the question. This is xoanon for Pat and congrats on the strong quarter. So I was interested in the <unk> interest income line and I guess, what was the what the mix was of <unk>.

Investment back into the business versus straight to the bottom line previous to all these interest rate hikes.

Yeah. So when we were going into the year. We were you know we were expecting something and that sort of 12 million dollar range 12 to grow into twenty-four and we were targeting about half to looking to spend about half of that at that 20 to 24 million dollar range and I think that you know there there comes a limit where we just simply can't consume more we don't like what the returns look like for that incremental.

<unk>. So you know we've been targeting about half, meaning that we would be maybe in that 10 to 12 million dollar range on a full year of investment of reinvestment of those interest income funds and I think that's probably where we're gonna end. So as we look at the increase to 30. In this case you know, we're we're not necessarily looking to and we will look for opportunities to invest it.

But I I don't think that we're going to see the the opportunities that were looking for and so that will sort of naturally fall down.

Awesome does it for me thank you.

Thank you thank God.

Thank you next question today is coming from Andrew Warren from D. David send your lines download.

Hey, guys. Thank you I was just curious how a cross sells doing with additional modules to existing customers. If you had a shake success. There and then kind of along with that you guys were seeing any success in getting price increases through.

Yeah, and the cross selling side, we continue to have.

Strong success with our clientele team showing additional modules into the base, obviously, they're really focused on.

<unk> as a primary driver and so uhm, we've seen strong growth there and we're going to continue to grow that team thoughtfully over time and the team continues to play a big contribution to our overall growth and we're excited about you know.

Where we are with them as far as the pricing goes out I'll, let Adam walk you through that yeah. We tried to be really intend to throw about those price increases and make sure. They followed the value that we continue to deliberate for customers around either additional functionality. Your features and service and so you know we've invested a lot in incremental product, we've released a lot of product and developed a.

A lot of great features that we've released to our customers as well as invested pretty heavily in our service and support organizations and so we've been able to see pretty good take on those incremental price increases that we've been able to you know put into the portfolio and and of course, we're really intentional with it.

We don't want to you know be jumping out constantly with him so.

Usually takes a couple of years before calling comes in before we look at price increases and since the portfolios growing quite nicely with a lot of new customers over the last couple of years, we've been able to you know revisit those prices pretty regularly.

That's awesome thanks, guys.

Thank you.

Thank you next question is coming from Steve vendors from City. Your line is not alive.

Alright, great. Thanks for thanks for taking the question here like I said I'm Gonna ask a little bit on the vertical ization strategy and how that's been been resonating in the corner or anything to call out that's all particularly kind of scrap booking the instruction here.

Yeah. So from Ah bookings Protectively, you should think about it is slightly over 50 per cent of our mix is coming from the 14th industry. You know for a little flavor I would I would say you know we had really strong results in professional services and food and beverages accommodations as.

Quarter, and I would say health care, you know kind of with a little lagging behind this quarter.

Obviously growing over tougher comps from the previous years, but but that's how I would think about an industry, where we're really excited about the progress. We've made we continue to invest into.

Into product differentiation and tools for implementation for our clients. So we can easily customize you know.

The tool for them for their specific industry.

Okay Gotcha. That's that's that's helpful and I guess just a housekeeping question just on the the 20th acquisition against what was kind of the impact in the quarter you know from it from a red contribution and what kind of embedded in and the outlook they're going forward.

Yeah, It's it's really immaterial to the the P&L. So we see you know, it's like well less than 1% of our overall revenue for the year, well well less than that so it's really more about the fantastic technology and getting that into our platform and how we're going to be able to take that to market through our broader sweet, but there's there's almost no impact our financials.

Okay perfect that's helpful.

Thanks <unk>.

Thank goodness question today is coming from Powell River from JMP. Your line is now alive.

Oh, great. Thank you and congratulations Pat for Pat This time it was a follow up call my attention when you real dark.

At three metro areas that were doing particularly well I think L. A was one of them like taking a as an example, like what would make what would make L. A a place where where you see particular success, what what are some of the characteristics that would drive that.

Yeah, I mean, I think it's overall business density obviously critical the fact that we have continued to grow our sales team there and it. This is we're entering the third year. So we're starting to see that tenure build up in the marketplace and when you add a really large stance marketplace.

Yeah, that's been saturated at our legacy solutions that are just looking for something modern you know as we've entered there we've seen a lot of shots success.

And you said this was year three.

Yeah, we we really started and 21 and and this will be our third fiscal year July yeah, what about two and a half years in.

Yeah, So I mean, what I'm getting at here is or the longevity of this of this growth trajectory you're on right. So how many how many L. A type or big Metro areas are there out there where you feel like you guys are just getting started.

Yeah, I mean, so if you think about it there's we really managed to 50 metro markets and we've recommended tier one tier two and tier three and I would say tier one which is the 15 largest or which includes L. A and San Francisco and Miami I would say we're in the early and <unk> were about a third of the way there.

And you know when you think about two two markets, which are you know the next 15 biggest cities in America. You know we have again, you know you know tons of opportunity to continue to expand or slightly more covered there and so for us. It's a long runway of continuing that head count but also seen.

That head cow mature through the tenure cohort and continuing to drive productivity.

Awesome. Thanks, a lot thanks.

Thanks, a lot that.

Thank you. The next question today is coming from Mark Murphy from J P. Morgan Your line is now alive.

Oh, Thank you very much and I'll add my congrats I was wondering first off if you can speak to the trend you're seeing with your own real time pay solution. I believe that one is third party solution called pay active anything just in terms of what percentage of peas in your system or using it or.

How much revenue is floating around between pay corps and the third party provider there.

Yeah, Hey, Mark you know, while we see good good adoption or sort of continuing growth in the adoption. It's still just overall I mean, the materiality is it I mean, it's a material in terms of its impact on the revenue. So I think that we're expecting that this build is going to take years to get it to a point where the card economics.

Are really enabling any sort of real revenue impact you know when we see clients adopted you usually see a couple of employees and accompany using the card and then it takes some time for them to really start to get into you know actually using it somewhere that drives card economics, what we see most of the time is that clients are or employ.

These are downloading it to their own pay card or their taken the cash out right away versus using it on the card and so the economics is sort of a career a little bit differently. So with that in mind I mean, I just think that it's gonna be a long runway two revenue there I think the benefit is more in terms of it's a benefit to the <unk> to the to our customers to be able to enable for.

Their employees and so the customers feel good about it there is not are huge costs to their employees and so it's a benefit that they can provide their employees. They're really just continues to give its becomes tables takes almost you know because we put it into that the core offering and a lot of the competitors do too, but I don't expect it to be you know materials of revenue for the fourth.

Future.

Okay, Adam if I understand the way you're describing that there. There is some some interesting percentage of pays that are kind of taking their cash out more often than the the the twice a month basis. I mean is that a fair way to think about it read whether they're taken cash out right away versus using it on the card.

Yeah, Yeah, absolutely I mean, there's definitely people using it for sure.

<unk>, it's a benefit to to associates for sure Yeah, Okay, and then <unk> regarding the focus that you've had for a long time now on the leaders within an organization I'm interested in whether that is resonating perhaps in some new and different ways, but just because this unique.

Type of environment that we have where unemployment I think is that a 50 year low wage inflation is so high I mean companies must have a sort of a heightened interest and how they're leading how they're managing you know how they're retaining the workforce is is that something that is a kind of tangibly different for.

Are you in this environment.

Clearly you know talent is one of the biggest reasons why we win win waited when race is so strong and we continue to invest in opportunities whether it was.

<unk> goal setting or you know most risa with smart source can help leaders find and source new employees faster.

You know recently with our Corps leadership Dash four you know it really helps leaders understand where they are you know how their employees reviewing them from a coaching perspective from an optimization effectively making them better and then are they engage in or are they gonna stay longer and.

It really provides people real time feedback from their associates in order to be a better leader and so you know obviously, we believe that leisure you know drive associate engagement associate engagement tries overall productivity for our clients and if if we can continue.

To help deliver that for our clients, they're going to be more successful and so people are I'll definitely resonating to the message and so we're excited about where we are and we're gonna continue to add more differentiated tools forefront line leaders.

To help them be more effective.

Excellent. Thank you very much.

Thanks for that.

The next question is coming from <unk> from Bird your lines Isabella.

Good afternoon, Rolling Adam Congratulations wondering.

I'm wondering if you could talk a little bit more about the strong success that you were having with the with the employers that have more than 500 employees is there any difference in terms of the seal strategy in terms of how you've targeted people what what is really standing out that's that's helping you and the and the up.

<unk> of your market.

Yeah, I think it's a combination of things obviously, you know as we put more focus and those prospects and you know from a sales perspective, you know, we're gonna get more at bat.

You know the the product itself.

You know over the last few years has significantly.

Added feature functionality will work differentiated from our peers and we believe we have the most robust solution an a T M.

<unk> and our Pepam would demonstrate that so you know ultimately I think it's the feature functionality the ease of use as a platform in a robust talent tools that are driving success in that in that 500 plus market. So far.

That's great.

You you did talk a little bit about you know you're a recruiting capabilities in pre core smart sourcing can you talk a little bit about you know to what extent, that's helping you know, particularly with a tight labor market and and what you view you know from a longer term perspective.

No. The the implications of gender of a you know like <unk> G. P T.

<unk> you know it was leaping forward in terms of both in terms of how your service to your clients. But also you know additional features and functions that you could provide.

Yeah, I mean people are smart so we're seeing.

Is amazing technology.

Amazing addition to our portfolio.

And you know we've we've already have clients in beta.

And you know we've already sold you know over 100 clients you know on particular smart sourcing in.

Less than 45 days and so we're excited.

About the prospects people see the value, it's a time fever and it essentially instead of asking a frontline leader to kind of view through hundreds of linked in profiles are resume stack from their death, Yeah. We do that work for them through AI and provide them a list that they should start with.

<unk> and so yeah, it's a home run and we're really excited about it and and we're gonna continue this <unk>.

See more adoption on our next fall, we're gonna be really excited to share the results I'm really confident about that I think you know hey, I in general there there is tremendous opportunity across the entire H R platform to leverage the data that we have to provide insights to our customers. So that's one of our product teams.

Continuing to evaluate in Oregon, and obviously the team that we acquired with <unk> are experts at this and we will help us think through our long term strategic planning about how to leverage AI across the other modules of our platform internally, obviously, there's plenty of opportunities to use that.

Kind of functionality to improve the user experience whether it be through you know essentially we we already have chats with with a person and now you can have you know chat without a person and so you know it's it's not a be all end all solution by any means but I think it's <unk>.

A future employee user experience that will help separate <unk> from from the rest.

Perfect. Thank you.

Thank you.

The next question is coming from Jackson <unk> from <unk> <unk>.

Hi, guys. This is Kyle deal on for Jackson, just a quick one I think Adam you had mentioned that there is no material change and Labour day, <unk> or demand environment factored into your guidance, but in terms of the 30 million dollar float after the 40 or does that take into account any future you know <unk>.

Hikes or is that kind of just where we are today.

Yeah, it's based entirely on where the right environment is today. So yeah any increase in rates going forward would would you know I mean, there's additional upset.

Got it okay. Thank you.

Thank you. Thank you.

Thank you we reset of our question and answer session about to turn the floor back over to management pretty further closing comments.

Thank you again for joining US Tonight, we're encouraged by the momentum and the pay for business and remain laser focused on executing our strategy. We look forward to connecting with many of you over the next few weeks and we wish you all a great evening Goodnight.

Thank you that does conclude today's teleconference and webcast may disconnect. Your lines at this time and have a wonderful day. We thank you for your participation today.