Q4 2022 Paycom Software Inc Earnings Call
[music].
Good afternoon.
And thank you for attending today's pay Com software fourth quarter and full year 2022 results Conference call. My name is Danielle and I will be your moderator for today's call.
All lines will be muted during the presentation portion of the call with an opportunity for questions and answers at the end.
If you would like to ask a question. Please press star followed by one on your telephone keypad. It is now my pleasure to hand, the conference over to our host James Samford head of Investor Relations James the floor is yours.
Okay.
Thank you and welcome to <unk> earnings Conference call for the fourth quarter and full year 2022.
Certain statements made on this call that are not historical facts, including those related to our future plans objectives and expected performance are forward looking statements within the meaning of the private Securities Litigation Reform Act of 1095.
These forward looking statements represent our outlet only as of the date of this conference call.
While we believe any forward looking statements made on this call are reasonable actual results may differ materially because the statements are based on our current expectations and subject to risks and uncertainties.
These risks and uncertainties are discussed in our filings with the SEC, including our most recent annual report on Form 10-K.
You should refer to and consider these factors when relying on such forward looking information any forward looking statements made speaks only as of the date on which it is made and we do not undertake and expressly disclaim any obligation to update or alter our forward looking statements, whether as a result of new information future events or otherwise except as required by.
The applicable law.
Also during today's call, we will refer to certain non-GAAP financial measures, including adjusted EBITDA non-GAAP net income adjusted gross profit adjusted gross margin and certain adjusted expenses.
We use these non-GAAP financial measures to review and assess our performance and for planning purposes.
A reconciliation schedule showing GAAP versus non-GAAP results is included in the press release that we issued after the close of the market today.
And is available on our website at investors <unk> Com Dot com.
Now I'll turn the call over to Chad Richison becomes president and Chief Executive Officer, Chad. Thanks, James and thank you to everyone. Joining our call. Today. We ended 2022 with very strong results and I'd like to thank all of our employees for their consistent hard work and execution that drove four consecutive quarters of revenue growth of 30% or more.
Sure over their respective prior year periods.
I'll spend a few minutes on the highlights of our fourth quarter and our full year 2022 results and high level expectations for 2023, following that Greg will review, our financials and our guidance and then we will take questions. Our 2022 fourth quarter revenue of approximately 371 million came in very strong.
<unk> up 30% year over year, bringing our full year 2022 revenue to 1.375 billion also up 30% year over year.
Fourth quarter adjusted EBITDA also came in very strong at $164 million, representing an adjusted EBITDA margin of 44%, bringing our full year 2022, adjusted EBITDA to $580 million, representing an adjusted EBITDA margin of 42%.
The sum of our 2022 revenue growth rate and adjusted EBITDA margin resulted and is hitting the rule of 72.
With our full year 2023 guidance, we are once again, starting the year strong with outlook for a solid ROE of 65 as a reminder, we guide to what we can see based on our existing recurring revenue new business sales and anticipated new starts in the near term I'm pleased with the momentum we are carrying.
Into the new year.
On the product front 2022 was a very strong year for <unk> com benefiting from our first full year of rolling out Betty are differentiated employee self service payroll solution.
We're seeing strong demand trends that position us to deliver another year of rapid profitable growth in 2023.
We are leading in the industry transformation by making payroll and HCM processes more efficient for both employees and businesses by eliminating manual tasks, improving accuracy and reducing liability exposure caused when payroll and HCM is done and accurately with Betty employees. They are doing their own payroll by interface.
<unk> directly with their data and our self service easy to use software. A recent study conducted by Ernst and young found that the average organization has a 20% and accuracy rate when it comes to payrolls, which resulted in lost revenue hours wasted correcting errors and increased exposure to <unk>.
Okay, perfect payroll and employees are empowered to identify and correct errors ahead of time, so that everybody wins, our marketing plan in 2022 continued to perform well delivering strong demo leads throughout the years, we spin aggressively on advertising at the same time or deliberate investments and marketing are delivering high margin.
Revenues and we saw him proving operating leverage in the sales and marketing throughout 2022.
We continued to be pulled up market in 2022 with the fastest growing revenue segment of our business coming from clients with greater than 2000 employees. We are seeing increasing demand from larger organizations that are recognizing opportunity to simplify their HCM needs and pay com is well positioned to benefit from this trip.
And with only approximately 5% of the Tan today, there's still plenty of runway ahead for us to expand our market share.
Pay com received national recognition from several organizations in 2022 as a work place. We were named one of America's most trusted companies as well as best company for women and we received a top workplace in Oklahoma Award for a 10th consecutive year. These awards are a testament to our heart.
Work are thriving corporate culture, and our client focus as of December 31, 2022, our head count stood at over 6300 employees up 18% year over year as we continue to have great success, attracting and retaining high quality talent to further bolster our future growth.
Additionally, I want to congratulate the 2022 pay Com, Jim Thorpe Award winner Trivia Hodges Tomlinson from Texas Christian University.
This award recognizes the most outstanding defensive back in college football and memorialize as Jim Thorpe, who is one of the greatest all around the athletes in history, Jim Thorpe also happened to be in Oklahoma to <unk>.
Some up our focus on the employee experience and client Roy continued to fuel our strong results. We are executing well I'm very excited about the long list of new innovative opportunities, we will be pursuing in 2023 and beyond I'd like to thank our employees for helping to make 2022, such a strong year and we are setup.
Another great year in 2023 with that I'll turn the call over to Craig for review of our financials and guidance Craig.
Before a review our fourth quarter and full year results for 2022, and our outlook for the first quarter and full year 2023, I would like to remind everyone that my comments related to certain financial measures will be on a non-GAAP basis.
We ended the year with very strong results with full year 2022 revenue of $1 billion $375 million.
33% compared to 2021 fourth quarter results were excellent with total revenues of $376 million representing growth of 30% over the comparable prior year period or revenue growth was driven by strong demand new business wins and adoption of recent new product offerings.
Within the total revenues recurring revenue was $364 million for the fourth quarter of 2022, representing 98% of total revenues for the quarter and growing 30% from the comparable prior year periods. We ended 2022 with approximately 36600 clients representing a growth rate of April .
<unk> compared to 2021 on a parent company grouping basis, we ended the year with roughly 19100 clients also up 8% compared to 2021.
Total number of employee records increased 14% year over year in 2022 to $6 $5 million <unk>.
He comes annual revenue retention rate in 2022 was 93%, which was consistent with our recent four year average of 93% and up more than 200 basis points from the prior four year period average of 91%.
Total adjusted gross profit for the fourth quarter was $312.5 million, representing an adjusted gross margin of $84, 3% for the full year 2022 are adjusted gross margin was $84 9%.
Justin sales and marketing extends for the fourth quarter of 2022 was $87.3 million or 23.5% of revenues are marketing strategy. In 2022 has been very effective at driving high quality demo leads with the revenue generated from prior period investments, we saw 100 basis point improvement.
And adjusted sales and marketing expense as a percentage of revenues for the year, we plan to continue to invest in marketing in Q1 and throughout 2023.
Adjusted R&D expense was $36 $6 million in the fourth quarter of 2022 or 9.9% of total revenues adjusted total R&D cost, including the capitalized portion for $51.8 million in the fourth quarter of 2022 compared to $44 million in the prior year period.
We have a very strong pipeline of product development opportunities in 2023 that we believe will create tremendous value for our clients and prepay calm.
Adjusted EBITDA was $163 $9 million in the fourth quarter of 2022, or 44.2% of total revenues compared to $109 $6 million in the fourth quarter of 2021 or 38.4% of total revenues for the full year 2022, adjusted EBITDA was 579.
$7 million or $42, 2% of total revenues compared to $419 $3 million or 39.7% of total revenues in 2021, representing over 240 basis points of margin expansion.
Our GAAP net income for the fourth quarter was $80 million or $1.38 per diluted share versus $48.7 million or 84 cents per diluted share in the prior year period based on approximately 58 million shares in both periods for.
For the full year 2022 are GAAP net income was $281 $4 million or $4.84 per diluted share up 44% year over year non.
non-GAAP net income for the fourth quarter of 2022 was $100.2 million or $1.73 per diluted share versus $64 $4 million or $1 11 per diluted share in the prior year period for the full year 2022 are non-GAAP net income was $357.2 million.
$6.14 per diluted share versus $264 million or $4.48 per diluted share in the prior year period up 37% year over year for.
For Q1 in full year 2023, we anticipate are effective income tax rate to be approximately 28% on a gap basis and approximately 26% on a non-GAAP basis.
Meaning to the balance sheet, we ended the year with a very strong balance sheet, including cash and cash equivalents of $401 million in total debt of $29 million. During 2022, we repurchased approximately 365000 shares for a total of nearly $100 million through December 31 2000.
22 pay com has repurchased nearly four 7 million shares since 2016 for a total of nearly $590 million. When we currently have $1.1 billion remaining in our buyback program.
Cash from operations was $365 million in 2022, representing an increase of 14.3%.
The new requirement in 2022 to capitalize instead of expense R&D cost resulted in approximately $27 million in additional income tax payments that would have been deferred under previous law. This impacted both are operating cash flow and free cash flow as compared to 2021 the average.
Daily balance of funds Hell on behalf of clients was approximately $2.1 billion in the fourth quarter of 2022 for 2023, we anticipate stock compensation to be approximately $120 million on the capital expenditure front, where in full construction of our fifth building in Oklahoma City, and we now estimate total <unk>.
<unk> acts as a percent of revenues to be approximately 12% in 2023.
Now, let me turn to guidance.
For fiscal 2023, we expect revenue in the range of $1 billion $700 million to $1 billion $702 million or approximately 24% year over year growth at the mid point of the range. We expect adjusted EBITDA in the range of $700 million to $702 million, representing an adjusted EBITDA margin.
Of approximately 41% at the mid point of the range. Once again, we're starting the year's guidance at the rule of 65.
The first quarter of 2023, we expect total revenues in the range of $443 million to $445 million, representing a growth rate over the comparable prior year period of approximately 26% at the midpoint of the range.
We expect adjusted EBITDA for the first quarter and the range of 210 million to $212 million, representing an adjusted EBITDA margin of approximately 48% at the midpoint of the range.
2022 was a very strong year for pay com, reflecting the strength of prior year investments and consistent execution. We will continue to invest in talent marketing innovation customer service and geographic expansion to meet the strong demands we are experiencing.
With that we will open the line for questions operator.
If you would like to ask a question. Please press star followed by one on your telephone keypad. If for any reason you would like to remove that question. Please press star followed by two again to ask a question. Please press star one.
A reminder, if you're using a speaker phone. Please remember to pick up your handset before asking your question. We would also ask that you limit yourself to one question and one follow up question.
The first question comes from the line of Rain, Oh Lynn show of Barclays. Please proceed.
Two question check can you talk a little bit about what you're seeing out there in terms of and demand obviously the markets I'm nervous kind of data points about SMB coming in that.
They might be weaker on some of the players and the opera <unk> off the stock market. So just talk a little bit of what you're seeing.
Looking at the numbers he'll renewals came in at 90 394, just kind of just paint the picture thoughts and a little bit there and then one for crack if you think about the new year and investments like how do you think balance that kind of thing and our other gaijin nervous about the economy and your investment approach 40 year. This kid.
Talk a little bit about the flexibility too. Thank you.
I'll start off I mean, our go to market remains very strong.
We continue to have very strong book sales and we've been selling Betty across the board at new clients that come in and have about 50% of their employees doing their own payroll within the first two months of using Betty and so that continues to be successful from 2015 to 2018, we had a retention rate of anywhere from 91 to 90.
2% was 91% for three of those years and 92%.
For one of those years for the last four years from 2019 through 2022.
We've had a retention rate of 93% for three of the years and 94% of one of those years now there is often rounding at play.
As you look through that but what I will also say is.
With clients, who have Betty we are are much much higher retention rate across our base and I would expect retention to continue to rise as a larger percent of our current client base deploys Betty.
And then on a plan for a 2023, we have given our guidance on our adjusted EBITDA and.
It's still very.
Strong guide on that as we are looking at 41% so.
As I mentioned in the prepared remarks, we're going to continue to spend on the on the marketing side, the R&D side and then.
In the.
Service side, as well and really the marketing into one area, where we can pull levers you know we don't have any long term commitments out there. So that is an area, where we could pull levers if we needed to.
Thank you. The next question comes from some some Jefferies.
Please proceed.
Okay. Thanks for taking my questions I guess first swine Chubb did I hear you say I think you said you had just north of 6300 employees.
I think that's hi team described over the.
The prior year I'm, just curious how you should think about the the hiring in context, it's slightly slower than it was in 2021 and just curious is it that we're shakes I just productivity you can increase maybe what the accident rate on that ground radar.
How we think about the hiring transfer paycom itself.
Yeah, I mean, we hired what we look to higher last year I think believe our growth was around 18% in hiring.
We definitely have a more efficient client I've been talking about for quite some time, who we kind of have the haves and the have nots. When you look across our client base with those clients that have already deployed Betty and are getting strong usage out of it. We just we're having to do less for them I mean, we're having to fix less things were having to.
New less adjustments and so they are just much more efficient and so we don't need as many people when people are using Betty that said, we had a very healthy growth in our employment last year.
And so I believe we had success with that.
Great and then maybe if I just think about we've almost fully lap the new office expansions by year.
And takes a little bit over a year for them to come fully productive, but just powered those progressing and how should we think about are there any new plan to offices that you're assuming in the in the 2023 got it. Thank you just yet.
We always guide to what we can see I mean first I'll answer those office.
Questions. We did opening open up five offices over the course of about three months one of those I believe was in December of 2021, the others were in first quarter.
Of 2022, all of those continued to progress.
They wouldn't be at full staffing yet, but they would achieve that.
Throughout this year as well as with the full back line pipeline and then next year and the year of 2024. They would all be on the same quota as are mature offices are as far as what we anticipate to do this year from office openings as we all know.
He followed us for Awhile office openings that we would anticipate to.
To expand into this year would have very little impact on this year, but would have more of an impact on.
About 2024 as well as 2025.
Thank you and.
The next question comes from Mark Mark Cohn of Bird. Please proceed.
Hey, good afternoon, and thanks for taking my questions.
One question.
Craig you mentioned, you've got $2.1 billion <unk>.
Hold for cash held for clients in the fourth quarter, what what sort of effective yield are you getting on that and what is the expectation with regards to the float balance growing over the course of the coming year and how we should think about.
An effective yield on that.
So mark on the on the balance you know if you look at it this quarter. It grew about 13% it's grown at different rates.
2022, so it's typically going to grow at a rate lower than what are expected revenue growth rate is going to be.
Part of that as as we continue to move up market that those funds are hill.
For a less period of time, we we have to make those payments much quicker so that move up market would keep that from growing at the same rate is.
Our growth rate in terms of the year, we haven't really given.
Given the exact deal, but what we do say is it is the rates move up for every 25 basis points when would expect to get about 5 million.
But you know in layers and over time, and we're continuing to look for longer term investments on our portfolio. Some of those are a little lower right and we've actually started to layer in some of those you can see that from some of our earlier filing. So we're not going to get and also the banks are a little slower to give you those.
25 basis points. So it takes a couple of quarters to get those layered in so it.
It would be something lower than the fed funds rate.
Okay, what would the rule of thumb 70 to 80 per cent of funds with a delay.
The kind of a good rule of thumb to think of.
Well I think you're close.
Side effects kind of in the range Martin.
Where subs forwarded that were sub floor.
Thank you. The next question comes from Brian Schwartz Oppenheimer. Please proceed.
Hi, Chad and Craig Thanks for taking my questions. Congratulations on real nice job with the business unknown four Q.
Chad I just wanted to ask you a question about either that the business activity or the pipeline momentum by customers size are you seeing any differences in terms of the demand or the behavior.
The large organizations that are that are flowing through the pipeline versus say.
The smaller companies.
Well, we definitely continued to creep.
Creep up as we have done even since IPO as we've continued to increase our target market. In fact last year revenue was up 60% with clients that had 2000 employees or more so we are definitely seeing a demand continuing to be pulled a higher especially as you know.
Businesses are looking to deploy baddie, so that their employees can actually do their own.
Thank you and then one follow up just for Clegg real quick.
Did you buy back any stock in the quarter and can you just remind me again, how much authorization you have left for buybacks. Thanks.
Yeah. So I don't think we didn't buy back any this quarter for the full year, we bought back about $100 million worth and I think we have a $1.1 billion left on a buyback.
Thank you. The next question comes from Joshua O'reilly is Nathan.
Please proceed.
Hey, guys. Thanks for taking my questions. If you look at the.
Growth expectations for 2023 here, how do you think about the mixed up growth from new customers versus existing as we know existing customers, while smaller historically and net new bookings growth has increased in the last couple of years and we're seeing some different trends with different software vendors.
Yeah ours is going to.
Primarily come from new logo ads. When you just look at the size of revenue that we need to grow by in order to continue to hit.
Our objectives and so first price is going to be new logo ads.
We don't really have a lot to call out on pace per <unk>.
Control growth from that perspective, but.
New logo ads is going to be primary for us we've always had a healthy up sales current clients.
Bennett, a much smaller level than what.
New logo ads are and it's been consistent are obsessed current clients as a percentage.
Has been consistent each year with the exception of the year we had.
Got it that's helpful. And then as we look to Q1 here how should we think about the impact from WQ revenue remember last year that was impacted on a year over year basis because of the turnover in 2020 due to COVID-19 or the trend going to normalize here in this march quarter, given what happened in 2000 with hiring or anything to.
Highlight there.
Yeah, I feel like they are more normal I think it's important to understand that.
<unk> or year in services as far as what we provide to a client that hadn't changed a lot in the last 15 years as far as.
He added 10 90 nine's at one point VFW <unk> 10, 99. Meanwhile.
Growth of our other revenues will ever as we've added all these other products.
Has been somewhat substantial and so it's just the percentage or amount that are you're in services has on the overall client basis much lower now than what it was in the past just because it's not growing at the same rate I would say, yeah. I mean, I would say, yes from a normalization I think you saw a normal higher.
Ring in business patterns at more so last year than what you had.
In years past and a couple of years past so from a normalization of year informs filing yes, I would say that we are we are there.
Thank you the.
Next question comes from Steve induce Citigroup. Please.
Please proceed.
Alright, great. Thanks for thanks for taking the question here.
I guess I just want to take.
Taken entailment more on the outlet for next year and particularly on that.
On the margin side, I think talked about in the past that.
If you think about floating come climbing through that.
Yeah, some of them to slow down to the to the bottom line. So just trying to think about.
How you are thinking about that layering in for twenty-three and kind of where the biggest areas that incremental.
Investment are coming in and escalate into the the EBITDA.
Slightly guy down from from where we were in 2002.
[noise], yes, primarily <unk>.
Continued to.
Invest in sales and marketing and that's what we've we sit on her prepared remarks, and we're going to continue to invest there is <unk>.
Similar is going to continue to work so.
That's really the area, where we're going to continue to invest also in the R&D I mean, we have a lot of.
Projects in the works and will continue to hire aggressively and the R&D side as well.
Okay, I guess I'm the marketing spending you are putting out there I know it's been a more more recent initiative for a while I guess, what's kind of been.
<unk> on those dollars that you have have seen and how does that kind of change the top a final activity air conversion rate.
<unk> standards kind of the the brand awareness Kim.
Campaigns have gotten out there more.
Yeah, I mean marketing you know we started in 2020 that was also the year that we added for inside sales teams and then in 2021, we added another six inside sales teams I believe one of those years are unit count went up about 17% with 17%.
Growth marketing drove that.
As we do our marketing and spend money on advertising, we have clients of all sizes call us and so marketing directly responsible for any any business that's coming in.
Below 50 employees and you have some direct responsibility forward above 50 employees, but.
It provides more supportive at that level is our go to markets different above 50 employees and what we experience.
Below gross first prizes as Craig talked about and as we look at guidance into this year we.
We expect to spend healthy marketing, but but also we expect for it to work, which would return itself with.
Highly profitable revenue.
Which we did see throughout.
2022, which produced healthy adjusted EBITDA margins.
The next question comes from C D.
Penny grassy.
And the ZIP code. Please proceed.
Oh, Thanks for taking my question.
If I look at your clients growth.
In 2022, 8%, that's kind of slowing down plus is pre COVID-19 level, they choose to be more than teens.
Sure that's a factor of leg moving up market. So Clarence size, but is there anything else we should.
Anything that impacted and how should we think about the client growth going forward.
Yeah, I would say the cop had a little bit to do with it prior to 2020, we had five sales reps that solved inside sales in 2020, we added 40.
And then in 2022, we added roughly another 50 60, so we started selling small business.
Emerging business in a much stronger way as as the advertising was working so I don't want to say that our unit count was inflated prior.
Prior but it was different because we did.
Add a lot of small business units and contributed to 72% growth in units.
I think we've had.
And again, it did that near where we did 25% revenue growth. So I think as we look last year.
You could deduct that we had a lot of success.
Selling in mid range and above mid range and clients and I would say our small business ads were somewhat more normalized because we didn't really add any small business teams last year like we had in 2202021.
Thanks for that color and pull up to a guidance what sort of.
Could you repeat them have you backed into the guidance.
This is definitely go into health fraud income this year, but.
Setup mackerel.
And Bob <unk>.
Factored into a guidance.
Yes, we continue to guide and the $2 million range. So we have quite a bit of visibility as we go quarter to quarter.
I will say that in.
We started our guide last year for 2022, we started at 25% and we were cop in over a year, where we had done 25% growth.
This year, we're starting our got it 24% comp in over a year, where we had done 30% growth and so we haven't changed our approach to guidance, We guide, but we can see an achievement matters throughout the year and so that's what we're focused on as we move throughout the year and so I'm trying to answer your conservatism I mean, we guide them.
What we can see each time, and we look to unload the musket throughout the quarter.
Thank you.
Next question comes from Brian Bergen Cowan. Please proceed.
Hi, Good afternoon. Thank you I wanted to follow up on retention for us. So I heard the comments about Betty clients being higher than the relative stability from prior years, but just as we think about the year on your down take care can you talk about this larger client churn or is it a lot of turn among smaller clients just trying to understand.
That dynamic.
Well, we are definitely from a smaller client perspective now of course, they contribute smaller revenue amounts, but from a smaller client perspective, I do think that you're sending more you are seeing more of a trend.
Maybe what you saw more pre pandemic I mean, there's less prop up for them in the market.
For most new businesses I believe about 75% of them fail within the first three years. So all that's at play.
When you're working with smaller business as I just mentioned, we started adding really started adding those small business units in 2020.
And then continued throughout 2021 and even added more obviously in 2022 and so that's definitely plays into it I would also say that its revenue retention numbers. So you had a you have a dividing number that you start with I've been talking for quite some time about the efficiencies that clients, who are using Betty and what they are gaining in fact, we're.
We're not having the same hiccups with them that we would often charge them for at a lower margin and then have to fix and now those are really being prevented with Betty. So you've got a couple of things that play and then also you got some rounding at play but all of that is to say is nine.
93% from what I've seen still up there.
And industry, leading number.
And I do expect again with clients that have Betty I mean, we're we're running EDA.
99% type retention rate with them. So it's a little bit it's a little bit different there and as we continue to convert our current client base over to Betty we.
We expect to have some gains in that I will mention that we always have some uncontrolled losses, you bought sold merge type businesses.
Getting to 100% is an achievable but.
I believe that we continue to have an opportunity to bump hypertension, and that's gonna come through usage appropriate usage of our product.
Okay understood.
And then a follow up a margin here soon Craig amendments it but did you say, where you expect gross margin to land in 2023 and.
Your message on increased efficiency in sales and marketing and you both mentioned increased but I guess you product development should we expect that the explanation on EBITDA downtick year on year more about R&D ramping or is it both R&D, an us and them.
Yeah, I would say, it's both the R&D in sales and marketing.
We are looking.
For our plans for 2023, we didn't really talk about the adjusted EBITDA, but we've been doing a pretty narrow range for the last.
Several years gross margin.
For the last several years.
Thank you. The next question comes from Jason Selena.
Keybanc. Please proceed.
Hey afternoon guys.
Hanging Chad.
Vocal about opportunities automate payroll and broader HR.
And we think about generative AI I feel like this is an up your alley.
Unexciting most about the technology, if you've looked into it and what could it mean for pink army each arm as a whole.
Well I mean, we're solving.
Problems for the client and processes that I believe can be automated and.
Hadn't been until really Betty came into play, which somewhat forces appropriate usage within our software for employees. So that they can get paid correctly I do believe that there's more automation.
That we can be doing but you've got to start with you've got to have the client and the employees using the product correctly, which I will say that about 50% of our client base that is the case and last year was our first full year of of selling Betty and bringing it to the market and so we're having a lot of success for that.
I believe I for the sake of AI.
Isn't really valuable to the client, but I believe that.
If you can do something consistently.
And you can use something like AI to do that I think that's that's a good thing. So I don't I don't expect we would see it as a wide platform within our industry.
This year.
Type thing with that but I think you'll have more and more.
Businesses looking for that machine learning and other types of automation that could be used to automate problems experienced by our clients right now.
Okay now that's fair and just Craig made me a quick one I think the EBITDA beat in the corner 18 million, 6% fee for the higher end, what we've typically seen over the last four years anything to note on the strength expense management anything on timing us on some investments. Thanks.
I mean, there were really three or four buckets. It really helped drive that EBIT off the.
One year marketing spin was a little lighter fourth quarter and some of that when we.
Are doing those.
Marketing.
Things that we.
We have plan.
Little hard capitalization right on the development and is focused on new initiatives.
Betty clients generate higher quality revenue. So we saw a little bit of that men in the quarter. We had a net insurance proceeds of about $4 8 million.
For expenses were incurred both the current prior year quarter. So.
That's really what drove the.
Adjusted EBITDA B.
Thank you. The next question comes from Aravind Ramani.
Piper Sandler. Please proceed.
Hi, Thanks for taking my question.
I just wanted to.
Question, how should we think about growth from existing clients, who are expanding their own client base.
Not not any different than what we've experienced in the past I mean again I'm removing the COVID-19.
You're out of that.
But not any different than what we've experienced in the past in any given year you have some clients grow you have some clients not you have some clients by business you have some clients sell business and so.
I believe that's always somewhat worked itself out maybe we win some maybe we lose some but really the growth for us is driven by new logo ads I mean Hawley has book sales numbers that.
Drive our revenue growth and that's how we're going to hit our targets.
I think that we expect stability within our current client base as we look to guide we do have an assumption of stability.
We don't really make assumptions of.
Growth and or.
<unk> within those within our current plan is it across a 30.
<unk> 30000, plus client base.
It seems it tends to have averaged out over the last 25 years that I've done this with the with the exception of the.
The 2020 some.
<unk> 2021 time period.
And if you can just kind of.
They've been fighting the 8% growth in new logos versus a 14%.
Employee expansion.
Should I interpret those those two numbers.
Well I mean that would tell you that the client sizes.
Is growing as well there we I've been continuing to call out that we're having success continuing to be pulled further and further up market.
Couple of year or about six years ago. We went from 2000 to 5000 Coupla years ago, I mentioned that we're going about going up to 10000 I've talked about how we're continuing to look it up even further and so that's going to get you a.
A larger employee count with potential.
For less of a unit count, but I would also say I don't want to overlook. The fact that we've had a lot of success on the small business unit and when you are looking at unit count growth. They are all created equal I mean, everything's, whether euro one employee unit or whether you are at 10000 employ unit.
You are created equal on that report from unit count percentage, but.
It's just been a trend a larger clients with the exception of the two years, where we decided we're going to add.
Our small business emerging business units groups of which now we have 10 teams and that really hadn't grown.
The teams have it ground and of course, we continue to add small business units.
Thank you the.
The next question comes from Bob in shock of Deutsche Bank. Please proceed.
Great. Thanks for taking my question Chad anonymous.
And it's a bit early on the call, but are you seeing anything as it relates to changes in the pipeline generation or sales cycles over the past few months.
Even reasons why customers or maybe you're looking at a sweatshirt and select me take up.
Yeah, I mean, we continue to have strong product demonstration leaves, but that's often times a function of our marketing and advertising and we pay.
For those leads I can say for us it's been business as usual we've been back in the field.
September last year, meaning actually back on site on every single call, where before we were doing more of a hybrid somewhere virtual somewhere in person. So.
I would say if anything were having less calls with the client to get to close I can't necessarily say that speeding up.
The process that I think we are having a better conversations as we go through the process, So really nothing to call out there.
Other then today when a client calls pay calm and it looks to have a product demonstration, it's about Betty and I would say in times past it could be a balance whatever.
Add in there Paul.
What are you looking to pull out so it's a little different today and the type of lead we are generating.
Pennsylvania.
How do you feel about a pet from opportunity in 2023 and develop into something that you saw of 2022 in a specific area of the modules that are.
Okay.
While Betty definitely drive <unk>, because you definitely have to have a certain product set for us from us purchased and being used.
In order for.
In order for Betty to work for you so I.
I would say that the clients that.
That we are selling.
In 2022 have a better stronger product mix than those clients, we would've been solar sailing in 2018 indoor 2019, we still do have an opportunity with current clients.
We do have to really work at their pace.
To get them over to Betty and to relate to get them to achieve the value that it can deliver and we continue to look at that and there are still opportunities.
Obviously within our current client base to deliver more of happened as well as on new business sales.
Thank you.
And our final question comes from the line of Daniel gesture of BMO capital markets. Please proceed.
Hey, Kennedy great. Thanks for squeezing me I'd appreciate it just on that comment about Betty Chad can you update us what percentage of the base.
Betty at year end.
We're around 50%.
It's about where we were when we reported in November .
As clients go through year, and there's different objectives for both them and us as we're onboarding clients Betty does require a.
Kicking version of process on the side of decline as it is going to change how their employees utilize.
There is a detailed.
Conversion type plan that we go through with every current client as they choose how and when to deploy but we're continuing demand out there with our clients I would also say that you are larger clients.
Are deploying it a lot quicker.
Current clients are deploying at a lot quicker than what you're smaller.
Your smaller clients current clients might be be deploying it as a point that I would mentioned once more all businesses of any size, whether they are small or large since July of 2021.
Has been.
Sold and converted into Betty.
So we're really talking about our current client base, but we had prior to that.
Great. Thank one and then just lastly, and you touched on this a couple of times about sort of the up market success and opportunities.
As I think about how you are investing to attack those opportunities as this strategic E. As you are devoting more resources, specifically because you think there's more opportunity up market or is this tactical and which kind of year in and year out you are deploying resources and maybe one year you seem more opportunity smaller in down market and and.
There you are seeing more opportunity and the up market. So you can beach or a tactical with those sales investments thanks very much.
Yeah, I'd say, it's a little bit above one thing I've been saying for quite some time now our industry shifted it shifted to leverage employee usage to help the client when employees use the product correctly. The client has less exposure and liability around this process, which you know paying employees.
Providing them benefits and everything else I mean that carries some exposure even how you have an employee applies for a job and so.
I believe that all these self the self service.
Technology has really been helping the client the reason I say that is this when it comes to an employee.
Jan Smith, whether Jan Smith works at a 30 employee or whether Jane Smith works for a 10000 employee in regards to how they work with HTM in payroll products. It's substantially the same as far as the needs that Jan had so what I would say is we've stayed very focused on the employee and and employees and.
<unk> employee, regardless of which company. They work. They work for are there are some things that a larger company.
We just know we're going to run into that's going to be different than what we would run into in a company that might have 150 employees absolutely. There's some changes in that and and you know I would say, that's where more <unk>.
Strategy comes into play as well as making tactical moves to make sure that we're able to provide the backend experienced that they're looking for but I will say the more that we are doing at the employee level. The less you are having to do on the back in because a lot of the things Youre doing on the back end is to make sure you're not having issues.
With the employee data and or if you do you are having to fix it and subtle you'll get a lot of points for prevention These days and.
Large companies they don't want to do a lot of extra work either.
Thank you and with that will conclude our time of question and answer.
I would now like to hand, the conference back over to Chad Richardson for.
For closing remarks.
Well I want to thank everyone for joining the call today and I want to spend a send a special thank you to our employees for contributing to our continued success of 2022 is a great year for pay calm and we're set up for another Greg year in 2023.
Will be hosting meetings in New York at the Wolf March Madness software conference in February <unk>.
Will also be participating in the key bank emerging Tech conference and Morgan Stanley TMT Conference in San Francisco in March we look forward to catching up with many of you soon and operator you may disconnect. Thank you.
Thank you for joining today's call. Thank you for your participation. We would know disconnect your lines.