Paylocity Holding Corporation Q3 2023 Earnings Call
Good day and welcome to the Paywall Citi Holding Corporation third quarter 2023 fiscal year results call.
At this time all participants are in a listen only mode. After the speaker presentation. There will be a question and answer session to ask a question. During the session you will need to press star one one on your telephone you will then hear an automated message advising that your hand is right to withdraw.
On your question Press Star one again, please be advised that today's conference is being recorded I would now like to hand, the conference over to your Speaker, Mr. Ryan Glenn Chief Financial Officer. Please go ahead Sir.
Yeah.
Good afternoon, and welcome to Pelosity his earnings results call for the third quarter of fiscal 'twenty, three which ended on March 31, 2023, I'm, Ryan Glenn Chief Financial Officer, and joining me on the call today are Steve Beauchamp, and Toby Williams co Ceos Pelosity today, we will be discussing the results announced in our press release issued after.
The market closed.
A webcast replay of this call will be available for the next 45 days on our website under the Investor Relations tab.
Beginning we must caution you that today's remarks, including statements made during the question and answer session contain forward looking statements. These statements are subject to numerous important factors risks and uncertainties, which could cause actual results to differ from the results implied by these or other forward looking statements.
Also these statements are based solely on the present information and are subject to risks and uncertainties that can cause actual results to differ materially from those projected in the forward looking statements.
Additional information please refer to our filings with the Securities and Exchange Commission for the risk factors contained therein and other disclosures.
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 Pelosity Dot com under the Investor Relations tab and filed with Securities and Exchange Commission.
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 regards to our upcoming conference schedule Toby will be attending the Cowen annual technology Media and Telecom Conference in New York on June 1st I will be attending the Jefferies Software conference in Los Angeles also on June 1st and Toby and I will be attending the Stifel Cross sector insight conference in Boston on June six and the Baird Global consumer technology and services.
Conference in New York on June 7th and Steve will be attending the William Blair growth Conference in Chicago also on June 7th.
Please let me know if you'd like to schedule time with us at any of these events with that let me turn the call over to Steve.
Thanks, Ryan and thanks to all of you for joining us on our third quarter fiscal 23 earnings call. Our overall momentum continued in third quarter with solid execution across our target market Q3 revenue growth was 38, 2% as our differentiated value proposition of providing the most modern software in the industry continues to resonate in the market.
Place.
We continued to build on our unique value proposition of providing the most modern software in the industry with the recent release of AI assist the HTM industry's first integration of generative AI leveraging integration with open AI developer of chat GPT AI assist is designed to help our clients more easily and effectively communicate and engage.
With their employees included as a new feature within community AI assist allows users to draft ready to send communications and announcements with a simple prompt tailor messages to specific audiences or even translate announcements into other languages to reach multilingual employees.
This represents the next step in paid losses broader investment in AI and machine learning building upon other AI based platform capabilities, such as our modern workforce index retention risk dashboards time, and labor forecast and tone and sentiment analysis in performance reviews.
Our commitment to product development also continues to be recognized in the market with Pelosity recently, placing number one overall in GTS best HR products list and ranking inside of <unk> top 25 global software companies.
Additionally, philosophy was named an overall leader in all 12 human capital management product categories in <unk> Spring 2023, Great report and one in 2023, most loved award by Trust radius.
Similarly, the strong culture Pelosity continues to be recognized externally as we've received Forbes 2023, best employers for diversity award for the second consecutive year.
I would now like to pass the call to Toby to provide further color on the quarter.
Thanks, Steve in Q3, our sales team turned in another solid performance and as Steve highlighted our differentiated value proposition of providing the most modern software in the industry continues to resonate across our target market.
Our sustained investment in key product areas, such as mobile engagement AI and analytics continues to strengthen our position as the most modern software platform in the industry and sets us up for a strong close to fiscal 'twenty. Three in particular, we've continued to see employees increasingly engaged with the platform via mobile and through community a trend highlighted across a number.
Clients in Q3, including a real estate developer with over 400 employees that is leveraging mobile alerts and peer to peer recognition to drive and measure higher engagement and connectivity across its geographically dispersed property managers leasing agents and staff.
<unk> a retailer with 3500 employees across over 70 locations is leveraging our mobile self service capabilities on demand pay community and surveys to drive higher employee engagement and help retain employees.
Solid sales and operational execution helped drive our total revenue to $339 9 million or 38, 2% growth over Q3 of last year, beating the midpoint of our guidance by $7 4 million as we continued to build momentum across our target market.
We also continue to be pleased with the success and go to market hiring in attracting talented sales reps and we are confident in our ability to hit our staffing targets to start next fiscal year.
Additionally, channel referrals, primarily from benefit brokers and financial advisers. Once again represented more than 25% of new business for the third quarter as we continue to leverage both virtual and in person broker meetings and events to help us maintain the strong source of referrals.
We continue investing to support channel referrals and in digital marketing efforts, both of which have driven increased top of sales funnel activity and productivity this fiscal year.
Interest income on client funds has also continued to rise as a result of sustained interest rate increases from the federal reserve and increases in average daily balances.
Our topline outperformance coupled with continued operational efficiency helped drive adjusted EBITDA of $130 7 million or <unk>, 38, 4% margin, which exceeded the midpoint of our guidance by $7 7 million.
Lastly, Q3 represents our busiest time of year as we work to support our clients through all their year end processing and annual tax form filing needs.
I'd like to send out a big thanks to our more than 6000 employees, who live and represent our values every single day, and who worked so hard to support our clients in Q3, 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 Q3 was $339 9 million an increase of 38, 2% with recurring and other revenue was up 28, 3% from the same period last year and we were pleased to come in seven $4 million above the midpoint of our Q3 revenue guidance and raised fiscal 'twenty revenue guidance by $8 5 million at the midpoint result.
In fiscal 'twenty, three guidance of 37% revenue growth.
Our adjusted gross profit was 76.0% for Q3 versus 73, 1% in Q3 of last fiscal representing 290 basis points of leverage as a result of revenue over performance and continued focus on scaling our operational costs, while maintaining industry leading service levels.
We continue to make significant investments in research and development and to understand our overall investment in R&D is important to combine both what we expense and what we capitalize on a dollar basis, our year over year investment in total R&D increased by 53, 5% when compared to the third quarter of fiscal 'twenty, two and we remain focused on making incremental investments in R&D as we.
Continue to build out the pay lastly platform to serve the needs of the modern workforce.
In regard to our go to market activities on a non-GAAP basis sales and marketing expense was 19, 1% of revenue in Q3, and we remain focused on making incremental investments in this area of the business to drive growth going forward.
On a non-GAAP basis G&A costs were 10, 4% of revenue in the third quarter versus 12, 2% in the same period last year, representing a 180 basis points of leverage in Q3.
Our adjusted EBITDA was $130 7 million or 38, 4% of revenue for the quarter, which exceeded our guidance by $7 7 million at the midpoint and we remain committed to progressing against our adjusted EBITDA target of 30% to 35% of revenue.
We continue to be pleased by our ability to drive increased profitability through leveraging adjusted gross margin adjusted EBITDA and free cash flow, while also maintaining strong revenue growth on.
On a year to date basis, our free cash flow margin expanded to 19, 2% and improved 900 basis points versus the prior period, and we're pleased to be well within our target range of 15% to 20% free cash flow margin.
Briefly covering our GAAP results for Q3 gross profit was $244 1 million operating income was $80 4 million and net income was $57 6 million.
In regards to the balance sheet, we ended the quarter with cash cash equivalents and invested corporate cash of $233 7 million and no debt outstanding.
In regard to client held funds and interest income our average daily balance of client funds was $2 8 billion in Q3, and we are estimating the average daily balance will be approximately $2 5 billion in Q4 with an average annual yield of approximately 380 basis points.
Additionally, please note that our guidance includes the impact of this weeks 25 basis point interest rate increase.
We expect the impact to be more material in future periods. We do not expect this to have a material impact on Q4 results given the recency of the increase in rates.
In regard to over a client workforce levels. The number of client employees on the platform was flat for January February March and April on a sequential basis in each month, consistent with Q2 and versus only a nominal increase in Q1 on a sequential basis. Our guidance continues to assume overall flat client workforce levels for the rest of the fiscal year.
With that I'd like to provide our financial guidance for Q4 and full fiscal 'twenty three for.
For the fourth quarter of fiscal 23 total revenue is expected to be in the range of $299 2 million to $303 2 million or approximately 32% growth over fourth quarter of fiscal 'twenty to total revenue.
Adjusted EBITDA is expected to be a range of $93 5 million to $96 5 million.
And for fiscal year 'twenty three total revenue is expected to be in the range of $1 $1 65 billion to $1 69 billion or approximately 37% growth over fiscal 'twenty two.
And adjusted EBITDA is expected to be in the range of $368 1 million to $371 1 million, implying an adjusted EBITDA margin of approximately 31, 7% and representing leverage of 380 basis points versus last fiscal year.
In conclusion, we are pleased with our Q3 results and we're pleased to raise fiscal 'twenty three guidance to 37% growth at the midpoint, which in combination with the adjusted EBITDA margin represented in our full year guide exceed the rule of 68 for fiscal 'twenty three.
We remain confident in our ability to support 20% plus revenue growth going forward and also remain committed to driving increased adjusted gross margin adjusted EBITDA and free cash flow leverage on an annual basis.
Operator, we're now ready for questions.
Thank you as a reminder to ask a question. Please press star one one on your telephone and wait for your name to be announced to withdraw. Your question. Please press star one again due to time restraints. We ask that you. Please limit yourself to one question and one follow up question. You May then return to the queue.
Please standby, while we compile the Q&A roster.
Our first question will come from the line of Scott Berg with Needham <unk> Co. Your line is open.
Okay.
Yeah.
Mr. Berg Your line is open.
Sorry about that I was on mute.
It's been a great quarter and thanks for taking my questions here I guess I have a couple.
Steve let's start about start with the topic of.
The year so far.
And assess and how it will help you.
Customers to communicate better.
But as you take more holistically across the HR space over the next couple of three years, how can AI impact both your product and maybe the industry products, even more so than what youre already seeing it today.
Sure I think most of the AI use cases, you see early in the cycle really revolve around writing assistance.
And clearly that's going to evolve very quickly over time and there's lots of examples within HR suite, where that can be helpful. You can think of things like job descriptions. As another example performance reviews lots of places where you need to provide written communication to employees that having an assistant to be able to make sure that you're really getting your point across.
Or potentially getting people excited are energized with an announcement you can get assistance from an AI perspective, and I think we see a lot of those initial use cases is where we will add AI assist into our platform and deliver value to our clients, but over time the.
Al rhythm to start to become much more complicated youll see us impacting modern workforce index over time with new ideas for our clients to be able to engage with employees differently and really drive higher retention and higher traction from new employee perspective, and better culture and so we're really excited about the opportunity to embed AI assist.
Throughout the platform.
Understood. Thank you and I know in Ryan's commentary you talked about your assumptions around flat employment levels here going forward, but how are you all seeing sales cycles today, our work as indicated kind of the SMB the mid market HCM sales cycles.
Relatively normal out there, but are you seeing any changes maybe more positively or even a little more cautiously.
Hey, Scott, It's Toby I mean I think.
Consistent with the commentary on the quarter and the performance I mean, I think we haven't seen significant changes in the sales cycles. I think the sales performance has been relatively steady and I think overall, we're happy with how the quarter shaped up both from a from a sales perspective, and then also from an operational execution standpoint.
Thank you one moment for our next question.
And that will come from the line of Terry Tillman with <unk>. Your line is open.
Hey, guys. This is Joe Meares on for Terry Thanks for taking the questions I appreciate it.
So we saw you guys recently announced.
Several feature updates including.
Texting for new hires.
And the integration for Linkedin for easier job posting and then global forms are signatures acknowledgment I'm. Just curious if there are any other updates that you would point to.
I bet, you and customers are most excited about and then if any you think could be needle movers in 23 or beyond.
Sure. So we've.
Had a great history of being able to release improvement based on client feedback we believe strongly in client as a co creator and so you listed several examples that we got feedback from our clients and we continue to improve our product and you'll also see more modern capabilities used another software platforms be inserted. So we just talked about AI, SaaS, but things like chat or another.
Great example, leveraging all the mobile connections I think Tobey had some examples in the prepared remarks to really drive higher level of employee engagement and so youll see us continue to improve the platform on ongoing basis, and then from a new product perspective, we more than doubled the amount of product we sold since our IPO and we are pretty confident with a rich product pipeline that we'll be able to.
Continue that trend going forward and add new modules that are also monetize them all at the same time.
Very helpful.
A follow up.
You've talked about 92% plus gross retention target just curious how that metric performed in the quarter and then how you expect the trend through the rest of calendar 'twenty three thanks again.
Yes, I mean, I think consistent with the prior comments.
We've I think benefited from.
Higher retention through the course of the pandemic and then coming out of it consistent with others in the industry I mean, I think we still through the course of the quarter and year to date are pretty pleased with the revenue retention.
And I think that was part of what contributed to the solid quarter that we put in.
Thank you one moment for our next question.
And that will come from the line of Brian Peterson with Raymond James Your line is open.
Hi, This is Jessica Wong on for Bryan Pearson.
Wanted to quickly follow up on investments in 2000 product development, Dave you've been announcing how is the pace of hiring investment Spanish areas, especially given the start of a new calendar year as youre looking towards the rest of the calendar fiscal year, given centering ongoing macro and competition. Thanks.
Yes, so I think hiring and product technology has always been challenging.
Especially to try to get the talented folks who are looking at examples like software engineer or data practices.
Security all pretty hot market still despite the fact that there's been some.
Macro layoffs by the others in the Tech Org.
But we've been continuing to hire.
I would go back to we're really excited about what we've got from a product pipeline perspective, we've gotten great ROI on our previous year's product investments.
Revenue per customer has been a strong performance for us and that's been driven by the new product introductions that we've got so we under we understand that things are a little bit more uncertain from a macro perspective, but we're sticking to the strategy and at the same time, we're able to deliver pretty strong leverage and so we feel like we can balance the investments in product going forward to take advantage of the feedback we're getting from our.
Our customers and come out with new monetize of all opportunities going forward, which has been a key component of our strategy historically.
Great and one quick follow up question as well.
Is that on a recent event in a banking sector have you seen any impact on existing customers or the broader SMB market from Davita and banking crisis.
Sure I can take that one Dan.
Answer to that is no I think we obviously are working with a very diverse set of banking partners. Both on the corporate and client held funds side and I think feel good about the redundancy, we have with the multitude of banking partners and there's nothing that I'd call out as far as noise, there, whether it's with existing clients or with prospects.
Thank you one moment for our next question.
And that will come from the line of Brad Reback with Stifel. Your line is open.
Thanks, very much so I appreciate the fiscal 'twenty four kind of revenue commentary, but as we think about expenses going forward. Obviously this year, you've got a big benefit from.
Funds held in and the incremental gross margin there.
And Opex grew in line with revenue do you envision a scenario where that somewhat reverses next year on the opex side. Thanks.
I think the simple answer is we've had really years and years of if you take up the COVID-19 year, we pretty much expanding.
Our adjusted EBITDA year after year, and we're not necessarily changing our approach towards that so as we go into next year and we don't have the same type of tailwind from an interest revenue perspective, we're still committed to adjusted EBITDA expansion.
That's great thanks very much.
Okay.
Okay.
Thank you.
One moment for our next question.
And that will come from the line of Bryan Bergin with Cowen Your line is open.
Hey, good afternoon, guys. Thank you.
First of all on the sales force for it can you just give us a sense on how sales head count expansion progressed. This year and how you may have some early plans and thoughts for fiscal 'twenty four.
Sure I mean, we came into the year with adding sales head count up right around 18%, which is.
Fairly consistent maybe X one year of Covid to growing the sales force in that high teens Zip code plus or minus.
And I think we were pleased with our ability to staff up coming into the year.
As we sit here today, we've got a favorable view of how that shaping up for <unk>.
Our path into next fiscal year, I think we've got a history of being able to come into the year fully staffed with the head count that we do we think we need to be able to support the growth in the fiscal and so I think as we sit here today.
We think we feel pretty good about that as we're looking forward to fiscal 'twenty four.
Okay, and then just a broader question on fiscal 'twenty four just as you assess the current environment and the key considerations right now and client conversation anything we should be mindful of as we just think about that fiscal 'twenty for growth and margin potential.
Well I think I mean, just.
As we look at fiscal 'twenty four I mean, I think we're obviously.
In the throes of putting together the plan for fiscal 'twenty four I think I've just talked about how we think about the sales force build into that I think steves comments before we've had.
A history of product innovation that I think has helped both create differentiation and also create the performances were looking at any future fiscal year I think we've got.
No not the team in place that has done a great job of coming through the busiest time of year for us and set us up for success as we close out the fiscal year and so.
We're at the planning point for what fiscal 'twenty four is going to look like but I think we are positive on the momentum that we've seen in the business both from a sales perspective and from an operational standpoint, yeah. Tobey. The only thing I would add is just from a macro perspective, obviously, we've had the tailwind of interest revenue this year, which has really been an industry tailwind.
And then we really haven't seen any growth in pays per and so in a normal kind of low growth GDP environment, you do typically get paid per growth.
So as we go into next year, you don't get that necessary interest revenue tailwind and we're anticipating no pays per type growth. So as Toby said, we're pretty confident with all the things that we can control from an execution perspective, but those are a couple of things from a macro to be aware of.
Thank you one moment for our next question.
And that will come from the line of Mark Marcon with Baird. Your line is open.
Hey, good afternoon, and congratulations thinking a little bit about the guidance for this coming quarter.
Are you thinking with regards to the.
<unk>.
A reasonable effective yields on.
On the float balance for this coming quarter, because if I'm just doing the raw math.
Not sure that the.
The revenue guide.
It was raised and it looks like you've got really good momentum. So I'm just trying to think that part through.
Sure Mark This is Ryan I think for the third quarter as I said in the prepared remarks. The average daily balance was about $2 8 billion and the average yield if you back into that was 360 to 370 basis points and we guided to Q4 to about 380 basis points. So I think our expectation is continued to step up in yield as you've seen.
Consistently each quarter. This fiscal year, obviously, we've got a 25 basis point rate increase yesterday the impact of that in Q4 is negligible, but you will see the yield continued to build in Q4 as you have earlier part of the year.
Okay, and just staying on the topic.
How are you thinking about the momentum into Q4, because it looks like things are going really well.
Perhaps you can comment a little bit with regards to the sales pipeline and the implementations and particularly if you're seeing any more traction on the upper end of the market as you mentioned during prior quarters.
Sure so.
So, yes, I think you're right we've had really good execution in the quarter and throughout the fiscal year from a sales perspective as you go into next quarter and you look at our guidance. It starts to look very similar to pre COVID-19 type activities. So we're anniversarying a lot of the noise from Covid tailwind.
So I think that's one thing to kind of think about is it's kind of getting back into we were kind of in that 20, plus category and we're focusing on that and we are executing above that pre COVID-19. There's been a lot of headwind early on in tailwind late.
And so I think youre going to get back to a more normalized quarter as we go into the fourth quarter of fiscal year, but.
We've been executing really well across all market segments I would still highlight the upper end of that market, probably if you were to say, which is probably the place you're executing the best that would still be a highlight.
Thank you one moment for our next question.
And that will come from the line of Alex Zukin with Wolfe Research. Your line is open.
Hey, guys. Thanks for taking the question I guess, it's been asked a couple of times. It does not sound like Youre seeing any macro headwinds at the moment I guess, if you as you look towards 2024.
You just talked about seeing better traction upmarket do you see any lengthening in sales cycles any any.
Maybe again as sales cycles take longer approvals take take more time.
Close rates are against stretched out or impacted by that and then how do you think about.
How is the importance of global.
And kind of the.
Incremental traction incremental bookings opportunity for fiscal 'twenty four it appears to be increasingly important in the ecosystem.
Maybe I'll start with the global part of the answer.
We acquired blue marble to be able to have a global offering where companies can be paid through a network of providers and a number of countries around the world and so we've integrated that business into the rest of our organization.
And now when we look at that it's very much a customer that might be on the blue marble platform, but also on the Pelosity platform and so we think thats been a nice differentiator for us and it also creates a nice revenue stream on top of that I think though it is still relatively small compared to the rest of our business and so.
We think about that is now being kind of part of our core strategy and not so separate and certainly being helpful. Even more so from a differentiation perspective than a new revenue stream.
Okay.
Thank you one moment for our next question.
Our next question comes from the line of Samad Samana with Jefferies. Your line is open.
Hi, good evening, Thanks for taking my questions, maybe first one just if I strip out.
It's kind of the implied float contribution gross margins on the core software side are still up really nicely year over year I'm just curious.
Driving that underlying increase beyond scale or if theres anything thats changed in terms of.
Maybe.
Hosting costs are or what's maybe supporting that gross margin expansion outside of just the blood side.
Yes, so Matt I can I can take that one I think as you said, we're really pleased with I think leveraged across the business certainly from a gross margin perspective, almost 300 basis points of leverage in the quarter and as you outlined stripping out the float impact I think youre still at about 100 basis points. So nothing I'd call out there from a onetime perspective, I think as the business continues to <unk>.
Scale, youre, driving efficiencies and scale and automation and those teams and at the same time feel really good about the service and implementation and overall ops experience, we're driving for clients. So I think its just that continued strategy of investing in that part of the business, but at the same time driving efficiencies.
Great and then maybe Steve or Toby has a follow up.
As you think about the nature of the typical customer conversations that youre, having right now is it more about how to leverage better what's caused the incremental modules or the products that they have adopted over the last 18 to 24 months.
To be able to stay largely.
Got it.
Understood World, where people are working.
Is it more about how do they get new tools to better manage the world that we're in.
Kind of better leveraging with already have or finding more.
Yes, I think it's a combination really so I think it starts with how do we really digitize all of our back office HR processes, and ultimately that puts more control in the hands of employees and managers and saves the HR team time, that's still a big part of the equation and then on top of that part of the equation. Then is with the time that you say.
What are you going to be doing from a strategic perspective, and thats really driving initiatives to create the right culture to make an engaging environment to drive productivity.
And Thats, where a lot of the new tools coming into the equation and that's where you've seen things like surveys, an LMS and community and video really create a better engaging experience that always becomes part of the conversation, but it still starts with how do you get as efficient as possible first.
Thank you one moment for our next question.
And that will come from the line of Jason <unk> with Keybanc capital markets. Your line is open.
Great. Thanks, I appreciate it.
This year <unk> been taking advantage of.
Favorable float environment to reinvest in our platform. My question has to deal with like the pace of innovation specifically with this feature.
If we take a step back it's really only about six months since the AI Frederick because it really uptick I'm curious on maybe when you started developing this product how long did it take and if we could see additional features here on the AI side near term yes.
Yeah sure. So I think what we called out.
In the prepared remarks is that we've been investing kind of in broader data science machine learning AI for a number of years now.
And so we gave examples of a number of products that are leveraging those types of capabilities more recently AI assesses obviously, leveraging large language model in that category and so where we've continually invest and we believe that that's really part of the whole engagement and more modern platform story is our investments are multi year investments.
In there and we think we've got a pretty good pipelines of are places that we can take either products like AI assist or making modern workforce index more robust or being more predictive across our insights.
Overtime.
Okay, perfect and then I appreciated the update on international it sounds like it's been a good differentiator.
But I guess, where does international kind of fit in some of your more near term to medium term priorities. Thanks.
I think we're focused on kind of the mid market U S. Tam opportunity, we still have relatively low penetration into a very large opportunity. We recognize that there are segments of the market that are adding employees internationally certainly post COVID-19 that has increased a little bit before.
And that trend will likely continue until having an international solution for our clients is super helpful. But the primary focus for US is really continuing to gain market share when it comes to mid market companies in the U S.
Thank you one moment our next question.
And that will come from the line of Robert Simmons with D. A Davidson your line is open.
Hey, Thanks for taking the question I was wondering if you could give a little more color on.
AI assistant just in terms of the revenue model and also are there customers who are using it today.
Yes, so I think from a functionality perspective. The first use case that we have enabled is many of our customers use community to actually communicate HR updates to their employees and so they use our announcement feature to be able to do that and sometimes that.
Community a community we used to talk about events that theyre, having some times its just updates of what's happening in the organization policy changes it really replaces email for those customers and at times and HR team can spend a fair amount of time drafting those communications and so AI assist is built right into the community announcement feature.
And you can actually prompted you can ask your questions you can ask it to change language you can ask and you can ask it to make it sound more exciting all the things that you can normally do in chat GPT and so it really helps HR teams just be more efficient from an announcement perspective, that's where we have it today community is a free feature available to all of our customers. So we're not monetizing that separate.
But we certainly see an opportunity to take that type of capability and embed it in other places in the suite over time.
Got it that makes sense and then can you talk about what youre seeing in the competitive landscape any changes.
As to how others are operating.
Yeah.
Yes, I mean, I think we've seen relative consistency through the course of the quarter from a competitive landscape perspective I think.
Going through a lot of the things Steve just ran through I think we've tried to differentiate on product strategy with things like community and being able to drive a different level of engagement with things like surveys, an LMS and video and things like we announced with their assessed through community and so I think.
The competitive landscape has been fairly steady and I think those continue to be the points that we've driven from a value prop perspective, and those have continued to resonate in the market.
Thank you one moment our next question.
And that question will come from the line of city panel Guang with Mizuho. Your line is open.
Thanks for taking my question I was just wondering are you seeing any strength and weakness in any particular verticals and also what are you seeing in your <unk>.
<unk> 50 below below.
Below 50 employee segment versus upmarket.
Sure. So we're pretty happy with sales execution across all segments start there I think I highlighted earlier that if you think of the upper end of the segment, we have been having increasing success, that's probably less of a comment from the quarter, but thats really happened over the last couple of years.
And really that's a function of all the new products and the new features that we've added we've just been more competitive upmarket.
And so no real changes in terms of our go to market motion or the success rate that we've had.
Pretty happy whether it's a customer with 25 or 30 employees or whether they've got several thousand employees, we're really seeing that the product that we're putting in front of them. It is resonating and delivering value to them.
Any exposure to tech industry, and what are you seeing there.
Yes, so sorry, if I missed that part of the question, we really operate horizontally across the industry. If you think of how we organize our sales force. They are really focused on a ZIP code based geography, and they'll sell across all industries, we certainly emphasize different parts of the product for different industries and certain features.
But I would say no call out from an industry perspective.
I think we look at that from both a sales perspective and within our client base and we've got a pretty even distribution. If you look at the dnb distribution across the U S. Our client base looks very much like that.
Thank you.
Yeah.
Yes.
Thank you one moment for our next question.
And that will come from the line of Daniel Jester with BMO capital markets. Your line is open.
Hey, great. Good evening, Thanks for taking my question.
Maybe just to start with on the quarter.
If you exclude sort of the upside from Florida, which has been a nice tailwind for awhile.
The recurring upside.
Revenue in the quarter, maybe it wasn't as big as we've seen in the last year or so.
So maybe can you just dig in there like is there something that you would call out in terms of execution in the quarter or maybe compare and contrast, what drove such a significant upside to your guidance last year that maybe isn't a repeating going forward.
Sure Dan I think as we step back and look at the quarter results, obviously beat across the implied recurring and total and raise that plus for the year. So I think to the commentary I felt really good about the results in the quarter and the momentum within that sales team I think the last few years, you've had a little bit of noise in certain of those quarters you obviously.
We had some tailwind from client workforce levels that weren't factored into the guidance. So that was probably a bit of the over performance you would have seen for the last six to eight quarters I think it's been a steady state as we outline there. So no real tailwind retention has been high and continues to trend nicely that had been a little bit of upside in the pack.
As well as Thats performed really well for the last few years outside of that.
Nothing I would call out one time I think feel really good about the beat and feel good about where Q4 is headed as well.
Great. Thank you and then this comment about employers on the platform being steady for a couple of quarters.
Obviously, there is other data that they completed the job market is growing.
If you look back historically has there been periods in time when you are in place and that platform trends are substantially different than the macro overall I'm just I'm trying to connect all the dots here sure about what underlying is going on thank you.
Yeah. So I think when we talk about employees on the platform.
We're often looking at employees are at the same clients year over year and do they have more employees or less employees right and so there is.
That's really kind of what we're focused on and in a normal like if you go pre COVID-19 GDP was in the low single digits, we were getting low single digit growth of employees on the platform.
And if youre in a recessionary time period, and that's kind of negative GDP. Then you definitely see people kind of shedding employees on the platform, but if you go back we've had many years of employee growth on the platform pre COVID-19.
And thats, probably the more normal state even when we're seeing 2% GDP growth, we are seeing a little bit of a bump of employees on the platform. So the one difference from a macro perspective, as we haven't seen that and we're not forecasting seen that going forward and.
And so the employment numbers something that sometimes don't exactly line up perfectly, but yes. There is some jobs added but unemployment rate hasn't gone up in shifts.
But generally speaking I think if you think about it the way I just described versus something like a GDP number.
That's what we've seen historically.
Thank you one moment our next question.
And that will come from the line of Steve Enders with Citi. Your line is open.
Okay, great. Thanks for thanks for taking the question.
I guess, just based on kind of what Youre seeing out there in the current environment. How are you thinking about kind of further sales investments at this point and where you would be making your best in terms of the types of things.
The coverage or the rep.
The rep kind of base that you'd be looking at here.
So this is the time of year that we're hiring reps, we typically start kind of after the last quarter. We just completed we ramp up throughout the spring and then we try to get ourselves to kind of a target number of quota carriers going into the fiscal year.
Toby mentioned in one of the earlier questions. We've had success getting up to that number last year that was kind of.
18 ish percent, we've kind of been in that mid teens.
Growth rate for a while we will give you the exact number on the next earnings call, but I think to Echo Toby sentiments, we really feel good about where we are from a hiring perspective right. Now we think are our value proposition for sales reps really resonates as well in the marketplace and we're making good progress towards the target for next year.
I guess in terms of like the profile of a rep that youre looking at.
We're focused on larger customers and building out more like the mid market coverage or inside sales or is there any kind of change in how youre viewing the types of reps that you need in this environment.
It's a good question I think we've called out over the last like I said, maybe even almost two years now where we've been having a little bit more success with the larger end of the market and so those are experienced people with industry experience that we bring on.
Our core mid market reps, where probably a mix of non industry, but yet <unk> sales experienced and industry reps, we definitely lean still heavily more towards industry reps and then on the on the inside sales youre, capturing kind of digital lead generation and handling those.
And so those need less experience and.
And so we're going to be potentially adding people across the board were going through with that mix looks like but if anything it's a slight shift to a little bit larger client that we've been generating that would likely continue as we forecast going forward and maybe not quite as many on the on the small end.
But we see opportunities to expand in all markets.
Okay perfect I appreciate you taking the questions.
Thank you I'm showing no further questions in the queue. At this time I would now like to turn the call back over to management for any closing remarks.
Thank you very much I just wanted to thank everybody for their interest in Pelosity. Thanks for joining the call and also wanted to give a special thank you to all of our employees for all their hard work throughout the course of the quarter. Thank you.
Thank you all for participating. This concludes today's program you may now disconnect.
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