Q1 2024 Paycor HCM Inc Earnings Call
Ladies and gentlemen, thank you for standing by and welcome to bake on its first quarter fiscal year 'twenty 'twenty four earnings calls.
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It is now my pleasure to introduce your host Rachel White, Vice President of Investor Relations. Please.
Please go ahead.
Good afternoon, and welcome to pay course earnings call for the first quarter of fiscal year 'twenty 'twenty four which ended on September 30th on the call with me today are really the large junior paper, Chief Executive Officer, and Adam Anti paid course, Chief financial officer or financial results can be found in our press release issued today, which is available on the investor really.
Section of our website today's call is being recorded and a replay will be available on our website. Following the conclusion of the call statements made in this call include forward looking statements related to our financial results products customer demand operations and other matters. These statements are subject to risks uncertainties and assumptions and are based on management's current expectations.
As of today and may not be updated in the future. Therefore, these statements should not be relied upon as representing our views as of any subsequent date. We also will refer to certain non-GAAP financial measures and key business metrics to provide additional information to investors definitions of non-GAAP measures and key business metrics and a reconciliation of non-GAAP to.
GAAP measures are provided in our press release on our website with that I'll turn the call over to probable.
Thank you Rachel and thank you all for joining us to discuss <unk> fiscal first quarter results.
Strong start to the year with revenue growth of 21% this quarter.
It drove margin expansion of nearly 200 basis points year over year.
Continuing to invest in differentiating our platform, which increases the value of our HCM suite to our customers and expand our future peplum opportunity.
The demand environment remained solid for our innovative HCM suite.
Power's leaders to unlock the potential of their people and business performance.
As we shift upmarket clients tend to purchase a more complete solution and average deal size and attach rate continues to expand nicely.
Deal pipeline is up year over year in win rates remained strong.
Our team is making significant progress on our two strategic growth initiatives, expanding sales coverage and increasing the amount we charge per employee per month or purple.
We are on track to deliver on our full year sales head count growth target of approximately 20% and.
And sales productivity is progressing in line with our expectations.
This quarter, we announced a new go to market channel leveraging our industry, leading interoperability engine.
Hey, Corey has a substantial opportunity to partner with technology firms such as vertical focus fast solutions are.
Our existing software partners offer our embedded HCM solution nested within their platform for a seamless client experience.
Legacy in House solutions are ripe for disruption I think ACM requirements continue to increase in complexity and demand for more than just the payroll solution.
We are the only HCM provider with an embedded mid market offering and we have a growing pipeline of interested partners.
The larger embedded ATM partnerships, we mentioned last call will increasingly contribute to our revenue growth in the second half of fiscal 2024.
And be accretive to margin in fiscal 'twenty five.
This quarter, we enhanced our modern award winning HCM suite with valuable new functionality that powers people and performance.
Our liffe platform of $51 increased $9 or 21% year on year, which equates to a puppy or $612.
Further strengthening our suite of artificial intelligence solution.
We recently released a new general AI analytics digital assistant powered by busier.
The new offering empowers leaders to quickly and easily consume people focused analytics and a conversational chat interface.
We are helping leaders save time and resources by seamlessly providing them with the answers they need to effectively powered their teams.
We continue to see excellent adoption of the talent solution, we launched in fiscal 2021.
With revenues up 40% year over year.
We're also proud that nucleus research recently recognized our talent acquisition suite as a market leader.
I'm also incredibly pleased with the promotion of Brett meager, the chief customer experience officer, where she will lead our next generation of service.
Bridging data and technology to best serve our customers in this new role Brent will unify implementation and service and loyalty organization.
Further enhancing the company's relentless focus.
Creating an irresistible customer experience.
Lastly, I am proud Peco received several culture Excellence awards by top workplaces.
This is the third consecutive year, we have been recognized for promoting D E and I practices.
And the first time, we were acknowledged for employee appreciation.
Employee well being and professional development.
As a human capital management company, we know firsthand, how important leaders and culture are driving employee engagement and business performance.
With that I'll turn the call over to Adam to discuss our financial results and guidance.
Thanks, Raul I'll discuss our first quarter results and share our outlook for the second quarter and fiscal year.
This quarter core generated total revenues of $144 million, an increase of 21% year over year recurring revenue grew 16% year over year slightly above our guidance as labor market growth of 2% marginally outperformed our zero to 1% assumption.
Recurring revenue growth was largely driven by increasing the number of employees on our platform and the amount we charge per employee per month, we have more than two and a half million employees on our platform up 9% over the prior year across more than 30800 customers because we shift our portfolio upmarket our average customer size continued to increase and now stands at 80.
Three employees per customer up from 78, a year ago supported by even stronger growth and enterprise customers in line with this shift the number of employees at the mid market and enterprise grew 11% year over year, while growth in the micro segment remained flat.
Additionally, about a point of our employee growth this quarter is from our embedded HCM solution.
I'm sure what their transition years ago to being a modern cloud HCM platform, we breakout solutions are peppa model.
The model has enabled us to simplify our pricing employing a bundled offering approach and reduce friction in the adoption of our broader set of HCM solutions.
Our cloud platform and pricing model provides much better value and predictability for our customers and for Baker.
That's our HCM suite has expanded more than half of our revenue was generated from non payroll HCM solutions, such as talent and workforce management all of which is on a couple of them are pricing model.
Effective pepam increased 6% year over year to more than $17 for the quarter driven by continued expansion of our product suite bathroom growth has been fueled by companies with cross sales pricing initiatives and higher bundle adoption.
We're seeing steady pepam contribution from cross sales and higher bundle adoption. However, we expect more moderate contribution from pricing initiatives as inflation flows and new business as we onboard a larger enterprise and embedded HCM technology partners with greater pricing power, which will be offset by higher average deal sizes and stronger margins.
Our primary objective remains sustainable 20% plus recurring revenue growth, we've consistently expanded margins as we scale the business.
I was just gross profit margins, excluding depreciation and amortization improved to 78, 3% with a 140 basis points higher than the prior year, while continuing to invest in differentiating our client experience.
Sales and marketing expense was $47 million or <unk> 33 per cent of revenue similar to levels a year ago as we increased sales coverage nationwide to capture market share.
On a gross basis, we invested $25 million in R&D or 17% of revenue to enhance our HCM platform and expand our pepam opportunity on an annual basis, we expect to invest 15% to 16% of revenue similar to levels last year.
We are driving leverage in G&A as we scale the business G&A expense was $20 million or 13, 7% of revenue an improvement of 120 basis points from last year.
Adjusted operating income increased more than 50% to $60 million with margins of 11, 1% up over 200 basis points from eight 8% last year, while we continue to make strategic investments to accelerate sales.
Elevate service and differentiate our product.
As is typical in the first quarter due to the timing of our bonus payments adjusted free cash flow was negative $40 million, we expect to generate greater adjusted free cash flow for the full year and for free cash flow margin to expand faster than adjusted operating income as we scale the business.
We ended the quarter with $54 million of cash and no debt.
For fiscal 2024, we remain focused on execution scaling the business and driving margin expansion the demand environment remains resilient with higher top of funnel demand that we had a year ago, our leader value proposition continues to resonate and we are delivering compelling value for clients to transition from legacy solutions, the labor market remains tight and our.
Guidance assumes flat organic employee growth among existing customers for the remainder of the year.
For the second quarter, we expect total revenues of between 154.5, and $156 $5 million or 18% growth at the high end of the range.
And adjusted operating income of between 19, and a half and $25 million.
For the full year, we expect revenues of between $648 million to $654 million or 18% growth at the top end of the range and we anticipate adjusted operating income of $102 million to $106 million.
This quarter, we generated $11 million of interest income on average client funds of just over $1 billion out of an effective rate of about 425 basis points based.
Based on current rates, we expect interest income in the range of $44 million to $45 million for the full year.
The combination of labor market growth comps moderating year over year, and larger enterprise customers and embedded at key important starting provides confidence in our second half revenue growth acceleration.
Overall demand remains healthy and our innovative HCM solution empowers people and performance is winning in the market. We were demonstrating margin expansion as we scale the business and believe there is significant opportunity to drive further leverage as a mission critical applications, though early in the transition to the cloud. We believe there is significant runway for sustainable growth and 38 billion dollar ECM Mark.
With that we'll open the call for questions.
Operator.
Thank you.
Ladies and gentlemen, we will now be conducting a question and answer session.
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Ladies and gentlemen, we request you to restrict to one question and one follow up question, Bob Potter spin.
One moment, please while we poll for questions.
Our first question is from Gabriel yellow bulges with Goldman Sachs. Please go ahead.
Yeah.
Hi, This is Kevin Kumar on for Gambro, and thanks for taking the question.
Wanted to ask if there's any changes in how you're thinking about linearity of recurring revenue for the year.
Particularly.
Any color on enterprise pipeline and the overall timing of go lives would be very helpful. Thank you.
We talked through a little bit of those enterprise and large partnerships that we're really going to come live in.
Start to contribute more in the back half of the year and things are looking really consistent so.
No no real change from how we were thinking about it just a couple of months ago. So.
That's my point and then maybe just on cross selling.
How should we maybe think about the cadence of cross selling through the year, what what segments of the market are there opportunities to drive further penetration in modules, particularly Taliban.
Yeah, we've had.
Kevin we've had really.
Strong consistent cross selling.
Ross all sizes of the enterprise, obviously talent continues to outperform the rest of the portfolio.
People are still looking to attract and retain.
Quality associates.
And so we.
We feel really good about our cross selling motion.
Motion that we have in process.
Great. Thanks for taking the questions.
Got it.
Thank you.
Our next question is from the line of Bobbin Shah with Deutsche Bank. Please go ahead.
Great. Thanks for taking my question can you guys just speak about what you're seeing in terms of the broker channel and how that's helping familiar with called basis have you seen any kind of change there.
Some of the investments you're making into that opportunity.
Yeah.
Really bullish on the broker channel.
<unk> percent contribution to overall bookings is still you know around 50%.
In the field bookings we continue to.
Focus on our large national partners, and we're getting an outsized.
Performance in those cohorts.
So we're excited we think we have a winning formula with brokers. We grew the number of brokers that we partnered with year over year end and we continue to see really solid participation in that channel.
That's helpful and I have done this quarter you guys kind of unveiled your embedded solution can you just talk a little bit more about the longer term opportunity here.
Go to market for this product differs from competitors offering kind of in that apparel.
Yeah. So first we think that there's a huge opportunity I mean, there's thousands of software players who could.
Could you leverage a service like ours, HCM and payroll capabilities. Many of them are trying to offer their own services today and find that when you know when they worked through our offerings that it just makes more sense.
To partner with Us and we think that it's a it's a great go to market from that perspective to be able to create for them to be able to create more compelling and differentiated service really helps us to be able to expand more quickly you know across services across markets, where we usually have coverage, but we will be able to provide a deeper coverage across more.
More of the market at a faster pace and in terms of the go to market strategy for us I mean, it's really around finding those winning partnerships and making the right bets on great partners early and we've had a really strong pipeline a lot of really great interest and some key partners that are winning already today.
Yes.
Thank you.
Our next question is from the line of tagging Tilman, but Jewish Securities. Please go ahead.
Yeah, Hi, Ro Adam in rates, so nice job on the quarter, So I actually I want to put on the embedded ACM question.
But that's my first question it might be a multipart or sorry about that Rachel, but if if I heard Adam I think he said that actually may have contributed one point of growth. So I wanted to confirm that and then on embedded HCM. It does seem like a pretty big opportunity is this something that would support kind of the sustained 20% or could this actually help even maybe potentially accelerate or have.
Gross drift a little higher and then and then I had a follow up.
I mean, I think longer term it has an opportunity to really continue to expand our ability to grow at a higher level. I mean, I think it's early of course, and we want to hit that 20% sustainable in the near term, but we think that has an opportunity to really continue.
Continue to accelerate again, theres, a lot of market opportunity and like we talked about like half of the entire market is really <unk>.
Service bodies in house and regional providers a lot of those are the software providers that were working weapon that we think that a really great opportunity to partner with them in terms of the contribution yes. It was a it was about a point of employee growth that's going to come on at a slightly lower pepper, but it did already add about a point of our employee growth in the quarter.
That's great to hear and then just a follow up question relates to sales and marketing it was actually a little lower than what we were forecasting and just kind of the trends year over year and sequentially. It's definitely slower. So I'm curious like I I think we're all you did say something about productivity of the sales team and then any more color you could share there and also just to what about seller retention how is that trending.
Or was there something else with maybe just certain kind of discretionary marketing that we just didn't see thank you.
So as far as the.
The overall seller cohorts in productivity there operating you know consistently with our expectations.
And retention is been consistent year over year, and so we haven't seen any changes there. Obviously our objective always is to continue to increase productivity per rep, while you're adding a big cohort of new people its always favorable to make sure that you can at least maintain that the productivity you had the prior year, while adding.
Less productive people and to enter the ecosystem. So we feel good about that obviously you know we have to ramp train and grow the productivity of that cohort.
Year over year, and that's what we're focused on execution from that perspective.
Yeah, I think Jerry on the full year, we're still going to you know we're planning to be in that 32% to 34% of revenue range, which will continue to.
To grow at a good rate I think there was some dynamics inside of the quarter as well we moved some of our or a couple of larger programs between Q4 and Q1. So there might've been a couple of points just back and forth between that.
No real difference in the trends, especially as we think about overall sales personnel and marketing programs that we've continued to invest out you know fairly similarly, although we do expect to continue to get more scale out of the organization as we really focus on hiring reps and our sales leaders.
Alright, Thank you all.
Thank you thanks Terry.
Thank you.
Our next question is from Bryan Bergin with TD Kelvin. Please go ahead.
Hi, This is actually Jared on for Brian Tonight in terms of the demand environment. We heard your commentary about it being solid but would you say theres been any change relative to last quarter and then how would you characterize the current demand environment relative to pre pandemic.
Yeah, we haven't we haven't seen any changes it's been really consistent with what I would tell you is that where we're seeing really strong top of the funnel performance strong impressions visitors to pay core dotcom first time appointments and win rates are consistent so we feel really good about where we are.
Our AR at the top of the funnel and so the demand environment is strong and holding up.
Okay, Great and then in terms of the general that AI can you discuss the level of client interest in your Gen AI functionality and put in the book how should we should think about the potential revenue opportunity there.
Yeah, I think it's still a little early to call you know the revenue opportunities on genetic degenerative AI I think theres a couple of areas that we're using it in the system like Javascript Incinerator. For example, we're able to roll out pretty quickly and we've seen a lot of interest rapid usage, but it's not something that were necessarily thinking about charging explicitly for I mean, where we're using those.
Relying GPT models and as your through Azure and we're seeing a lot of success, we can roll stuff out really quickly I think theres other areas, though like with our recent analytics capability that we're going to watch where we are seeing pretty strong request from a customer perspective, and there will be some opportunity to potentially charge an increase pepper him for that.
So I think it's going to be a blend and I think it's still a little early to call, but I think that that should take shape, maybe over the next couple of quarters and will have a little bit better view going into the back half of the year.
Okay.
Thanks Jared.
Thank you.
Thank you.
Next question is from Scott Berg with Needham and company. Please go ahead.
Hi, everyone nice quarter, thanks for taking my questions.
Raul I have kind of maybe or maybe it's a better question for Adam but I have kind of an unusual question is.
And as I look at your <unk>.
Statement your recurring revenue line item the growth rate tends to bounce around more than other public vendors in this space more than I've seen historically.
Any reason why that is in a particular.
Quarter over time didn't know if there's some different dynamics going on in the business that would be.
Helpful to understand the question I have received from investors more than a few times recently.
Yeah, Hey, Scott I mean, I think over the last week for years, we've really migrated to a pet bomb model, but the majority of our business on a type of model and we've really you know.
Driven more consistency in the ongoing growth rates in our current growth rates and it's really been about addition of new business for US also as we've rolled out new services. There may have been some lumpiness and whatnot and then you'll see over the last couple of years coming in but nothing like particular, and I can't speak to everybody else's business model per se, but.
We've been really consistent in our approach over the last four years building to the model that we have now and we've been able to be fairly consistent with them.
Got it helpful. And then from a follow up question perspective, your effective P P F or purple.
Charges kind of trended down from 15% a couple of quarters ago, 6% in the current quarter. You know how is how does the cross sell king today, maybe versus earlier last year is it similar then what you've seen from expansion opportunities or maybe it's new customers buying the same amount how should we think about that metric and how it's trended up.
Yeah, the cross sell contribution to the Perm growth rate, it's been really consistent actually you know Tien tsin that sort of two to three points of additional growth from cross sell and this year as we've gone from really what I would say as a more normal rate is in that sort of 8% to 9% range. This quarter were in that six just over 6% growth range.
And really driven by the two dynamics of the embedded channel growing a point and then also our enterprise channel grew or enterprise segment grew a little bit faster that's customers over 1000, and so both of those really Oh you know.
Accounted for the difference really between that eight to nine points of growth in the 665 points of growth that we're seeing this quarter, but the cross sell motion. It's been really consistent if anything theres I think continued opportunity, especially as we've added a lot of great products and expanded the suite over the last couple of years. There continues to be a lot of white space there.
Understood. Thank you very helpful.
Thanks Scott.
Our next question is from the line of Brian Peterson with Raymond James. Please go ahead.
Thanks for taking my question and congrats on the strong quarter. So I wonder follow up on the embedded in the embedded opportunity I just don't understand how quickly can those relationships ramp both from a technology perspective, and working with a potential partner and then is there a go to market motion I'm, just curious how to think about that and when we should start to see that ramp.
Yep.
Yeah, those relationships take a while I mean from the time you initiate the first conversation until you're signing new business are you or you're building over on migrating our portfolio I mean, it can take well over a year and you know the.
That cycle was quite a bit longer and you're navigating a more bespoke service with the partner itself right. We want to create great technology and integrations that enable a better experience for their customers and it's all about setting that up it's about setting up the go to market capability, where we support them.
Especially early on so that they can get up and running and then once they board whether that's through their portfolio or or just signing new business. You know then then it has to be the chance and the ability to ramp rather quickly, but it's a long upfront motion from sale to close yeah, Brian there, there's two different types of part.
Right Theres partners with and existing portfolio.
And they tend to take longer because they may already have a solution and we have to integrate and and ensure that we meet all the feature functionality needs of the existing platform and the formats that they are accustomed to.
Other software partners that don't currently have an HCM solution or limited HCM solution.
Are easier to onboard.
And you started selling new so you have you have to you. It's more of a you know go to market motion every week versus converting a large base. So there's two different opportunities we started with the ladder with two larger installed bases.
And we are you know our go to market motion.
Has resources targeting both Tonight.
Understood I appreciate the color there and maybe just you know on the P. P. M expansion, we're seeing more of this quarter. How do we think about kind of the annual pace of P. A M expansion over a long term basis. Thanks guys.
Yeah, I think that we're probably in a more normal range. So in the sort of mid to upper single digits, you know from that 6% or so.
And it's going to depend on how pricing trends over the next couple of years, where we're continuing to see opportunity to expand our pricing through additional services and expanding the suite. So we're wrapping all of that together and then again youre going to see a little bit more of this pressure from versus where we've been recently with the addition of some of the embedded channel and a little bit more.
The upper market in the enterprise segment, but.
But you know I think that that sort of 6% to six 8% range probably makes sense for us.
Thank you.
Thanks, Brian.
Thank you.
Our next question is from the line of Mark <unk>.
And with that please go ahead.
Hey, good afternoon, and thanks for taking my questions.
I also have questions on the audience.
Solution can you give us some more examples you know the types of software partners that you're.
That you're.
You know partnering with and.
And how does it work in terms of you know the relationship with the client.
You know you're the platform as it was going to be with with their brand and so I'm wondering you know how does.
How does customer service work, how does pricing work how does the revenue share work and how should we think about the margin implications.
Oh gosh trouble. Thanks for the 16 question I appreciate it I'll try to remember them all.
So I think when you when you think about it from a targeting prospecting perspective.
You know think about vertical software stacks across many different types of industries.
That are go into market and delivering you know either a ERP or workforce management tool.
You know are two good examples and what they're really looking for something sticky and predictable inside the stack.
And so that's what we're offering and so you know a lot of great targets for US are you know in that you know call it 10 million to.
$250 million in revenue that are looking to expand pepam inside their base looking to increase their stickiness.
And so there's a whole bunch of tech companies that fit that model. Many of them are P. Back that that we think are really attractive and excited about this type of opportunity.
As far as the combination of who does what you know that's configurable by partner, obviously, the payroll and HCM product.
Is ours, and we're going to integrate it into their application.
But ultimately who does the implementation and who does this service.
That really has an impact on the economics right and so we're flexible based on the partner needs and that's how you should think about Adam anything you would add.
I mean on the revenue model, it's going to be a pretty straightforward in terms of the way.
We will build a partner and the partner will go to market with whatever their own pricing strategy is so whether they want to build it into their own pricing or bundling out separately, there's no revenue share.
Great and then as we're moving up market in terms of size of clients, but should we think about the the.
The gross profit margin you know exclusive of the float.
How should that trend.
I mean, the gross profit margin across many of our segments is fairly consistent actually so what what we see is that you know what.
You get out of this sort of sub 10 employees up 15 employee range. The gross margin tends to be fairly consistent and then it's really about you know the sort of services in the amount of products that our customers are buying really what will ultimately determine the overall margin of that client because payroll ends up being the majority of where the operating cost.
It goes into supporting our client between tax service and operations.
General support management, Yeah, Yeah, Mark I think you know what's exciting for US is you know from the beginning and you were with us at the IP.
Our objective is to continue to shift up market.
And you know our new bookings this quarter the advertising double our current employee base. So we're significantly outpacing on average our pace is in moving up market.
And so we're really excited about the progress that the sales team has made the product team has made and the operations team has made to be able to support that ecosystem.
Thanks Mark.
Our next question is from the line of city Fannie that heat with Mizuho. Please go ahead.
Hey, this is Phil on for city. When you guys look at the workforce levels across your customer base are there any particular verticals that youre seeing weaker stronger levels any kind of color would be helpful.
Yeah, Phil you know obviously you know we were.
Abroad, you know solution that serves all industries, however that being said you know in the four industries that that we.
Our focused on I would say, we've seen strength in food and beverage and professional services over the quarter and slight moderation in manufacturing and health care.
But on the average it delivered you know you.
You know our our expected outcome.
Okay.
Okay.
Thank you.
Our next question is from the line of Mark Murphy with J P. Morgan. Please go ahead.
Hey, guys. Congrats on the quarter. This is already on for Mark Murphy. Our first question is if you guys had seen any kind of divergence says I know you guys said the demand overall has been steady and solid but any divergences in terms of segment geography or end market or kind of any other dimension.
Yeah, Hey, Eric I mean, not really its been fairly consistent right.
We've looked at the macro market and you look at broader non farm payroll growth.
You know trending start trending down, but still very steady a little sequential decline and I think we're seeing similar I mean, we're seeing it's really similar to that.
And so consistency you know over the last couple of quarters.
I haven't seen any big divergence really in any of the markets or or definitely not inside of the portfolio.
And then just as a quick follow up because you guys are kind of moving into the tier one cities and and being pulled upmarket.
Any changes in who youre seeing in competition or win rates or anything along those lines.
I know when rates are consistent.
And some who we see we still see ADP Pelosity pay com you know would be the three competitors, we see the most in the market ADP either exiting encumber you know or.
A competitive there, but ultimately those are the three we see that hasn't changed.
We started our journey they were all national providers in every market and so there's no real market differentiation within ATM from that perspective.
Got it and the win rates across those three are have been relatively stable as well.
Yeah.
Awesome. Thank you.
Tony.
Thank you.
Our next question is from Steve Enders with Citi. Please go ahead.
Okay, great. Thanks for thanks for taking the questions here I guess I'll ask another question on the embedded at HCN.
I guess I, just want to understand a little bit more on you.
It seems like really good strength I'll step back here, but how are you feeling about what's embedded in the outlook for the rest of the year and then as we think about the margin profile of our embedded HCM, how does that maybe different versus the core.
The core payroll solution.
Yeah, Hey, Steve we we feel good about the guidance that we've shared that it includes the future growth of the of the channel and performance. Thus far so we still feel good in that and that's really consistent with how we came into the year in terms of the margin and the margin profile will be.
A little bit stronger because you don't have quite as much on the cost of acquisition side right. So we don't have to maintain sales distribution you.
You don't have quite the same level of implementation cost and you're supporting the partner versus the front end customers, so a little bit different model and a little bit better margin I'd say earlier on like through this year, you're not going to see any material benefits unnecessarily in the margin profile as we invested in the channel, but that'll come really you know $25 20.
Mix will continue to be additive to the margin.
As we grow with the channel over time.
Okay Gotcha.
That's that's helpful helpful contacts there.
And then as you think about the you know the the tier one investments that they use that you've been making and I guess kind of the geographic footprint today.
What would you kind of call out the you know kind of any change in the pockets of strength or any areas that maybe were a little bit a little bit softer out there just in general how are you thinking about the tier one.
Investments in the ramp up ramp up there.
Pier one continues to be the bulk of our investment.
It's also the lion's share of our performance and growth. So we feel really good about that.
We're seeing really good results from a average deal size number of employees you know above the line average so we feel like it's really good as far as like individual markets like when we're performing well or poorly.
All about the execution of the team on the field that it's really not at this point, we've seen no macro impact in any market.
That we have it's more about do we have a great leader Ah, we fully staffed and are they running the playbook.
And if they're doing that we perform really well.
We are missing one of those things you know we won't perform as well as we are in the other markets.
Okay perfect. Thanks for taking the questions here. Thank you.
Steve Thank you.
Our next question is from Daniel Jester with BMO capital markets. Please go ahead.
Hey, great. Good evening, everyone. Thanks for taking my question.
You know maybe you can just spend a minute talking about your partnership with this year and the analytics solution.
Maybe can we generalize. This is this a type of partnership that we might see more from you in terms of going to to the best of breed solutions and seeing if you can use it to accelerate your own product opportunity or is this maybe more of a one off given the need around analytics today.
Yeah, I mean, we look at partnership opportunities just like we look at acquisition opportunities and <unk> developing the solutions themselves I mean, I think in this case, we really like the partnership with US here and we didn't think we were going to be able to get to what they've built they've been a great partner they knew what they were doing and we've been.
Able to build something together I mean, they work with us.
Very well and directly with our product organization to a you know to create this solution to be able to take it to market through this channel rapidly and so we really appreciate that partnership with them.
We would consider other partnerships, but it's not like a change in the strategy necessarily I don't think that you're going to see one direction, one way or the other you know more or less yeah. I think it's you know we we identified them as best of breed. It wasn't something we can do right away Ryan It's a great partner, we really enjoy that relationship and we're developing stuff together.
Which is creating more power for both of our platform. So we're excited about it and we want to continue to you know continuing to grow our relationship with them.
Great. That's really helpful. Thank you and then I think you touched on this earlier, but maybe we can just circle back to it in terms of the percent of your revenue base today, that's still being paid on a on a per check per check basis as opposed to pass on kind of where does that roughly for today. Thank you very much.
Yeah, we have about a quarter of our portfolio that has some form of a per check model, although half of that revenue is.
Theyre also buying other HCM solutions that are on a pepper model and this is really over the last five years, you know migrated from you know, 20% or less than 20% to nearly 80% of the portfolio is now on a on some pepam strategy and also 100% of the new business that we sell comes on on a peplum strategy, Yeah, I would just like the energy.
You know that I'm 90.
99% plus percent of our payrolls are already perfect.
So we have you know we don't really have.
The issue with trying to generate revenue from client mistakes.
Inc.
Yeah.
Thank you.
Our next question is from the line of Matt Pfau with William Blair. Please go ahead.
Okay, Great just wanted to ask on <unk>.
Customer acquisition that you made a few quarters ago, just an update on how that's progressing relative to your expectations in terms of converting those customers.
Yeah, Hey, Matt things are progressing really well, we had a really great success with that portfolio and bringing it over pretty quickly. It's all really coming together here in the first quarter, so really nothing to add necessarily in the quarter, but on track for the expectations that we had sort of going into the year on that portfolio.
Great and then just to follow up on the employee retention credit I think you had a small amount of revenue from that previously its programs and pause now is there anything in guidance going forward included from that.
Yeah, I mean, the program hasn't been positive in that it's not still processing when the IRS still is processing I mean, we had expectations to receive a little bit of ERC related revenues.
And I think it's going to come in close to our expectations. I mean, we were anticipating something around one point of our revenue for the whole year related to <unk> and I think it's going to be relatively consistent to that in Q1 was on track Q1 was a correct yep.
Perfect. Thank you I appreciate it.
Thank you.
Next question is from Kevin Mcveigh with UBS. Please go ahead.
Thank you so much I wonder could you give us a sense of how much pricing.
Overall contributed to 2023 revenue and how should we think about that.
What's embedded in 'twenty four.
Yeah, Hey, Kevin were a little soft there I think the question was around.
Price, how much did pricing impact FY 'twenty, three I mean normally and the way that we sort of think about it is how much of our pep on growth comes from pricing actions and about a third of it tends to come from pricing and so that could be you know two to three points or so depending on the overall growth and then we have some specific programs and some new services that we release.
Also in Q3 of last year that we talked about that added up to that 15% Perm growth was a little bit more outsized. There was some new services that were primarily around year end our fee services. So you know traditionally or typically we would see about a third of that growth related to some sort of a pricing.
Do you think about it.
The realization versus kind of the book on the pet them do you see that.
Because I think he quoted $17 or something like that realization versus 51.
It kind of book, if you would any thoughts as to the convergence there.
Yes, I think it's going to take some time for it to convert all the way to the top end I mean, I think the fact is as we're growing our product suite faster than our ability to you know.
Drive, 100% penetration and attach and so it's going to take some time, I mean, where you're growing the suite out and expanding really the bundle pricing model, which helps us at the point of sale on new business, which is part of what's helping drive drive up the continued Perm growth and then you Gotta go back and drive the cross sell motion into the base. So that just takes a little bit longer.
So and then the team has been great at being able to add new solutions and products to the suite at an outsized rate relative to the rest of the <unk>.
You know the competitive set and the other solutions in the market. So I don't think it's going to converge in any near term.
I think it's gonna be steady over time.
Thank you.
Our next question is from the line of Robert Simmons with D. A Davidson. Please go ahead.
Hey, Thanks for taking the question. So your guidance looks like it implies revenue accelerate something like two points in the second half of the year from first half.
Yes.
How much is that from those ramping partnerships and the embedded solution and how much are other factors why would first half to be slower than the second half.
Yes, I mean, it was really as we were adding some of these partnerships last year and coming into the year, we really talked about and there was a couple of dynamics that led to you know a lower Q4, Q1 number and going into the back half of what is now FY 'twenty four.
And and yet some of that's going to be the enterprise some of that is going to be.
The.
Partnerships and then there's also a little bit of a continued same store sales that were not going to have the same headwind going into the back half of the year as well.
So most of it is just the visibility to what we're going to see here coming up in January and starting in Q in our fiscal Q3, which is the January quarter.
And giving us the confidence to the full year, which has been consistent with how we thought about it the last couple of quarters now.
Got it and last year your seasonality it was a little bit skewed three Q4, Q should we expect that to normalize this year, which would kind of suggest maybe a lower three Q of course ready to hire folks your growth rate or what should we think.
Yeah, I think youre going to see a three to normalize this a little bit.
There was a little bit of trade with Trc between <unk> and <unk>, that's really not going to be as much of a factor as.
You know I think we'll continue to see <unk> normalize over time, just as the you know the year and fees become a smaller and smaller portion of our portfolio.
Got it thank you.
Thank you.
As there are no further questions I would now have the conference over to Raul Villa Julie Neal for his closing comments.
Thank you again for joining US Tonight, we are encouraged by the underlying fundamentals of the business and remain focused on executing our strategy. We look forward to connecting with you at several upcoming events, including the TD Cowen HCM summit have a great night everyone.
Thank you.
The conference of pay card has now concluded. Thank you for your participation you may now disconnect your lines.
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Yeah.
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