Q4 2024 Paycor HCM Inc Earnings Call

Speaker Change: Greetings and welcome to the PayCorps fourth quarter 2024 earnings call.

Operator: At this time, all participants are in a A question and answer session will follow, If you require operator press star zero on your telephone keypad. As a reminder, this conference... It is now my pleasure to introduce you to your host.

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Rachel White: It is now my pleasure to introduce you to your host, Rachel White, Vice President of Invest Relations.

Speaker Change: recorded.

Speaker Change: It is now my pleasure to introduce you to your host, Rachel White, Vice President of Invest Relations.

Unknown Attendee: Thank you, Rachel. You may begin.

Rachel White: White, Vice President of Invest, Thank you, Rachel. You may begin. Good afternoon and welcome to PayCor's earnings call for the fourth quarter and fiscal year 2024, which ended on June 30th. On the call with me today are Raul Villar, Jr., PayCor's Chief Executive Officer, and Adam Ante, PayCor's Chief Financial Officer. Our financial results can be found in our press release issued today, which is available on the Investor Relations section of our site.

Raul Villar: Good afternoon and welcome to Paycor's earnings call for the fourth quarter and fifth-glo year 2020. On the call with me today are Raul Villar, Jr. Paycor's Chief Executive Officer and Adam Ante, Paycor's Chief Financial Officer.

Speaker Change: Thank you, Rachel. You may begin.

Speaker Change: Good afternoon and welcome to PayCorps' earnings call for the fourth quarter and fiscal year 2024, which ended on June 30th.

Speaker Change: On the call with me today are Raul Villar, Jr., PayCorps' Chief Executive Officer, and Adam Ante, PayCorps' Chief Financial Officer. Our financial results can be found in our press release issued today, which is available on the Investor Relations section of our site. Today's call is being reported, and a replay will be available on our website following the conclusion of the call.

Unknown Attendee: Our financial results can be found in our press release issued today, which is available on the Investor Relations section of our site. Today's call is being reported, and a replay will be available on our website following the conclusion of the call.

Rachel White: Today's call is being reported 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.

Unknown Attendee: 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.

Speaker Change: 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.

Unknown Attendee: 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.

Speaker Change: Therefore, these statements should not be relied upon as representing our views as of any subsequent date.

Raul Villar: 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 Raul. Thank you, Rachel. And thank you all for joining us to discuss Paycor's fourth quarter and full year results. Our unique value proposition of empowering leaders to drive people and business performance continues to win in the market and help drive revenue growth of 18% for the quarter.

Speaker Change: 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 Raul.

Raul Villar: With that, I'll turn the call over to Raul.

Raul Villar: Thank you, Rachel. And thank you all for joining us to discuss Paycor's fourth quarter and full-year results. Our unique value proposition of empowering leaders to drive people and business performance continues to win in the market and help drive revenue growth of 18% for the quarter. For the fiscal year, our team executed against our strategic growth initiatives, increasing the average number of employees on our platform by 9% and expanding the amount we earn per employee per month or pepum by 6%, resulting in 19% revenue growth. We delivered significant adjusted operating income and free cashflow margin expansion this fiscal year, while strategically investing in our platform and customer experience.

Raul: Thank you, Rachel, and thank you all for joining us to discuss PACOR's fourth quarter and full-year results.

Raul: Our unique value proposition of empowering leaders to drive people and business performance continues to win in the market and help drive revenue growth of 18% for the quarter.

Raul Villar: For the fiscal year, our team executed against our strategic growth initiative. Increasing the average number of employees on our platform by 9% and expanding the amount we earn per employee per month, or PEPM, by 6%, resulting in 19% revenue growth. We delivered significant adjusted operating income and free cash flow margin expansion this fiscal year while strategically investing in our platform and customer experience. Demand remains healthy as most employers are struggling with antiquated and incomplete HCM tools.

Raul: For the fiscal year, our team executed against our strategic growth initiatives.

Raul: Increasing the average number of employees on our platform by 9% and expanding the amount we earn per employee per month, or PEPM, by 6%, resulting in 19% revenue growth.

Raul: We delivered significant adjusted operating income and free cash flow margin expansion this fiscal year while strategically investing in our platform and customer experience.

Raul Villar: Demand remains healthy as most employers are struggling with antiquated and incomplete 8 cm tools. Top of funnel metrics, including leads and first time sales appointments, increased significantly year over year, and our win rates remained elevated as our value proposition resonates in the market. We continued to focus marketing investments in sales hiring in the 50 largest cities in America, where we see the most opportunity. Our sales team grew 9% this year to 600 sales professionals, which increased our sales coverage in the 50 largest US cities from 52% to 55%. Average tenure would strive seller productivity increased 20% among our field sellers.

Raul: Demand remains healthy as most employers are struggling with antiquated and incomplete HCM tools.

Raul Villar: Top of Funnel Metrics, including leads and first time sales appointments, increased significantly year over year, and our win rates remained elevated as our value proposition resonates in the market. We continue to focus marketing investments in sales hiring in the 50 largest cities in America, where we see the most opportunity.

Raul: Top-of-funnel metrics, including leads and first-time sales appointments.

Raul: increased significantly year-over-year and our win rates remained elevated as our value proposition resonates in the market.

Raul: We continue to focus marketing investments in sales hiring in the 50 largest cities in America.

Raul Villar: Our sales team grew 9% this year to 600 sales professionals, which increased our sales coverage in the 50 largest US cities from 52% to 55%. Average tenure would strive seller productivity, increased 20% among our field sellers. A core component of our go-to-market strategy is developing and maintaining partnerships with key centers of influence. Benefit brokers help us identify employers that are dissatisfied with their legacy HCM tools and influence nearly half of our field bookings this year.

Raul: where we see the most opportunity.

Raul: Our sales team grew 9% this year to 600 sales professionals, which increased our sales coverage in the 50 largest U.S. cities from 52% to 55%.

Raul: Average tenure, which drives seller productivity, increased 20% among our field sellers.

Raul Villar: A core component of our go-to-market strategy is developing and maintaining partnerships with key centers of influence. Benefit brokers help us identify employers that are dissatisfied with their legacy HCM tools and influence nearly half of our field bookings this year. Our mid-market product, client experience, and sales investments over the last few years continued to pay off as our average customer size and average deal size expanded for the third consecutive year. Since the IPO, the average size of our new mid-market customers increased 30%, helping to grow our average deal size by 55%. We are efficiently extending our distribution via the indirect embedded channel we announced earlier this fiscal year.

Raul: A core component of our go-to-market strategy is developing and maintaining partnerships with key centers of influence.

Raul: Benefit brokers help us identify employers that are dissatisfied with their legacy HCM tools and influence nearly half of our field bookings this year.

Raul Villar: Our mid-market product, client experience, and sales investments over the last few years continued to pay off, as our average customer size and average deal size expanded for the third consecutive year. Since the IPO, the average size of our new mid-market customers increased 30%, helping to grow our average deal size by 55%. We are efficiently extending our distribution via the indirect embedded channel we announced earlier this fiscal year.

Raul: Our mid-market product, client experience, and sales investments over the last few years continued to pay off.

Raul: As our average customer size and average deal size expanded for the third consecutive year.

Raul: Since the IPO, the average size of our new mid-market customers increased 30%.

Raul: helping to grow our average deal size by 55 percent.

Raul: We are efficiently extending our distribution via the Indirect Embedded Channel we announced earlier this fiscal year.

Raul Villar: Our strategic partners enhance their revenue per client and customer retention by offering a modern embedded HCM solution to their clients and prospects. In this past quarter, we continued converting our third partner's portfolio, and the three new partners we announced last quarter began selling. We also signed several new partners this quarter, tripling our indirect partners over the last year. Our team also continued expanding our award-winning HCM platform with valuable new capabilities for our customers. Our product investment remains focused on deepening our core platform, further enriching our talent solution, and enhancing the connectivity of our platform. This year, we released technology that empowers leaders such as pay benchmarking, pay core paths, and labor forecasting and increase the value of our suite by $8 to $53.

Raul Villar: Our strategic partners enhance their revenue per client and customer retention by offering a modern, embedded HCM solution to their clients and prospects. In this past quarter, we continued converting our third partner's portfolio and the three new partners we announced last quarter began selling. We also signed several new partners this quarter, tripling our indirect partners over the last year. Our team also continued expanding our award-winning HCM platform with valuable new capabilities for our customers. Our product investment remains focused on deepening our core platform.

Raul: Our strategic partners enhance their revenue per client and customer retention by offering a modern, embedded HCM solution to their clients and prospects.

Raul: In this past quarter, we continued converting our third partner's portfolio and the three new partners we announced last quarter began selling.

Raul: We also signed several new partners this quarter, tripling our indirect partners over the last year.

Raul: Our team also continued expanding our award-winning HCM platform with valuable new capabilities for our customers.

Raul: Our product investment remains focused on deepening our core platform, further enriching our talent solution, and enhancing the connectivity of our platform.

Raul Villar: Further enriching our talent solution and enhancing the connectivity of our platform. This year we released technology that empowers leaders such as pay benchmarking, PayCorPASS, and labor forecasting, and increased the value of our suite by $8 to $53. Within our core platform, we recently launched a new compensation management solution that streamlines budgeting and pay cycles and adds another $2 to our suite. Our collaborative tools foster alignment across teams. Helping leaders ensure equitable and competitive compensation within budget while driving employee engagement.

Speaker Change: This year we released technology that empowers leaders such as pay benchmarking, PayCorPASS, and labor forecasting, and increased the value of our suite by $8 to $53.

Raul Villar: Within our core platform, we recently launched a new compensation management solution that streamlines budgeting and pay cycles and adds another $2 to our suite. Our collaborative tools foster alignment across teams, helping leaders ensure equitable and competitive compensation within budget while driving employee engagement. Revenue from our robust talent suite increased nearly 40% again this fiscal year, validating our unique value proposition of empowering leaders to coach, optimize, and retain top talent to drive business results. Using our unrivaled talent tools, frontline leaders are improving employee engagement, which is increasing employee retention by 10% and helping drive better business outcomes.

Speaker Change: Within our core platform, we recently launched a new compensation management solution that streamlines budgeting and pay cycles and adds another $2 to our suite.

Speaker Change: Our collaborative tools foster alignment across teams, helping leaders ensure equitable and competitive compensation within budget while driving employee engagement.

Raul Villar: Revenue from our robust talent suite increased nearly 40% again this fiscal year, validating our unique value proposition of empowering leaders to coach, optimize, and retain top talent to drive business results. Using our unrivaled talent tools, frontline leaders are improving employee engagement, which is increasing employee retention by 10% and helping drive better business outcomes. We also significantly advanced our interoperability strategy this year. According to Finch, half of HR professionals leverage seven or more employment systems, and most of these applications are not integrated, leading to errors and inefficiencies.

Speaker Change: Revenue from our robust talent suite increased nearly 40% again this fiscal year, validating our unique value proposition of empowering leaders to coach, optimize and retain top talent to drive business results.

Speaker Change: Using our unrivaled talent tools, frontline leaders are improving employee engagement, which is increasing employee retention by 10% and helping drive better business outcomes.

Raul Villar: We also significantly advanced our interoperability strategy this year. According to Finch, half of HR professionals leverage 7 or more employment systems, and most of these applications are not integrated, leading to errors and inefficiency. API use on our platform increased approximately 300% this fiscal year, demonstrating growing demand to extend HCM software to other business applications. We provide customers unrivaled flexibility to seamlessly connect their data and systems, enabling leaders to automate time-consuming, error-prone manual tasks. We have 300 plus pre-built integrations in our marketplace and made it easier to create custom integrations by increasing the number of API endpoints and our developer portal by more than 40% this fiscal year.

Speaker Change: We also significantly advanced our interoperability strategy this year.

Speaker Change: According to Finch, half of HR professionals leverage seven or more employment systems, and most of these applications are not integrated, leading to errors and inefficiencies.

Raul Villar: API use on our platform increased approximately 300% this fiscal year, demonstrating growing demand to extend HCM software to other business applications. We provide customers unrivaled flexibility to seamlessly connect their data and systems, enabling leaders to automate time-consuming, error-prone manual tasks. We have 300 plus pre-built integrations in our marketplace and made it easier to create custom integrations by increasing the number of API endpoints in our developer portal by more than 40% this fiscal year. The innovative developments we've made in our HCM platform continue to garner industry recognition. In May, Paycor won five Titan Business Awards spanning HR, Analytics, Workforce Management, and Talent.

Finch: API use on our platform increased approximately 300% this fiscal year, demonstrating growing demand to extend HCM software to other business applications.

Finch: We provide customers unrivaled flexibility to seamlessly connect their data and systems.

Finch: Enabling leaders to automate time-consuming, error-prone manual tasks.

Finch: We have 300 plus pre-built integrations in our marketplace and made it easier to create custom integrations by increasing the number of API endpoints and our developer portal by more than 40% to fiscal year.

Raul Villar: The innovative developments we've made in our HCM platform continue to garner industry recognition. In May, Paycor 1-5 Titan Business Awards spanning HR, analytics, workforce management, and talent. These tools empower leaders to connect and automate their back office, freeing them up to focus on what matters: building winning teams and driving business results.

Finch: The innovative developments we've made in our HCM platform continue to garner industry recognition.

Finch: In May, Paycor won five Titan Business Awards spanning HR, Analytics, Workforce Management, and Talent.

Raul Villar: These tools empower leaders to connect and automate their back off. Freeing them up to focus on what matters, building winning teams, and driving business results. As we enter fiscal 25. We reflected on our strategy execution progress since the IPO. Over the last three years, we have grown revenue by over 85% increased it adjusted operating income by over 130% and generated nearly 50 million more in free cash flow while expanding our sales capacity by greater than 60% and advancing our industry leading HCM platform growing our list pepum by more than 50%.

Finch: These tools empower leaders to connect and automate their back office, freeing them up to focus on what matters, building winning teams, and driving business results.

Raul Villar: As we enter fiscal 25, we reflected on our strategy execution progress since the IPO. Over the last three years, we have grown revenue by over 85%, increased in adjusted operating income by over 130%, and generated nearly 50 million more in free cash flow while expanding our sales capacity by greater than 60% in advancing our industry leading HCM platform, growing our list pepum by more than 50%. We have made tremendous progress, and the opportunity before us is significant. On our path to $1 billion in revenue, we remain confident in our ability to deliver attractive growth while accelerating margin expansion.

Finch: As we enter Fiscal 25.

Finch: We reflected on our strategy execution progress since the IPL.

Finch: Over the last three years, we have grown revenue by over 85%.

Finch: increased it adjusted operating income by over 130 percent

Finch: and generated nearly $50 million more in free cash flow.

Finch: while expanding our sales capacity by greater than 60%.

Finch: in advancing our industry-leading HCM platform, growing our list PEPM by more than 50%.

Raul Villar: We have made tremendous progress, and the opportunity before us is significant. On our path to $1 billion in revenue, we remain confident in our ability to deliver attractive growth while accelerating margin expansion. We believe there is a long runway to drive durable growth, given the size of our market opportunity and the ongoing success we have had displacing legacy solutions, which represents 75% of our booking. Our go-to-market motion has strong momentum, as we are staffed to deliver our Fiscal 25 targets, and encouraged by how sales tenure and retention are trending.

Finch: We have made tremendous progress, and the opportunity before us is significant.

Finch: On our path to $1 billion in revenue, we remain confident in our ability to deliver attractive growth while accelerating margin expansion.

Raul Villar: We believe there is a long runway to drive durable growth given the size of our market opportunity and the ongoing success we have had displacing legacy solutions, which represent 75% of our bookings. Our go-to-market motion has strong momentum as we are staff to deliver our fiscal 25 targets and encouraged by how sales tenure and retention are trending. We have significant room to drive leverage as we scale, and our top priorities are to drive sales efficiency and accelerate cash conversion. As such, we are introducing a new long-term adjusted free cash flow margin target of greater than 20%.

Finch: We believe there is a long runway to drive durable growth given the size of our market opportunity and the ongoing success we have had displacing legacy solutions which represent 75% of our bookings.

Finch: Our go-to-market motion is strong momentum as we are staff to deliver our fiscal 25 targets, and encouraged by how sales tenure and retention are trending.

Raul Villar: We have significant room to drive leverage as we scale, and our top priorities are to drive sales efficiency and accelerate cash conversion. As such, we are introducing a new long-term adjusted free cash flow margin target of greater than 20 percent. We will do that while continuing to invest in our strategic growth initiatives, namely adding employees through sales expansion and increasing PEPM through product innovation. This progress wouldn't have been made possible without the efforts of our dedicated associates. I'd like to thank the team for their hard work and support in delivering these strong results. Now I'll turn the call over to Adam to discuss our financial results and guidance. Thanks, Raul.

Finch: We have significant room to drive leverage as we scale, and our top priorities are to drive sales efficiency and accelerate cash conversion.

Finch: As such, we are introducing a new long-term adjusted free cash flow margin target of greater than 20 percent.

Raul Villar: We will do that while continuing to invest in our strategic growth initiatives, namely adding employees through sales expansion and increasing pepum through product innovation.

Finch: We will do that while continuing to invest in our strategic growth initiatives, namely adding employees through sales expansion and increasing PEPM through product innovation.

Raul Villar: This progress wouldn't have been made possible without the efforts of our dedicated associates. I'd like to thank the team for their hard work and support and delivering these strong results.

Speaker Change: This progress wouldn't have been made possible without the efforts of our dedicated associates. I'd like to thank the team for their hard work and support in delivering these strong results.

Adam Ante: Now I'll turn the call over to Adam to discuss our financial results and guidance.

Speaker Change: Now I'll turn the call over to Adam to discuss our financial results and guidance.

Adam Ante: Thanks, Role. I'll discuss our fourth quarter in full-year financial performance and then share our outlook for the first quarter and next fiscal year. As a reminder, my comments related to financial measures are on a non-GAAP basis. We had another solid quarter delivering total revenues of $165 million, an increase of 18% year over year. Recurring revenue grew 17% over the prior year. For the fiscal year, total revenues were $655 million, increasing 19% year over year. Our recurring revenue growth is primarily driven by expanding the number of employees on our platform and the amount we charge per employee per month.

Adam Ante: I'll discuss our fourth quarter and full year financial performance and then share our outlook for the first quarter and next fiscal year. As a reminder, my comments related to the financial measures are on a non-GAAP basis. We had another solid quarter, delivering total revenues of $165 million, an increase of 18% year-over-year. Recurring revenue grew 17% over the prior year. For the fiscal year, total revenues were $655 million, increasing 19% year-over-year.

Adam: Thanks Raul. I'll discuss our fourth quarter and full year financial performance and then share our outlook for the first quarter and next fiscal year. As a reminder, my comments related to the financial measures are on a non-GAAP basis.

Adam: We had another solid quarter, delivering total revenues of $165 million, an increase of 18% year-over-year. Recurring revenue grew 17% over the prior year. For the fiscal year, total revenues were $655 million, increasing 19% year-over-year.

Adam Ante: Our recurring revenue growth is primarily driven by expanding the number of employees on our platform and the amount we charge per employee per month. This quarter, employees grew 8% over the prior year, driven by new business wins with a modest contribution from labor market growth. Net revenue retention was 98% this year, in line with our expectations as the labor market growth moderated.

Adam: Our recurring revenue growth is primarily driven by expanding the number of employees on our platform and the amount we charge per employee per month. This quarter, employees grew 8% over the prior year, driven by new business wins with a modest contribution from labor market growth.

Adam Ante: This quarter, employees grew 8% over the prior year, driven by new business wins with a modest contribution from labor market growth. Net revenue retention was 98% this year, in line with our expectations as the labor market growth moderated. In a typical macro environment, labor market growth contributes a point or two of our revenue growth. While the US labor market growth moderated over the last 24 months from historical highs of three to four points of revenue contribution, now closer to zero, it has remained slightly positive. We finished this quarter with approximately 30,500 customers utilizing our platform to help coach, optimize, and retain nearly 2.7 million employees.

Adam: Net revenue retention was 98% this year, in line with our expectations as the labor market growth moderated. In a typical macro environment, labor market growth contributes a point or two of our revenue growth.

Adam Ante: In a typical macro environment, labor market growth contributes a point or two of our revenue growth. While the U.S. labor market growth moderated over the last 24 months from historical highs of three to four points of revenue contribution, now closer to zero, it has remained slightly positive. We finished this quarter with approximately 30,500 customers, utilizing our platform to help coach, optimize, and retain nearly 2.7 million employees. We continue to see our average customer size and average deal size increase as we continue to move up market, demonstrating the success of our product and service investment. Similar to last year, mid-market customers represented 80% of our portfolio, with enterprise contributing 15% and a micro-segment of under 10 employees contributing just 5% of revenue. Effective PEPM increased 8% year-over-year to nearly $19 this quarter.

Speaker Change: While the U.S. labor market growth moderated over the last 24 months from historical highs of 3-4 points of revenue contribution, now closer to zero, it has remained slightly positive.

Speaker Change: We finished this quarter with approximately 30,500 customers, utilizing our platform to help coach, optimize, and retain nearly 2.7 million employees.

Adam Ante: We continue to see our average customer size and average deal size increase as we continue to move up market, demonstrating the success of our product and service investments. Similar to last year, mid-market customers represented 80% of our portfolio, with enterprise contributing 15%, and the micro segment of under 10 employees contributing just 5% of revenue. Effective Peppam increased 8% year over year to nearly $19 this quarter. Excluding embedded HCM deals, effective Peppam increased 10%, fueled by expansion of our product suite. The growth and effect of Peppam is attributable to cross sales, pricing initiatives, and higher bundle attachments.

Speaker Change: We continue to see our average customer size and average deal size increase as we continue to move up market, demonstrating the success of our product and service investments.

Speaker Change: Similar to last year, mid-market customers represented 80% of our portfolio, with enterprise contributing 15% and a micro segment of under 10 employees contributing just 5% of revenue.

Adam Ante: Excluding embedded HCM deals, Effective PEPM increased 10%, fueled by expansion of our product suite. The growth in Effective PEPM is attributable to cross-sales, pricing initiatives, and higher bundle attach rates, and talent has consistently demonstrated strong attach rates and cross-selling tracks. Our embedded HCM channel continued to ramp and contributed two points of employee growth again this quarter. We have increasing demand from partners and our pipeline grew sequentially for the fourth consecutive quarter.

Speaker Change: Effective PEPM increased 8% year-over-year to nearly $19 this quarter. Excluding embedded HCM deals, effective PEPM increased 10%.

Speaker Change: Fueled by expansion of our product suite.

Adam Ante: And talent has consistently demonstrated strong attachments and cross-selling traction. Our embedded HCM channel continued to ramp and contributed two points of employee growth again this quarter. We have increasing demand from partners and our pipeline groups sequentially for the fourth consecutive quarter. Although we are pleased with the progress and expect to at least double our embedded revenue in fiscal 25, it will take some time before materially impacts our revenue. We continue to invest to scale and capitalize on this opportunity by expanding our capacity, our offering, and sales enablement tools to drive mutual success. This quarter, we generated $14 million of interest income on average client funds of approximately $1.2 billion and an effective rate of 490 basis points.

Speaker Change: The growth and effect of PEPM is attributable to cross-sales, pricing initiatives, and higher bundle attach rates, and talent has consistently demonstrated strong attach rates and cross-selling traction.

Speaker Change: Our Embedded HCM channel continued to ramp and contributed two points of employee growth again this quarter. We have increasing demand from partners and our pipeline grew sequentially for the fourth consecutive quarter.

Adam Ante: Although we are pleased with the progress and expect to at least double our embedded revenue in Fiscal 25, it will take some time before it materially impacts our revenue. We continue to invest, to scale, and capitalize on this opportunity by expanding our capacity, our offering, and sales enablement tools to drive mutual success. This quarter, we generated $14 million of interest income on average client funds of approximately $1.2 billion, an effective rate of 490 basis. In addition to achieving consistent top-line growth, we have continuously expanded operating margins on an annual basis. Adjusted gross profit margin excluded depreciation and amortization with 79% for the quarter and year.

Speaker Change: Although we are pleased with the progress and expect to at least double our embedded revenue in Fiscal 25, it will take some time before it materially impacts our revenue. We continue to invest, to scale, and capitalize on this opportunity by expanding our capacity, our offering, and sales enablement tools to drive mutual success.

Speaker Change: This quarter, we generated $14 million of interest income on average client funds of approximately $1.2 billion, an effective rate of 490 basis points.

Adam Ante: In addition to achieving consistent top line growth, we have continuously expanded operating margins on an annual basis. A just a gross profit margin excluding depreciation and amortization was 79% for the quarter and year. This quarter had decreased by 40 basis points over the prior year due to macro headwinds; however, it expanded by 40 basis points for the full year. This quarter, sales and marketing expense was $51 million or 31% of revenue, down nearly 300 basis points from a year ago, largely driven by more moderated sales headcount growth and our focus on efficiency and scale. For the year, sales and marketing expense was $198 million or 30.2% of revenue and an improvement of 160 basis points year over year.

Speaker Change: In addition to achieving consistent top-line growth, we have continuously expanded operating margins on an annual basis.

Speaker Change: Adjusted gross profit margin excluding depreciation and amortization was 79% for the quarter and year. This quarter, it decreased by 40 basis points over the prior year due to macro headwinds, however, expanded by 40 basis points for the full year.

Adam Ante: This quarter, it decreased by 40 basis points over the prior year due to macro headwinds, however, expanded by 40 basis points for the full year. This quarter, sales and marketing expense was $51 million, or 31% of revenue, down nearly 300 basis points from a year ago, largely driven by more moderated sales headcount growth and our focus on efficiency and scale. For the year, sales and marketing expense was $198 million, or 30.2% of revenue, an improvement of 160 basis points year over year.

Speaker Change: This quarter, sales and marketing expense was $51 million, or 31% of revenue, down nearly 300 basis points from a year ago, largely driven by more moderated sales headcount growth and our focus on efficiency and scale.

Speaker Change: For the year, sales and marketing expense was $198 million or 30.2% of revenue, an improvement of 160 basis points year over year.

Adam Ante: On a gross basis, we invested $25 million, or 15% of revenue, in R&D this quarter to continue differentiating our HM suite and expanding our PEPA opportunity. We all invested 15% of revenue in R&D for the year, similar to prior years and in line with our long-term targets. As we scale the business, we have consistently driven leverage in GNA. GNA expense was $20 million or 12.1% of revenue this quarter and improvement of 280 basis points from last year. On the full year, we achieved 150 basis points of leverage from GNA. Quarterly adjusted operating income increased over 60% to $25 million, with margins of 15.2%, up 420 basis points from 11% last year.

Adam Ante: On a gross basis, we invested $25 million, or 15% of revenue in R&D this quarter to continue differentiating our HCM suite and expanding our PEPM opportunity. We all invested 15% of revenue in R&D for the year, similar to prior years and in line with our long-term targets. As we scale the business, we have consistently driven leverage in G&A. G&A expense was $20 million, or 12.1% of revenue this quarter, an improvement of 280 basis points from last year.

Speaker Change: On a gross basis, we invested $25 million or 15% of revenue in R&D this quarter to continue differentiating our HCM suite and expanding our PEPM opportunity. We all invested 15% of revenue in R&D for the year, similar to prior years and in line with our long-term targets.

Speaker Change: As we scale the business, we have consistently driven leverage in G&A. G&A expense was $20 million, or 12.1% of revenue this quarter, an improvement of 280 basis points from last year. On the full year, we achieved 150 basis points of leverage from G&A.

Adam Ante: On the full year, we achieved 150 basis points of leverage from G&A. Quarterly Adjusted Operating Income increased over 60% to $25 million, with margins of 15.2%, up 420 basis points from 11% last year. For the full year, Adjusted Operating Income rose 36% to $112 million, up 215 basis points, while differentiating our service and solution. During the quarter, we generated $37 million of adjusted free cash flow at 23% margin, up nearly 9 points.

Speaker Change: Quarterly Adjusted Operating Income increased over 60% to $25 million, with margins of 15.2%, up 420 basis points from 11% last year. For the full year, Adjusted Operating Income rose 36% to $112 million, up 215 basis points while differentiating our service and solution.

Adam Ante: For the full year, adjusted operating income rose 36% to $112 million, up 215 basis points, while differentiating our service and solution. During the quarter, we generated $37 million of adjusted free cash flow at 23% margin, up nearly 9 points. For the full year, we generated $40 million or 6% margin and improvement of 430 basis points. Free cash flow margins expanded at twice the rate of adjusted operating income margins as we scale the business and continue to focus on efficiency. We ended the year with $118 million in cash and no debt. In addition, our stock-based compensation expense decreased year by year to less than 10% of revenue, with less than 1% share dilution.

Speaker Change: During the quarter, we generated $37 million of adjusted free cash flow at 23% margin, up nearly 9 points.

Adam Ante: For the full year, we generated $40 million, or 6% margin, an improvement of 430 basis points. Pre-CASLA margins expanded at twice the rate of adjusted operating income margins as we scale the business and continue to focus on efficiency. We ended the year with $118 million in cash and no debt.

Speaker Change: For the full year, we generated $40 million, or 6% margin, an improvement of 430 basis points. Pre-CASLA margins expanded at twice the rate of adjusted operating income margins as we scale the business and continue to focus on efficiency.

Adam Ante: In addition, our stock-based compensation expense decreased year over year to less than 10% of revenue with less than 1% share dilution. Entering fiscal 25, our top priorities are to drive sales efficiency and accelerate cash conversion. While growth remains our top priority, we believe a more balanced approach to profitability will maximize shareholder value. As Raul mentioned, we are introducing a new long-term adjusted free cash flow margin target of greater than 20%. We plan to achieve this by balancing sales headcount growth with sales productivity to improve go-to-market efficiency and continuing to drive leverage in G&A as we scale.

Speaker Change: We ended the year with $118 million in cash and no debt. In addition, our stock-based compensation expense decreased year-over-year to less than 10% of revenue with less than 1% share dilution.

Adam Ante: Entering fiscal 25, our top priorities are to drive sales efficiency and accelerate cash conversion. While growth remains our top priority, we believe a more balanced approach to profitability will maximize shareholder value. As Rahul mentioned, we are introducing a new long-term adjusted free cash flow margin target of greater than 20%. We plan to achieve this by balancing sales hit count growth with sales productivity to improve go-to-market efficiency and continuing to drive leverage in GNA as we scale. Similar to the dynamics this year, we expected adjusted free cash flow margins to continue expanding at roughly twice the pace of adjusted operating income margins.

Speaker Change: Entering fiscal 25 our top priorities are to drive sales efficiency and accelerate cash conversion.

Speaker Change: While growth remains our top priority, we believe a more balanced approach to profitability will maximize shareholder value. As Raul mentioned, we are introducing a new long-term adjusted free capital margin target of greater than 20%.

Raul: We plan to achieve this by balancing sales headcount growth with sales productivity to improve go-to-market efficiency and continuing to drive leverage in G&A as we scale. Similar to the dynamics this year, we expect adjusted free cash flow margins to continue expanding at roughly twice the pace of adjusted operating income margins.

Adam Ante: Similar to the dynamics this year, we expect adjusted free cash flow margins to continue expanding at roughly twice the pace of adjusted operating income margins. Our outlook for Fiscal 25 remains positive, based on a healthy demand environment and opportunity to drive continued PEPM expansion. However, our guidance does reflect a fluid macro backdrop, including labor market headwinds and a declining rate environment, and of course, some conservatism at this point in the year.

Adam Ante: Our outlook for fiscal 25 remains positive based on a healthy demand environment and opportunity to drive continued spectrum expansion. However, our guidance does reflect a fluid macro backdrop, including labor market headwinds and a declining rate environment, and of course some conservatism at this point in the year. For the first quarter, we expect total revenues of between $161 and $163 million, or 14% growth at the high end of the range, which includes $12 million of interest income on average client funds balances of just over $1 billion. An adjusted operating income is expected to be between $17.5 and $18.5 million.

Raul: Our outlook for fiscal 25 remains positive, based on a healthy demand environment and opportunity to drive continued PEPFAR expansion. However, our guidance does reflect a fluid macro backdrop, including labor market headwinds and a declining rate environment, and of course some conservatism at this point in the year.

Adam Ante: For the first quarter, we expect total revenues of between $161 and $163 million, or 14% growth at the high end of the range, which includes $12 million of interest income on average client funds balances of just over a billion dollars, and Adjusted Operating Income is expected to be between $17.5 and $18.5 million. For the full year, we expect total revenues of $722 million to $729 million, or 11% growth at the top end of the range, including $48 million to $50 million of interest income, which contemplates up to 200 basis points of rate cuts over the next fiscal year. And we expect adjusted operating income of $123 to $126 million.

Raul: For the first quarter, we expect total revenues of between $161 and $163 million, or 14% growth at the high end of the range, which includes $12 million of interest income on average client funds balances of just over $1 billion.

Raul: And adjusted operating income is expected to be between $17.5 and $18.5 million.

Adam Ante: For the full year, we expect total revenues of $722 to $729 million, or 11% growth at the top end of the range, including $48 to $50 million of interest income, which contemplates up to 200 basis points of rate cuts over the next fiscal year. And we expect adjusted operating income of $123 to $126 million on a recurring basis that implies more than a hundred basis points improvement in adjusted operating income margins. In summary, we remain optimistic about our opportunity in HCM. Demand remains healthy for our innovative HCM solution that empowers leaders to unlock the potential of their people and business performance.

Raul: For the full year, we expect total revenues of $722 to $729 million, or 11% growth at the top end of the range, including $48 to $50 million of interest income, which contemplates up to 200 basis points of rate cuts over the next fiscal year.

Raul: And we expect adjusted operating income of $123 to $126 million. On a recurring basis, that implies more than 100 basis points improvement in adjusted operating income margins.

Adam Ante: On a recurring basis, that implies more than 100 basis points improvement in adjusted operating income margin. In summary, we remain optimistic about our opportunity in HCM. Demand remains healthy for our innovative HCM solution that empowers leaders to unlock the potential of their people and business performance. Our solution is mission critical to attracting, paying and retaining great talent.

Speaker Change: In summary, we remain optimistic about our opportunity in HCM. Demand remains healthy for our innovative HCM solution that empowers leaders to unlock the potential of their people and business performance.

Adam Ante: Our solution is mission critical to attracting, paying, and retaining great talent. We're confident in our strategy and focused on executing a proven go-to-market playbook to deliver greater sales efficiency and free cash flow marks.

Operator: We're confident in our strategy and focused on executing a proven go-to-market playbook to deliver greater sales efficiency and free cash flow margin. With that, we'll open the call for questions. Operator, and I'll be conducting. Please limit yourself to one, If you would like to ask a question, you can call 1-866-433-4232. Star 1 on your telephone keypad. A confirmation tone will indicate, Thank you. You may press star two.

Speaker Change: Our solution is mission critical to attracting, paying, and retaining great talent. We're confident in our strategy and focused on executing a proven go-to-market playbook to deliver greater sales efficiency and free cash flow margins.

Unknown Attendee: Thank you.

Speaker Change: With that, we'll open the call for questions. Operator?

Operator: We will now be conducting a question and answer session. Please limit yourself to one question and one follow-up. If you would like to ask a question, please press star one on your telephone keypad. A confirmation to indicate your line is in the question, too. You may press star two if you would like to remove your question. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment, please, while we pull for questions.

Speaker Change: Thank you. We will now be conducting a question and answer session.

Speaker Change: Please limit yourself to one question and one follow-up.

Speaker Change: If you would like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star 2 if you would like to remove your question. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys.

Operator: Participants using speaker, It may be necessary to pick up your handset before. One moment, please, while we. Thank you. Our first question comes from the line of Terry Tillman with Truist, please proceed with their. Yeah, hey there, Raul, Adam, and Rachel. Hopefully you can hear me okay.

Speaker Change: One moment, please, while we poll for questions.

Speaker Change: and Rachel White will talk about the the importance of the of the of the of the of the of the of the of the of the of the of the of the of the

Operator: Thank you.

Terry Tillman: I have a question and a follow up per instructions. The first question is just on maybe Raul, kind of ending the year, you know, looking for a strong finish in bookings. How did, what's the report card on the enterprise segment, which you've been excited about those thousand plus employee businesses, and then mid market? What was the bookings like versus your expectations?

Terry Tillman: Our first question comes from the line of Terry Tillman with Truist Securities. Please proceed with your question.

Rachel White: Thank you. Our first question comes from the line of Terry Tillman with Truist Securities. Please proceed with your question.

Terry Tillman: Yeah, hey there, Raul, Adam, and Rachel. Hopefully, you can hear me okay. I've added a question in the follow-up per instructions. The first question is just on maybe Raul is kind of ending the year, you know, looking for a strong finish in bookings. How did what's the report card on the enterprise segment, which you've been excited about those thousand plus employee businesses and then mid-market? What was the bookings like versus your expectations? And the second part of that first question is, you know, I heard something about conservative.

Raul Villar: And the second part of that first question is, you know, I heard something about conservatism. Are you assuming kind of, you know kind of slower kind of close rates or what are you assuming around bookings activity in both of those key segments and then I had a follow up for Adam. Yeah, the bookings, thanks, Terry, the bookings for the quarter were really consistent. And we're well positioned to deliver our FY 25 guidance.

Terry Tillman: Hey there, Raul, Adam and Rachel. Hopefully you can hear me okay. I've added a question and a follow-up.

Terry Tillman: Q&A

Terry Tillman: How did, what's the report card on the enterprise segment, which you've been excited about those 1,000 plus employee businesses, and then mid-market, what was the bookings like versus your expectations, and the second part of that first question is, you know, I heard something about conservatism, are you assuming kind of

Terry Tillman: Are you assuming kind of, you know, kind of slower kind of close rates or what are you assuming around bookings activity and both of those key segments and then how to follow it for Adam?

Speaker Change: You know kind of slower kind of close rates or what are you assuming around bookings activity in both of those key segments? And then I had a follow-up for Adam

Raul Villar: Yeah, the bookings, thanks Terry, the bookings for the quarter were really consistent and were well positioned to deliver our FY25 guidance. And we feel good about the trajectory of the organization.

Raul Villar: And we feel good about the trajectory of the organization. Okay, and then maybe just to follow up, it's interesting in terms of the bunch of commentary on free cash flow progression, and acceleration, and then that 20% target. Adam, I was hoping maybe we could unpack a little bit more, you know, just any guardrails in terms of duration, the size of the business to get to that target, And is there anything more notable on GNA or sales and marketing leverage to get there as well? Just a little bit more, hopefully, to unpack on, you know, when you get to that, what that would look like in terms of some of those dynamics. Thank you. Yeah, hey, Terry.

Speaker Change: Yeah the bookings, thanks Terry, the bookings for the quarter were really consistent and we're well positioned to deliver our FY 25 guidance and we feel good about the trajectory of the organization.

Terry Tillman: Okay, and then maybe just to follow up, it's interesting in terms of the budget comments here on free cash flow progression and acceleration, and then that 20% target.

Speaker Change: Okay, and then maybe just to follow up, it's interesting in terms of a bunch of comments here on free cash flow progression.

Adam Ante: Adam, I was hoping maybe we could unpack a little bit more, you know, just any guard rails in terms of duration. The size of the business to get to that target, and is there anything more notable on G and A or sales and marketing leverage to get there as well? Just a little bit more hopefully to unpack on, you know, when you get to that, what that would look like in terms of some of those dynamics.

Speaker Change: and Acceleration and then that 20% target. Adam, I was hoping maybe we could unpack a little bit more, you know, just any guardrails in terms of duration, the size of the business to get to that target.

Speaker Change: And is there anything more notable on GNA or sales and marketing leverage to get there as well? Just a little bit more, hopefully, to unpack on, you know, when you get to that, what that would look like in terms of some of those dynamics. Thank you.

Adam Ante: Thank you. Yeah, hey, Terry. Yeah, I mean, no explicit timeframe, other than, you know, sort of beating the long term as we think about our continued progression. There's not going to be any sort of structural pops that are going to get us to 20%. I think it's going to be, you know, continued expansion, and this year clearly it looks like we're on that sort of inflection point that we think about, you know, continuing to expand and driving faster free cash flow conversion. So, I think that trajectory makes sense for us. And in terms of like getting there, I think you're going to see it, of course, across the board. There's still opportunity across G and A.

Adam Ante: Yeah, I mean, no explicit timeframe, other than, you know, sort of medium to long term, as we think about our continued progression, there's not going to be any sort of structural pops that that are going to get us to 20%. I think it's going to be, you know, continued expansion. And this year, clearly, it looks like we're on that sort of inflection point.

Adam: Yeah, hey Terry.

Terry Tillman: Yeah, I mean, no explicit timeframe, other than, you know, sort of medium to long term as we think about our continued progression, there's not going to be any sort of structural pops that are going to get us to 20%. I think it's going to be, you know, continued expansion. And this year, clearly, it looks like we're on that sort of inflection point. And we think about, you know, continuing to expand and driving faster free cash flow conversion.

Terry Tillman: So, I think that trajectory makes sense for us.

Gabriela Borges: And we think about, you know, continuing to expand and driving faster free cash flow conversion. So I think that trajectory makes sense for us. And in terms of like getting there, I think you're going to see it, of course, across the board, there's still opportunity across GNA. Over time, we think that there's some some further opportunity across R&D and gross margin. But I think the majority, where we're going to see the real difference is going to come out of the cost of acquisition.

Terry Tillman: And in terms of like getting there, I think you're going to see it, of course, across the board, there's still opportunity across G&A. Over time, we think that there's some further opportunity across R&D and gross margin. But I think the majority, where we're going to see the real difference is going to come out of the cost of acquisition. So between, you know, our implementation and our go-to-market teams, it's really around leveraging that investment. And we're starting to drive some of that efficiency now. So you're seeing some of that show up. We have probably 8 to 10 plus more points.

Adam Ante: Over time, we think that there's some further opportunity across R and D and gross margin. But I think the majority, I think we're going to see the real difference is going to come out of the cost of acquisition. So between, you know, our implementation and our go-to-market teams, it's really around leveraging that investment. And we're starting to drive some of that efficiency now, so you're seeing some of that show up. But we have probably 8 to 10 plus more points to go over the next couple of years that I think will be a big contributor to free cash flow margins.

Terry Tillman: To go over the next couple years that I think will be a big contributor to free cash flow margins.

Gabriela Borges: Our next question comes from the line of Gabriela Borges with Goldman Sachs. Please proceed with your question.

Speaker Change: Thank you. Our next question comes from the line of Grabeel Borge with Goldman Sachs. Please proceed with your question.

Gabriela Borges: So between, you know, our implementation and our go-to-market teams, it's really around leveraging that investment. And we're starting to drive some of that efficiency now. So you're seeing some of that show up, but we have probably eight to 10 plus more points to go.

Gabriela Borges: Hi, good afternoon. Thank you.

Gabriela Borges: I'll ask Terri's question on the long-term free cashier margins in a slightly different way. Rowan Adam, we've spoken before about your conviction in Paycor being a 20% cost for a company. Do you aim for the free cashier margin?

Grabeel Borge: Hi, good afternoon. Thank you. I'll ask Terry's question on the long-term free cash flow margins in a slightly different way. Raul and Adam, we've spoken before about your conviction in KCOR being a 20% plus growth company.

Raul Villar: Over the next couple years that I think will be a big contributor to free cash flow margins. Our next question comes from the line of Gabriela Borges with Goldman Sachs, proceed with, Hi, good afternoon. Thank you. I'll ask Terry's question on the long-term free cash flow margins in a slightly different way. Raul and Adam, we've spoken before about your conviction.

Gabriela Borges: Paycor being a 20% plus for a, Do you aim for being a rule-of-forty company when delivering 20% plus required cash-in-the-margin? Meaning, how do you think about the long-term normalized profile of revenue growth, given some of the changes in the sales and marketing and some of the newer opportunities like embedded finance that you've talked about in the last... Yeah, hey, Gabriela. Yeah, we feel still really good about the opportunity. I mean, the market, it continues to be huge.

Grabeel Borge: Do you aim for being a rule-of-forty company when delivering 20% plus cash-in-margin? Meaning, how do you think about the long-term normalized profile of revenue growth given some of the changes in the sales and marketing and some of the newer opportunities like embedded finance that you've talked about in the last couple of quarters?

Raul Villar: How do you think about the long-term normalized profile of revenue growth given some of the changes in the sales and marketing and some of the new options, like embedded finance that you've talked about in the last couple of quarters? Yeah, hey, hey, Gabriela. Yeah, we feel still really good about the opportunity. I mean, the market continues to be huge. We see a huge opportunity where well positioned in the product. We see some sluggishness right now in the macro that is going to make that harder. Clearly, didn't achieve the target here in this last year, but we've been actually really consistent and close to the 20% growth over the last couple years on a recurring basis.

Adam Ante: We see a huge opportunity. We're well positioned in the product. We see some sluggishness right now in the macro, that is going to make that harder. We clearly didn't achieve the target here last year.

Speaker Change: Yeah, hey, Gabriela. Yeah, we feel still really good about the opportunity. I mean, the market, it continues to be huge. We see a huge opportunity. We're well positioned in the product.

Speaker Change: We see some sluggishness right now in the macro that is going to make that harder, clearly didn't achieve the target here in this last year, but we've been actually really consistent and close to the 20% growth over the last couple of years on a recurring basis. So it's still our long-term target. And I do think that we think that it requires some labor market growth that's going to require a little bit stronger macro than where we are, but nothing structurally is in the way from us. We're continuing to grow and achieve that to your point, sort of the rule of 40 on both the revenue and free cash with the target. So I think we're going to balance that in, we're going to lean into the productivity right now, or make sure we're set up from a sales perspective and we feel good about.

Raul Villar: So it's still our long-term target. And I do think that we think that it requires some labor market growth that's going to require a little bit stronger macro than where we are. But nothing structurally is in the way from us, continuing to grow and achieve that to your point, sort of the rule of 40 on both the revenue and free cash flow target. So I think we're going to balance that in. We're going to lean into the productivity right now or make sure we're set up from a sales perspective. And we feel good about that setup into 25.

Adam Ante: But we've been actually really consistent and close to the 20% growth over the last couple years on a recurring basis. So it's still our long term target. And I do think that we think that it requires some labor market growth, it's going to require, you know, a little bit stronger macro than where we are, but nothing structurally is in the way from us, you know, continuing to grow and achieve that, to your point, you know, sort of the rule of 40 on both the revenue and free cash flow target.

Raul Villar: And as we think about long term, you know, we're not coming off of what we see in the market opportunity. And again, our products are so well positioned right now. We feel really good about that over the long term.

Speaker Change: https://www.youtube.com or the link in the description.

Gabriela Borges: That makes sense.

Gabriela Borges: And I'll ask a follow-up on the near term. It talks us a little bit about how you're feeling about your ability to retain, train, and enable the sales people. You mentioned that bookings have come in nicely towards the end of the year.

Speaker Change: That makes sense and I'll ask a follow-up on the near term.

Speaker Change: Talk to us a little bit about how you're feeling about your ability to retain, train, and enable the salespeople.

Gabriela Borges: So give us a status update on how the churn and results were trending. And how many sales count ads do you expect? Or how much do you expect to grow sales count capacity in fiscal year 25?

Speaker Change: You mentioned that bookings have come in nicely towards the end of the year, so give us a status update on how the churn in the sales growth is trending, and how many sales count ads do you expect, or how much do you expect to grow sales count capacity in fiscal year 25? Thank you.

Gabriela Borges: Thank you.

Raul Villar: Yeah, thanks, Gabriella. I think, you know, in Q4 retention improved, and we feel that the territory redesign was well executed and well received. And, you know, we're looking at our sales capacity, and we feel like we have plenty of capacity to achieve our FY25 targets. And, you know, obviously, to Adam's earlier point, you know, we'll balance in, you know, more sales hiring as the macro gets better. But we feel well positioned today, both from a tenure perspective and a capacity perspective to achieve our targets.

Speaker Change: Yeah, thanks Gabriela. I think, you know, in Q4 retention improved and we feel that the territory redesign was well executed and well received.

Speaker Change: And, you know, we're looking at our sales capacity and we feel like we have plenty of capacity to

Adam Ante: So I think we're going to balance that in, we're going to lean into the productivity right now, or make sure we're set up from a sales perspective, and we feel good about that set up into 25.

Speaker Change: Achieve our...

Speaker Change: I've put 25 targets.

Speaker Change: And, you know, obviously, to Adam's earlier point, you know, we'll balance in, you know, more sales hiring as the macro gets better.

Speaker Change: But we feel well-positioned today.

Adam: both from a tenure perspective and a capacity perspective to achieve our targets.

Saddi Pan-Grahi: Thank you.

Saddi Pan-Grahi: Our next question comes from the line of Saddi Pan-Grahi with Mizuho. Please proceed with your question.

Speaker Change: Thank you. Our next question comes from the line of Sadie Pongrahi with Mizuho. Please proceed with your question.

Raul Villar: And as we think about long term, you know, we're not coming off of what we see in the in the market opportunity. And again, our products is so well positioned right now, we feel really good about that over the long term. That makes sense, and I'll ask a follow-up on the... Talk to us a little bit about how you're feeling about your ability to retain, train, and enable the salespeople. You mentioned that bookings have come in nicely towards the end of the year, so give us a status update on how that's shown, trending and how many sales. Adds do you expect or how much do you expect to grow sales count capacity in fiscal year 25? Thank you. Yeah, thanks, Gabriela.

Samad Samana: I think, you know, in Q4 retention improved, and we feel that the territory redesign was well executed and well received. And, you know, we're looking at our sales capacity, and we feel like we have plenty of capacity to achieve our FY25 targets. And, you know, obviously, to Adam's earlier point, you know, we'll balance in, you know, more sales hiring as the macro gets better. But we feel well-positioned today, both from a tenure perspective and a capacity perspective to achieve our target. Our next question comes from the line of Sadie Panigrahi with Missouri, Thank you.

Saddi Pan-Grahi: Hi. Thanks for taking my question. Very good execution in this tough market. So, Raul, my question is, when you, I understand the sluggishness you talked about, maybe that's impacting the new logo acquisition, but what are you seeing in terms of customer and across selling your new products to the customer base? I know you have been expanding the product footprint and presently additive and compensation.

Sitikantha Panigrahi: We will now proceed with your questions. Hi, thanks for taking my question. Very good execution this tough market. So, Raul, my question is, when you, I understand the sluggishness you talked about, maybe that's impacting the new logo acquisition, but what are you seeing in terms of customer and across selling your new products to the customer base? I know you have been expanding the product footprint and recently added even compensation. How should we think about the effective PayPayM growth this year? What's the assumption in your guidance? Yeah, hey, Sidney.

Sadie Pongrahi: Hi, thanks for taking my question. Very good execution in this tough market.

Sadie Pongrahi: So, Raul, my question is,

Sadie Pongrahi: William

Sadie Pongrahi: I understand the sluggishness you talked about, maybe that's impacting the new logo acquisition.

Speaker Change: Well, what are you seeing in terms of customer, you know, cross-selling your new products to the customer base?

Saddi Pan-Grahi: How should we think about the effective pay-time growth this year?

Speaker Change: I know you have been expanding the product footprint and recently added even compensation. How should we think about the effective paypem growth this year? What's the assumption in your guidance?

Saddi Pan-Grahi: What's the jumps on New York items?

Adam Ante: I mean, what we saw in Q4 was actually some slight acceleration, which was actually a little bit overweighted by some of the cross-sell opportunities. So we saw a little bit more success here in Q4. And I think as we go forward, we're really expecting to see a little bit less PEPM growth, a little bit less PEPM expansion. As we add more in the enterprise space, as we add more in these embedded partners, we're going to see the PEPM slow down and really lever into employee growth.

Raul Villar: Yeah, hey, Sidney. I mean, what we saw in Q4 was actually some slighted celebration, which was actually a little bit over-weighted from some of the cross-sell opportunity. So, we saw a little bit more success here in Q4. And I think as we go forward, we're really expecting to see a little bit less pepum growth, a little bit less pepum expansion, as we add, you know, more in the enterprise spaces, we add more in these embedded partners. We're going to see the pepum slow down and really lever into the employee growth. But I think actually, you know, in this quarter and maybe in the near term, you might see a little bit more of that balance in the pepum expansion, as we've seen some success on the cross-sell side pick up even a little bit further.

Speaker Change: Yeah. Hey, Sidney. I mean, what we saw in Q4 was actually some slight acceleration, which was actually a little bit over-weighted from some of the cross-sell opportunities. So we saw a little bit more success here in Q4. And I think as we go forward, we're really expecting to see a little bit less PEPM growth, a little bit less PEPM expansion. As we add, you know, more in the enterprise space, as we add more in these embedded partners, we're going to see the PEPM slow down and really lever into the employee growth. But I think actually, you know, in this quarter and maybe in the near term, you might see a little bit more of that balance in the PEPM expansion as we've seen some success.

Adam Ante: But I think actually, you know, in this quarter and maybe in the near term, you might see a little bit more of that balance in the PEPM expansion as we've seen some success on the cross-sell side pick up even a little bit further. So we're seeing good attach rates, good success, like we called out earlier on the talent, and that progresses or that continues.

Raul Villar: So, we're seeing good attest rates, good success, like we called out earlier on the talent, and that progresses or that continues. Yeah.

Speaker Change: On the cross-sale side, pick up even a little bit further. So we're seeing good attach rates, good success like we called out earlier on the talent, and that progresses, or that continues.

Raul Villar: I know it's been a few quarters since you launched. So how is the progress so far? And what kind of traction are you seeing among your partner bids and, and even through their customers? Yeah, so the traction has been really strong. I mean, we announced it in Q1.

Raul Villar: And then, if we look to that embedded at CM, I know it's been few quarters since you launched. So, how is the progress so far? And what kind of traction are you seeing among the partner best and even through their customer? Yes, the traction has been really strong. I think we announced it in Q1. We've seen continued growth in the pipeline each quarter. We've tripled the number of partners that we've added this year. We continue to go through the migration of some of our larger partners as well. And so, it's becoming a, you know, it's really gaining traction.

Speaker Change: Yeah, and then a follow-up to that Embedded HCM, I know it's been a few quarters since you launched, so how is the progress so far and what kind of traction are you seeing among your partner biz and and even through their customers?

Raul Villar: We've seen continued growth in the pipeline each quarter. We've tripled the number of partners that we've added this year. We continue to go through the migration of some of our larger partners as well. And so it's becoming a you know, it's really gaining traction. It's still a relatively small portion of the overall portfolio, half less than half a point of the revenue here in twenty four. We will double that into twenty five.

Speaker Change: Yeah, so the traction has been really strong. Since we announced it in Q1, we've seen continued growth in the pipeline each quarter. We've tripled the number of partners that we've added this year. We continue to go through the migration of some of our larger partners as well. And so it's becoming a, you know, it's really gaining traction. It's still a relatively small portion of the overall portfolio, less than half a point of the revenue here in 24. We could double that into 25.

Raul Villar: It's still a relatively small portion of the overall portfolio of less than half a point of the revenue here in 24, with people double that into 25. But there's a lot more room to grow and continue to, you know, overall, meaningfully impact of our revenue over the long term. So, we're still, you know, really optimistic about this channel and its long-term potential.

Raul Villar: But there's a lot more room to grow and continue to, you know, overall meaningfully impact of our revenue over the long term. So we're still, you know, really optimistic about this channel and its long term potential. Thank you. Our next question comes from the line of Samad Samana with Jackson, with their questions. Hi, good evening.

Speaker Change: But there's a lot more room to grow and continue to, you know, overall meaningfully impact our revenue over the long term. So we're still, you know, really optimistic about this channel and its long-term potential.

Unknown Attendee: Thank you.

Samada: Our next question comes from the line of Samada with Jeffries.

Speaker Change: Thank you. Our next question comes from the line of Samad Samana with Jeffreys. Please proceed with your question.

Samada: Please proceed with their question. Hi, good evening. Thanks for taking my question.

Samad Samana: Thanks for taking my question. Maybe first, just as a follow-up on the embedded side to Siti's question. On your comment that you expect embedded revenue to double in fiscal 25, and you're kind of, no pun intended, embedding that in your guidance, how should we think about that between you adding additional ISVs that will embed the software versus growth at the existing partners that you've already inked, and what you foresee in terms of their ramp? And can you just remind us how those contracts work? Are there any guaranteed minimums?

Samada: Maybe first, just as a follow-up on the embedded side to City's question. On your comment that you expect embedded revenue to double in fiscal 25 and you're kind of, no pun intended, embedded in your guidance, how should we think about that between you adding additional ISVs that will embed the software versus growth of the existing customers that you've already inked and what you foresee in terms of their ramp.

Samad Samana: Hi, good evening. Thanks for taking my question. Maybe first just as a follow-up on the Embedded side to Sydney's question.

Samad Samana: On your comment that you expect embedded revenue to double in fiscal 25, and you're kind of, no pun intended, embedding that in your guidance, how should we think about that between you adding additional ISVs that will embed the software versus

Speaker Change: Growth at the existing partners that you've already inked and what you foresee in terms of their rampant. Can you just remind us how those contracts work? Are there any guaranteed minimums? Anything that helps us kind of get a view on the visibility that you have there? [inaudible]

Samada: And can you just remind us how those contracts work? Are there any guaranteed minimums? Anything that helps us kind of get a view on the visibility that you have there?

Adam Ante: Just anything that helps us kind of get a view on the visibility that you have. Yeah, hey, Samad. We wouldn't include new partnerships that we haven't signed necessarily inside of our guidance. So, all of the revenue is really going to be in the expectations, going to be from partners that already exist. And those partners, of course, include their existing portfolios and new business that they're signing.

Samada: Yeah, hey, Samada. No, we wouldn't include new partnerships that we haven't signed necessarily inside of our guidance. So all the revenue is really going to be in the expectations going to be from partners that already exist. And those partners, of course, include their existing portfolios and new business that they're signing as we think about, you know, what's reasonable is what we would include in our guidance going into 25. In terms of the structure of those deals, there are some that have minimums for sure. We try to balance those in as depending on sort of the size and the need of the portfolios and how much needs to come over and how much work we need to do to necessitate it.

Operator: At this time, all participants are in a listen only mode. A question and answer session will follow the formal presentation. If you require operator systems during the conference, please press star zero on your telephone keypad. As a reminder, this conference is being recorded.

Speaker Change: Yeah, he's smart.

Speaker Change: Yeah, we wouldn't include new partnerships that we haven't signed necessarily inside of our guidance.

Speaker Change: So all of the revenue is really going to be, and the expectation is going to be, from partners that already exist. And those partners, of course, include their existing portfolios and new business that they're signing. As we think about, you know, what's reasonable is what we would include in our guidance going into 25.

Adam Ante: As we think about, you know, what's reasonable, is what we would include in our guidance going into 25. In terms of the structure of those deals, there are some that have minimums, for sure, we try to balance those in as, depending on sort of the size and the need of the portfolios and, and how much needs to come over and how much work we need to do to necessitate it. But we do have structures with that may include some minimums.

Rachel White: It is now my pleasure to introduce you to your host, Rachel White, Vice President of Invest Relations. Thank you, Rachel. You may begin.

Speaker Change: In terms of the structure of those deals there are some that have been a moment for sure we try to balance those in as depending on sort of the size and the need of the portfolios and how much needs to come over and how much work we need to do to necessitate it but we do have structures that may include some in a month.

Rachel White: Good afternoon and welcome to Paycor's earnings call for the fourth quarter and fiscal year 2020. On the call with me today are Raul Villar, Jr. Paycor's Chief Executive Officer and Adam Ante, Paycor's Chief Financial Officer.

Samada: But we do have structures that may include some minimums. Most of it is really based on more of the usage and how much business, you know, our partners are adding to the platform now.

Adam Ante: Most of it is really based on more of the usage and how much business, you know, our partners are adding to the platform, though. Understood. And then, Raul, maybe just a question for you.

Rachel White: Our financial results can be found in our press release issued today, which is available on the Investor Relations section of our site. Today's call is being reported and a replay will be available on our website following the conclusion of the call.

Speaker Change: Most of it is really based on more of the usage and how much business, you know, our partners are adding to the platform now.

Unknown Attendee: I'm interested.

Raul Villar: In terms of upmarket success, you guys continue to call that out. It's been increasing in the mix. And I know you've talked about some changes in the sales organization. How should we think about how the sales organization's composition looks today and how well it's going to prepare to attack that larger customer opportunity? And as you think about Fiscal 25, is there a different type of rep that you're aiming to hire? Or is there a different type of training program to target those larger, more sophisticated Yeah, Samad, thanks.

Samada: And then Raul, maybe just a question for you. In terms of upmarket success, you guys continue to call that out. It's been increasing in the mix. And I know you've talked about some changes in sales organization.

Speaker Change: Understood. And then, Raul, maybe just a question for you in terms of...

Rachel White: 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.

Raul: Upmarket success, you guys continue to call that out, it's been increasing in the mix.

Samada: How should we think about how the sales organization's composition looks today and how well it's going to prepare to attack that larger customer opportunity. And as you think about fiscal 25, is there a different type of ref that you're aiming to hire, or is there a different type of training program to target those larger, more sophisticated customers?

Raul: And I know you've talked about some changes in the sales organization. How should we think about...

Raul: how the sales organization's composition looks today.

Speaker Change: and how well it's going to prepare to attack that.

Rachel White: 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.

Speaker Change: larger customer opportunity. And as you think about Fiscal 25, is there a different type of rep that you're aiming to hire? Or is there a different type of training program to target those larger, more sophisticated customers?

Raul Villar: Yeah, Samad, thanks. You know, from a training perspective, obviously, we continually enhance our training to meet the different needs of the different segments that we have. So we're continuing to do that. And the way to think about it is a third of our organizations pointed at that, you know, 500 plus segment. And the two thirds are pointed below. And we think that's a really good optimal mix for us today. And, you know, we're seeing the benefits of our platform really pulling us up market. And now we're pointing, you know, you know, really qualified tenured, you know, our best of the best Navy SEALs type of reps against those opportunities.

Raul Villar: You know, from a training perspective, obviously, we continually enhance our training to meet the different needs of the different segments that we have. So we're continuing to do that. And the way to think about it is a third of our organizations pointed at that, you know, 500 plus segment, and the two thirds are pointed below. And we think that's a really good optimal mix for us today. And, you know, we're seeing the benefits of our platform, really pulling us up market. And now we're pointing, you know, you know, really qualified tenure, you know, our best of the best Navy SEALs type of reps against those opportunities.

Samad Samana: Yeah, Samad, thanks.

Raul Villar: With that, I'll turn the call over to Raul. Thank you, Raul, and thank you all for joining us to discuss Paycor's fourth quarter and full-year results. Our unique value proposition of empowering leaders to drive people and business performance continues to win in the market and help drive revenue growth of 18% for the quarter. For the fiscal year, our team executed against our strategic growth initiatives, increasing the average number of employees on our platform by 9% and expanding the amount we earn per employee per month or pepum by 6% resulting in 19% revenue growth.

Samad Samana: You know, from a training perspective, obviously.

Samad Samana: We continually enhance our training to meet the different needs of the different segments that we have. So we're continuing to do that. And the way to think about it is a third of our organizations pointed at that, you know, 500-plus segment, and the two-thirds are pointed below. And we think that's a really good optimal mix for us today.

Samad Samana: and you know we're seeing the benefits of our platform really pulling us up market and now we're pointing you know you know really qualified tenured you know our best of the best Navy SEALs type of reps against those opportunities and so we're seeing success there.

Raul Villar: And so we're seeing success there.

Unknown Attendee: Thank you.

Scott Birds: Our next question comes to the line of Scott birds with Needham and Company. Please proceed with their question.

Raul Villar: And so we're seeing success there. Our next question comes from the line of Scott Berg with Needham & Company. Q&A, Hi everyone, nice quarter, and thanks for taking my question. Raul, I wanted to see if you can help us reconcile your view on the market versus other competitors. Talk about maybe a little bit more of a slowing market than you all. I feel like I had really helped, and help us dissect why.

Raul Villar: We delivered significant adjusted operating income and free cashflow margin expansion this fiscal year, while strategically investing in our platform and customer experience. Demand remains healthy as most employers are struggling with antiquated and incomplete HCM tools. Top of funnel metrics, including leads and first-time sales appointments, increase significantly year over year, and our win rates remained elevated as our value proposition resonates in the market. We continue to focus marketing investments in sales hiring in the 50 largest cities in America, where we see the most opportunity.

Speaker Change: Thank you. Our next question comes from the line of Scott Burge with Needham and Company. Please proceed with your question.

Scott Birds: Hi, everyone. Nice quarter. And thanks for taking my questions here.

Scott Birds: Rowell, I wanted to see if you can help us reconcile your view on the market versus other competitors, both public and private, that talk about maybe a little bit more of a slowing market than you all talked about. You describe really healthy sales and pipelines. And what you thought was a pretty robust market. But maybe you can help us dissect why your view seems to be at least marginally different than others in the space. Yeah, I mean, when we look at the market and our platform and our position in the market, you know, we just look at, you know, the key components of, you know, first appointments, deals that are in process, the velocity of the transactions.

Scott Burge: Hi everyone, nice quarter, and thanks for taking my questions here.

Scott Burge: Raul, I wanted to see if you can help us reconcile your view on the market versus other competitors, both public and private, that

Scott Burge: Talk about maybe a little bit more of a slowing market than you all talked about. You described really healthy sales and pipelines and what you thought was a pretty robust market, but maybe you can help us dissect why your view seems to be at least marginally different than others in the space.

Scott Berg: Yeah, I mean, when we look at the market, and the in our platform, and our position in the market, you know, we just look at, you know, the key components of, you know, first deployments, deals that are in process, the velocity of the transactions. And when we look at it, we think, you know what, the market's, you know, pretty strong. And, you know, we finished the year with 16% recurring revenue growth. And, you know, without headwinds, we would have been, you know, close to 20%.

Speaker Change: Yeah, I mean, when we look at the market and our platform and our position in the market, you know, we just look at, you know, the key components of

Speaker Change: you know, first deployments, deals that are in process, the velocity of the transactions. And when we look at it, we think, you know what, the markets...

Raul Villar: And when we look at it, we think, you know, what the market, you know, pretty strong. And you know, we finished the year with 16% recurring revenue growth and, you know, without headwinds, we would have been, you know, close to 20%. And so we still feel like it's a big macro market with 75% plus percent, you know, of the opportunity on what we would consider legacy, antiquated, incomplete solutions. And we have a great product, modern robust with some great tools that's really attractive. So for us, it's just about execution and continuing to execute. And we see the market, you know, really strong and robust.

Raul Villar: Our sales team grew 9% this year to 600 sales professionals, which increase our sales coverage in the 50 largest U.S, cities from 52% to 55%. Average tenure would strive seller productivity increase 20% among our field sellers. A core component of our go-to-market strategy is developing and maintaining partnerships with key centers of influence. Benefit brokers help us identify employers that are dissatisfied with their legacy HCM tools and influence nearly half of our field bookings this year.

Speaker Change: We finished the year with 16% recurring revenue growth and without headwinds we would have been close to 20%. And so we still feel like it's a big macro market with 75 plus percent.

Raul Villar: And so we still feel like it's a big macro market, with 75 plus percent, you know, of the opportunity on what we would consider legacy, antiquated, incomplete solutions. And we have a great product, modern, robust, with some great tools, that's really attractive.

Speaker Change: You know, the opportunity of what we would consider legacy, antiquated, incomplete solutions.

Speaker Change: And we have a great product, modern, robust.

Speaker Change: with some great tools.

Speaker Change: That's really attractive. So for us, it's just about execution

Raul Villar: And we see the market, you know, really strong and robust. And some of it could be, you know, Scott, the size of Paycor compared to others. But outside of that, we think the market is, you know, really big, and still in the early innings of transformation, understood helpful. And then Adam, in your guidance, you talked about 200 basis points to write cuts for the year. Servitive Side, or, you know, relative to what we're seeing out there today, which is probably appropriate, but how should we... As you talked about, how that went from a nice tailwind, more of a flat metric year-over-year, but how you, Yeah, hey, Scott, we intentionally didn't include any incremental labor market growth in our guidance. So we're effectively assuming a flat labor market contribution, similar to what we saw on 23. So there might be a slight headwind 23 to 24. But there wasn't much contribution in 23.

Speaker Change: and continuing to execute and we see the market you know really strong and robust and some of it could be you know Scott the size of Paycor compared to others but but outside of that we think the market is you know really big and still in in the early innings of transformation

Raul Villar: And some of it could be, you know, Scott, the size of decor compared to others. But outside of that, we think the market is, you know, really big and still in the early innings of transformation. Understood helpful.

Raul Villar: Our mid-market product, client experience, and sales investments over the last few years continued to pay off as our average customer size and average deal size expanded for the third consecutive year. Since the IPO, the average size of our new mid-market customers increased 30%, helping to grow our average deal size by 55%. We are efficiently extending our distribution via the indirect embedded channel we announced earlier this fiscal year. Our strategic partners enhance their revenue per client and customer retention by offering a modern embedded HCM solution to their clients and prospects.

Adam Ante: And then Adam, in your guidance, you talked about 200 basis points of rate cuts for the year.

Scott Burge: Understood, helpful.

Adam Ante: Peter, do that certainly on the conservative side, or relative to what we're seeing out there today, which is probably appropriate, but how should we view, you know, see, you see, I think, the same customer as you talked about how that, you know, went from a nice tail, went to, you know, more of a flat metric year over year, but how are you thinking about see count in the guidance? Yeah, hey Scott, we intentionally didn't include any incremental labor market growth in our guidance. So we're effectively, assuming a flat labor market contribution, similar to what we saw on 23, so there might be a slight headwind, 23 to 24, but there wasn't much contribution in 23, and we're assuming the same thing here into 24, excuse me, 24 into 25.

Scott Burge: And then Adam, in your guidance, you talked about 200 basis points for rate cuts for the year. View that certainly on the conservative side.

Speaker Change: Relative to what we're seeing out there today, which is probably appropriate, but how should we view...

Speaker Change: Unknown Speaker You know, seat usage at existing customers. You talked about how that went from a nice tailwind to, you know, more of a flat metric year over year. But how are you thinking about seat count in the guide?

Speaker Change: Yeah, hey Scott, we intentionally didn't include any Incremental labor market growth in our guidance, so we're effectively assuming a flat labor market contribution Similar to what we saw in 23, so there might be a slight headwind 23 to 24, but there wasn't much contribution in 23, and we're assuming the same thing here into 24

Raul Villar: In this past quarter, we continued converting our third partner's portfolio and the three new partners we announced last quarter began selling. We also signed several new partners this quarter, tripling our indirect partners over the last year. Our team also continued expanding our award-winning HCM platform with valuable new capabilities for our customers. Our product investment remains focused on deepening our core platform further enriching our talent solution and enhancing the connectivity of our platform.

Scott Birds: Now, thanks, Scott.

Scott Burge: Excuse me, 24 to 25 now. Thanks, Scott.

Adam Ante: And we're assuming the same thing here into 24, excuse me 24 to 25 now. Thanks, Scott. Thank you. Our next question comes from the line of Brian Peterson with Raymond. Thanks for taking the question. So the top of funnel comment sounded really encouraging as you close out the year. Did that actually improve or was it above your expectations for the fiscal fourth quarter versus what you saw earlier in the year? Any way to unpack that a bit?

Brian Peterson: Our next question comes to the line of Brian Peterson with Raymond James. Please proceed with your question. Thanks for taking the question. So the top of funnel comment sounded really encouraging as you close up the year. Did that actually improve, or was it above your expectations for the fiscal fourth quarter versus what you saw earlier in the year? Any way to unpack that a bit? Yeah, I mean, it's been fairly consistent throughout the year, and, you know, so for us it's been, you know, how can we continue to execute against the opportunities? And it was slightly elevating the fourth quarter, but I would say all in all pretty consistent throughout the year.

Speaker Change: Thank you. Our next question comes from the line of Brian Peterson with Raymond James. Please proceed with your question.

Brian Peterson: Thanks for taking the question. So the top of funnel comment sounded really encouraging as you close out the year. Did that actually improve or was it above your expectations for the fiscal fourth quarter versus what you saw earlier in the year? Any way to unpack that a bit?

Brian Peterson: Yeah, I mean, it was it's been fairly consistent throughout the year. And, you know, so for us, it's been, you know, how can we continue to execute against the opportunities? And it was slightly elevated in the fourth quarter, but I would say all in all pretty consistent throughout the year. In any changes to the share donors that you guys are saying, I know we hit on some of the regional players and some of the legacy players, but anything in terms of the new business you're bringing on, has that mix changed at all over the course of the year? Thanks, Jeff. I mean, it changes slightly. 75% of our bookings are still what we would consider from legacy incumbents, in-house, regional, ADP paychecks. It moves around quarter to quarter a little bit.

Speaker Change: Yeah, I mean, it was, it's been fairly consistent throughout the year. And, you know, so for us, it's been, you know, how can we continue to execute against the opportunities? It might, it was slightly elevated in the fourth quarter, but I would say all in all pretty consistent throughout the year.

Raul Villar: This year we released technology that empowers leaders such as pay benchmarking, pay core paths, and labor forecasting and increase the value of our suite by $8 to $53. Within our core platform, we recently launched a new compensation management solution that streamlines budgeting and pay cycles and adds another $2 to our suite. Our collaborative tools foster alignment across teams, helping leaders ensure equitable and competitive compensation within budget while driving employee engagement. Revenue from our robust talent suite increased nearly 40% again this fiscal year, validating our unique value proposition of empowering leaders to coach, optimize, and retain top talent to drive business results.

Brian Peterson: In any changes to the shareholders that you guys are saying, we hit on some of the regional players, it's some of the legacy players, but anything in terms of the new business you're bringing on, has that mixed changed at all into the close of the year? I mean, it changes slightly. 75% of our bookings are still what we would consider from legacy incumbent to announce regional ADP paychecks. It moves around quarter to quarter a little bit, and in the quarter we had a little bit more contribution from ADP and Paychecks than previous quarters.

Speaker Change: In any changes to the share donors that you guys are saying, we hit on some of the regional players, it's some of the legacy players, but anything in terms of the new business you're bringing on, has that mixed changed it all into the close of the year? Texas? I mean, it changes slightly, 75% of our bookings are still what we would consider from legacy incumbents in house, regional, ADP paychecks. [inaudible]

Raul Villar: And in the quarter, we had a little bit more contribution from ADP and paychecks than previous quarters. Thank you. Question time. Jared Levine with T.D.

Speaker Change: It moves around quarter to quarter a little bit and in the quarter we had a little bit more contribution from ADP and Paychex than previous quarters.

Brian Peterson: Thank you.

Jared Levine: Our next question comes from the line of Jared Levine with TD Cowan.

Jared Levine: Cowan. Please proceed with your, Thank you. Can you discuss how gross revenue retention changed here? And if it was consistent, were there any underlying changes based on employer size segment or controllable versus uncontrollable terms? Hey, Jared.

Speaker Change: Thank you. Our next question comes from the line of Jared Levine with TD Cowan. Please proceed with your question.

Jared Levine: Please proceed with your question. Thank you.

Jared Levine: Can you discuss how gross revenue retention changed here and your interest was consistent? Were there any other underlying changes based on player size segment or controllable versus uncontrollable term? Hey Jared, yeah, no, I mean, it's been fairly consistent. It does pop around. You see like a little bit more pressure on the smaller end of the market for sure, and we have seen a little bit more success in the enterprise space. But overall, I think actually the labor market growth really impacted it more than anything. So you saw it ticked down a couple points, which again was really all of that labor market slowness that we saw relative to last year, but fairly consistent otherwise.

Jared Levine: Thank you. Can you discuss how gross revenue retention changed here and your events was consistent? Were there any other underlying changes based on employers' eye segment or controllable versus uncontrollable term? No.

Raul Villar: Using our unrivaled talent tools, frontline leaders are improving employee engagement, which is increasing employee retention by 10% and helping drive better business outcomes. We also significantly advanced our interoperability strategy this year. According to Finch, half of HR professionals leverage 7 or more employment systems, and most of these applications are not integrated, leading to errors and inefficiency. API use on our platform increased approximately 300% this fiscal year, demonstrating growing demand to extend HCM software to other business applications.

Adam Ante: Yeah, no, I mean, it's been fairly consistent. It does pop around, you see like a little bit more pressure on the smaller end of the market, for sure. And we have seen a little bit more success in the enterprise space. But overall, I think actually, the labor market growth really impacted it more than anything.

Speaker Change: Hey, Jared. Yeah, no, I mean, it's been fairly consistent. It does pop around. You see like a little bit more pressure on the smaller end of the market, for sure. And we have seen a little bit more success in the enterprise space. But overall, I think actually the labor market growth really impacted it more than anything. So you saw it tick down a couple points, which again, was really all of that labor market slowness that we saw relative to last year.

Jared Levine: And what you would expect, given so the comments around a market success in the enterprise and the softness on the smaller end of the space. Thank you.

Speaker Change: But fairly consistent otherwise and what you would expect given some of the comments around upmarket success in the enterprise and the softness on the smaller end of the space.

Adam Ante: So you saw it tick down a couple points, which again, was really all of that labor market slowness that we saw relative to last year, but fairly consistent otherwise, and what you would expect given some of the comments around of market success in the enterprise and the soft offness on the smaller end of the space. Thank you. And then in terms of ERTC, can you update us if there was any of that revenue in 4Q and then the headwinds that represented, and is there any assumed, and what the headwind assumed for 25 is? Yeah, it was effectively immaterial in Q4.

Jared Levine: And then in terms of ERTC, can you update us if there was any of that revenue in 4Q and then the headwinds that represented and is there any assumed and what the headwind assumed for 25 is? Yeah, it was effectively immaterial in Q4. We had anticipated it, and in the guidance to come out. And so it was immaterial in 24, excuse me, in Q4, and we're not including anything in our guidance for ERTC for 25.

Speaker Change: Thank you. And then in terms of ERTC, can you update us if there was any of that revenue in 4Q and then the headwinds that represented, and is there any assumed, and what the headwind assumed for 25 is?

Raul Villar: We provide customers unrivaled flexibility to seamlessly connect their data and systems, enabling leaders to automate time-consuming error-prone manual tasks. We have 300 plus pre-built integrations in our marketplace and made it easier to create custom integrations by increasing the number of API endpoints and our developer portal by more than 40% this fiscal year. The innovative developments we've made in our HCM platform continue to garner industry recognition. In May, Paycor 1-5 Titan Business Awards spanning HR, analytics, workforce management, and talent. These tools empower leaders to connect and automate their back office, freeing them up to focus on what matters, building winning teams and driving business results.

Adam Ante: We had anticipated it in the guidance to come out. And so it was immaterial in 24, excuse me in Q4. And we're not including anything in our guidance for ARTC for 25. So it will be about a point and a half headwind relative to 24.

Speaker Change: Yeah, it was effectively immaterial in Q4, we had anticipated it in the guidance to come out and so it was immaterial in 24, excuse me, in Q4 and we're not including anything in our guidance for ARTC for 25. So it will be about a point and a half headwind relative to 24, just that as that's completely gone, excuse me, about a point, excuse me, of headwind.

Jared Levine: So it will be about a point and a half headwind relative to 24, just that as that's completely gone. Excuse me about a point. Excuse me if headwind.

Unknown Attendee: Thank you.

Adam Ante: Just that is as that's completely gone, excuse me about a point, excuse me of headwind. Thank you. Our next question comes from the line of Bhavin Shah with Deutsche Bank. Please proceed with your question. Great, thanks for taking my questions. Raul, just one clarification kind of you talked about earlier about feeling good about the level of sales capacity today and just want to just clarify that kind of means no new net hires until the macro improves. Is that the right way to read it?

Bhavin Shah: Our next question comes from the line of Bhavin Shah with Deutsche Bank.

Speaker Change: Thank you. Our next question comes from the line of Bhavin Shah with Deutsche Bank. Please proceed with your question.

Bhavin Shah: Please proceed with your question. Great. Thanks for taking my questions.

Raul Villar: Raul, just one clarification. You talked about earlier about feeling good about the level of health capacity today and just want to clarify that kind of means no new that hires until the macro improves. Is that the right way to read it? No, we're fully staffed, you know, for FY 25. And, you know, we'll continue to add throughout the year. You know, we have a plan to continue to add, but we'll either increase or decrease that based on market conditions. So we're going to be flexible and make sure that, you know, we're investing properly in that area.

Babin Shah: Great, thanks for taking my questions. Raul, just one clarification, kind of you talked about earlier about feeling good about the level of sales capacity today and just want to just clarify that kind of means no new net hires until the macro improves. Is that the right way to read it?

Bhavin Shah: No, we're fully staffed, you know, for FY 25. And, you know, we'll continue to add throughout the year. You know, we have a plan to continue to add, but we'll either increase or decrease that based on market conditions. So we're going to be flexible and make sure that, you know, we're investing properly in that area. And Bhavin, just to be clear, I mean, we're, hey, Bhavin, just to be clear, we are going to increase capacity through both sales hiring and productivity as we're thinking about growing into to 25. So we'll continue to grow from where we are today. Perfect, thanks for the clarification.

Babin Shah: So...

Speaker Change: No, um, we're fully staffed, um, you know, for FY 25 and

Raul Villar: As we enter fiscal 25, we reflected on our strategy execution progress since the IPO. Over the last three years, we have grown revenue by over 85% increased adjusted operating income by over 130% and generated nearly 50 million more in free cash flow while expanding our sales capacity by greater than 60% and advancing our industry leading HCM platform growing our list pepum by more than 50%. We have made tremendous progress and the opportunity before us is significant.

Speaker Change: We'll continue to add throughout the year. We have a plan to continue to add, but we'll either increase or decrease that based on market conditions. So, we're going to be flexible and make sure that we're investing properly in that area.

Adam Ante: And Bob, and just to be clear, we are going to increase capacity through both sales hiring and productivity as we're thinking about growing into 25. So we'll continue to grow from where we are today.

Speaker Change: And Bhavin, just to be clear, I mean, we're, hey Bhavin, just to be clear, we are going to increase capacity through both sales hiring and productivity as we're thinking about growing into 25. So we'll continue to grow from where we are today.

Bhavin Shah: Perfect answer to the clarification and kind of certainly back on the embedded opportunity.

Raul Villar: And kind of circling back on the embedded opportunity, can you just provide a little bit more insight in terms of some of the recent signings or kind of what you have in the pipeline today? In terms of like the demographics of these customers? Are they still on profile to what you have already in the platform? Do they have existing businesses that you can migrate over? Just any other insight would be appreciated.

Raul Villar: Can you just provide a little bit more insight in terms of some of the recent signings or kind of what you have in the pipeline today in terms of like the demographics of these customers or the single profile of what you have already in the platform. Do they have existing businesses that you can migrate over? Just any other insight will be appreciated. Yeah, for sure. I mean, we're so we're really excited about some of the new partnerships that we've been able to sign. Some of them are a little bit different in terms of like a payroll service bureau style partners, but then some more vertical software specific like ERPs and POS type fintech and companies.

Speaker Change: Perfect, thanks for the clarification. And kind of circling back on the embedded opportunity, can you just provide a little bit more insight in terms of some of the recent signings or kind of what you have in the pipeline today in terms of like the demographics of these customers? Are they still on profile from what you have already in the platform? Do they have existing businesses that you can migrate over? Just any other insight would be appreciated.

Raul Villar: On our path to $1 billion in revenue, we remain confident in our ability to deliver attractive growth while accelerating margin expansion. We believe there is a long runway to drive durable growth given the size of our market opportunity and the ongoing success we have had displacing legacy solutions which represent 75% of our bookings. Our go-to-market motion has strong momentum as we are staff to deliver our fiscal 25 targets and encouraged by how sales tenure and retention are trending.

Adam Ante: Yeah, for sure. I mean, we're so we're really excited about some of the new partnerships that we've been able to sign. Some of them are a little bit different in terms of like Payroll Service Bureau style partners, but then some more vertical software specific like ERPs and POS type FinTech and companies.

Speaker Change: Yeah, for sure. I mean, we're so we're really excited about some of the new partnerships that we've been able to sign. Some of them are a little bit different in terms of like,

Speaker Change: Payroll Service Bureau, Style, Partners, but then some more vertical software, specifically ERPs and POS.

Raul Villar: So I think that there's some, you know, continued success that we're seeing building off of what we've already shared. So I think that you're going to continue to see that, you know, vertical specific workforce management and softwares within the ERP space as well. So we're excited about those that they're a little bit smaller than some of those partners are a little bit smaller than some of the earlier partnerships that we've signed that have quite a few more employees and portfolio sizes. And so I think that will be a balance in as we continue to progress. Not all of them are going to have large portfolios.

Raul Villar: So I think that there's some, you know, continued success that we're seeing building off of what we've already shared. So I think that you're going to continue to see that, you know, vertical-specific workforce management and softwares within the ERP as well. So we're excited about those that there are a little bit smaller than some of those partners are a little bit smaller than some of the earlier partnerships that we've signed that have quite a few more employees in portfolio sizes. And so I think that will be a balance in as we continue to progress. Not all of them are going to have large portfolios.

Speaker Change: I think that there's some, you know, continued success that we're seeing building off of what we've already shared. So I think that you're going to continue to see that, you know, vertical specific workforce management and softwares within the ERP space.

Raul Villar: We have significant room to drive leverage as we scale and our top priorities are to drive sales efficiency and accelerate cash conversion. As such, we are introducing a new long-term adjusted free cash flow margin target of greater than 20%. We will do that while continuing to invest in our strategic growth initiatives, namely adding employees through sales expansion and increasing pepum through product innovation. This progress wouldn't have been made possible without the efforts of our dedicated associates. I'd like to thank the team for their hard work and support and delivering these strong results.

Speaker Change: We're excited about those that they're a little bit smaller than some of those partners are a little bit smaller than some of the earlier partnerships that we've signed that have quite a few more employees and portfolio sizes and so I think that will be a balance in as we continue to progress not not all of them are going to have

Raul Villar: So we'll balance that in and it'll probably be a little bit choppy just in terms of the types of partners that we bring in over the next year as we continue to scale this up. But the pipeline itself continues to grow with those similar type partners. Thanks.

Bhavin Shah: So we'll balance that in, and it'll probably be a little bit choppy just in terms of the types of partners that we bring in over the next year as we continue to scale this up, but the pipeline itself continues to grow with those similar type partners. Thank you.

Speaker Change: George Portfolios, so we'll balance that and it'll probably be a little bit choppy just in terms of the types of partners that we bring in over the next year as we continue to scale this up, but the pipeline itself continues to grow with those similar type partners. Thank you very much.

Mark McCone: Our next question comes from a line of Mark McCone with Baird. Please proceed with your question. Good afternoon and nice quarter. I wonder if you can talk a little bit more about, you know, some of the new modules. I mean, you obviously had great traction with your applicant tracking solution. And wondering how much further you can penetrate the existing client base.

Mark Marcon: Our next question comes from the line of Mark Marcon with Baird. Please proceed with your question. Good afternoon and nice quarter.

Speaker Change: Thank you. Our next question comes from the line of Mark Marcon with Baird. Please proceed with your question.

Raul Villar: Wondering if you can talk a little bit more about, you know, some of the new modules. I mean, you've obviously had great traction with your applicant tracking solution. Wondering how much further you can penetrate the existing client base. And if you can talk a little bit about the newer modules that you've come out with in terms of employee compensation, and how that ends up fitting in. And then I had some follow-up questions with regards to the inside sales. Yeah. Hey, Mark, it's Raul.

Speaker Change: Good afternoon and nice quarter. I'm wondering if you can talk a little bit more about You know some of the new modules. I mean you've obviously had great traction

Adam Ante: Now I'll turn the call over to Adam to discuss our financial results and guidance. Thanks, Role. I'll discuss our fourth quarter in full year financial performance and then share our outlook for the first quarter and next fiscal year.

Mark Marcon: with your applicant tracking solution. Wondering how much further you can penetrate the existing client base.

Mark McCone: And if you can talk a little bit about the newer modules that you've come out with in terms of employee compensation, how that ends up fitting in. And then I had some follow-up questions with rights inside Salesforce. Yeah. Hey, Mark.

Adam Ante: As a reminder, my comments related to financial measures are on a non-gap basis. We had another solid quarter delivering total revenues of $165 million in increase of 18% year over year, recurring revenue grew 17% over the prior year. For the fiscal year, total revenues were $655 million, increasing 19% year over year. Our recurring revenue growth is primarily driven by expanding the number of employees on our platform and the amount we charge per employee per month.

Speaker Change: And if you can talk a little bit about the newer modules that you've come out with in terms of employee compensation and how that ends up fitting in. And then I had some follow-up questions with regards to the inside Salesforce.

Raul Villar: You know, we have a tremendous amount of white space available to continue to cross sell. The majority of the PEPM expansions happened over the last five years. And obviously, we have a large client base that we can continue to cross sell in. And we continue to invest and grow our cross selling team. And we saw some of that success in our fourth quarter over performance. And so that was nice to see. And we'll continue to do that. Obviously, talent is really significant.

Raul Villar: It's role. You know, we have a tremendous amount of light space available to continue to cross sell. The majority of the pipeline expansions happened over the last five years, and obviously we have a large client base that we can continue to cross sell in. We continue to invest and grow our cross selling team. And we saw some of that success on our fourth quarter overperformance. And so that was nice to see. And we'll continue to do that. Obviously, talent is really significant. It's a broad portfolio, both attraction and retention. And, you know, we're continuing to press in on the talent solution.

Speaker Change: Yeah, hey Mark, it's Raul. You know, we have a tremendous amount of white space available.

Speaker Change: to continue to cross sell the majority.

Speaker Change: of the PEPM expansions happened over the last five years and obviously we have a large client base that we can continue to cross sell in and we continue to invest

Adam Ante: This quarter, employees grew 8% over the prior year, driven by new business wins with the modest contribution from labor market growth. Net revenue retention was 98% this year, in line with our expectations as the labor market growth moderated. In a typical macro environment, labor market growth contributes a point or two of our revenue growth. While the US labor market growth moderated over the last 24 months from historical highs of three to four points of revenue contribution, now closer to zero, it has remained slightly positive.

Speaker Change: and Groh, our cross-selling team, and we saw some of that success in our fourth quarter over performance.

Speaker Change: And so that was nice to see, and we'll continue to do that. Obviously, talent.

Raul Villar: It's a broad portfolio, both attraction and retention. And, you know, we're continuing to press in on the talent solution. From a compensation perspective, you know, giving frontline leaders the ability to equitably, you know, provide compensation increases across their teams, and an equitable fair and within budget, you know, really just enables a frontline leader to be more effective during that process.

Speaker Change: is really significant. It's a broad portfolio, both attraction and retention. And we're continuing to press in on the talent solution. From a compensation perspective, giving front-line leaders the ability to equitably provide compensation increases across their teams in an equitable fair and within budget really just enables a front-line leader to be more effective during that process. And so we think that fits right in to our leader strategy and really helping empower front-line leaders to build winning teams.

Raul Villar: From a compensation perspective, you know, giving frontline leaders the ability to equitably, you know, provide compensation increases across their teams and equitable, fair, and within budget, you know, really just enables a frontline leader to be more effective during that process.

Adam Ante: We finished this quarter with approximately 30,500 customers utilizing our platform to help coach, optimize and retain nearly 2.7 million employees. We continue to see our average customer size and average deal size increase as we continue to move up market, demonstrating the success of our product and service investments. Similar to last year, mid-market customers represented 80% of our portfolio with enterprise contributing 15% and the micro segment of under 10 employees contributing just 5% of revenue.

Raul Villar: And so we think that fits right in to our leadership strategy and is really helping empower frontline leaders to build winning teams. Can you talk a little bit about the size of the internal sales force that's cross-selling into the existing base? And you know, where does that stand relative to the total? 100, and... How big could that be?

Mark McCone: And so we think that fits right in to our leader strategy and really helping empower frontline leaders to build winning teams. Can you talk a little bit about the size of the internal sales force that's cross-selling into the existing base and where does that stand relative to the total of 600, and how big could that become because it seems, I mean, particularly on talent. It's a great solution. Yeah, I mean, we're still, as you know, we're still focused more on new. You know, by and large, the majority of our assets are pointed at hunting new clients.

Speaker Change: Can you talk a little bit about the size of the of the internal sales force that's cross-selling into the existing base and you know where does that stand relative to the total of 600 and

Adam Ante: Effective Peppum increased 8% year over year to nearly $19 this quarter, excluding embedded HCM deals, effective Peppum increased 10%, fueled by expansion of our product suite. The growth and effect of Peppum is attributable cross sales, pricing initiatives, and higher bundle attachments. And talent has consistently demonstrated strong attached rates and cross-selling traction. Our embedded HCM channel continued to ramp and contributed two points of employee growth again this quarter. We have increasing demand from partners and our pipeline groups sequentially for the fourth consecutive quarter.

Speaker Change: How big could that become? Because it seems I mean particularly on talent. It's a great solution

Raul Villar: Because it seems, I mean, particularly on talent, it's a great solution. Yeah, I mean, we're still, as you know, we're still focused more on new, you know, by and large, the majority of our assets are pointed at hunting new clients. However, about 10% of our organization is focused on cross selling. And that's been growing year over year. And I think you'll continue to see us, you know, press in there. Because there is such a big white space opportunity.

Speaker Change: Yeah, I mean, we're still, as you know, we're still focused more on new, you know, by and large, the majority of our assets.

Raul Villar: However, about 10% of our organization is focused on cross-selling, and that's been growing year over year. I think you'll continue to see us, you know, press in there because there is such a big white space opportunity. Thank you.

Speaker Change: are pointed at hunting new clients. However, about 10% of our organization is focused on cross-selling, and that's been growing year over year, and I think you'll continue to see us, you know, press in there, because there is such a big white space opportunity.

Adam Ante: Although we are pleased with the progress and expect to at least double our embedded revenue in fiscal 25, it will take some time before materially impacts our revenue. We continue to invest to scale and capitalize on this opportunity by expanding our capacity, our offering, and sales enablement tools to drive mutual success. This quarter, we generated $14 million of interest income on average client funds of approximately $1.2 billion and effective rate of 490 basis points.

Raul Villar: Great, thank you. Yeah, thank you. Thank you. Our next question comes from a line, Murphy, with J.P. Please proceed with your question. Hey, this is Arti Vula.

Speaker Change: Great, thank you.

Mark Murphy: Our next question comes from a line of Mark Murphy with JP Morgan. Please proceed with your question.

Speaker Change: Yeah, thank you.

Speaker Change: Thank you. Our next question comes from the line of Mark Murphy with J.P. Morgan. Please proceed with your question.

Mark Murphy: Hey, this is already the law from the court. Thanks for taking the question. Quick one, just any divergence is to call it in terms of demand patterns by customers in terms of geography or any market or any other relevant dimension. The demand has been really consistent by size, by markets, by industries. We haven't seen any significant changes from that perspective, aren't we? Thanks.

Arti Vula: I'm from Mark Murphy. Congratulations on the quarter. And thanks for taking the question. Quick one, just any divergences to call them in terms of demand patterns by customers in terms of geography or end market or any other relevant demand. Demand has been really consistent by size, by markets, by industries.

Adam Ante: In addition to achieving consistent top line growth, we have continuously expanded operating margins on an annual basis. A just a gross profit margin, excluding depreciation and amortization was 79% for the quarter and year. This quarter had decreased by 40 basis points over the prior year due to macro headwinds, however expanded by 40 basis points for the full year. This quarter, sales and marketing expense was $51 million or 31% of revenue, down nearly 300 basis points from a year ago, largely driven by more moderated sales headcount growth and our focus on efficiency and scale.

Mark Murphy: Hey, this is Arti Vula on for Mark Murphy. Congrats on the quarter and thanks for taking the question. Quick one, just any divergences to call out in terms of demand patterns by customers in terms of geography or end market or any other relevant dimension?

Speaker Change: Now, the demand has been really consistent by size, by markets, by industries. We haven't seen any significant changes from that perspective, Arti.

Raul Villar: We haven't seen any any significant changes from that perspective. Thanks. And then, you know, looking at your slide deck, you have that you've kind of reached salesforce coverage among the top 50 metros to about 55%. And then that was 52% last year and 44% the year before that.

Mark Murphy: And then, you know, looking at your slide deck, you have that you kind of reach sales force coverage among the top 50 mentors to about 55%, and then that was 66% last year and 44% the year before that. Is there a framework for how we should think about that going forward in FY 25, whether that'll accelerate or not, how that fits into the fact that you're kind of fully staffed to deliver on your targets, FY 25 targets now. Thanks. Yeah, already what we're going to continue to increase coverage, you know, throughout the year. I wouldn't expect, you know, dramatic coverage enhanced, and I would say that, you know, we'll continue that heads.

Speaker Change: Thanks, and then, you know, looking at your slide deck, you have a, that you kind of reached Salesforce coverage among the top 50 metros to about 55 percent.

Adam Ante: For the year, sales and marketing expense was $198 million or 30.2% of revenue and improvement of 160 basis points year over year. On a gross basis, we invested $25 million or 15% of revenue in R&D this quarter to continue differentiating our HMS suite and expanding our PEPA opportunity. We all invested 15% of revenue in R&D for the year, similar to prior years and in line with our long-term targets. As we scale the business, we have consistently driven leverage in GNA.

Arti Vula: Is there a framework for how we should think about that going forward in FY25, whether that'll accelerate or not, and how that fits into the fact that you're kind of fully staffed to deliver on your targets, FY25 targets now? Thanks. Yeah, Arti, we're going to continue to increase coverage, you know, throughout the year. I wouldn't expect, you know, dramatic coverage enhancement, I would say that, you know, we'll continue to add heads.

Speaker Change: And then that was 52% last year and 44% the year before that. Is there a framework for how we should think about that going forward in FY25, whether that will accelerate or not, and how that fits into the fact that you're kind of fully staffed to deliver on your targets, FY25 targets now? Thanks.

Speaker Change: Yeah, Arti, we're going to continue to increase coverage, you know, throughout the year. I wouldn't expect.

Adam Ante: GNA expense was $20 million or 12.1% of revenue this quarter and improvement of 280 basis points from last year. On the full year, we achieved 150 basis points of leverage from GNA. Quarterly adjusted operating income increased over 60% to $25 million with margins of 15.2% up 420 basis points from 11% last year. For the full year, adjusted operating income rose 36% to $112 million. Up 215 basis points while differentiating our service and solution.

Raul Villar: You know, as I said earlier, we're trying to be intentional about headcount acceleration and leveraging the capacity of our existing sales organization, while we continue to add reps in each of those 50 markets where appropriate. So we'll continue to grow and that number will be higher, you know, this time next year. Great, thank you.

Speaker Change: You know, dramatic coverage enhancement, I would say that, you know, we'll continue to add heads.

Raul Villar: You know, as I said earlier, we're trying to be intentional about head count acceleration and leveraging the capacity of our existing sales organization while we continue to add reps in each of those 50 markets where appropriate. So we'll continue to grow, and that number will be higher, you know, this time next year. Great.

Speaker Change: You know, as I said earlier, we're trying to be intentional about headcount acceleration and leveraging the capacity of our existing sales organization while we continue to add reps in each of those.

Speaker Change: 50 markets were appropriate. So we'll continue to grow and that number will be higher, you know, this time next year.

Steve Enders: Thank you. Our next question comes from the line of Steve Enders with Citi. Please proceed with your question. Okay, great.

Speaker Change: Great, thank you.

Steve Enders: Our next question comes from the line of Steve Enders with City. Please proceed with your question. Okay, great. Thanks for taking the questions here.

Speaker Change: Thank you. Our next question comes from the line of Steve Enders with Citi. Please proceed with your question.

Adam Ante: During the quarter, we generated $37 million of adjusted free cash flow at 23% margin, up nearly 9 points. For the full year, we generated $40 million or 6% margin and improvement of 430 basis points. Free cash flow margins expanded at twice the rate of adjusted operating income margins as we scale the business and continue to focus on efficiency. We ended the year with $118 million in cash and no debt. In addition, our stock-based compensation expense decreased year-over-year to less than 10% of revenue with less than 1% share dilution.

Steve Enders: Thanks for taking the questions here. I guess maybe just following up on the last point of, Yeah, the top 50 sales coverage, and it seems like it's a bit of shift away from the prior tier one coverage number that you previously kind of reported on, I guess, what's kind of driving that shift? And I guess, what does that maybe signal about how you're thinking about that, that opportunity there? Yeah, Steve, how are you? It's Raul.

Steve Enders: I guess maybe just following up on the last point of, you know, the top 50 sales coverage and it seems like it's a bit of shift away from the prior tier one coverage. Number that you previously kind of reported on, I guess what's kind of driving that shift and I guess what does that maybe signal about how you're thinking about that opportunity there.

Steve Enders: Okay, great. Thanks for taking the questions here. I guess maybe just following up on the last point of...

Steve Enders: You know, the top 50 sales coverage, and it seems like it's a bit of a shift away from the prior tier one coverage number that you previously kind of reported on, I guess, what's kind of driving that shift? And I guess, what does that maybe signal about how you're thinking about that, that opportunity there?

Raul Villar: It really isn't a shift or a change in strategy. We've always been focused on the 50. We were extremely barren in the top 15 or tier one, and we've continued to move that percentage up. And as we look at continued and ongoing seller growth, we will continue to add in all 50 markets over time. It will just be based on opportunity and finding the right person and having the right opportunity available for that person. So I don't think it's a change in strategy. We still love the top 15 cities.

Raul Villar: Yeah, Steve, how are you trouble? It really isn't a shift or a change in strategy. We've always been focused on the 50. We were extremely barren in the top 15 or the tier one, and we've continued to move that percentage up. And as we look at continued non-going seller growth, we will continue to add in all 50 markets over time. It just will be based on opportunity and finding the right person and having the right opportunity available for that person. So I don't think it's a change in strategy. We still love the top 15 cities.

Steve Enders: Yeah, Steve, how are you? It's Raul. It really isn't a shift or a change in strategy. We've always been focused on the 50. We were extremely barren in the top 15 or the Tier 1, and we've continued to move that percentage up. And as we look at continued and ongoing seller growth,

Adam Ante: Entering fiscal 25, our top priorities are to drive sales efficiency and accelerate cash conversion. While growth remains our top priority, we believe a more balanced approach to profitability will maximize shareholder value. As Rahul mentioned, we are introducing a new long-term adjusted free cash flow margin target of greater than 20%. We plan to achieve this by balancing sales hit count growth with sales productivity to improve go-to-market efficiency and continuing to drive leverage in GNA as we scale.

Speaker Change: We will continue to add in all 50 markets over time. It just will be based on opportunity and finding the right person and having the right opportunity available for that person. So I don't think it's a change in strategy. We still love the top 15 cities. We're going to continue to add headcount in all 50 markets.

Adam Ante: Similar to the dynamics this year, we expected adjusted free cash flow margins to continue expanding at roughly twice the pace of adjusted operating income margins. Our outlook for fiscal 25 remains positive based on a healthy demand environment and opportunity to drive continued spectrum expansion. However, our guidance does reflect a fluid macro backdrop, including labor market headwinds and a declining rate environment, and of course some conservatism at this point in the year.

Raul Villar: We're going to continue to add headcount in all 50 markets, and that's what comprises, you know, where our 600 sellers sit today. And so we just felt like it was more directional for everyone to understand the top 50 cities and where we sit from that perspective.

Adam Ante: We're going to continue to add headcount in all 50 markets, and that's what comprises where our 600 sellers sit today. And so we just felt like it was more directional for everyone to understand the top 50 cities and where we sit from that perspective. Okay, gotcha. That's, that's helpful. And then I guess just on the free cash flow side, I mean, pretty looks like pretty solid performance here in the quarter, I guess anything to call out that help kind of add to that performance here?

Speaker Change: And that's what comprises, you know, where our 600 sellers sit today. And so we just felt like it was more directional for everyone to understand the top 50 cities and where we sit from that perspective.

Steve Enders: Steve. Okay. Gotcha. That's helpful.

Adam Ante: And I guess anything that, I don't know if things maybe got pulled forward or maybe there's some like timing shifts in there, but just, I guess, what does that kind of indicate as well for fiscal 25 and the free cash flow dimensions there? Yeah, I mean, clearly, on the quarters, there's quite a bit of networking capital changes. So like within the year, it's a it's a little bit harder to look at, but we're trying to manage this to the full year.

Adam Ante: And then I guess just on the free cash flow side. I mean, pretty, looks like pretty solid performance here in the quarter. I guess anything to call out that help kind of add to that performance here.

Adam Ante: For the first quarter, we expect total revenues of between $161 and $163 million, or 14% growth at the high end of the range, which includes $12 million of interest income on average client funds balances of just over $1 billion. And adjusted operating income is expected to be between $17.5 and $18.5 million. For the full year, we expect total revenues of $722 to $729 million, or 11% growth at the top end of the range, including $48 to $50 million.

Speaker Change: Okay, gotcha. That's helpful. And then I guess just on the free cash flow side, I mean, pretty, looks like pretty solid performance here in the quarter. I guess anything to call out that helped kind of add to that performance here? And I guess anything that's

Adam Ante: And I guess anything that kind of seems able to pull forward or maybe there's some like timingships in there, but just I guess what is I kind of indicate as well for fiscal 25 and the free cash flow dimensions there. Yeah. I mean, clearly, on the quarters, there's quite a bit of networking capital changes. So, like within the year, it's a little bit harder to look at, but we're trying to manage this to the full year. So I think that dynamic of the expansion on the full year is really important. But, you know, we'll continue to smooth out those networking capital items over time, but the primary driver of the free cash flow benefit is still the overall expansion and productivity that we're getting out of the cost of acquisition in this case in this year.

Speaker Change: I don't know if things maybe got pulled forward or maybe there's some like timing shifts in there, but just, I guess, what does that kind of indicate as well for fiscal 25 and the free cash flow dimensions there?

Adam Ante: So I think that dynamic of the expansion on the full year is really important. But you know, we'll continue to smooth out those networking capital items over time. And the primary driver of the free cash flow benefit is still the overall expansion and productivity that we're getting out of the cost of acquisition in this case in this year, and we're seeing the same thing out of GNA. So most of it is driven by the operating and then within the quarters, you have some of those networking capital items.

Speaker Change: Yeah, I mean, clearly on the quarters, there's quite a bit of networking capital changes. So like within the year, it's a little bit harder to look at. But we're trying to manage this to the full year. So I think that dynamic of the expansion on the full year is really important. But you know, we'll continue to smooth out those networking capital items over time. The primary driver of the free cash flow benefit is still the overall expansion and productivity that we're getting out of the cost of acquisition in this case in this year. And we're seeing the same thing out of GNA. So most of it is driven by the operating and then within the quarters, you have some of those networking capital items.

Adam Ante: For the full year, we expect total revenues of about $1 million of interest income, which contemplates up to 200 basis points of rate cuts over the next fiscal year. And we expect adjusted operating income of $123 to $126 million, on a recurring basis that implies more than 100 basis points improvement in adjusted operating income margins. In summary, we remain optimistic about our opportunity in HCM, demand remains healthy for our innovative HCM solution that empowers leaders to unlock the potential of their people and business performance. Our solution is mission critical to attracting, paying, and retaining great talent. We're confident in our strategy and focused on executing a proven go-to-market playbook to deliver greater sales efficiency and free cash remarks.

Adam Ante: And we're seeing the same thing out of GNA. So most of it is driven by the operating. And then, within the quarters, you have some of those networking capital items. Okay.

Steve Enders: Okay, perfect. Thanks for taking the question. Thank you. Thank you. Our next question comes from the line of Daniel Jester with BMO Capital Markets. Please proceed with your question. Great. Good evening, everyone.

Unknown Attendee: Perfect. Thanks for taking the questions. Thank you.

Unknown Attendee: Thanks, Steve. Thank you.

Speaker Change: Okay, Perfect. Thanks for taking the questions. Thank you.

Daniel Dester: Our next question comes from line of Daniel Dester with BMO Capital Markets. Please proceed with your question. Great. Give me everyone's time for taking my question.

Steve Enders: Thank you. Thanks, Steve.

Rachel White: With that, we'll open the call for questions.

Speaker Change #100: Thank you. Our next question comes from the line of Daniel Jester with BMO Capital Markets. Please proceed with your question.

Operator: Operator? Thank you.

Operator: We will now be conducting a question and answer session. Please limit yourself to one question and one follow-up. If you would like to ask a question, please press star one on your telephone keypad. A confirmation to indicate your line is in the question 2. You may press star 2 if you would like to remove your question. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment, please, while we pull for questions. Thank you.

Daniel Jester: Thanks for taking my question. Um, maybe we could spend a moment, uh, you know, when you talk about the mix of both. 25% come from other. Modern or New.

Daniel Dester: Maybe we can spend a moment when you talk about the mix of booking; 25% come from other solutions, which are modern or new. Can you just remind us like why does pay for win in those circumstances? You know, it's clear relative to the legacies, but relative to the more modern solutions. Why are you with? Yeah, I mean, I think strength is a platform, most open platform, most robust platform. And our win rates are up and are sharing in winning from modern cloud competitors continuously increase and reach high in FY 24 as a percentage of the mix.

Daniel Jester: Great, giving everyone time for taking my question. Maybe we can spend a moment when you talk about the mix of booking.

Raul Villar: Can you just remind us like why does Paycor win in those, You know, it's clear relative to the legacies, but relative to the more modern solutions. Yeah, I mean, I think strength of the platform, most open platform, most robust platform and, and our win rates are up and, and our share in winning from modern cloud competitors continues to increase and reach a high in FY 24, as a percentage of the mix.

Speaker Change #102: 25% come from other solutions which are modern or new. Can you just remind us, like, why does Paycor win in those circumstances? You know, it's clear relative to the legacies, but relative to the more modern solutions, why are you winning?

Raul Villar: So we feel really well positioned to compete against legacy and, and especially to compete against modern. It's a really deep platform, we offer the most PEPM, which in theory ties to feature functionality. So ultimately, we have the most robust platform, we have the most modern platform is most open platform. And that's why we're winning. Thank you for that. And then, Adam, maybe I.

Speaker Change #103: Yeah, I mean, I think strength is a platform, most open platform, most robust platform and our win rates are up and our share in winning from modern cloud competitors.

Terry Tillman: Our first question comes from the line of Terry Tillman with truest securities. Please proceed with your question. Hey there, Raul Adam and Rachel, hopefully you can hear me okay.

Speaker Change #103: continues to increase and reach a high in FY 24 as a percentage of the mix.

Raul Villar: So we feel really well positioned to compete against legacy and especially to compete against modern. It's a really deep platform. We offer the most pepum, which in theory ties to feature functionality. So ultimately, we have the most robust platform. We have the most modern platform is most open platform. And that's why we're winning.

Speaker Change #103: So we feel really well positioned to compete against legacy and especially to compete against modern. It's a really deep platform. We offer the most PEPM, which in theory ties to feature functionality. So ultimately we have the most robust platform, we have the most modern platform, and it's the most open platform, and that's why we're winning.

Raul Villar: Add a question in the follow-up per instructions. The first question is just on maybe Raul is kind of ending the year, you know, looking for a strong finish in bookings. How did what's the report card on the enterprise segment which you've been excited about those thousand plus employee businesses and then mid-market. What was the bookings like versus your expectations and the second part of that first question is, you know, I heard something about conservative.

Adam Ante: Okay, thank you for that.

Adam Ante: And then Adam, maybe I missed some of the prepared remarks, but do you remind us what's going on with gross profit margins? It looks like they were down year over year. I think that you'd call out there.

Daniel Jester: Unknown Speaker Do you remind us what's going on with gross profit margins? It looks like they were down year over year. Is there anything that you'd call out there?

Adam: Thank you for that. And then Adam, maybe I missed this in the prepared remarks, but do you remind us what's going on with with gross profit margins? It looks like they were down year over year. Is there anything that you'd call out there? Thanks.

Raul Villar: Are you assuming kind of, you know, kind of slower kind of close rates or what are you assuming around bookings activity and both of those key segments and then how to follow it for Adam? Yeah, the bookings, thanks Terry, the bookings for the quarter were really consistent and were well positioned to deliver our FY 25 guidance. And we feel good about the trajectory of the organization.

Adam Ante: Thanks. Yeah, hey, Dan, yeah, the primary drag in that case was really the form filings just sort of pressure that we saw coming out. We actually saw some really good underlying operating expansion, margin expansion apart from those, and we'll continue to present to that for 25. There's a little bit more margin pressure that we'll see from that, you know, high margin form filings revenue that's going to the rest of that that's going to leave here in 25, but we'll work through that this year and be able to show, you know, continued expansion.

Adam Ante: Yeah, hey, Dan, yeah, the primary drag in that case was really the form filings, just sort of pressure that we saw coming out. We actually saw some really good underlying operating expansion, and margin expansion apart from those, and we'll continue to press into that for 25. There's a little bit more margin pressure that we'll see from that, you know, high-margin form filing revenue that's going to the rest of that that's going to leave here in 25.

Adam: Yeah, hey Dan. Yeah, the primary drag in that case was really the form filings, just sort of pressure that we saw coming out. We actually saw some really good underlying operating expansion, margin expansion apart from those, and we'll continue to press into that for 25. There's a little bit more margin pressure that we'll see from that, you know, high margin form filings revenue that's going to, the rest of that, that's going to leave here in 25. But we'll work through that this year and be able to show, you know, continued expansion.

Terry Tillman: Okay, and then maybe just to follow up, it's interesting in terms of the a bunch of comments here on free cash flow progression and acceleration and then that 20% target. Adam, I was hoping maybe we could unpack a little bit more, you know, just any guard rails in terms of duration. The size of the business to get to that target and is there anything more notable on G and A or sales and marketing leverage to get there as well?

Unknown Attendee: All right, great.

Dan: All right, great, thank you.

Matt VanVliet: Our next question comes from a line of Matt VanVliet with BTIG. Please proceed with their question. Good afternoon, thanks for taking the question.

Daniel Jester: Thank you. Thank you. Our next question comes from the line of... Matt VanVliet, with BTIG. Please proceed with Good afternoon.

Dan: i

Terry Tillman: Just a little bit more hopefully to unpack on, you know, when you get to that, what that would look like in terms of some of those dynamics. Thank you. Yeah, hey, Terry, yeah, I mean, no explicit timeframe other than, you know, sort of beating the long term as we think about our continued progression, there's not going to be any sort of structural pops that they're going to get us to 20%. I think it's going to be, you know, continued expansion and this year clearly it looks like we're on that sort of inflection point that we think about, you know, continuing to expand and driving faster free cash flow conversion.

Speaker Change #105: Thank you. Our next question comes from the line of Matt VanVleet with BTIG. Please proceed with your question.

Matt VanVliet: Thanks for taking the question. I guess when you look at some of the additional modules and the attach rates you're seeing and some of the momentum behind that, where do you feel like you're, looking to put the most behind the R&D budget. And in so much as you look at M&A, are there areas of the portfolio that you think are sort of primed to add additional capabilities as you've seen demand for the attached. Yeah, I mean, hey, Matt, thanks. It's Raul.

Matt VanVliet: I guess when you look at some of the additional modules and the attachments you're seeing, and some of the momentum behind that, where do you feel like you're looking to put the most behind R&D budget?

Matt VanVleet: Good afternoon. Thanks for taking the question. I guess when you look at some of the additional modules and the attach rates you're seeing and some of the momentum behind that, where do you feel like you're

Raul Villar: And in so much as you look at M&A, are there areas of the portfolio that you think are sort of primed to add additional capabilities as you've seen demand for the attachment there? Yeah, I mean, hey Matt, thanks. It's Raul. I think we think about our R&D investment in three big buckets: continuing to enhance our core platform, obviously continuing to deepen our talent solutions, which are best in class already, and then continuing to make it the most open platform in the category. And those are the three areas where we continue to invest in, and we feel really good about it.

Speaker Change #107: Looking to put the most behind R&D budget and in so much as you look at M&A are there areas of the portfolio that you think are sort of primed to add additional capabilities as you've seen demand for the attachment there?

Terry Tillman: So I think that trajectory makes sense for us. And in terms of like getting there, I think you're going to see it of course across the board. There's still opportunity across G and A. Over time, we think that there's some further opportunity across R and D and gross margin. But I think the majority, I think we're going to see the real difference is going to come out of the cost of acquisition.

Raul Villar: I think, you know, we think about our R&D investment in three big buckets, continuing to, you know, enhance, you know, our core platform, obviously continuing to deepen our talent solutions, which are best in class already, and then continuing to make it the most open platform in the category. And those are the three areas where we continue to invest in. And we feel really good about it from an M&A perspective, there's no one area or one gap in the platform, you know, that we're looking to fill, I would say there's hundreds, if not thousands of cottage categories that kind of surround the HCM ecosystem that we're always looking to evaluate.

Speaker Change #107: Yeah, I mean, hey, Matt, thanks. It's Raul. I think, you know, we think about our R&D investment in three big buckets.

Speaker Change #107: continuing...

Speaker Change #107: to, you know, enhance...

Speaker Change #108: You know, our core platform.

Speaker Change #108: Obviously continuing to deepen our talent solutions, which are best in class already, and then continuing to make it the most open platform in the category. And those are the three areas where we continue to invest in and we feel really good about it. From an M&A perspective, there's no one area or one gap in the platform that we're looking to fill. I would say there's...

Terry Tillman: So between, you know, our implementation and our go to market teams, it's really around leveraging that investment. And we're starting to drive some of that efficiency now, so you're seeing some of that show up. But we have probably 8 to 10 plus more points to go over the next couple of years that I think will be a big contributor to free cash flow margins. Thank you.

Raul Villar: And so that's an ongoing process; we're always, you know, looking for great solutions that can help our leaders, you know, build winning teams. All right, very helpful. And then as you look at a lot of the success across software seems to be in verticalizing your offering to make it a little more market ready. You've talked a lot about embedded solutions and some of your partners, but how might you be able to use AI and maybe specifically Gen AI around the talent and training side of it, as well as employee engagement to really help broaden the verticalization of your product to be a little more out of the box ready?

Raul Villar: From an M&A perspective, there's no one area or one gap in the platform that we're looking to fill. I would say there's hundreds, if not thousands, of cottage categories that kind of surround the ATM ecosystem that we're always looking to evaluate. And so that's an ongoing process.

Gabriela Borges: Our next question comes from the line of Gabriela Borges with Goldman Sachs. Please proceed with your question. Hi, good afternoon. Thank you. I'll ask Terry's question on the long-term pre-tashner margins in a slightly different way. Rowan Adam, we've spoken before about your conviction in paycor being a 20% cost for a company. Do you aim for being a rule of 40 company when delivering 20% cost for a professional margin? Meaning, how do you think about the long-term normalized profile of revenue growth given, given some of the changes in the sales and marketing and some of the new options like embedded finance that you've talked about in the last couple of courtes?

Speaker Change #108: We have hundreds if not thousands of cottage categories that kind of surround the HCM ecosystem that we're always looking to evaluate. And so that's an ongoing process. We're always

Raul Villar: We're always looking for great solutions that can help our leaders build winning teams. Very helpful.

Speaker Change #108: you know, looking for great solutions that can help our leaders, you know, build winning teams.

Matt VanVliet: And then, as you look at a lot of success across software, seems to be in verticalizing; you're offering to make it a little more market ready. You've talked a lot about embedded solutions and some of your partners, but how might you fail to use AI and maybe specifically Gen AI around the talent and training side of it as well as employee engagement to really help broaden the verticalization of your product to be a little more out of the box ready? Yeah, hey, Matt. I mean, actually the AI that we're driving around the majority of where you're seeing a show up is inside the talent solution inside the talent suite.

Speaker Change #109: Alright, very helpful. And then as you look at a lot of the success across software seems to be in verticalizing your offering to make it a little more market-ready.

Speaker Change #110: You've talked a lot about embedded solutions and some of your partners but how might you be able to use AI and maybe specifically Gen AI around the talent and training side of it as well as employee engagement to really

Raul Villar: Yeah, hey, hey, Gabriela. Yeah, we feel still really good about the opportunity. I mean the market continues to be huge. We see a huge opportunity. We're well positioned in the product. We see some sluggishness right now in the macro that is going to make that harder. Clearly didn't achieve the target here in this last year. But we've been actually really consistent and close to the 20% growth over the last couple years on a recurring basis.

Speaker Change #110: help broaden the verticalization of your product to be a little more out of the box ready.

Matt VanVliet: Yeah, hey, Matt, I mean, actually, the AI that we're driving right now, the majority of where you're seeing it show up is is inside the talent solution. And inside the talent suite, there's a lot of sentiment capability, like the job description generator sort of sort of functionality. So there's a lot of functionality around that talent attraction, and recruiting. And then we'll continue to look for those opportunities, not just look for those opportunities, but building those opportunities around.

Speaker Change #111: Yeah, hey, Matt. I mean, actually, the AI that we're driving right now, the majority of where you're seeing it show up is inside the talent solution and inside the talent suite. There's a lot of sentiment capability, like the job description generator sort of functionality. So there's a lot of functionality around that talent attraction and recruiting. And then we'll continue to look for those opportunities, not just look for those opportunities, but building those opportunities around some of the more sort of proactive nudging, as folks are working through their workflows inside of the system, and making those workflows easier to navigate, so that the clients don't have to spend quite as much time inside of there. And they can focus on, you know, more of the leader and performance management tasks that are more critical

Raul Villar: There's a lot of sentiment capability, like the job description generator sort of functionality. So there's a lot of functionality around that talent attraction and recruiting. And then we'll continue to look for those opportunities, not just look for those opportunities, but building those opportunities around some of the more sort of proactive nudging as folks are working through their workflows inside of the system and making those workflows easier to navigate so that clients don't have to spend quite as much time inside of there and they can focus on more of the leader and performance management tasks that are more critical to the organization.

Raul Villar: So, it's still a long-term target. I do think that it requires some labor market growth that's going to require a little bit stronger macro than where we are. But nothing structurally is in the way from us, continuing to grow and achieve that to your point. So, I think we're going to balance that in. We're going to lean into the productivity right now or make sure we're set up from a sales perspective.

Matt VanVliet: So some of the more sort of proactive nudging as folks are working through their workflows inside of the system and making those workflows easier to navigate, so that the clients don't have to spend quite as much time inside of it, and they can focus on, you know, more of the leadership and performance management tasks that are more critical to the organization. And we're looking at some of that generation AI.

Raul Villar: And we're looking at some of that JNAI, and again, sorry, not even just looking at it, but working through some of the JNAI type chat functionality that we think are going to be really additive for our customers as well.

Raul Villar: And we feel good about that set up into 25. And as we think about long-term, we're not coming off of what we see in the market opportunity. And again, our product is so well positioned right now. We feel really good about that over the long term. That makes sense.

Speaker Change #111: It's all very critical to the organization and we're looking at some of that GEN-AI.. and again, sorry, not even just looking at it but working through some of the GEN-AI type chat functionality that we think are going to be really additive for our customers as well.

Unknown Attendee: All right.

Jacob Roberge: Great. Thank you.

Matt VanVliet: And again, sorry, not even just looking at it, but working through some of the gen AI type chat functionality that we think are going to be really additive for our customers as well. All right, great. Thank you. Thank you. Our next question comes from the line of Jake Roberge with William, Yeah, thanks for taking the questions. I just wanted to follow up on the embedded strategy. When you look at the pipeline of new partners, are they primarily ones with an existing portfolio?

Jacob Roberge: Our next question comes from the line of Jake Roberge with William Blair. Please proceed with your question. Thanks for taking the questions. I just wanted to follow up on the embedded strategy. When you look at the pipeline of new partners, are they primarily ones with an existing portfolio? Are you looking at partners that are more on this sourcing size?

Speaker Change #111: All right. Great.

Gabriela Borges: And I'll ask a follow up on the near term. It talks us a little bit about how you're feeling about your ability to retain, train, and enable the sales people. You mentioned that bookings have come in nicely towards the end of the year. So, give us a status update on how the churn and results was trending and how many sales count ads do you expect? Or how much do you expect to grow sales count capacity in fiscal year 25? Thank you.

Speaker Change #112: Thank you. Our next question comes from the line of Jake Roberge with William Blair. Please proceed with your question.

Jake Roberge: Or are you looking at partners that are more on the sourcing side as well? And then have there been any learnings for that process now that you've been able to onboard the first few partners throughout this year?

Jake Roberge: Yeah, thanks for taking the questions. I just wanted to follow up on the embedded strategy. When you look at the pipeline of new partners, are they primarily ones with an existing portfolio or are you looking at partners that are more on the sourcing side as well? And then, have there been any learnings for that motion now that you've been able to onboard the first few partners throughout this year?

Jacob Roberge: Well, and then have there been any learnings for that motion now that you've been able to onboard the first few partners throughout this year?

Raul Villar: Yeah, hi, Jake, it's Raul. I think, obviously, the portfolio will be a mix. There are more embedded candidates without portfolios and with portfolios. Obviously, we look for both, and I would say our pipeline is probably 70% without portfolios, 30% with portfolios. And I think what we're doing is getting that muscle memory today about both, hey, existing portfolio companies, how much converts, and then how much they sell post mortem, and then ultimately, for people without portfolios, how fast can they ramp up their sales engine, and how many units they can have.

Raul Villar: I think, you know, obviously, you know, the portfolio will be a mix. There are more embedded candidates without portfolios and with portfolios. You know, obviously, we look for both.

Raul Villar: Yeah, thanks, Gabriella. I think, you know, in Q4 retention improved and we feel that the territory redesign was well executed and well received. And, you know, we're looking at our sales capacity and we feel like we have plenty of capacity to achieve our FY25 targets. And, you know, obviously, to Adam's earlier point, you know, we'll balance in, you know, more sales hiring as the macro gets better. But we feel well positioned today, both from a tenure perspective and a capacity perspective to achieve our targets. Thank you.

Jake Roberge: Yeah, yeah, hi Jake, it's Raul. I think, you know, obviously, you know, the portfolio will be a mix

Jake Roberge: There are more embedded candidates without portfolios than with portfolios.

Jake Roberge: You know, obviously we we look for both. And I would say our pipeline is probably.

Jake Roberge: 70% without portfolios, 30% with portfolios.

Jake Roberge: And I think, you know, what we're doing is getting that muscle memory today about both, hey, existing portfolio companies.

Raul Villar: And I would say our pipeline is probably 70% without portfolios, 30% with portfolios. And I think, you know, what we're doing is getting that muscle memory today about both, hey, existing portfolio companies, how much converts, and then how much they sell postmortem. And then ultimately, for people without portfolios, how fast can they ramp up their sales engine, and how many units they can have.

Jake Roberge: how much converts

Jake Roberge: and then how much do they sell post-mortem. And then ultimately, for people without portfolios, how fast can they ramp up their sales engine and how many units they can have. In the fall, on our Investor Day, we're going to give some early learnings, 12 months in, of how that looks.

Raul Villar: And in the fall of our Investor Day, we're going to give some early learnings, 12 months in, of how that looks from a metric perspective so people can model it.

Sitikantha Panigrahi: Our next question comes from the line of Saddi Pan-Grahi with Mizuho. Please proceed with your question. Hi. Thanks for taking my question. Very good execution this tough market. So, Raul, my question is, when you, I understand the sluggishness you talked about, maybe that's impacting the new logo acquisition, but what are you seeing in terms of customer and across selling your new products to the customer base? I know you have been expanding the product footprint and presently additive and compensation.

Jacob Roberge: Okay, helpful. And then benefits for brokers; it sounds like those now drive nearly half of the bookings for you. Can you talk about how retention and multi-product adoption looks like for those types of logos?

Jake Roberge: And, you know, in the fall on our, you know, Investor Day, you know, we're going to give some, you know, what our early learnings, you know, 12 months in of how that looks from a metric perspective, so people can model it. Okay, helpful. And then benefits brokers, it sounds like those now drive nearly half of the bookings for you. Can you talk about how retention and multi product adoption looks like for those types of logos? And is there any concern that channel might be getting too large of a new booking source, given you may not fully own the customer relationship? Or would you be happy to see that continue?

Jake Roberge: from a metric perspective so people can model it.

Speaker Change #114: Okay, helpful. And then Benefits Brokers, it sounds like those now drive nearly half of the bookings for you. Can you talk about how retention and multi-product adoption looks like for those types of logos?

Raul Villar: And is there any concern that channel might be getting too large of a new booking source, giving you may not fully own the customer relationship? Or would you be happy to see that continue climbing? Well, Jake, I love bookings, so I would definitely like more bookings from benefit brokers. No, we don't; we own the client relationship. They essentially, you know, it's a mutual relationship where they own the benefit side and we own the client side. But we end up owning the client relationship on the HM side, just like they own the client relationship on the benefit side.

Speaker Change #115: And is there any concern that channel might be getting too large of a new booking source giving you may not fully own the customer relationship? Or would you be happy to see that continue climbing? Thank you very much.

Sitikantha Panigrahi: How should we think about the effective pay-time growth this year? What's the jumpson in your guidance? Yeah, hey, city. I mean, what we saw in Q4 was actually some slighted celebration, which was actually a little bit over-weighted from some of the cross-sell opportunity. So, we saw a little bit more success here in Q4. And I think as we go forward, we're really expecting to see a little bit less pepum growth, a little bit less pepum expansion, as we add more in the enterprise space, as we add more in these embedded partners.

Raul Villar: Well, Jake, I love bookings, so I would definitely like more bookings from benefit brokers. No, we don't, we own the client relationship; they, essentially, you know, it's a mutual relationship where they own the benefit side, and we own the client side. But we end up owning the client relationship on the HCM side, just like they own the client relationship on the benefit side. They've been a great partner, and, you know, we're going to continue to grow. I think 50% is what we, you know, it's pretty much a high watermark so far.

Speaker Change #115: Well, Jake, I love bookings. So I would definitely like more bookings from benefit brokers. No, we don't. We own the client relationship. They essentially, you know, it's a mutual relationship where they own the benefit side and we own the client side.

Speaker Change #115: But we end up owning the client relationship on the HM side, just like they own the client relationship.

Raul Villar: They've been a great partner. And, you know, we're going to continue to grow. I think 50% is what we, you know, is pretty much a high water mark so far. And as we continue to grow the organization, we don't anticipate it being at 50%; you know, it should be somewhere between, you know, 30% and 40% longer term. But in the short term, Jake, we're going to take every booking dollar we can get from benefit brokers and be happy.

Speaker Change #115: on the benefit side. They've been a great partner. And we're going to continue to grow. I think 50% is pretty much a high watermark so far. And as we continue to grow the organization, we don't anticipate it being at 50%. It should be somewhere between 30% and 40% longer term. But in the short term, Jake, we're going to take every booking dollar we can get from benefit brokers and be happy.

Jake Roberge: And as we continue to grow the organization, we don't we don't anticipate it being at 50%. You know, it should be somewhere between, you know, 30 and 40% longer term. But in the short term, Jake, we're going to take every booking dollar we can get from benefit brokers and be happy. Thank you. Very helpful.

Sitikantha Panigrahi: We're going to see the pepum slow down and really lever into the employee growth. But I think actually, in this quarter and maybe in the near-term, you might see a little bit more of that balance in the pepum expansion, as we've seen some success on the cross-sell side, pick up even a little bit further. So, we're seeing good atta-trates, good success, like we called out earlier on the talent, and that progresses, or that continues.

Jacob Roberge: Thank you. Very helpful.

Unknown Attendee: Thank you.

Jake Roberge: Thank you.

Sitikantha Panigrahi: Yeah. And then if I look to the embedded HGM, I know it's been a few quarters since you launched. So, how is the progress so far, and what kind of traction are you seeing among the partner best and even through their customer? Yeah, so the traction has been really strong. I think we announced it in Q1. We've seen continued growth in the pipeline each quarter. We've tripled the number of partners that we've added this year.

Kevin Mcveigh: Thank you. Thank you. Our next question comes from the line of Kevin McVeigh. UBS. Please proceed with the request. Yeah, hey, hey, Kevin.

Kevin McVague: Our next question comes from a line of Kevin McVague with UBS.

Jake Roberge: Very helpful. Thank you.

Speaker Change #116: Thank you. Our next question comes from a line of Kevin McVague with UBS. Please proceed with your question.

Kevin McVague: Please proceed with your question. Great. It looks like the midpoint of 25 is about 10% revenue growth as opposed to 19 and 24.

Kevin McBag: Great. It looks like the midpoint at 25 is about 10% revenue growth as opposed to 19.

Adam Ante: Maybe this is for Adam. Adam, how much of that delta is rate versus kind of the environment, as opposed to maybe conservatism or anything else? Is there any way to just to mentalize it in round percentages kind of the component to the deceleration? Yeah. Hey, hey, Kevin. Yeah. You're seeing a couple points from the interesting come, right. Interesting come is likely to slow down and reverse in terms of total nominal dollars this year. So you're seeing a little bit of pressure from that. And then you're seeing a couple points from the battle point from the form filings change.

Kevin McBag: 24. Maybe this for Adam. Adam, how much of that Delta is rate versus kind of the environment as opposed to maybe conservatism or anything else? Is there any way to just dimensionalize it in round percentages?

Sitikantha Panigrahi: We continue to go through the migration of some of our larger partners as well. And so, it's becoming a, you know, it's really gaining traction. It's still a relatively small portion of the overall portfolio of less and a half a point of the revenue here in 24 with people double that into 25. But there's a lot more room to grow and continue to, you know, overall, meaningfully impact of our revenue over the long term.

Kevin Mcveigh: Yeah, you're seeing a couple points from the interest income, right, interest income is likely to slow down and reverse in terms of total nominal dollars this year. So you're seeing a little bit of pressure from that. And then you're seeing a couple points from the about a point from the form filings change. And then you're seeing some conservatism.

Speaker Change #118: Kind of the component to the deceleration.

Adam: Yeah, hey, Kevin. Yeah, you're seeing a couple points from the interest income, right? Interest income is likely to slow down and reverse in terms of total nominal dollars this year. So you're seeing a little bit of pressure from that.

Raul Villar: So, we're still, you know, really optimistic about this channel, and it's a long-term potential.

Speaker Change #119: And then you're seeing a couple points.

Raul Villar: Thank you.

Speaker Change #119: from the, or about a point from the form filings change. And then you're seeing some conservatism. I mean, and just based on where we are at this point in the year, we're trying to be intentional and we wanna get back to the sort of the philosophy that we've seen and we're not expecting any contribution from the labor market still. So we're still seeing the broader sort of macro sluggishness and we wanted to be intentional about that heading out to this sort of longest point in our guide curve.

Adam Ante: And then you're seeing some conservatism. I mean, just based on where we are at this point in the year, we're trying to be intentional, and we want to get back to sort of the philosophy that we've seen. And we're not expecting any contribution from the labor market still. So we're still seeing the broader sort of macro sluggishness. And we wanted to be intentional about that heading out to this sort of longest point in our guide curve. How much of it impact the pricing in there? Just in terms of how much pricing we would continue to put in.

Samad Samana: Our next question comes from the line of Samad Samana with Jeffries. Please proceed with your question. Hi, good evening. Thanks for taking my question. Maybe first, just as a follow-up on the embedded side to city's question. On your comment that you expect embedded revenue into double in fiscal 25, and you're kind of no pun intended embedded in your guidance, how should we think about that between you adding additional ISVs that will embed the software versus growth of the existing customers that you've already inked and what you foresee in terms of their ramp?

Adam Ante: I mean, just based on where we are, at this point in the year, we're trying to be intentional. And we want to get back to the sort of the philosophy that we've we've seen, and we're not expecting any contribution from the labor market still. So we're, we're still seeing the broader sort of macro sluggishness. And we wanted to be intentional about that heading out to this sort of longest point in our guide curve.

Speaker Change #120: And just, maybe it's falling upon that. How much of it, I don't know if you have any... [inaudible]

Adam Ante: Just in terms of how much pricing we would intend to, you know, continue to put in, I mean, I think we're gonna see a balance between employee growth and PEPM growth that is likely to persist something sort of similar to what we've been experiencing, you know, here in 24. So I think that you're going to see a mix that's probably closer to 50-50% or half and half, and that will then start to lend itself more to the employee side over time. But I think it's going to be consistent with where we've been for the last couple years.

Speaker Change #121: Impact of pricing in there.

Samad Samana: And can you just remind us how those contracts work? Are there any guaranteed minimums? Anything that helps us kind of get a view on the visibility that you have there? Yeah, hey, Samad. No, yeah, we wouldn't include new partnerships that we haven't signed necessarily inside of our guidance. So, all the revenue is really going to be and the expectations going to be from partners that already exist. And those partners, of course, include their, their existing portfolios and new business that they're signing as we think about, you know, what's reasonable is what we would include in our guidance going into 25.

Adam Ante: I think we're going to see a balance between employee growth and pepome growth that is likely to persist. Something sort of similar to what we've been experiencing here in 24. So I think that you're going to see a mix that we're going to see. That's probably closer to 50%, 50% or half and half. And that will then start to lend itself more to the employee side over time. But I think it's going to be consistent with where we've been for the last couple of years.

Speaker Change #122: Just in terms of how much pricing we would intend to continue to put in, I mean, I think we're going to see a balance between employee growth and PEPM growth that is likely to persist. Something sort of similar to what we've been experiencing here in 24. So I think that you're going to see a mix that's probably closer to 50-50% or half and half and that will then start to lend itself more to the employee side over time. But I think it's going to be consistent with where we've been for the last couple of years.

Unknown Attendee: Thank you.

Speaker Change #123: Thank you.

Patrick Walravens: Thank you. Our next question comes from the line of Patrick Walravens with Citizens J&N. Please proceed with. Oh, great.

Patrick Walravens: Our next question comes from the line of Patrick Walravens with Citizens Day MP. Please proceed with your question. Oh, great. Thank you. Raul, for you first, I want to talk a little bit more about sales productivity. You know, so many of the vendors in sort of the CRM area are talking about applying AI to increase sales efficiency and customer engagement. And then Mark Benioff had an announcement about Agent Force that you might have seen yesterday. So you guys have 600 reps.

Speaker Change #124: Thank you. Our next question comes from the line of Patrick Walravens with Citizens JMP. Please proceed with your question.

Samad Samana: In terms of the structure of those deals, there are some that have minimums for sure. We try to balance those in as depending on sort of the size and the need of the portfolios and how much needs to come over and how much work we need to do to necessitate it. But we do have structures that may include some minimums. Most of it is really based on more of the usage and how much business, you know, our partners are adding to the platform now.

Raul Villar: Thank you. Raul, for you first, I want to talk a little bit more about sales productivity. You know, so many of the of the vendors and, for the CRM area, we're talking about applying AI. Mark Benioff, So you guys have 600 reps. Are you actively, Any sort of AI technologies to improve sales efficiency today? Is it working?

Speaker Change #125: See you later.

Speaker Change #126: Oh, great. Thank you. Raul, for you first, I want to talk a little bit more about sales productivity. You know, so many of the vendors and

Speaker Change #127: In sort of the CRM area we're talking about applying AI to

Speaker Change #128: increased sales efficiency and customer engagement. And then Mark Benioff had an announcement about AgentForce that you might have seen yesterday. So you guys have 600 reps. Are you actively using any sort of AI technologies to improve sales efficiency today? Is it working?

Raul Villar: Understood. And then Raul, maybe just a question for you in terms of upmarket success, you guys continue to call that out. It's been increasing in the mix. And I know you've talked about some changes in sales organization. How should we think about how the sales organization's composition looks today and how well it's going to prepare to attack that larger customer opportunity. And as you think about fiscal 25, is there a different type of ref that you're aiming to hire, or is there a different type of training program to target those larger, more sophisticated customers?

Raul Villar: Are you actively using any sort of AI technology to improve sales efficiency today? Is it working? Yeah, so I would say we're in the early innings. We we use it a lot on the front end on the marketing side to create the best optimal demand. And we're able to point, you know, the prospects that are most likely to purchase. From our demand to the sales rep. So I would I would say that, you know, we're in the early innings, but we're pointing the best prospects, most likely to purchase, to our sellers. All right. Cool.

Patrick Walravens: Yeah, so I would say we're in the early innings. We use it a lot on the front end on the marketing side to create the best optimal demand. And we're able to point, you know, the prospects that are most likely to purchase from our demand to the sales rep. So I would I would say that, you know, we're in the early innings, but we're pointing the best prospects most likely to purchase to our sellers.

Speaker Change #129: Yeah, so I would say we're in the early innings. We use it a lot on the front end on the marketing side to create the best optimal demand, and we're able to point.

Speaker Change #130: the prospects that are most likely to purchase from our demand to the sales rep. So I would say that, you know, we're in the early innings, but we're pointing the best prospects most likely to purchase to our sellers.

Raul Villar: Yeah, Samad, thanks. You know, from a training perspective, obviously, we continually enhance our training to meet the different needs of the different segments that we have. So we're continuing to do that. And the way to think about it is a third of our organizations pointed at that, you know, 500 plus segment and the two thirds are pointed below. And we think that's a really good optimal mix for us today. And, you know, we're seeing the benefits of our platform, really pulling us upmarket. And now we're pointing, you know, really qualified tenured, you know, our best of the best Navy SEALs type of reps against those opportunities. And so we're seeing success there.

Samad Samana: Thank you.

Patrick Walravens: All right, cool. And then, Adam, for you, forgive me if I missed it, but if total revenue growth is 10% in 2025, how do we think about recurring? Yeah, so, I mean, we gave a little bit of the breakdown on interest income specifically for the quarter. So, you know, we're guiding to about $12 million on the quarter, which implies a couple points faster growth on recurring for the quarter and then for the full year. So, $48 to $50 million on the full year on interest income, which would put it again, a couple points faster in terms of recurring.

Adam Ante: And then Adam, for you, you know, forgive me if I missed it. But if total revenue growth is 10% in 25, how do we think about recurring revenue? Yeah, so I mean, we gave a little bit of the breakdown on interest income specifically for the quarter. So, you know, we're guiding to about $12 million on the quarter, which implies a couple points faster growth on recurring for the quarter and then for the full year. So $48 to $50 million on the full year on interest income, which would put it again, a couple points faster in terms of recurring.

Speaker Change #131: Adam, for you, if total revenue growth is 10% and 25%, how do we think about recurring revenue?

Speaker Change #132: Yeah, so we gave a little bit of the breakdown on interest income specifically for the quarter. So we're guiding to about $12 million on the quarter, which implies a couple points faster growth on recurring for the quarter and then for the full year. So $48 to $50 million on the full year.

Speaker Change #132: on interest income, which would put it at, again, a couple points faster in terms of recurring.

Adam Ante: Thank you very much for your time. But we broke all that. Thank you. Thanks. Thank you. Thank you. There are no further questions at this time. I'd like to pass the call back over to Raul for any closing remarks. Thank you for your continued interest and support. We're optimistic about fiscal 2025 and remain confident in our ability to deliver attractive growth while accelerating margin expansion.

Adam Ante: But we broke all back.

Unknown Attendee: Thanks.

Unknown Attendee: Thank you.

Scott Bird: Our next question comes to the line of Scott Bird with Needham and Company. Please proceed with your question. Hi, everyone. Nice quarter. And thanks for taking my questions here.

Raul Villar: There are no further questions at this time.

Raul Villar: I'd like to pass the call back over to Ralph for any closing remarks. Thank you for your continued interest and support. We're optimistic about fiscal 2025 and remain confident in our ability to deliver attractive growth while accelerating margin expansion.

Speaker Change #133: Thank you. There are no further questions at this time. I'd like to pass the call back over to Raul for any closing remarks.

Raul Villar: Raul, I wanted to see if you can help us reconcile your view on the market versus other competitors, both public and private, that talk about maybe a little bit more of a slowing market than you all talked about. You describe really healthy sales and pipelines and what you thought was a pretty robust market, but maybe you can help us dissect why your view seems to be at least marginally different than others in the space.

Raul: Thank you for your continued interest and support. We're optimistic about fiscal 2025 and remain confident in our ability to deliver attractive growth while accelerating margin expansion.

Raul Villar: We look forward to connecting with you at upcoming events, including the Steeple Tech Executive Summit and Tear Valley, the Goldman Sachs Communicopia and Technology Conference in San Francisco, and the HR Tech Conference in Las Vegas.

Raul Villar: We look forward to connecting with you at upcoming events, including the Steeple Tech Executive Summit in Deer Valley, the Goldman Sachs Communicopia and Technology Conference in San Francisco and the HR Tech Conference in Las Vegas. Have a great night, everyone. This concludes today's tele- Disconnect your lines at this time. Thank you for your, Thank you very much for watching.

Speaker Change #134: We look forward to connecting with you at upcoming events, including the Steeple Tech Executive Summit in Deer Valley, the Goldman Sachs Communitopia and Technology Conference in San Francisco, and the HR Tech Conference in Las Vegas. Have a great night, everyone.

Raul Villar: Yeah, I mean, when we look at the market and our platform and our position in the market, you know, we just look at, you know, the key components of, you know, first appointments, deals that are in process, the velocity of the transactions. And when we look at it, we think, you know, what the markets, you know, pretty strong. And you know, we finished the year with 16% recurring revenue growth. And, you know, without headwinds, we would have been, you know, close to 20%.

Operator: Have a great night, everyone.

Operator: This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.

Speaker Change #135: This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.

Raul Villar: And so we still feel like it's a big macro market with 75% plus percent, you know, of the opportunity on what we would consider legacy antiquated incomplete solutions. And we have a great product, modern robust with some great tools that's really attractive. So for us, it's just about execution and continuing to execute. And we see the market, you know, really strong and robust. And some of it could be, you know, Scott, the size of decor compared to others, but outside of that, we think the market is, you know, really big and still in the early innings of transformation.

Scott Bird: Understood helpful.

Adam Ante: And then, Adam, in your guidance, you talked about 200 basis points of rate cuts for the year. Peter, do that certainly on the conservative side, or relative to what we're seeing out there today, which is probably appropriate, but how should we view, you know, see usage at existing customers, you talked about how that, you know, went from a nice tail, went to, you know, more of a flat metric year over year, but how are you thinking about see count in the guidance?

Adam Ante: Yeah, hey Scott, we intentionally didn't include any incremental labor market growth in our guidance. So we're effectively, assuming a flat labor market contribution, similar to what we saw on 23, so there might be a slight headwind, 23 to 24, but there wasn't much contribution in 23, and we're assuming the same thing here into 24, excuse me, 24 into 25 now, thanks Scott.

Brian Peterson: Thank you, our next question comes to the line of Brian Peterson with Raymond James, please proceed with your question. Thanks for taking the question. So the top of funnel comment sounded really encouraging as you close up the year. Did that actually improve or was it above your expectations for the fiscal fourth quarter versus what you saw earlier in the year? Any way to unpack that a bit? Yeah, I mean, it's been fairly consistent throughout the year, and you know, so for us it's been, you know, how can we continue to execute against the opportunities?

Brian Peterson: And it was slightly elevating the fourth quarter, but I would say all and all pretty consistent throughout the year. In any changes to the shareholders that you guys are saying, we hit on some of the regional players, it's some of the legacy players, but anything in terms of the new business you're bringing on, has that mixed change at all in the close of the year? I mean, it changes slightly. 75% of our bookings are still what we would consider from legacy incumbent to announce regional ADP paychecks. It moves around quarter to quarter a little bit, and in the quarter we had a little bit more contribution from ADP and paychecks than previous quarters. Thank you.

Jared Levine: Our next question comes from the line of Jared Levine with TD Cowan. Please proceed with your question. Thank you. Can you discuss how gross revenue retention changed here in your events was consistent? Were there any other underlying changes based on player size segment or controllable versus uncontrollable trend? Hey, Jared. Yeah, no, I mean, it's been fairly consistent. It does pop around. You see like a little bit more pressure on the smaller end of the market for sure, and we have seen a little bit more success in the enterprise space.

Jared Levine: But overall, I think actually the labor market growth really impacted it more than anything. So you saw I ticked down a couple points, which again was really all of that labor market slowness that we saw relative to last year. But fairly consistent, otherwise, and what you would expect, given so the comments around a market success in the enterprise and the softness on the smaller end of space.

Jared Levine: Thank you.

Jared Levine: And then in terms of ERTC, can you update us if there was any of that revenue in 4Q and then the headwinds that represented or any assumed and what the headwind assumed for 25 is? Yeah, it was effectively immaterial in Q4. We had anticipated it in the guidance to come out. And so it was immaterial in Q4. And we're not including anything in our guidance for ERTC for 25. So it will be about a point and a half headwind relative to 24, just as that's completely gone. Excuse me, about a point. Excuse me, a headwind.

Bhavin Shah: Thank you. Our next question comes from the line of Bhavin Shah with Deutsche Bank. Please proceed with your question. Great, thanks for taking my questions. Raul, just one clarification, kind of you talked about earlier about feeling good about the level of sales capacity today. And just want to just clarify that kind of means no new that hires until the macro improves. Is that the right way to read it? No, we're fully staffed, you know, for FY25.

Bhavin Shah: And, you know, we'll continue to add throughout the year, you know, we have a plan to continue to add, but we'll either increase or decrease that based on market conditions. So we're going to be flexible and make sure that, you know, we're investing properly in that area. And Bob and just to be clear, we are going to increase capacity through both sales hiring and productivity is worth thinking about growing into to 25. So we'll continue to grow from where we are today.

Raul Villar: Perfect answer to the clarification. And kind of certainly back on the embedded opportunity, can you just provide a little bit more insight in terms of some of the recent signings or kind of what you have in the pipeline today in terms of like the demographics of these customers or the single profile for what you have already in the platform. Do they have existing businesses that you can migrate over just any other insight will be appreciated.

Raul Villar: Yeah, for sure. I mean, we're so we're really excited about some of the new partnerships that we've been able to sign some of them are a little bit different in terms of like a payroll service bureau style partners, but then some more vertical software specific like ERPs and POS type fintech and companies. So I think that there's some, you know, continued success that we're seeing building off of what we've already shared.

Raul Villar: So I think that you're going to continue to see that, you know, vertical specific workforce management and software is within the ERPs as well. So we're excited about those that there are a little bit smaller than some of those partners are a little bit smaller than some of the earlier partnerships that we've signed that have quite a few more employees and portfolio sizes. And so I think that will be a balance in as we continue to progress not not all of them are going to have large portfolios.

Raul Villar: So we'll balance that in and it'll probably be a little bit choppy just in terms of the types of partners that we bring in over the next year as we continue to scale this up. But the pipeline itself continues to grow with those similar type partners.

Mark Marcon: Thank you.

Raul Villar: Our next question comes from a line of Mark Marcon with Bayard. Please proceed with your question. Good afternoon and nice quarter wondering if you can talk a little bit more about, you know, some of the new modules. I mean, you obviously had great traction with your applicant tracking solution. Wondering how much further you can penetrate the existing client base. And if you can talk a little bit about the newer modules that you've come out with in terms of employee compensation, how that ends up fitting in.

Raul Villar: And then I had some follow up questions with the rights to the inside sales force. Yeah. Hey, Mark. It's roll. You know, we have a tremendous amount of light space available to continue to cross sell the majority of the pipeline expansions happened over the last five years. And obviously we have a large client base that we can continue to cross sell in and we continue to invest and grow our cross selling team.

Raul Villar: And we saw some of that success in our fourth quarter over performance. And so that was nice to see. And we'll continue to do that. Obviously, talent is really significant. It's a broad portfolio, both attraction and retention. And, you know, we're continuing to press in on the talent solution. From a compensation perspective, you know, giving frontline leaders the ability to equitably, you know, provide compensation increases across their teams and equitable fair and within budget, you know, really just enables a frontline leader to be more effective during that process.

Raul Villar: And so we think that fits right into our leader strategy and really helping empower frontline leaders to build winning teams. Can you talk a little bit about the size of the internal sales force that's cross-selling into the existing base and where does that stand relative to the total of 600 and how big could that become because it seems, I mean, particularly on talent, it's a great solution. Yeah, I mean, we're still, as you know, we're still focused more on new, you know, buying large majority of our assets are pointed at hunting new clients.

Raul Villar: However, about 10% of our organization is focused on cross-selling and that's been growing year over year and I think you'll continue to see us, you know, press in there because there is such a big white space opportunity. Thank you.

Mark Murphy: Our next question comes from a line of Mark Murphy with JP Morgan, please proceed with your question. Hey, this is already the law on from Mark Murphy. Congrats on the quarter. Thanks for taking the question.

Mark Murphy: Quick one, just any divergence is to call it in terms of demand patterns by customers in terms of geography or and market or any other relevant dimension. No, the demand has been really consistent by size, by markets, by industries. We haven't seen any any significant changes from that perspective, aren't you?

Mark Murphy: Thanks.

Mark Murphy: And then, you know, looking at your slide deck, you have that you kind of reach sales force coverage among the top 50 mentors to about 55% and then that was 66% last year and 44% the year before that. Is there a framework for how we should think about that going forward in FY 25, whether that would accelerate or not, how that fits into the fact that you're kind of fully staffed to deliver on your targets, FY 25 targets now.

Mark Murphy: Thanks. Yeah, already what we're going to continue to increase coverage, you know, throughout the year, I wouldn't expect, you know, dramatic coverage enhanced and I would say that, you know, we'll continue that heads. You know, as I said earlier, we're trying to be intentional about head count acceleration and leveraging the capacity of our existing sales organization while we continue to add reps in each of those 50 markets were appropriate. So we'll continue to grow and that number will be higher, you know, this time next year.

Steve Enders: Great.

Steve Enders: Thank you.

Steve Enders: Our next question come from the line of Steve Enders with city. Please proceed with your question. Okay, great. Thanks for taking the questions here. I guess maybe just following up on the last point of, you know, the top 50 sales coverage and it seems like it's a bit of shift away from the prior tier one coverage. Uh, number that you previously kind of reported on, I guess what's kind of driving that shift and I guess what does that maybe signal about how you're thinking about that that opportunity there. Yeah, Steve, how are you trouble?

Adam Ante: It really isn't a shift or a change in strategy. We've always been focused on the 50. We were extremely barren in the top 15 or the tier one and we've continued to move that percentage up. And as we look at continued non-going seller growth, we will continue to add in all 50 markets over time. It just will be based on opportunity and finding the right person and having the right opportunity available for that person.

Adam Ante: So I don't think it's a change in strategy. We still love the top 15 cities. We're going to continue to add headcount and all fit markets. And that's what comprises, you know, where our 600 sellers sit today. And so we just felt like it was more directional for everyone to understand the top 50 cities and where we sit from that perspective. Steve. Okay. Gotcha. That's helpful. And then I guess just on the free cash flow side, I mean, pretty, looks like pretty solid performance here in the quarter.

Adam Ante: I guess anything to call out that help kind of add to that performance here. And I guess anything that kind of seems able to pull forward or maybe there's some like timingships in there, but just I guess what is I kind of indicate as well for fiscal 25 and the free cash flow dimensions there. Yeah. I mean, clearly. On the quarters, there's quite a bit of networking capital changes. So like within the year, it's a little bit harder to look at, but we're trying to manage this to the full year.

Adam Ante: So I think that dynamic of the expansion on the full year is really important, but, you know, we'll continue to smooth out those networking capital items over time, but the primary driver of the free cash flow benefit is still the overall expansion and productivity that we're getting out of the cost of acquisition in this case in this year. And we're seeing the same thing out of GNA. So most of it is driven by the operating. And then within the quarters, you have some of those networking capital items. Okay.

Steve Enders: Perfect. Thanks for taking the questions. Thank you. Thanks, Steve.

Daniel Dester: Thank you. Our next question comes from line of Daniel Dester with BMO capital markets. Please proceed with your question. Great. Give me everyone time for taking my question. Maybe we can spend a moment when you talk about the mix of booking, 25% come from other solutions with your modern or new. Can you just remind us like why does pay for win in those circumstances? You know, it's clear relative to the legacies, but relative to the more modern solutions.

Daniel Dester: Why are you with? Yeah, I mean, I think strength is a platform, most open platform, most robust platform and our win rates are up and are sharing in winning from modern cloud competitors. Continues to increase and reach a high in FY 24 as a percentage of the mix. So we feel really well positioned to compete against legacy and especially to compete against modern. It's a really deep platform. We offer the most pepum, which in theory ties to feature functionality. So ultimately we have the most robust platform. We have the most modern platform and the most open platform.

Raul Villar: That's why we're winning. Okay, thank you for that.

Adam Ante: And then Adam, maybe I missed some of the prepared remarks, but do you remind us what's going on with with gross profit margins? It looks like they were down your rear. I think that you'd call out there. Thanks. Yeah. Hey, Dan. Yeah, the primary drag in that case was really the form filings, just sort of pressure that we saw coming out. We actually saw some really good underlying operating expansion. Margin expansion apart from those and we'll continue to present to that for 25.

Adam Ante: There's a little bit more margin pressure that we'll see from that, you know, high margin. Form filings revenue that's going to the rest of that that's going to leave here in 25, but we'll work through that this year and be able to show, you know, continued expansion. All right, great.

Matt VanVliet: Thank you.

Matt VanVliet: Our next question comes from the line of of Matt VanVliet with BTIG. Please proceed with their question.

Jake Roberge: Good afternoon. Thanks for taking the question. I guess when you look at some of the additional modules and the attach rates you're seeing and some of the momentum behind that, where do you feel like you're looking to put the most behind R&D budget? And in so much as you look at M&A, are there areas of the portfolio that you think are sort of primed to add additional capabilities as you've seen demand for the attachment there?

Jake Roberge: Yeah, I mean, hey Matt, thanks. It's Raul. I think we think about our R&D investment in three big buckets, continuing to enhance our core platform. Obviously continuing to deepen our talent solutions, which are best in class already, and then continuing to make it the most open platform in the category. And those are the three areas where we continue to invest in and we feel really good about it from an M&A perspective.

Jake Roberge: There's no one area or one gap in the platform, you know, that we're looking to fill. I would say there's hundreds, if not thousands of cottage categories that kind of surround the ATM ecosystem that we're always looking to evaluate. And so that's an ongoing process.

Raul Villar: We're always, you know, looking for great solutions that can help our leaders, you know, build winning teams. Very helpful. And then as you look at a lot of success across software, it seems to be in verticalizing, you're offering to make it a little more market ready. You've talked a lot about embedded solutions and some of your partners, but how might you avail the use AI and maybe specifically gen AI around the talent and training side of it as well as employee engagement to really help broaden the verticalization of your product to be a little more out of the box ready.

Raul Villar: Yeah, hey, Matt. I mean, actually the AI that we're driving around the majority of where you're seeing a show up is inside the talent. A solution inside the talent suite. There's a lot of sentiment capability, like the job description generator sort of a sort of functionality. So there's a lot of functionality around that talent attraction and recruiting. And then we'll continue to look for those opportunities, not just look for those opportunities, but building those opportunities around some of the more sort of proactive nudging as folks are working through their workflows inside of the system and making those workflows easier to navigate.

Raul Villar: So that the clients don't have to spend quite as much time inside of there and they can focus on more of the leader and performance management tasks that are more critical to the organization. And we're looking at some of that gen AI and again, sorry, not even just looking at it, but working through some of the gen AI type chat functionality that we think are going to be really additive for our customers as well. All right.

Raul Villar: Great. Thank you.

Jake Roberge: Our next question comes from the line of Jake Roberge with William Blair. Please proceed with your question. Yeah. Thanks for taking the questions. I just wanted to follow up on the embedded strategy. When you look at the pipeline of new partners, are they primarily ones with an existing portfolio? Are you looking at partners that are more on this sourcing side as well? And then have there been any learnings for that motion now that you've been able to onboard the first few partners throughout this year?

Raul Villar: Yeah, hi, Jacob, it's Raul. I think, obviously, the portfolio will be a mix. There are more embedded candidates without portfolios and with portfolios. Obviously, we look for both, and I would say our pipeline is probably 70% without portfolios, 30% with portfolios. And I think, what we're doing is getting that muscle memory today about both, hey, existing portfolio companies, how much converts, and then how much they sell post mortem, and then ultimately for people without portfolios, how fast can they ramp up their sales engine, and how many units they can have.

Raul Villar: And, you know, in the fall on our, you know, investor day, you know, we're going to give some, you know, what our early learnings, you know, 12 months in of how that looks from a metric perspective so people can model it. Okay, helpful. And then benefits for workers, it sounds like those now drive nearly half of the bookings for you. Can you talk about how retention and multi-product adoption looks like for those types of logos?

Raul Villar: And is there any concern that channel might be getting too large of a new booking source, giving you may not fully own the customer relationship, or would you be happy to see that continue climbing? Well, Jake, I love bookings, so I would definitely like more bookings from benefit brokers. No, we don't, we own the client relationship. They essentially, you know, it's a mutual relationship where they own the benefit side and we own the client side.

Raul Villar: But we end up owning the client relationship on the HM side, just like they own the client relationship on the benefit side. They've been a great partner. And, you know, we're going to continue to grow. I think 50% is what we, you know, it's pretty much a high water mark so far. And as we continue to grow the organization, we don't anticipate it being at 50%, you know, it should be somewhere between, you know, 30% and 40% longer term. But in the short term, Jake, we're going to take every booking dollar we can get from benefit brokers and be happy. Thank you. Very helpful. Thank you.

Kevin Mcveigh: Our next question comes from a line of Kevin McVague with UBS. Please proceed with your question. Great.

Adam Ante: It looks like the midpoint of 25 is about 10% revenue growth as opposed to 19 and 24. Maybe this for Adam. Adam, how much of that delta is rate versus kind of the environment as opposed to maybe conservatism or anything else? Is there any way to just to mentalize it in round percentages, kind of the component to the deceleration? Yeah. Hey, Kevin. Yeah. You're seeing a couple points from the interesting come, right?

Adam Ante: Interesting come is likely to slow down and reverse in terms of total nominal dollars this year. So you're seeing a little bit of pressure from that. And then you're seeing a couple points from the battle point from the form filings change. And then you're seeing some conservatism. I mean, just based on where we are at this point in the year, we're trying to be intentional. And we want to get back to sort of the philosophy that we've seen.

Adam Ante: And we're not expecting any contribution from the labor market still. So we're still seeing the broader sort of macro sluggishness. And we wanted to be intentional about that heading out to this sort of longest point in our guide curve. I don't know if you have any impact on pricing in there. Just in terms of how much pricing we would continue to put in. I think we're going to see a balance between employee growth and pepome growth that is likely to persist something sort of similar to what we've been experiencing here in 24.

Adam Ante: So I think that you're going to see a mix that's probably closer to 50%, or half and half, and that will then start to lend more to the employee side over time. But I think it's going to be consistent with where we've been for the last couple of years.

Patrick Walravens: Thank you. Our next question comes from the line of Patrick Wall Ravens with Citizens day MP. Please proceed with your question. Oh, great. Thank you. Raul, for you first, I want to talk a little bit more about sales productivity. You know, so many of the vendors in sort of the CRM area are talking about applying AI to increase sales efficiency and customer engagement, and then Mark Benioff had an announcement about agent force that you might have seen yesterday.

Patrick Walravens: So you guys have 600 reps. Are you actively using any sort of AI technology to improve sales efficiency today? Is it working? Yeah, that's why I would say we're in the early innings. We use it a lot on the front end on the marketing side to create the best optimal demand, and we're able to point, you know, the prospects that are most likely to purchase from our demand to the sales rep.

Patrick Walravens: So I would say that, you know, we're in the early innings, but we're pointing the best prospects, most likely to purchase to our sellers. All right, cool. And then Adam, for you, forgive me if I missed it. But if total revenue growth is 10% and 25, how do we think about recurring revenue? Yeah, so I mean, we gave a little bit of the breakdown on interest income specifically for the quarter. So, you know, we're guiding to about $12 million on the quarter, which implies a couple points faster growth on recurring for the quarter and then for the full year. So $48 to $50 million on the full year on interest income, which would put it again, a couple points faster in terms of recurring. But we broke all that.

Adam Ante: Thank you.

Rachel White: There are no further questions at this time.

Raul Villar: I'd like to pass the call back over to Raoul for any closing remarks. Thank you for your continued interest and support. We're optimistic about fiscal 2025 and remain confident in our ability to deliver attractive growth while accelerating margin expansion.

Rachel White: We look forward to connecting with you at upcoming events, including the Steeple Tech Executive Summit and Tier Valley, the Goldman Sachs, Communicaopia, and Technology Conference in San Francisco, and the HR Tech Conference in Las Vegas. Have a great night, everyone.

Operator: This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.