Paylocity Q2 2026 Paylocity Holding Corp Earnings Call | AllMind AI Earnings | AllMind AI
Q2 2026 Paylocity Holding Corp Earnings Call
At this time, all participants are in listen. Only mode after the speaker's presentation, there'll be a question and answer session to ask a question during the session. You need to press star 1, 1 on your telephone, you will then hear an automated message. Advising your hand is raised to withdraw your question. Please press star 1 1 again, please be advised that these conferences being recorded, I would like to hand the conference over your speaker today, Ryan. Glenn Chief Financial Officer. Please go ahead.
Speaker #1: Good day, and thank you for standing by. Welcome to finished. Paylocity's Holdings Corporation second quarter 2026 financial fiscal year results conference call. At this time, all participants are in listen-only mode.
Good afternoon and welcome to Pelosi's earnings results. Call for the second quarter of fiscal 26 which ended on December 31st 2025. I'm Ryan. Glenn Chief Financial Officer and joining me in the call today are Steve B champ, executive chairman and Toby Williams president and CEO of Pelosi. Today, we will be discussing the results announced in our press release issued after the market closed, a webcast replay of this, call will be available for the next 45 days on our website under the investor relations tab.
Speaker #1: the speaker's presentation, there'll be a question and After answer session. To ask a question during the session, you need to press star 11 on your telephone.
During the call today we will use non-gaap Financial measures as defined in regulation. G, you can find the related reconciliations to Gap in our press release, which is located at our website, at pelosi.com under the investor relations tab.
Speaker #1: We will then hear an automated message advising your hand is raised. To withdraw your question, please press today's conference is being recorded. I would like to star 11 again.
Speaker #1: Please be advised hand the conference over to your speaker today, Ryan Glenn, Chief Financial Officer. Please go ahead.
We will also make forward-looking statements actual events or results could differ materially from those projected in our forward-looking statements.
Speaker #2: Good afternoon, and welcome to Paylocity's Earnings Results Call for the second quarter of fiscal '26, which ended on December 31st, 2025. I'm Ryan Glenn, Chief Financial Officer, and joining me on the call today are Steve Beauchamp, Executive Chairman, and Toby Williams, President and CEO of Paylocity.
Ryan Glenn: Good afternoon and welcome to Paylocity's earnings results call for the second quarter of fiscal 2026, which ended on 31 December 2025. I'm Ryan Glenn, Chief Financial Officer, and joining me on the call today are Steve Beauchamp, Executive Chairman, and Toby Williams, President and CEO of Paylocity. Today, we will be discussing the results announced in our press release issued after the market closed. A webcast replay of this call will be available for the next 45 days on our website under the Investor Relations tab. During the call today, we will use non-GAAP financial measures as defined in Regulation G. You can find the related reconciliations to GAAP in our press release, which is located on our website at paylocity.com under the Investor Relations tab. We will also make forward-looking statements. Actual events or results could differ materially from those projected in our forward-looking statements.
Ryan Glenn: Good afternoon and welcome to Paylocity's earnings results call for the second quarter of fiscal 2026, which ended on 31 December 2025. I'm Ryan Glenn, Chief Financial Officer, and joining me on the call today are Steve Beauchamp, Executive Chairman, and Toby Williams, President and CEO of Paylocity. Today, we will be discussing the results announced in our press release issued after the market closed. A webcast replay of this call will be available for the next 45 days on our website under the Investor Relations tab. During the call today, we will use non-GAAP financial measures as defined in Regulation G. You can find the related reconciliations to GAAP in our press release, which is located on our website at paylocity.com under the Investor Relations tab. We will also make forward-looking statements. Actual events or results could differ materially from those projected in our forward-looking statements.
please refer to our press release and SEC filings, including our most recent 10K, which contain important factors that could cause actual results to differ materially from the forward-looking statements,
we do not undertake any duty to update any forward-looking statements.
Speaker #2: results announced in our press release issued after the market closed. A webcast replay of this Today, we will be discussing the call will be available for the next 45 days on our website under the Investor Relations tab.
In regard to our upcoming conference schedule. We will be attending the Raymond James annual, institutional investors conference and in the citizens technology conference. Please let me know if you'd like to schedule time with us at either of these events with that, let me turn the call over to Steve.
Speaker #2: today, we will use non-GAAP financial During the call measures as defined in Regulation G. You can find the related reconciliations to GAAP in our press release, which is located on our website at paylocity.com/under-the-investor-relations tab.
Thank you Ryan and thanks to all of you for joining us. On our second quarter, fiscal 26 earnings. Call our strong results. Continued in Q2 with recurring and other Revenue growth of 11% as our differentiated value. Proposition of providing the most modern software in the industry continues to resonate in the marketplace.
Speaker #2: We will also make forward-looking statements. Actual events or results could differ materially from those projected in our forward-looking statements. Please refer to our press release and SEC filings, including our most recent 10-K, which contain important factors that could cause actual results to differ materially from the forward-looking statements.
Revenue was 416.1 million or 10% growth over Q2 of last year.
Ryan Glenn: Please refer to our press release and SEC filings, including our most recent 10-K, which contain important factors that could cause actual results to differ materially from the forward-looking statements. We do not undertake any duty to update any forward-looking statements. In regard to our upcoming conference schedule, we will be attending the Raymond James Annual Institutional Investors Conference and the Citizens Technology Conference. Please let me know if you'd like to schedule time with us at either of these events. With that, let me turn the call over to Steve.
Ryan Glenn: Please refer to our press release and SEC filings, including our most recent 10-K, which contain important factors that could cause actual results to differ materially from the forward-looking statements. We do not undertake any duty to update any forward-looking statements. In regard to our upcoming conference schedule, we will be attending the Raymond James Annual Institutional Investors Conference and the Citizens Technology Conference. Please let me know if you'd like to schedule time with us at either of these events. With that, let me turn the call over to Steve.
Our multi-year investment in R&D and commitment to driving, Innovation continues to fuel our growth as the combination of HCM finance and it in 1 single platform. All underpinned by our core employee record data represents the broadest and deepest comprehensive offering in the marketplace.
Speaker #2: any forward-looking statements. We do not undertake any duty to update In regard to our upcoming conference schedule, we will be attending the Raymond James Annual the Citizens Technology Conference.
Speaker #2: Institutional Investors Conference in—let me know if you'd like to schedule time with us at either of these events. With that, let me turn the call over to Steve.
Speaker #3: Thank you, Ryan, and thanks to all of you for joining us on our second quarter fiscal '26 earnings call. Our strong results continued in Q2, with recurring and other revenue growth of 11% as our differentiated value proposition of providing the most modern software in the industry continues to resonate in the marketplace.
Steve Beauchamp: Thank you, Ryan, and thanks to all of you for joining us on our second quarter fiscal '26 earnings call. Our strong results continued in Q2, with recurring and other revenue growth of 11% as our differentiated value proposition of providing the most modern software in the industry continues to resonate in the marketplace. Total revenue was $416.1 million, or 10% growth over Q2 of last year. Our multi-year investment in R&D and commitment to driving innovation continues to fuel our growth as the combination of HCM, finance, and IT in one single platform, all underpinned by our core employee record data, represents the broadest and deepest comprehensive offering in the marketplace. This dynamic continues to be highlighted by the growing adoption and utilization of products across our suite, including new HCM offerings such as Reward and Recognition.
Steve Beauchamp: Thank you, Ryan, and thanks to all of you for joining us on our second quarter fiscal '26 earnings call. Our strong results continued in Q2, with recurring and other revenue growth of 11% as our differentiated value proposition of providing the most modern software in the industry continues to resonate in the marketplace. Total revenue was $416.1 million, or 10% growth over Q2 of last year. Our multi-year investment in R&D and commitment to driving innovation continues to fuel our growth as the combination of HCM, finance, and IT in one single platform, all underpinned by our core employee record data, represents the broadest and deepest comprehensive offering in the marketplace. This dynamic continues to be highlighted by the growing adoption and utilization of products across our suite, including new HCM offerings such as Reward and Recognition.
This Dynamic continues to be highlighted by the growing adoption and utilization of products across our suite, including new HCM offerings such as reward and recognition. As the only provider with Native reward system that automates the taxation of rewards payments and allows for the cash Redemption of rewards reward and recognition continues to serve as a point of competitive differentiation in the market.
Speaker #3: $416.1 million, or 10% growth over Q2 of last year. Our multi-year investment in Total revenue was R&D and commitment to driving innovation continues to fuel our growth as the combination of HCM, finance and IT data represents the broadest and underpinned by our core employee record in one single platform all deepest comprehensive offering in the marketplace.
In a driver of improved Employee Engagement and efficiency for our clients. For example, during calendar year end, which is a popular time for companies to recognize employees and existing client, fully transitioned, and automated their manual holiday reward program within our platform successfully Distributing gift cards to more than 750 employees located across multiple locations.
Speaker #3: be highlighted by the growing adoption and This dynamic continues to utilization of products across our suite, including new HCM offerings such only provider with native reward system as reward and recognition.
Steve Beauchamp: As the only provider with a native reward system that automates the taxation of rewards payments and allows for the cash redemption of rewards, Reward and Recognition continues to serve as a point of competitive differentiation in the market and a driver of improved employee engagement and efficiency for our clients. For example, during calendar year-end, which is a popular time for companies to recognize employees, an existing client fully transitioned and automated their manual holiday reward program within our platform, successfully distributing gift cards to more than 750 employees located across multiple locations.
Steve Beauchamp: As the only provider with a native reward system that automates the taxation of rewards payments and allows for the cash redemption of rewards, Reward and Recognition continues to serve as a point of competitive differentiation in the market and a driver of improved employee engagement and efficiency for our clients. For example, during calendar year-end, which is a popular time for companies to recognize employees, an existing client fully transitioned and automated their manual holiday reward program within our platform, successfully distributing gift cards to more than 750 employees located across multiple locations.
Speaker #3: That automates the taxation of rewards as the payments and allows for the cash redemption of rewards, reward and recognition continues to serve as a point of competitive differentiation in the market and a driver of improved employee engagement and efficiency for our clients.
Our expanded AI capabilities which we've continued to embed across the platform. Also contributed to our strong financial results and increase guidance, including the recent release of our policy and procedures agent, which enables clients to leverage their own Internal Documentation such as employee handbooks and standard operating procedures to provide employees with instant and accurate. Answers to questions around topics, such as travel expense and sick, leave policies.
Additionally, we recently extended our AI assistant into HR rules and regulations, tapping into more than 200 IRS and Department of Labor and knowledge sources to provide administrators with guidance on tax and labor regulations.
Speaker #3: For example, during calendar year-end, which is a popular time for companies to recognize employees, an existing client fully transitioned and automated their manual holiday reward program within our platform, successfully distributing gift cards to more than 750 employees located across multiple locations.
Collectively, these new capabilities will help our clients simplify and automate employee support while also reducing risk and improving compliance outcomes. And we continue to see growing utilization of our AI capabilities with the average monthly usage of our AI assistant increasing over 100% quarter over quarter.
Speaker #3: Our expanded AI capabilities, which we have continued to embed across the platform, also contributed to our strong financial results and increased guidance, including the recent release of our policy and procedures agent, which enables clients to leverage their own internal documentation such as employee handbooks and standard operating procedures to provide employees with instant and accurate answers to questions around topics such as travel expense and sick leave policies.
Steve Beauchamp: Our expanded AI capabilities, which we have continued to embed across the platform, also contributed to our strong financial results and increased guidance, including the recent release of our Policy and Procedures Agent, which enables clients to leverage their own internal documentation, such as employee handbooks and standard operating procedures, to provide employees with instant and accurate answers to questions around topics such as travel expense and sick leave policies. Additionally, we recently extended our AI assistant into HR rules and regulations, tapping into more than 200 IRS and Department of Labor knowledge sources to provide administrators with guidance on tax and labor regulations.
Steve Beauchamp: Our expanded AI capabilities, which we have continued to embed across the platform, also contributed to our strong financial results and increased guidance, including the recent release of our Policy and Procedures Agent, which enables clients to leverage their own internal documentation, such as employee handbooks and standard operating procedures, to provide employees with instant and accurate answers to questions around topics such as travel expense and sick leave policies. Additionally, we recently extended our AI assistant into HR rules and regulations, tapping into more than 200 IRS and Department of Labor knowledge sources to provide administrators with guidance on tax and labor regulations.
Our ongoing commitment to product Innovation, continues to be recognized by Third parties, as Paylocity was recently awarded the 2026 fires Choice Award from trust radius.
Named a leader in 19 categories within the winter 2026, G2 grid reports and listed on Caper's. Payroll short list.
I would now like to pass the call to Toby to provide further color on the quarter.
Speaker #3: Additionally, we recently extended our AI assistant into HR rules and regulations, tapping into more than 200 IRS and Department of Labor knowledge sources to provide administrators with guidance on tax and labor regulations.
Thanks Steve, as Steve mentioned, the momentum seen in q1 continued into the second quarter and contributed to a strong selling season performance and increased revenue and profitability. Guidance for fiscal 26.
Speaker #3: Collectively, these new capabilities will help our clients simplify and automate employee support while also reducing risk and improving compliance outcomes, and we continue to see growing the average monthly usage of our utilization of our AI capabilities with AI assistant increasing over 100% quarter over quarter.
Steve Beauchamp: Collectively, these new capabilities will help our clients simplify and automate employee support while also reducing risk and improving compliance outcomes, and we continue to see growing utilization of our AI capabilities, with the average monthly usage of our AI Assistant increasing over 100% quarter-over-quarter. Our ongoing commitment to product innovation continues to be recognized by third parties, as Paylocity was recently awarded the 2026 Buyer's Choice Award from TrustRadius, named a leader in 19 categories within the Winter 2026 G2 Grid Reports, and listed on Capterra's payroll shortlist. I would now like to pass the call to Toby to provide further color on the quarter.
Steve Beauchamp: Collectively, these new capabilities will help our clients simplify and automate employee support while also reducing risk and improving compliance outcomes, and we continue to see growing utilization of our AI capabilities, with the average monthly usage of our AI Assistant increasing over 100% quarter-over-quarter. Our ongoing commitment to product innovation continues to be recognized by third parties, as Paylocity was recently awarded the 2026 Buyer's Choice Award from TrustRadius, named a leader in 19 categories within the Winter 2026 G2 Grid Reports, and listed on Capterra's payroll shortlist. I would now like to pass the call to Toby to provide further color on the quarter.
Speaker #3: Our ongoing commitment to product innovation continues to be recognized by third parties as Paylocity was recently awarded the 2026 Buyer's Choice Award from Trust Radius.
Speaker #3: Named a leader in 19 categories within the Winter 2026 G2 Grid Reports and listed on Capterra's Payroll Shortlist. I would now like to pass the call to Toby to provide further color on the quarter.
Automation and efficiency within their business and better stand out in an otherwise competitive hiring environment as evidenced by an existing client. With over 1,200 employees, that has seen a roughly 50% reduction in their time to hire since adopting our new recruiting functionality.
we also continue to be pleased with the consistency of our referral Channel, which once again, delivered more than 25% of our new business in Q2,
Speaker #2: Thanks, Steve. As Steve mentioned, the momentum seen in Q1 continued into the second quarter and contributed to a strong selling season performance and increased revenue and profitability guidance for fiscal '26.
Toby Williams: Thanks, Steve. As Steve mentioned, the momentum seen in Q1 continued into the second quarter and contributed to a strong selling season performance and increased revenue and profitability guidance for fiscal '26. Our results continue to be driven by the combination of strong sales, operational execution, and product differentiation, including the addition of new functionality to core products such as video candidate screening, self-service scheduling, and pre-screening forms within our recruiting module. As a result of these new capabilities, we are helping our clients improve their hiring process, drive a higher degree of automation and efficiency within their business, and better stand out in an otherwise competitive hiring environment, as evidenced by an existing client with over 1,200 employees that has seen a roughly 50% reduction in their time to hire since adopting our new recruiting functionality.
Toby Williams: Thanks, Steve. As Steve mentioned, the momentum seen in Q1 continued into the second quarter and contributed to a strong selling season performance and increased revenue and profitability guidance for fiscal '26. Our results continue to be driven by the combination of strong sales, operational execution, and product differentiation, including the addition of new functionality to core products such as video candidate screening, self-service scheduling, and pre-screening forms within our recruiting module. As a result of these new capabilities, we are helping our clients improve their hiring process, drive a higher degree of automation and efficiency within their business, and better stand out in an otherwise competitive hiring environment, as evidenced by an existing client with over 1,200 employees that has seen a roughly 50% reduction in their time to hire since adopting our new recruiting functionality.
The sustained success of our broker Channel continues to be driven by our modern platform. Third party integration and API API capabilities and because we do not compete against our broker partners by selling Insurance products.
Speaker #2: Our results continue to be driven by the combination of strong sales, operational execution and product differentiation, including the addition of new functionality to core products such as video candidate screening, self-service scheduling, and pre-screening forms within our recruiting module.
We remain committed to investing in and supporting the broker Channel with the goal of continuing to deliver real value and true partnership and support to our referring Brokers and their clients through enhanced capabilities such as our benefits guided setup.
Speaker #2: capabilities, we are helping our clients As a result of these new higher degree of automation and efficiency within their improve their hiring process, drive a business, and better stand out in an otherwise competitive hiring environment as evidenced by an existing client with over 1,200 employees that has seen a roughly 50% reduction in their time to hire since adopting our new recruiting functionality.
Through self-service and intuitive tooling benefits, guided setup, allows Brokers to directly, build plans and rate structures and update rates on behalf of their clients directly within the Paylocity platform, enabling our partners to deliver a higher level of service to our mutual clients.
We also saw another strong quarter of client retention which helped contribute to our strong financial performance, through the first half of fiscal 26,
Speaker #2: We also continue to be pleased with the consistency of our referral channel, which once again delivered more than 25% of our new business in Q2.
Toby Williams: We also continue to be pleased with the consistency of our referral channel, which once again delivered more than 25% of our new business in Q2. The sustained success of our broker channel continues to be driven by our modern platform, third-party integration, and API capabilities, and because we do not compete against our broker partners by selling insurance products. We remain committed to investing in and supporting the broker channel with the goal of continuing to deliver real value and true partnership and support to our referring brokers and their clients through enhanced capabilities such as our Benefits-Guided Setup. Through self-service and intuitive tooling, Benefits-Guided Setup allows brokers to directly build plans and rate structures and update rates on behalf of their clients directly within the Paylocity Platform, enabling our partners to deliver a higher level of service to our mutual clients.
Toby Williams: We also continue to be pleased with the consistency of our referral channel, which once again delivered more than 25% of our new business in Q2. The sustained success of our broker channel continues to be driven by our modern platform, third-party integration, and API capabilities, and because we do not compete against our broker partners by selling insurance products. We remain committed to investing in and supporting the broker channel with the goal of continuing to deliver real value and true partnership and support to our referring brokers and their clients through enhanced capabilities such as our Benefits-Guided Setup. Through self-service and intuitive tooling, Benefits-Guided Setup allows brokers to directly build plans and rate structures and update rates on behalf of their clients directly within the Paylocity Platform, enabling our partners to deliver a higher level of service to our mutual clients.
Speaker #2: The sustained success of our broker channel continues to be driven by our modern platform, third-party integration, and API capabilities, and because we do not compete against our broker partners by selling insurance products.
As highlighted last quarter, in addition to embedding AI capabilities within our product Suite, we are also investing in Ai and broader automation efforts internally to help Drive greater efficiency and productivity across our business.
Speaker #2: We remain committed to investing in and supporting the broker channel, with the goal of continuing to deliver real value and true partnership and support to our referring brokers and their clients through enhanced capabilities such as our benefits-guided setup.
Specifically within the operations team we continue to leverage AI to drive down client case, volumes, automate client interactions, and case routings, and perform sentiment analysis to flag urgent cases for faster response and we remain committed to continuing to evaluate new opportunities to help deliver world-class service and partnership.
Speaker #2: Through self-service and intuitive tooling, benefits-guided setup allows brokers to directly build plans and rate structures and update rates on behalf of their clients directly within the Paylocity platform, enabling our partners to deliver a higher level of service to our mutual clients.
Overall, we are pleased with our Q2 results and believe we are. Well, positioned heading into the back half of the year, which is reflected in our increased guidance for fiscal 26.
Speaker #2: We also saw another strong quarter of client retention, which helped contribute to our strong financial performance through the first half of fiscal '26. As highlighted last quarter, in addition to embedding AI capabilities within our product suite, we are also investing in AI and broader automation efforts internally to help drive greater efficiency and productivity across our business.
Toby Williams: We also saw another strong quarter of client retention, which helped contribute to our strong financial performance through the first half of fiscal 2026. As highlighted last quarter, in addition to embedding AI capabilities within our product suite, we are also investing in AI and broader automation efforts internally to help drive greater efficiency and productivity across our business. Specifically within the operations team, we continue to leverage AI to drive down client case volumes, automate client interactions and case routings, and perform sentiment analysis to flag urgent cases for faster response, and we remain committed to continuing to evaluate new opportunities to help deliver world-class service and partnership. Overall, we are pleased with our Q2 results and believe we are well-positioned heading into the back half of the year, which is reflected in our increased guidance for fiscal 2026.
Toby Williams: We also saw another strong quarter of client retention, which helped contribute to our strong financial performance through the first half of fiscal 2026. As highlighted last quarter, in addition to embedding AI capabilities within our product suite, we are also investing in AI and broader automation efforts internally to help drive greater efficiency and productivity across our business. Specifically within the operations team, we continue to leverage AI to drive down client case volumes, automate client interactions and case routings, and perform sentiment analysis to flag urgent cases for faster response, and we remain committed to continuing to evaluate new opportunities to help deliver world-class service and partnership. Overall, we are pleased with our Q2 results and believe we are well-positioned heading into the back half of the year, which is reflected in our increased guidance for fiscal 2026.
Finally, this time of year is a very busy time, for all of our teams as they work closely with clients on year-end processing of payrolls, W2s 1095s and annual tax form filings to federal state and local agencies. And on the implementation of new clients, I want to thank all of our employees, for their hard work, and dedication to our clients during this very busy time of year.
Speaker #2: team, we continue to leverage AI to drive Specifically, within the operations down client case volumes, automate client interactions and case routings, and perform sentiment analysis to flag urgent cases for faster response; and we remain committed to continuing to evaluate new opportunities to help deliver world-class service and partnership.
In addition to our Market leading financial performance, our strong culture of Paylocity continues to be recognized externally. As we were recently recognized by Newsweek on America's greatest workplaces for culture belonging and Community 2026.
I would now like to pass a caller Ryan to review the financial results in detail and provide our increased fiscal 26 guidance.
Thanks Toby.
Speaker #2: Overall, we are pleased with our Q2 results and believe we are well positioned heading into the back half of the year, which is reflected in our increased guidance for fiscal '26.
Speaker #2: Finally, this time of year is a very busy time for all of our teams, as they work closely with clients on year-end processing of payrolls, W-2s, 1095s, and annual tax form filings to federal, state, and local agencies, and on the implementation of new clients.
Toby Williams: Finally, this time of year is a very busy time for all of our teams as they work closely with clients on year-end processing of payrolls, W-2s, 1095s, and annual tax form filings to federal, state, and local agencies, and on the implementation of new clients. I want to thank all of our employees for their hard work and dedication to our clients during this very busy time of year. In addition to our market-leading financial performance, our strong culture at Paylocity continues to be recognized externally as we were recently recognized by Newsweek on America's Greatest Workplaces for Culture, Belonging, and Community 2026. I would now like to pass the call to Ryan to review the financial results in detail and provide our increased fiscal 2026 guidance.
Toby Williams: Finally, this time of year is a very busy time for all of our teams as they work closely with clients on year-end processing of payrolls, W-2s, 1095s, and annual tax form filings to federal, state, and local agencies, and on the implementation of new clients. I want to thank all of our employees for their hard work and dedication to our clients during this very busy time of year. In addition to our market-leading financial performance, our strong culture at Paylocity continues to be recognized externally as we were recently recognized by Newsweek on America's Greatest Workplaces for Culture, Belonging, and Community 2026. I would now like to pass the call to Ryan to review the financial results in detail and provide our increased fiscal 2026 guidance.
Q2 recurring and other Revenue was 387 million and increase 11% with total revenue of 416.1 million and up, 10% from the same period last year. Our strong Q2 results were primarily driven by another solid quarter for our sales and operations team, allowing us to come in 8.1 million above the midpoint of our Revenue guidance and allowing us to again, raise our fiscal year guidance, by more than our quarterly, beat
Speaker #2: I want to thank all of our employees for their hard work and dedication to our clients during this very busy time of year. In addition to our market-leading financial performance, our strong culture at Paylocity continues to be recognized externally as we were recently recognized by Newsweek on America's greatest workplaces for culture belonging and community 2026.
Our adjusted gross profit was 74.4% for Q2 versus 73.8% in Q2 of last fiscal representing 60 basis points of Leverage and over the first 6 months of fiscal 26, our adjusted gross profit is up 80 basis points over the same period last year as we continue to focus on scaling, our operational costs while maintaining industry-leading service levels.
Speaker #2: I would now like to pass the call to Ryan, to review the financial results in detail and provide our increased fiscal '26 guidance.
Ryan Glenn: Thanks, Toby. Q2 recurring and other revenue was $387 million, an increase of 11%, with total revenue of $416.1 million and up 10% from the same period last year. Our strong Q2 results were primarily driven by another solid quarter for our sales and operations team, allowing us to come $8.1 million above the midpoint of our revenue guidance and allowing us to again raise our fiscal year guidance by more than our quarterly beat. Our adjusted gross profit was 74.4% for Q2 versus 73.8% in Q2 of last fiscal, representing 60 basis points of leverage. Over the first six months of fiscal 2026, our adjusted gross profit is up 80 basis points over the same period last year as we continue to focus on scaling our operational costs while maintaining industry-leading service levels.
Ryan Glenn: Thanks, Toby. Q2 recurring and other revenue was $387 million, an increase of 11%, with total revenue of $416.1 million and up 10% from the same period last year. Our strong Q2 results were primarily driven by another solid quarter for our sales and operations team, allowing us to come $8.1 million above the midpoint of our revenue guidance and allowing us to again raise our fiscal year guidance by more than our quarterly beat. Our adjusted gross profit was 74.4% for Q2 versus 73.8% in Q2 of last fiscal, representing 60 basis points of leverage. Over the first six months of fiscal 2026, our adjusted gross profit is up 80 basis points over the same period last year as we continue to focus on scaling our operational costs while maintaining industry-leading service levels.
Speaker #3: Q2, recurring and other revenue, was Thanks, Toby. $387 million, an increase of 11%, with total revenue of $416.1 million and up 10% from the same period last year.
Speaker #3: strong Q2 results were primarily driven by another solid quarter for our sales and operations team, allowing us to come in Our 8.1 million above the midpoint of our revenue guidance and allowing us to, again, raise our fiscal year guidance by more than our quarterly beat.
We continue to make significant investments in research and development and to understand our overall investment in R&D. It is important to combine both what we expense and what we capitalize on a dollar basis. Our year-over-year investment in total R&D increased by 10%, when compared to the second quarter of fiscal 25, and we remain focused on making investments in R&D, throughout fiscal 26, as we continue to build out the Paylocity platform to serve the needs of the modern Workforce.
Speaker #3: $74.4% for Q2 versus $73.8% Our adjusted gross profit was in Q2 of last fiscal, representing 60 basis points of leverage. And over the first six months of fiscal '26, our adjusted gross profit is up 80 basis points over the same period last year, as we continue to focus on scaling our operational costs while maintaining industry-leading service levels.
In regard to our, go to market activities on a non-gaap basis, sales and marketing. Expenses were 21.1% of Revenue in the second quarter and we remain focused on making investments in this area of the business and fiscal 26 to drive continued growth.
On a non-gaap basis. G&A costs were 9% of Revenue in the second quarter versus 9.8%. In the same period last year, representing 80 basis points of Leverage.
Speaker #3: We continue to make significant investments in research and development and to understand our overall investment in R&D, it is important to combine both what we expense and what we capitalize.
Ryan Glenn: We continue to make significant investments in research and development, and to understand our overall investment in R&D, it is important to combine both what we expense and what we capitalize. On a dollar basis, our year-over-year investment in total R&D increased by 10% when compared to the second quarter of fiscal 2025, and we remain focused on making investments in R&D throughout fiscal 2026 as we continue to build out the Paylocity platform to serve the needs of the modern workforce. In regard to our go-to-market activities, on a non-GAAP basis, sales and marketing expenses were 21.1% of revenue in the second quarter, and we remain focused on making investments in this area of the business in fiscal 2026 to drive continued growth.
Ryan Glenn: We continue to make significant investments in research and development, and to understand our overall investment in R&D, it is important to combine both what we expense and what we capitalize. On a dollar basis, our year-over-year investment in total R&D increased by 10% when compared to the second quarter of fiscal 2025, and we remain focused on making investments in R&D throughout fiscal 2026 as we continue to build out the Paylocity platform to serve the needs of the modern workforce. In regard to our go-to-market activities, on a non-GAAP basis, sales and marketing expenses were 21.1% of revenue in the second quarter, and we remain focused on making investments in this area of the business in fiscal 2026 to drive continued growth.
Briefly covering our Gap results for Q2. Gross profit was 282.1 Million. Operating income was 70.4 million. And net income was 50.2 Million.
Speaker #3: On a dollar basis, our year-over-year investment in total R&D increased by 10% when compared to the second quarter of fiscal '25, and we remain focused on making investments in R&D throughout fiscal '26 as we continue to build out the Paylocity platform to serve the needs of the modern workforce.
Our just V. But after the second quarter was 142.7 million or 34.3% margin and exceeded the top end of our guidance, by 7.2 million, resulting increased margin, guidance for fiscal 26,
Speaker #3: In regard to our go-to-market activities, on a non-GAAP basis, sales and marketing expenses were $21.1% of revenue in the second quarter, and we remain focused on making investments in this area of the business in fiscal '26 to drive continued growth.
Excluding the impact of interest income on funds held for clients adjusted, even to margin for Q2 is up 140 basis points over Q2 of last year and we continue to be pleased with our ability to drive both durable, recurring Revenue growth and expanded profitability.
Speaker #3: On a non-GAAP basis, G&A costs were 9% of revenue in the second quarter versus 9.8% in the same period last year, representing 80 basis points of leverage.
Ryan Glenn: On a non-GAAP basis, G&A costs were 9% of revenue in the second quarter versus 9.8% in the same period last year, representing 80 basis points of leverage. Briefly covering our GAAP results for Q2, gross profit was $282.1 million, operating income was $70.4 million, and net income was $50.2 million. Our adjusted EBITDA for the second quarter was $142.7 million, or 34.3% margin, and exceeded the top end of our guidance by $7.2 million, resulting in increased margin guidance for fiscal 2026. Excluding the impact of interest income on funds held for clients, adjusted EBITDA margin for Q2 is up 140 basis points over Q2 of last year, and we continue to be pleased with our ability to drive both durable recurring revenue growth and expanded profitability.
Ryan Glenn: On a non-GAAP basis, G&A costs were 9% of revenue in the second quarter versus 9.8% in the same period last year, representing 80 basis points of leverage. Briefly covering our GAAP results for Q2, gross profit was $282.1 million, operating income was $70.4 million, and net income was $50.2 million. Our adjusted EBITDA for the second quarter was $142.7 million, or 34.3% margin, and exceeded the top end of our guidance by $7.2 million, resulting in increased margin guidance for fiscal 2026. Excluding the impact of interest income on funds held for clients, adjusted EBITDA margin for Q2 is up 140 basis points over Q2 of last year, and we continue to be pleased with our ability to drive both durable recurring revenue growth and expanded profitability.
Focus on more strategic work.
Speaker #3: GAAP results for Q2, gross profit was $282.1 million, Briefly covering our operating income was $70.4 million, and net income was $50.2 million. Our adjusted EBITDA for the second quarter was $142.7 million, or 34.3% margin, and exceeded the top end of our guidance by 7.2 million, resulting in increased margin guidance for fiscal '26.
We're also pleased by our ability to drive expanded free cash flow through increased profitability and the benefits of recent tax legislation changes including a 40% increase in cash provided by operating activities. In the first 6 months of fiscal, 26 26% growth in free, cash flow over the last 12 months versus the comparative period and free cash flow margin of nearly 24% over the last 12 months. As we execute against our recently increased Financial targets,
Speaker #3: the impact of interest income on funds held for clients, adjusted EBITDA margin for Excluding Q2 is up 140 basis points over Q2 of last year, and we continue to be pleased with our ability to drive both durable recurring revenue growth and expanded profitability.
Additionally, given the confidence, we have in our business, and our strong cash flows. And Q2 we repurchase, roughly 690,000 shares of common stock at an average price of 144.86 cents per share for approximately 100 million in Agra repurchases in the quarter.
Speaker #3: We remain focused on driving leverage by improved operational scale and through approved efficiencies, resulting from our ongoing investments in automation and AI across our business, which are helping us scale our teams, and providing the ability to focus on more strategic work.
Ryan Glenn: We remain focused on driving leverage by improved operational scale and through approved efficiencies resulting from our ongoing investments in automation and AI across our business, which are helping us scale our teams and providing the ability to focus on more strategic work. We are also pleased by our ability to drive expanded free cash flow through increased profitability and the benefits of recent tax legislation changes, including a 40% increase in cash provided by operating activities in the first six months of fiscal 2026, 26% growth in free cash flow over the last 12 months versus the comparative period, and free cash flow margin of nearly 24% over the last 12 months as we execute against our recently increased financial targets.
Ryan Glenn: We remain focused on driving leverage by improved operational scale and through approved efficiencies resulting from our ongoing investments in automation and AI across our business, which are helping us scale our teams and providing the ability to focus on more strategic work. We are also pleased by our ability to drive expanded free cash flow through increased profitability and the benefits of recent tax legislation changes, including a 40% increase in cash provided by operating activities in the first six months of fiscal 2026, 26% growth in free cash flow over the last 12 months versus the comparative period, and free cash flow margin of nearly 24% over the last 12 months as we execute against our recently increased financial targets.
Speaker #3: We're also pleased by our ability to drive expanded free cash flow through increased profitability and the benefits of recent tax legislation changes. This includes a 40% increase in cash provided by operating activities in the first six months of fiscal '26, 26% growth in free cash flow over the last 12 months versus the comparative period, and a free cash flow margin of nearly 24% over the last 12 months, as we execute against targets.
Fiscal year to date. We have repurchased over 1.8 million, shares of common stock. At an average price of 162.66 per share for approximately 300 million in aggregate repurchases, helping to drive our diluted shares outstanding down more than 2% as of the end of Q2.
As a reminder, we have approximately 400 million remaining under our Sherry purchase program which we anticipate continuing to opportunistically execute against going forward.
In addition to our expectations for a continued growth in adjusted ibida and free cash flow, the scale. We are demonstrating in stock-based comp expense and the reduction in diluted shares, outstanding will help Drive continued expansion of earnings per share on an annual basis.
Speaker #3: Additionally, given the recently increased financial confidence we have in our business and our strong cash flows, in Q2, we repurchased roughly 690,000 shares of common stock at an average price of $144.86 per share, for approximately $100 million in aggregate repurchases in the quarter.
Ryan Glenn: Additionally, given the confidence we have in our business and our strong cash flows, in Q2 we repurchased roughly 690,000 shares of common stock at an average price of $144.86 per share for approximately $100 million in aggregate repurchases in the quarter. Fiscal year to date, we have repurchased over 1.8 million shares of common stock at an average price of $162.66 per share for approximately $300 million in aggregate repurchases, helping to drive our diluted shares outstanding down more than 2% as of the end of Q2. As a reminder, we have approximately $400 million remaining under our share repurchase program, which we anticipate continuing to opportunistically execute against going forward.
Ryan Glenn: Additionally, given the confidence we have in our business and our strong cash flows, in Q2 we repurchased roughly 690,000 shares of common stock at an average price of $144.86 per share for approximately $100 million in aggregate repurchases in the quarter. Fiscal year to date, we have repurchased over 1.8 million shares of common stock at an average price of $162.66 per share for approximately $300 million in aggregate repurchases, helping to drive our diluted shares outstanding down more than 2% as of the end of Q2. As a reminder, we have approximately $400 million remaining under our share repurchase program, which we anticipate continuing to opportunistically execute against going forward.
Looking at the balance sheet, we enter the quarter with cash and cash equivalents of 162.5 million and 81.3 million in debt outstanding related to the funding of the airbase acquisition.
Speaker #3: Fiscal year to date, we have repurchased over $1.8 million shares of common stock at an average price of $162.66 per share for approximately $300 million in aggregate repurchases, helping to drive our diluted shares outstanding down more than 2% as of the end of Q2.
In regard to client health fund and interest income. Our average daily balance of client funds was approximately 3.2 billion. In Q2 we're estimating. The average daily balance will be approximately 3.7 billion in Q3 with an average. Annual yield of approximately 320 basis points, representing approximately 29.5 million of interest income in Q3
Speaker #3: As a reminder, we have approximately $400 million remaining under our share repurchase program, which we anticipate continuing to opportunistically execute against going forward. In addition to our expectations for a continued growth in adjusted EBITDA and free cash flow, the scale we are demonstrating in stock-based comp expense and the reduction in diluted expansion of earnings per share on an annual basis.
On a full year basis. We're estimating, the average daily balance will be approximately 3.3 billion with an average. Yield of approximately 340 basis points. Representing approximately 112 million of interest income
Ryan Glenn: In addition to our expectations for continued growth in adjusted EBITDA and free cash flow, the scale we are demonstrating in stock-based comp expense and the reduction in diluted shares outstanding will help drive continued expansion of earnings per share on an annual basis. Looking at the balance sheet, we ended the quarter with cash and cash equivalents of $162.5 million and $81.3 million in debt outstanding related to the funding of the Airbase acquisition. In regard to client-held funds and interest income, our average daily balance of client funds was approximately $3.2 billion in Q2. We're estimating the average daily balance will be approximately $3.7 billion in Q3, with an average annual yield of approximately 320 basis points, representing approximately $29.5 million of interest income in Q3.
Ryan Glenn: In addition to our expectations for continued growth in adjusted EBITDA and free cash flow, the scale we are demonstrating in stock-based comp expense and the reduction in diluted shares outstanding will help drive continued expansion of earnings per share on an annual basis. Looking at the balance sheet, we ended the quarter with cash and cash equivalents of $162.5 million and $81.3 million in debt outstanding related to the funding of the Airbase acquisition. In regard to client-held funds and interest income, our average daily balance of client funds was approximately $3.2 billion in Q2. We're estimating the average daily balance will be approximately $3.7 billion in Q3, with an average annual yield of approximately 320 basis points, representing approximately $29.5 million of interest income in Q3.
In regard to interest rates, our guidance reflects all fed cuts to date with an additional 25 basis point rate, cut assumed in each of March and April of this fiscal year.
Speaker #3: Looking at the balance equivalents of $162.5 million, and $81.3 million in debt outstanding related to the funding of the air-based acquisition. In regard to client-held funds and interest income, our average daily balance of client funds was approximately $3.2 billion in Q2.
Speaker #3: We're estimating the average daily balance will be approximately $3.7 billion in Q3, with an average annual yield of approximately 320 basis points, representing approximately $29.5 million of interest income in Q3.
Finally, I'd like to provide our financial guidance for Q3 and full fiscal 26. Note, that as a result of continued momentum across, both our sales and operations teams. We are an increasing, our fiscal 26, recurring and other Revenue guidance by 12.5 million and total revenue guidance by 14.5 million. Which includes the full impact of our guidance beat in Q2, and a further increase in backcast. Fiscal, 26 Revenue guidance. Additionally, we continue to realize success driving increased profitability, across our business resulting, increased for fiscal 26,
Speaker #3: On a full-year basis, we're estimating the average daily balance will be approximately $3.3 billion, with an average yield of approximately $340 basis points representing approximately $112 million of interest income.
Ryan Glenn: On a full-year basis, we're estimating the average delayed balance will be approximately $3.3 billion, with an average yield of approximately 340 basis points, representing approximately $112 million of interest income. In regard to interest rates, our guidance reflects all Fed cuts to date, with an additional 25 basis point rate cut assumed in each of March and April of this fiscal year. Finally, I'd like to provide our financial guidance for Q3 and full fiscal 2026. Note that as a result of continued momentum across both our sales and operations teams, we are increasing our fiscal 2026 recurring and other revenue guidance by $12.5 million and total revenue guidance by $14.5 million, which includes the full impact of our guidance beat in Q2 and a further increase in back half fiscal 2026 revenue guidance.
Ryan Glenn: On a full-year basis, we're estimating the average delayed balance will be approximately $3.3 billion, with an average yield of approximately 340 basis points, representing approximately $112 million of interest income. In regard to interest rates, our guidance reflects all Fed cuts to date, with an additional 25 basis point rate cut assumed in each of March and April of this fiscal year. Finally, I'd like to provide our financial guidance for Q3 and full fiscal 2026. Note that as a result of continued momentum across both our sales and operations teams, we are increasing our fiscal 2026 recurring and other revenue guidance by $12.5 million and total revenue guidance by $14.5 million, which includes the full impact of our guidance beat in Q2 and a further increase in back half fiscal 2026 revenue guidance.
Speaker #3: In regard to interest rates, our guidance reflects all Fed cuts to date, with an additional 25 basis point rate cut assumed in each of March and April of this fiscal year.
With that said, the third quarter of fiscal 26 recurring in other revenue, is expected to be in the range of 457.5 million to 462.5 million, or approximately 9 to 10% growth over third quarter fiscal, 25 recurring in other Revenue.
Speaker #3: Finally, I'd like to provide our financial guidance for Q3 and full fiscal '26. Note that as a result of continued momentum across both our sales and operations teams, we are increasing our fiscal '26 recurring and other revenue guidance by 12.5 million, and total revenue guidance by 14.5 million.
And total revenue is expected to be the range of 487 million to 492 million or approximately 7 to 8% growth over. A third quarter fiscal, 25 total revenue.
Adjust zeidas expect to be the range of 200 million to 204 million, and adjust. The ibid do excluding interest income on funds held for clients is expected to be in the range of 170.5 million to 174.5 million.
Speaker #3: Which includes the full impact of our guidance beat in Q2, and a further increase in back half fiscal '26 revenue guidance. Additionally, we continue to realize success driving increased profitability across our business, resulting in increased adjusted EBITDA guidance for fiscal '26.
And for fiscal 26, we are increasing all aspects of our guidance as follows.
Ryan Glenn: Additionally, we continue to realize success driving increased profitability across our business, resulting in increased Adjusted EBITDA guidance for fiscal 2026. With that said, for the third quarter of fiscal 2026, recurring and other revenue is expected to be in the range of $457.5 million to 462.5 million, or approximately 9% to 10% growth over third quarter fiscal 2025 recurring and other revenue. Total revenue is expected to be in the range of $487 million to 492 million, or approximately 7% to 8% growth over third quarter fiscal 2025 total revenue. Adjusted EBITDA is expected to be in the range of $200 million to 204 million, and Adjusted EBITDA excluding interest income on funds held for clients is expected to be in the range of $170.5 million to 174.5 million. For fiscal 2026, we are increasing all expects over guidance as follows.
Ryan Glenn: Additionally, we continue to realize success driving increased profitability across our business, resulting in increased Adjusted EBITDA guidance for fiscal 2026. With that said, for the third quarter of fiscal 2026, recurring and other revenue is expected to be in the range of $457.5 million to 462.5 million, or approximately 9% to 10% growth over third quarter fiscal 2025 recurring and other revenue. Total revenue is expected to be in the range of $487 million to 492 million, or approximately 7% to 8% growth over third quarter fiscal 2025 total revenue. Adjusted EBITDA is expected to be in the range of $200 million to 204 million, and Adjusted EBITDA excluding interest income on funds held for clients is expected to be in the range of $170.5 million to 174.5 million. For fiscal 2026, we are increasing all expects over guidance as follows.
Speaker #3: With that said, for the third quarter of fiscal '26, recurring and other revenue is expected to be in the range of $457.5 million to $462.5 million, or approximately 9 to 10% growth over third quarter of fiscal '25 recurring and other revenue.
Recurring in other Revenue. Guidance is now expected to be the range of 1.6 to 0 billion to 1.630 billion or approximately 10 to 11% growth over fiscal. 25 recurring in other Revenue.
Total revenue guidance is now expected to be in the range of 1.732 billion to 1.742 billion or approximately 9% growth, over fiscal 25.
Speaker #3: In total revenue, it is expected to be in the range of $487 million to $492 million, or approximately 7% to 8% growth over third quarter of fiscal '25 total revenue.
Speaker #3: Adjusted EBITDA is expected to be in the range of $200 million to $204 million, and adjusted EBITDA excluding interest income on funds held for clients is expected to be in the range of $170.5 million to $174.5 million.
Adjusted debit as expected to be the range of 622.5 million to 630.5 million and adjusted ebida excluding interest income on funds held for clients is expected to be in the range of 510.5 million to 518.5 million.
Speaker #3: And for fiscal '26, we are increasing all expects over guidance as follows. Recurring and other revenue guidance is now expected to be in the range of $1.62 billion to $1.63 billion, or approximately 10% to 11% growth over fiscal '25 recurring and other revenue.
Ryan Glenn: Recurring and other revenue guidance is now expected to be in the range of $1.620 billion to 1.630 billion, or approximately 10% to 11% growth over fiscal 2025 recurring and other revenue. Total revenue guidance is now expected to be in the range of $1.732 billion to 1.742 billion, or approximately 9% growth over fiscal 2025. Adjusted EBITDA is expected to be in the range of $622.5 million to 630.5 million, and adjusted EBITDA excluding interest income on funds held for clients is expected to be in the range of $510.5 million to 518.5 million. In conclusion, we are pleased with our Q2 results, the momentum we have across our sales and operations teams as we execute the busiest time of the year, and the strong results we are seeing across HCM, finance, and IT solutions.
Ryan Glenn: Recurring and other revenue guidance is now expected to be in the range of $1.620 billion to 1.630 billion, or approximately 10% to 11% growth over fiscal 2025 recurring and other revenue. Total revenue guidance is now expected to be in the range of $1.732 billion to 1.742 billion, or approximately 9% growth over fiscal 2025. Adjusted EBITDA is expected to be in the range of $622.5 million to 630.5 million, and adjusted EBITDA excluding interest income on funds held for clients is expected to be in the range of $510.5 million to 518.5 million. In conclusion, we are pleased with our Q2 results, the momentum we have across our sales and operations teams as we execute the busiest time of the year, and the strong results we are seeing across HCM, finance, and IT solutions.
In conclusion, we are pleased with our Q2 results the momentum we have across our sales and operations teams. As we execute the busiest time of the year and the strong results we are seeing across HCM Finance in IT solutions, combined with continuing to drive competitive differentiation. Our AI strategy, we are confident in our ability to drive sustainable durable, Revenue growth and improve leverage across the business, to achieve our updated, long-term Financial targets over the coming years.
Operator. We are now ready for questions.
Speaker #3: Total revenue guidance is now expected to be in the range of $1.732 billion to $1.742 billion, or approximately 9% growth over fiscal '25. Adjusted EBITDA is expected to be in the range of $622.5 million to $630.5 million, and adjusted EBITDA excluding interest income on funds held for clients is expected to be in the range of $510.5 million to $518.5 million.
Thank you, ladies and gentlemen, if you have a question or a comment at this time, please press star 1 to 1 on your telephone. If your question has been answered, you wish to move yourself from the queue. Please press star 1. 1 1 again, we will pause for a moment while we compile, our Q&A roster.
Single gesture with BMO Capital markets, your line is open.
Speaker #3: In conclusion, we are pleased with our Q2 results, the momentum we have across our sales and operations teams, as we execute the busiest time of the year, and the strong results we are seeing across HCM, finance, and IT solutions.
Speaker #3: Combined with continuing to drive competitive differentiation in our AI strategy, we are confident in our ability to drive sustainable, durable revenue growth, and improve leverage across the business to achieve our updated long-term financial targets over the coming years.
Ryan Glenn: Combined with continuing to drive competitive differentiation, our AI strategy, we are confident in our ability to drive sustainable, durable revenue growth and improve leverage across the business to achieve our updated long-term financial targets over the coming years. Operator, we're now ready for questions.
Ryan Glenn: Combined with continuing to drive competitive differentiation, our AI strategy, we are confident in our ability to drive sustainable, durable revenue growth and improve leverage across the business to achieve our updated long-term financial targets over the coming years. Operator, we're now ready for questions.
Great. Uh, thanks for taking my questions. I guess. Maybe we'll start with the the selling environment. Um, you know, I think the, the commentary was was that it was pretty strong, I guess, maybe double click on on that. If you could please, maybe compare and contrast kind of how you exited the share compared to last and any pockets of strength or weakness that you'd call out. Thanks.
Speaker #3: Operator, we're now ready for questions.
Operator: Thank you. Ladies and gentlemen, if you have a question or a comment at this time, please press star one to one on your telephone. If your question has been answered or you wish to move yourself from the queue, please press star one to one again. We'll pause for a moment while we compile our Q&A roster. Our first question comes from Daniel Jester with BMO Capital Markets. Your line is open.
Operator: Thank you. Ladies and gentlemen, if you have a question or a comment at this time, please press star one to one on your telephone. If your question has been answered or you wish to move yourself from the queue, please press star one to one again. We'll pause for a moment while we compile our Q&A roster. Our first question comes from Daniel Jester with BMO Capital Markets. Your line is open.
Speaker #2: If you have a question or a comment at this time, please Thank you, ladies and gentlemen. press star 1 to 1 on your telephone.
Speaker #2: If your question has been answered and you wish to remove yourself from the queue, please press star 1, then 1 again. We'll pause for a moment while we compile our Q&A roster.
Speaker #2: Our first question comes from Daniel Jester with BMO Capital Markets. Your line is open.
Daniel Jester: Great. Thanks for taking my questions. I guess maybe we'll start with the selling environment. I think the commentary was that it was pretty strong. I guess maybe double-click on that if you could, please. Maybe compare and contrast kind of how you exited this year compared to last and any pockets of strengths or weaknesses you'd call out. Thanks.
Daniel Jester: Great. Thanks for taking my questions. I guess maybe we'll start with the selling environment. I think the commentary was that it was pretty strong. I guess maybe double-click on that if you could, please. Maybe compare and contrast kind of how you exited this year compared to last and any pockets of strengths or weaknesses you'd call out. Thanks.
Hey Dan. Yeah, I'll start off. I mean I think overall I would characterize the selling season as strong this year. I think the the go to market teams, uh, performed really well, excuse me, across sales, and marketing, and our Channel teams. And I think we saw, you know, a very stable demand environment. So I think similar commentary on the demand environment from from last quarter, carried through to, to this quarter. And I think our performance in uh, from a sales perspective through selling season was strong. And I think that's a, a good part of what allowed us to, you know, turn in the the I think really strong results we did from
Speaker #3: guess maybe we'll start with the Great. Thanks for taking my questions. I selling environment. I think the commentary was that it was pretty strong.
a revenue growth and profitability perspective. And I think that's a lot of what carried into the the the
Speaker #3: maybe double-click on that if you could, please. Maybe compare and I guess contrast kind of how you exited the share compared to last. And any pockets of strength or weaknesses you'd call out.
Reserves of, of guidance for the rest of the year, I think, on a relative basis to last year to the other part of your question. I would, I would characterize it as, um, you know, consistent and um, stable. And I think the performance
Speaker #3: Thanks.
Was really strong. So I think we were overall pretty happy with it.
Speaker #4: Hey, Dan. Yeah, I'll start off. I
Ryan Glenn: Hey, Dan. Yeah, I'll start off. I mean, I think overall, I would characterize the selling season as strong this year. I think the go-to-market teams performed really well across sales, marketing, and our channel teams. And I think we saw a very stable demand environment. So I think similar commentary on the demand environment from last quarter carried through to this quarter. And I think our performance from a sales perspective through selling season was strong. And I think that's a good part of what allowed us to turn in the, I think, really strong results we did from a revenue growth and profitability perspective. And I think that's a lot of what carried into the raise of guidance for the rest of the year.
Ryan Glenn: Hey, Dan. Yeah, I'll start off. I mean, I think overall, I would characterize the selling season as strong this year. I think the go-to-market teams performed really well across sales, marketing, and our channel teams. And I think we saw a very stable demand environment. So I think similar commentary on the demand environment from last quarter carried through to this quarter. And I think our performance from a sales perspective through selling season was strong. And I think that's a good part of what allowed us to turn in the, I think, really strong results we did from a revenue growth and profitability perspective. And I think that's a lot of what carried into the raise of guidance for the rest of the year.
Speaker #4: I mean, I think overall I would characterize the selling season as strong this year. I think the go-to-market teams performed really well—excuse me—across sales and marketing and our channel teams.
Speaker #4: And I think we saw a very stable demand environment. So I think similar commentary on the demand environment from last quarter carried through to this quarter.
Speaker #4: And I think our performance in from a sales perspective through selling season was strong. And I think that's a good part of what allowed us to turn in the, I think, really strong results we did from a revenue growth and profitability perspective.
Great, thanks. And then maybe just to follow up on, maybe sort of a, a bit of an obligatory, AI question, you know, I think you, you commented a lot about, uh, how Paylocity is building tools and integrating AI into the platform, I guess, how are you seeing your customers, engage with AI? And are you seeing any Trends about customers, maybe building some of this functionality and some stuff? Appreciate the context, guys, thank you so much.
Speaker #4: That's a lot of what carried into, and I think the raise of guidance for the rest of the year. I think, on a relative basis to last year—to the other part of your question—I would characterize it as consistent and stable.
Ryan Glenn: I think on a relative basis to last year, to the other part of your question, I would characterize it as consistent and stable. And I think the performance of the team was really strong. So I think we were overall pretty happy with it.
Ryan Glenn: I think on a relative basis to last year, to the other part of your question, I would characterize it as consistent and stable. And I think the performance of the team was really strong. So I think we were overall pretty happy with it.
Speaker #4: And I think the performance of the team was really strong. So I think we were overall pretty happy with
Speaker #4: And I think the performance of the team was really strong, so I think we were overall pretty happy with it. Great.
Daniel Jester: Great. Thanks. And then maybe just to follow up on maybe sort of a bit of an obligatory AI question, I think you've commented a lot about how Paylocity is building tools and integrating AI into the platform. I guess how are you seeing your customers engage with AI? And are you seeing any trends about customers maybe building some of this functionality within themselves? Appreciate the context, guys. Thank you so much.
Daniel Jester: Great. Thanks. And then maybe just to follow up on maybe sort of a bit of an obligatory AI question, I think you've commented a lot about how Paylocity is building tools and integrating AI into the platform. I guess how are you seeing your customers engage with AI? And are you seeing any trends about customers maybe building some of this functionality within themselves? Appreciate the context, guys. Thank you so much.
Speaker #3: Thanks. And then maybe just to follow up on—maybe sort of a bit of an obligatory AI question—I think you've commented a lot about how Paylocity is building tools and integrating AI into the platform.
Speaker #3: I guess how are you seeing your customers engage with AI? And are you seeing any trends about customers maybe building some of this functionality themselves?
Speaker #3: Appreciate the context, guys. Thank you so much.
Yeah, I think I'll grab that 1. Um, Steve here. Um, what I would say is we have really been focused on embedding AI across the suite. As, you know, our our value proposition is being the most modern platform. And as we embed AI between use cases that we called out in the script, you know, policies and procedures and allowing clients to be able to upload their own docs and answer employees questions. It's certainly 1 of the big use cases that we've seen. We've seen a lot of interactions with our AI assistant, with how do I do something, how do, how can I accomplish this asking for data in the application? And so, I think from our perspective, you know, we will continue to build, uh, templated agents for our customers to be able to use. We'll give them some flexibility so that they can customize those for their use cases. And what we're seeing is really improved um, ease of use from our customer feedback. We're seeing more um, engagement in the platform from where utilization and then finally, it's really saving our our customers time.
Speaker #5: Yeah, I think I'll grab that one. Steve, here. What I would say is we have really been focused on embedding AI across the suite.
Steve Beauchamp: Yeah, I think I'll grab that one, Steve, here. What I would say is we have really been focused on embedding AI across the suite. As you know, our value proposition is being the most modern platform. And as we embed AI, the two use cases that we called out in the script, policies and procedures, and allowing clients to be able to upload their own docs and answer employees' questions, is certainly one of the big use cases that we've seen. We've seen a lot of interactions with our AI assistant with, "How do I do something? How can I accomplish this?" asking for data in the application. And so I think from our perspective, we will continue to build templated agents for our customers to be able to use. We'll give them some flexibility so that they can customize those for their use cases.
Steve Beauchamp: Yeah, I think I'll grab that one, Steve, here. What I would say is we have really been focused on embedding AI across the suite. As you know, our value proposition is being the most modern platform. And as we embed AI, the two use cases that we called out in the script, policies and procedures, and allowing clients to be able to upload their own docs and answer employees' questions, is certainly one of the big use cases that we've seen. We've seen a lot of interactions with our AI assistant with, "How do I do something? How can I accomplish this?" asking for data in the application. And so I think from our perspective, we will continue to build templated agents for our customers to be able to use. We'll give them some flexibility so that they can customize those for their use cases.
Great, thank you so much.
1 moment for our next question.
Speaker #5: proposition has been the most modern platform. And as As you know, our value we embed AI, the two use cases that we called out in the script, policies and procedures, and allowing clients to be able to upload their own docs and answer employees' questions, is certainly one of the big use cases that we've seen.
Our next question comes from Brad Reebok with stifel your line is open.
Uh, great, thanks very much, Steve. So in that last Point, saving your customers time.
That's great.
Speaker #5: We've seen a lot of interactions with our AI assistant, with questions like 'How do I do something?', 'How can I accomplish this?', or asking for data in the application.
Can you talk about how you're Translating that into revenue for Paylocity?
Speaker #5: And so I think from our perspective, we will continue to build templated agents for our customers to be able to use. We'll give them some flexibility so that they can customize those for their use cases.
Speaker #5: And what we're seeing is really improved ease of use from our customer feedback. We're seeing more engagement in the platform from more utilization. And then finally, it's really saving our customers.
Steve Beauchamp: What we're seeing is really improved ease of use from our customer feedback. We're seeing more engagement in the platform, some more utilization. Then finally, it's really saving our customers' time.
Steve Beauchamp: What we're seeing is really improved ease of use from our customer feedback. We're seeing more engagement in the platform, some more utilization. Then finally, it's really saving our customers' time.
Speaker #5: time.
Daniel Jester: Great. Thank you so much.
Daniel Jester: Great. Thank you so much.
Speaker #3: Great. Thank you
Speaker #3: so
Speaker #3: much. One moment for our next
Operator: One moment for our next question. Our next question comes from Brad Reback with Stifel. Your line is open.
Operator: One moment for our next question. Our next question comes from Brad Reback with Stifel. Your line is open.
Speaker #2: question. Our next question comes from Brad Rebeck with Steve. Your line is open.
Brad Reback: Great. Thanks very much. Steve, so on that last point, saving your customers' time, that's great. Can you talk about how you're translating that into revenue for Paylocity?
Brad Reback: Great. Thanks very much. Steve, so on that last point, saving your customers' time, that's great. Can you talk about how you're translating that into revenue for Paylocity?
Speaker #6: Great, thanks very much. Steve, so in that last point—saving your customers time—that's great. Can you talk about how you're translating that into revenue for
Speaker #6: paylocity? Yeah.
Steve Beauchamp: Yeah. So I think, as you know, Brad, one of the things about being in payroll and HR is we have the data in terms of being a system of record. So we know in real time when anything happens, whether somebody's getting a new job, new supervisor, new hires, terms. And many times, our customers then want to use those triggering events via our APIs and marketplace to be able to connect to other systems. I think as the agentic experience becomes more developed, we will see more, and we've already started seeing significantly more usage of our APIs tying our data to other really key workflows within an organization. That's number one. Number two is we're seeing people put more data and drive more utilization of our platform.
Steve Beauchamp: Yeah. So I think, as you know, Brad, one of the things about being in payroll and HR is we have the data in terms of being a system of record. So we know in real time when anything happens, whether somebody's getting a new job, new supervisor, new hires, terms. And many times, our customers then want to use those triggering events via our APIs and marketplace to be able to connect to other systems. I think as the agentic experience becomes more developed, we will see more, and we've already started seeing significantly more usage of our APIs tying our data to other really key workflows within an organization. That's number one. Number two is we're seeing people put more data and drive more utilization of our platform.
Speaker #3: So I think, as you know, Brad, one of the things about being in payroll and HR is we have the data in terms of being the system of record.
Yeah, so I think as you know, Brad 1 of the things about being in payroll and HR is we have the data in terms of being the system records. So, we know in real time when anything happens, whether somebody's getting a new job, new supervisor, new hires terms and many times, our customers then want to use those triggering events via apis and Marketplace to be able to um, connect to other systems. I think, as the agentic experience becomes more developed, we will see more. And we've already started seeing significantly more usage of our apis. Um, tying our data to other really key workflows within an organization uh, that number 1. Number 2 is we're seeing people put more data and drive more utilization of our platform. So from a monetization perspective that has an opportunity for us to sell more of our modules, back to our clients, they're seeing more value, and they're able to customize more of that experience, so that it's purpose-built to really deliver on their individual use cases. So I think from a client perspective,
Speaker #3: So we know in real time when anything happens, whether somebody's getting a new job, new supervisor, new hire's terms, and many times our customers then want to use those triggering events via our APIs and marketplace to be able to connect to other systems.
Speaker #3: I think as the agentic experience becomes more developed, we will see more—and we've already started seeing—significantly more usage of our APIs, tying our data to other really key workflows within an organization.
It's less about us, driving them away from the personal interaction that we have. As you also know, you know, our clients call us very frequently, they're looking for advice. Um, you know that relationship is really part of our strong retention so we don't want to walk away from that. But we really want to be able to drive an easier to use experience drive more utilization. When we do that, we get larger upsell, um, and on top of the opportunity and Marketplace and API, that's where really where we see the near-term opportunity.
Speaker #3: That's number one. Number two is we're seeing people put more data and drive more utilization of our platform. So from a monetization perspective, that has an opportunity for us to sell more of our modules back to our clients or seeing more value.
Steve Beauchamp: So from a monetization perspective, that has an opportunity for us to sell more of our modules back to our clients. They're seeing more value, and they're able to customize more of that experience so that it's purpose-built to really deliver on their individual use cases. So I think from a client perspective, it's less about us driving them away from the personal interaction that we have. As you also know, our clients call us very frequently. They're looking for advice. That relationship is really part of our strong retention. So we don't want to walk away from that. But we really want to be able to drive an easier-to-use experience, drive more utilization. When we do that, we get larger upsell on top of the opportunity in marketplace and APIs. That's really where we see the near-term opportunity.
Steve Beauchamp: So from a monetization perspective, that has an opportunity for us to sell more of our modules back to our clients. They're seeing more value, and they're able to customize more of that experience so that it's purpose-built to really deliver on their individual use cases. So I think from a client perspective, it's less about us driving them away from the personal interaction that we have. As you also know, our clients call us very frequently. They're looking for advice. That relationship is really part of our strong retention. So we don't want to walk away from that. But we really want to be able to drive an easier-to-use experience, drive more utilization. When we do that, we get larger upsell on top of the opportunity in marketplace and APIs. That's really where we see the near-term opportunity.
Good metrics around your customers with high, AI engagement, or spending.
Speaker #3: And they're able to customize more of that experience so that it's purpose-built to really deliver on their individual use cases. So I think from a client perspective, it's less about us driving them away from the personal interaction that we have, as you also know, our clients call us very frequently.
Yep, 10 or 15% more than peers or you know retaining 2 or 3 points better.
I think it's a little early, I think you got to go back to our advertised customers about 150 employees. Um, and so, this does happen on a gradual basis.
Speaker #3: They're looking for advice. That relationship is really part of our strong retention, so we don't want to walk away from that. But we really want to be able to drive an easier-to-use experience, drive more utilization. When we do that, we get larger upsell.
And we have those seen in the past as we've really expanded, the number of modules that the customers who are using more of our modules, uh, typically have a stronger retention typically are more satisfied and we see AI as another tool to be able to drive that same outcomes.
Awesome, thank you very much.
Speaker #3: And on top of the opportunity and marketplace and APIs, that's really where we see the near-term opportunity.
1 moment for our next question.
Speaker #6: And on that upsell and the retention, is it still too early to have good metrics around customers with high AI engagement or spending 10 or 15% more than peers or retaining two or three points better?
Brad Reback: On that upsell and the retention, is it still too early to have good metrics around customers with high AI engagement are spending 10% or 15% more than peers or retaining 2 or 3 points better?
Brad Reback: On that upsell and the retention, is it still too early to have good metrics around customers with high AI engagement are spending 10% or 15% more than peers or retaining 2 or 3 points better?
Our next question comes from Terry Tillman with truist Securities. Your line is open.
Speaker #3: I think it's a little early. I think you got to go back to our advertised customers about 150 employees. And so this does happen on a gradual basis.
Steve Beauchamp: I think it's a little early. I think you got to go back to our average-sized customers, about 150 employees. And so this does happen on a gradual basis. And we have, though, seen in the past, as we've really expanded the number of modules, that the customers who are using more of our modules typically have a stronger retention, typically are more satisfied. And we see AI as another tool to be able to drive that same outcomes.
Steve Beauchamp: I think it's a little early. I think you got to go back to our average-sized customers, about 150 employees. And so this does happen on a gradual basis. And we have, though, seen in the past, as we've really expanded the number of modules, that the customers who are using more of our modules typically have a stronger retention, typically are more satisfied. And we see AI as another tool to be able to drive that same outcomes.
Yeah. Hey, good afternoon uh, nice job on the quarter. I've decided to abstain from asking an AI question. Um, I was going to ask 2 questions on kind of evolving products, which I'm very intrigued by first just an update on airbase and just your play in the office of CFO and finance. And then, secondly, I also wanted to ask what's developing, and what can you share around your ability to help in the area of it operations? Thank you.
Speaker #3: And we have, though, seen in the past, as we've really expanded the number of modules, that the customers who are using more of our modules typically have a stronger retention, typically are more satisfied.
Speaker #3: And we see AI as another tool to be able to drive that same outcomes.
Hey Terry. It's Toby I'll start and then Steve obviously jump in. I mean I think first on the airbase update and all things in Paylocity for finance. Uh I think we continue to be pleased with the momentum we have there. We
Speaker #6: Awesome. Thank you very much.
Brad Reback: Awesome. Thank you very much.
Brad Reback: Awesome. Thank you very much.
Speaker #2: One moment for our next question. Our next question comes from Terry Tillman with Truist Securities. Your line is open.
Operator: One moment for our next question. Our next question comes from Terry Tillman with Truist Securities. Your line is open.
Operator: One moment for our next question. Our next question comes from Terry Tillman with Truist Securities. Your line is open.
Speaker #2: open.
Speaker #7: Yeah, hey, good
Terry Tillman: Yeah. Hey, good afternoon. Nice job on the quarter. I've decided to abstain from asking an AI question. I was going to ask two questions on kind of evolving products, which I'm very intrigued by. First, just an update on Airbase and just your play in the office of CFO and finance. And then secondly, I also wanted to ask, what's developing and what can you share around your ability to help in the area of IT operations? Thank you.
Terry Tillman: Yeah. Hey, good afternoon. Nice job on the quarter. I've decided to abstain from asking an AI question. I was going to ask two questions on kind of evolving products, which I'm very intrigued by. First, just an update on Airbase and just your play in the office of CFO and finance. And then secondly, I also wanted to ask, what's developing and what can you share around your ability to help in the area of IT operations? Thank you.
Speaker #7: afternoon. Nice job on the quarter. I've decided to abstain from asking an AI question. I was going to ask two questions on kind of evolving products, which I'm very intrigued by.
Speaker #7: First, just an update on Airbase and just your play in the office of CFO and finance. And then secondly, I also wanted to ask what's developing and what can you share around your ability to help in the area of IT operations?
Closed that acquisition last October. So we're just over a a year or so, uh, into it. And I think we, you know, we're really pleased with what we've seen so far. We delivered V1 of the integrated product set in July, and I think that was, you know, an important factor for a differentiation standpoint. Is we came through selling Seasons. So, all across the, the spend management Suite now is Paylocity for finance. I think we are continuing to see lift their we're continuing to get, um, uh, positive feedback from a client and Prospect standpoint. And we're seeing, uh, I think a positive path as it relates to the, the, uh,
And penetration and adoption.
Speaker #7: Thank you.
Speaker #3: Hey, Terry. It's Toby. I'll start and then Steve, obviously, jump in. I mean, I think first on the Airbase update and all things in paylocity for finance, I think we continue to be pleased with the momentum we have there.
Ryan Glenn: Hey, Terry. It's Toby. I'll start, and then Steve, obviously, jump in. I mean, I think first on the Airbase update and all things in Paylocity for Finance, I think we continue to be pleased with the momentum we have there. We closed that acquisition last October, so we're just over a year or so into it. And I think we're really pleased with what we've seen so far. We delivered V1 of the integrated product set in July. And I think that was an important factor from a differentiation standpoint as we came through selling season. So all across the spend management suite now is Paylocity for Finance. I think we are continuing to see lift there. We're continuing to get positive feedback from a client and prospect standpoint.
Toby Williams: Hey, Terry. It's Toby. I'll start, and then Steve, obviously, jump in. I mean, I think first on the Airbase update and all things in Paylocity for Finance, I think we continue to be pleased with the momentum we have there. We closed that acquisition last October, so we're just over a year or so into it. And I think we're really pleased with what we've seen so far. We delivered V1 of the integrated product set in July. And I think that was an important factor from a differentiation standpoint as we came through selling season. So all across the spend management suite now is Paylocity for Finance. I think we are continuing to see lift there. We're continuing to get positive feedback from a client and prospect standpoint.
Speaker #3: acquisition last October. So We closed that we're just over a year or so into it. And I think we're really pleased with what we've seen so far.
Speaker #3: We delivered V1 of the integrated product set in July. And I think that was an important factor from a differentiation standpoint as we came through selling season.
And usage of those Solutions. Um, and then I would, I think we're in early days as it relates to All Things, uh, it oriented. But I think we continue to see positive progress there from from an attached standpoint and from a, a use case perspective there. And that's another 1 where, you know, I think you see Steve's comment in, in relation to. Um, the last question was very focused on our ability as the system of record to leverage the data that we have in our system to create automation against some really common use cases, whether that's onboarding or off-boarding or system access or, uh devices.
Speaker #3: So all across the spend management suite now is paylocity for finance. I think we are continuing to see lift there. We're continuing to get positive feedback from a client and prospect standpoint.
Speaker #3: And we're seeing I think a positive path as it relates to the attach and penetration and adoption and usage of those solutions. And then I think we're in early days as it relates to all things IT-oriented.
Ryan Glenn: And we're seeing, I think, a positive path as it relates to the attach and penetration and adoption and usage of those solutions. And then I think we're in early days as it relates to all things IT-oriented, but I think we continue to see positive progress there from an attach standpoint and from a use case perspective there. And that's another one where I think you see Steve's comment in relation to the last question was very focused on our ability as the system of record to leverage the data that we have in our system to create automation against some really common use cases, whether that's onboarding or offboarding or system access or device management. I mean, I think all those things are triggered off of changes in the data that we see from a status perspective with respect to employees.
Toby Williams: And we're seeing, I think, a positive path as it relates to the attach and penetration and adoption and usage of those solutions. And then I think we're in early days as it relates to all things IT-oriented, but I think we continue to see positive progress there from an attach standpoint and from a use case perspective there. And that's another one where I think you see Steve's comment in relation to the last question was very focused on our ability as the system of record to leverage the data that we have in our system to create automation against some really common use cases, whether that's onboarding or offboarding or system access or device management. I mean, I think all those things are triggered off of changes in the data that we see from a status perspective with respect to employees.
Management. I mean, I think all those things are triggered off of changes in the data that we see from a status perspective, with respect to employees and um, you know, we we continue to see a significant opportunity there to to help create value for our clients from that product area.
Speaker #3: But I think we continue to see positive progress there from an attach standpoint and from a use case perspective there. And that's another one where I think you see Steve's comment in relation to the last question was very focused on our ability as the system of record to leverage the data that we have in our system, to create automation against some really common use cases, whether that's onboarding or offboarding or system access or device management.
That that's great. Maybe just a quick follow-up on the the the cash flow is well above what we were looking for was there and this maybe this is for Riot, but anything timing there that that may not reoccur in the second half of the year just uh anything more. You can share on just the the strong out performance and comparing it to second half. Thanks.
hey Terry, this is Ryan know I think
obviously, you
Speaker #3: I mean, I think all those things are triggered off of changes in the data that we see from a status perspective with respect to employees.
Speaker #3: And we continue to see a significant opportunity there to help create value for our clients from that product.
Ryan Glenn: We continue to see a significant opportunity there to help create value for our clients from that product area.
Toby Williams: We continue to see a significant opportunity there to help create value for our clients from that product area.
Not an LTM basis, we're at nearly 24%. Free cash flow margin up 26% so we can continue to execute against the same Playbook that we've had for a number of years, which is driving leverage. Both in gross margin, uh, and GNA and then continue to invest both in R&D and and sales and marketing to drive future growth. So nothing that I would call out timing wise. Obviously, there is some benefit from the recent tax, legislation changes, but we are seeing a strong majority of that leverage and free cash flow. Uh, coming from natural scale across the business.
Speaker #3: area. That's great.
Okay, thanks.
Terry Tillman: That's great. Maybe just a quick follow-up. The cash flow was well above what we were looking for. Maybe this is for Ryan, but anything timing there that may not reoccur in the second half of the year? Just anything more you can share on just the strong outperformance and comparing it to second half? Thanks.
Terry Tillman: That's great. Maybe just a quick follow-up. The cash flow was well above what we were looking for. Maybe this is for Ryan, but anything timing there that may not reoccur in the second half of the year? Just anything more you can share on just the strong outperformance and comparing it to second half? Thanks.
Speaker #6: Maybe just a quick follow-up on the cash flow was well above what we were looking for. Was there in this maybe this is for Ryan, but anything timing there that may not reoccur in the second half of the year?
1 moment for our next question.
Our next question comes from Marc Maron with Robert W, bear your line is open.
Speaker #6: Just anything more you can share on just the strong outperformance and comparing it to second half?
Speaker #6: Thanks. Yeah.
Ryan Glenn: Yeah. Hey, Terry. This is Ryan. No, I think obviously, you can see cash flow movement quarter to quarter. But when we look at it on an LTM basis, we're at nearly 24% free cash flow margin, up 26%. So we continue to execute against the same playbook that we've had for a number of years, which is driving leverage both in gross margin and G&A, and then continue to invest both in R&D and sales and marketing to drive future growth. So nothing that I would call out timing-wise. Obviously, there is some benefit from the recent tax legislation changes, but we're seeing a strong majority of that leverage and free cash flow coming from natural scale across the business.
Ryan Glenn: Yeah. Hey, Terry. This is Ryan. No, I think obviously, you can see cash flow movement quarter to quarter. But when we look at it on an LTM basis, we're at nearly 24% free cash flow margin, up 26%. So we continue to execute against the same playbook that we've had for a number of years, which is driving leverage both in gross margin and G&A, and then continue to invest both in R&D and sales and marketing to drive future growth. So nothing that I would call out timing-wise. Obviously, there is some benefit from the recent tax legislation changes, but we're seeing a strong majority of that leverage and free cash flow coming from natural scale across the business.
Speaker #3: Hey, Terry. . This is Ryan. No, I think obviously you can see cash flow movement quarter to quarter. But when we look at it on an LTM basis, we're at nearly 24% free cash flow margin up 26%.
Good afternoon, and thanks for taking my question. Just wondering if you could talk just a little bit more about the selling environment. Obviously, you know, the stocks have all gotten hit, um, you know, based on concerns around the impact of AI. Can you just talk a little bit about like
Speaker #3: So we continue to do what we've had for a number of years, which is execute against the same playbook that's driving leverage both in gross margin and G&A.
Speaker #3: And then continue to invest both in R&D and sales and marketing to drive future growth. So nothing that I would call out timing-wise. Obviously, there is some benefit from the recent tax legislation changes.
Speaker #3: But we're seeing a strong majority of that leverage and free cash flow coming from natural scale across the business.
Speaker #6: Okay.
Terry Tillman: Okay. Thanks.
Terry Tillman: Okay. Thanks.
Speaker #6: Thanks. One moment for our next
Operator: One moment for our next question. Our next question comes from Mark Marcon with Robert W. Baird. Your line is open.
Operator: One moment for our next question. Our next question comes from Mark Marcon with Robert W. Baird. Your line is open.
You know, given some of the noise that's out there.
Speaker #2: question. Our next question comes from Mark Marcon with Robert W. Baird. Your line is open.
Speaker #8: Good afternoon, and thanks for taking my questions. I was wondering if you could talk just a little bit more about the selling environment. Obviously, the stocks have all gotten hit.
Mark Marcon: Good afternoon, and thanks for taking my questions. I was wondering if you could talk just a little bit more about the selling environment. Obviously, the stocks have all gotten hit based on concerns around the impact of AI. Can you just talk a little bit about from your clients' perspectives? Average client size is 150. I imagine they're not thinking anything close to using any sort of new tools. But are you seeing any sort of hesitation in terms of slowing down either at the core part of the market or even at the enterprise side? And how would you judge your Salesforce productivity given some of the noise that's out there?
Mark Marcon: Good afternoon, and thanks for taking my questions. I was wondering if you could talk just a little bit more about the selling environment. Obviously, the stocks have all gotten hit based on concerns around the impact of AI. Can you just talk a little bit about from your clients' perspectives? Average client size is 150. I imagine they're not thinking anything close to using any sort of new tools. But are you seeing any sort of hesitation in terms of slowing down either at the core part of the market or even at the enterprise side? And how would you judge your Salesforce productivity given some of the noise that's out there?
Speaker #8: Based on concerns around the impact of AI, can you just talk a little bit about from your client's perspective, average client size is 150.
Speaker #8: I imagine they're not thinking anything close to about using any sort of new tools. But are you seeing any sort of hesitation in terms of slowing down either at the core part of the market or even at the enterprise side?
Selling season was strong. I think the team performed really well. Um, I think we continue to be on a fairly consistent Pace from a, a client growth perspective. As we sit here, halfway through the year, pretty consistent with last year. Um, you know, I and I think the, our ability to, um, perform with the level of Revenue growth that we showed in Q2 and our ability to raise the remainder of the year comes from uh, the strong performance that we saw from a new sales perspective, in the first half of the year. And I think the confidence that we have in our ability to perform across all segments throughout quarters, 3 and 4. And so
I think.
Speaker #8: And how would you judge your Salesforce productivity given some of the noise that's out there?
Speaker #3: Yeah. So I think there's a few questions in that, Mark. I guess I would summarize it closer to where I started, which was selling season was strong.
Ryan Glenn: Yeah. So I think there's a few questions in that, Mark. I guess I would summarize it closer to where I started, which was selling season was strong. I think the team performed really well. I think we continue to be on a fairly consistent pace from a client growth perspective as we sit here halfway through the year, pretty consistent with last year. And I think our ability to perform with the level of revenue growth that we showed in Q2 and our ability to raise the remainder of the year comes from the strong performance that we saw from a new sales perspective in the first half of the year. And I think the confidence that we have in our ability to perform across all segments throughout Q3 and Q4. And so I think you're right with an average client size around 150 employees.
Ryan Glenn: Yeah. So I think there's a few questions in that, Mark. I guess I would summarize it closer to where I started, which was selling season was strong. I think the team performed really well. I think we continue to be on a fairly consistent pace from a client growth perspective as we sit here halfway through the year, pretty consistent with last year. And I think our ability to perform with the level of revenue growth that we showed in Q2 and our ability to raise the remainder of the year comes from the strong performance that we saw from a new sales perspective in the first half of the year. And I think the confidence that we have in our ability to perform across all segments throughout Q3 and Q4. And so I think you're right with an average client size around 150 employees.
Speaker #3: I think the team performed really well. I think we continue to be on a fairly consistent pace from a client growth perspective as we sit here halfway through the year, pretty consistent with last year.
you know, you're right with an average client size around 150 employees and Steve mentioned this a minute ago, I mean, I think we've seen just a relative level of stability in our client base, in the demand environment in our team's ability to sell and bring on new units and you know I think the absent all of the the
Speaker #3: And I think the our ability to perform with the Q2 and our ability to raise level of revenue growth that we showed in the remainder of the year comes from the strong performance that we saw from a new sales perspective in the first half of the year.
Speaker #3: And I think the confidence that we have in our ability to perform across all segments throughout quarters three and four— and so an average client size around 150— I think you’re right, with employees.
Speaker #3: And Steve mentioned this a minute ago. I mean, I think we've seen just a relative level of stability in our client base in the demand environment in our team's ability to sell and bring on new units and I think absent all of the concern around AI or any of that conversation, particularly in the last 48 hours, I mean, I think what we see is the continued really strong execution from both a sales and ops perspective as we've come through selling season performing really well driving 11 plus percent recurring revenue growth in the quarter and I think performing really well from a retention perspective as well.
Ryan Glenn: Steve mentioned this a minute ago. I mean, I think we've seen just a relative level of stability in our client base, in the demand environment, in our team's ability to sell and bring on new units. I think absent all of the concern around AI or any of that conversation, particularly in the last 48 hours, man, I think what we see is the continued really strong execution from both a sales and ops perspective as we've come through selling season, performing really well, driving 11+% recurring revenue growth in the quarter, and I think performing really well from a retention perspective as well. I mean, our ops team performed very well in the context of getting through year-end and getting through January.
Ryan Glenn: Steve mentioned this a minute ago. I mean, I think we've seen just a relative level of stability in our client base, in the demand environment, in our team's ability to sell and bring on new units. I think absent all of the concern around AI or any of that conversation, particularly in the last 48 hours, man, I think what we see is the continued really strong execution from both a sales and ops perspective as we've come through selling season, performing really well, driving 11+% recurring revenue growth in the quarter, and I think performing really well from a retention perspective as well. I mean, our ops team performed very well in the context of getting through year-end and getting through January.
You know, concern around AI or any of that conversation, particularly in the last 48 hours. May I think what we see is the continued, really strong execution from both a sales and Ops perspective as we've come through selling season performing really well. Driving, you know, 11 plus percent, recurring Revenue growth in the quarter and I think performing really well from our retention perspective as well, I mean our our Ops Team performed very well in the context of getting through year end and getting through January. So I mean overall um absent, any other noise in the market? I think we sit here. Halfway through the year, having put in a, a really strong performance in q1 and Q2 with, you know, a lot of confidence around our ability to be successful in Q3 and Q4,
Speaker #3: I mean, our ops team performed very well in the context of getting through year-end and getting through January. So I mean, overall, absent any other noise in the market, I think we sit here halfway through the year having put in a really strong performance in Q1 and Q2 with a lot of confidence around our ability to be successful in Q3 and
Ryan Glenn: So I mean, overall, absent any other noise in the market, I think we sit here halfway through the year having put in a really strong performance in Q1 and Q2 with a lot of confidence around our ability to be successful in Q3 and Q4.
Ryan Glenn: So I mean, overall, absent any other noise in the market, I think we sit here halfway through the year having put in a really strong performance in Q1 and Q2 with a lot of confidence around our ability to be successful in Q3 and Q4.
I would just add and then just Mark, just add 1 thing to that is. And I know you've been in this industry a long time. There's a lot more conversation from prospects around our service levels, our ability to meet those customer needs um, and not necessarily replace all the interaction from an AI perspective. Um, certainly when we automate things for them, they love that when we make it easier for them, that's great. Um, and they want to make sure that, you know, we're really pursuing the right modern technology, but our service organization as uh, Toby called out is a big reason why there's a driver. So unlike other software spaces we've got a pretty big moat around the service component of what we do whether that's an implementation or ongoing service or taxes and and that is actually a much bigger conversation still today with prosper.
Than AI, which is a conversation and is a growing conversation, but still a smaller part of the overall value problem.
Speaker #3: Q4.
That's great. And then I was wondering if we could flip the AI uh,
Steve Beauchamp: I would just add one thing.
Steve Beauchamp: I would just add one thing.
Mark Marcon: Great. And then, Mark, just add one thing to that. And I know you've been in this industry a long time. There's a lot more conversation from prospects around our service levels, our ability to meet those customer needs, and not necessarily replace all the interaction from an AI perspective. Certainly, when we automate things for them, they love that. When we make it easier for them, that's great. And they want to make sure that we're really pursuing the right modern technology. But our service organization, as Toby called out, is a big reason why there's a driver. So unlike other software spaces, we've got a pretty big moat around the service component of what we do, whether that's an implementation or ongoing service or taxes.
Mark Marcon: Great.
Speaker #2: And then Mark. Just add one thing to
Steve Beauchamp: And then, Mark, just add one thing to that. And I know you've been in this industry a long time. There's a lot more conversation from prospects around our service levels, our ability to meet those customer needs, and not necessarily replace all the interaction from an AI perspective. Certainly, when we automate things for them, they love that. When we make it easier for them, that's great. And they want to make sure that we're really pursuing the right modern technology. But our service organization, as Toby called out, is a big reason why there's a driver. So unlike other software spaces, we've got a pretty big moat around the service component of what we do, whether that's an implementation or ongoing service or taxes.
Speaker #6: that is and I know you've been in this industry a long time. There's a lot more conversation from prospects around our service levels, our ability to meet those customer needs, and not necessarily replace all the interaction from an AI perspective.
Speaker #6: Certainly, when we automate things for them, they love that. When we make it easier for them, that's great. And they want to make sure that we're really pursuing the right modern technology.
Speaker #6: But our service organization, as Toby called out, is a big reason why there's a driver. So, unlike other software spaces, we've got a pretty big moat around the service component of what we do—whether that's an implementation or ongoing service, or taxes.
In terms of advantages and wondering, if you can just talk a little bit about like, how much more efficient. I know it's early days, um, you know, code clot code just came out a little while ago, but if we think about like, when we think about your R&D, uh, efforts, are there any early thoughts there? And then, in addition to that, with, with all the fears around AI, um, you know, are from a capital, allocation perspective are there, are there some opportunities, um, you know, for m&a, in terms of valuations becoming more reasonable. That you're starting to explore to a greater degree. Thank you.
Speaker #6: And that is actually a much bigger conversation still today with prospects than AI, which is a conversation. And as a growing conversation, but still a smaller part of the overall value prop.
Mark Marcon: That is actually a much bigger conversation still today with prospects than AI, which is a conversation and is a growing conversation, but still a smaller part of the overall value problem.
Steve Beauchamp: That is actually a much bigger conversation still today with prospects than AI, which is a conversation and is a growing conversation, but still a smaller part of the overall value problem.
Speaker #2: That's great. And then I was wondering if we could flip the AI in terms of advantages and wondering if you can just talk a little bit about how much more efficient I know it's early days.
Operator: That's great. And then I was wondering if we could flip the AI in terms of advantages, and wondering if you can just talk a little bit about how much more efficient. I know it's early days. Claude Code just came out a little while ago. But if we think about when we think about your R&D efforts, are there any early thoughts there? And then in addition to that, with all the fears around AI, from a capital allocation perspective, are there some opportunities for M&A in terms of valuations becoming more reasonable that you're starting to explore to a greater degree? Thank you.
Mark Marcon: That's great. And then I was wondering if we could flip the AI in terms of advantages, and wondering if you can just talk a little bit about how much more efficient. I know it's early days. Claude Code just came out a little while ago. But if we think about when we think about your R&D efforts, are there any early thoughts there? And then in addition to that, with all the fears around AI, from a capital allocation perspective, are there some opportunities for M&A in terms of valuations becoming more reasonable that you're starting to explore to a greater degree? Thank you.
Speaker #2: Cloud code just came out a little while ago, but if we think about—when we think about your R&D efforts—are there any early thoughts there?
Speaker #2: And then, in addition to that, with all the fears around AI, from a capital allocation perspective, are there some opportunities for M&A, in terms of valuations becoming more reasonable, that you're starting to explore to a greater degree?
Yeah. And the, and the first part Mark, I mean, I I, I guess I hear that from you as a question, just around the efficiencies that we're able to drive in the business, um, from the use of automation or AI, um, in areas like engineering. And and we've talked about this a little bit before, but I guess I would start by saying, um, you know, going back to Ryan's comments with free cash flow up 26%. I mean, what you're seeing across the business is our ability to drive a level of continued, productivity and efficiency increases across the business. And you see it show up in the free cash flow and that comes from, you know, all kinds of different places. 1 of them is driving automation across the business.
Speaker #2: Thank you.
Speaker #3: Yeah. On the first part, Mark, I mean, I guess I hear that from you as a question just around the efficiencies that we're able to drive in the business from the use of automation or AI.
Ryan Glenn: Yeah. And the first part, Mark, I mean, I guess I hear that from you as a question just around the efficiencies that we're able to drive in the business from the use of automation or AI in areas like engineering. And we've talked about this a little bit before, but I guess I would start by saying, going back to Ryan's comments with free cash flow up 26%, I mean, what you're seeing across the business is our ability to drive a level of continued productivity and efficiency increases across the business. And you see it show up in the free cash flow. And that comes from all kinds of different places. One of them is driving automation across the business. And part of that is utilizing AI in areas like engineering.
Toby Williams: Yeah. And the first part, Mark, I mean, I guess I hear that from you as a question just around the efficiencies that we're able to drive in the business from the use of automation or AI in areas like engineering. And we've talked about this a little bit before, but I guess I would start by saying, going back to Ryan's comments with free cash flow up 26%, I mean, what you're seeing across the business is our ability to drive a level of continued productivity and efficiency increases across the business. And you see it show up in the free cash flow. And that comes from all kinds of different places. One of them is driving automation across the business. And part of that is utilizing AI in areas like engineering.
Part of that is utilizing AI in areas like engineering, but we're also using that from a broader operations perspective to help create, um, uh, a better faster more engaged client experience. That is still driven by our service team. Um, and so I think you, you know, that's part of the story that you're seeing play out as it relates to our profitability increases in both adjustability and free cash flow. So, I think that's a that's a significant part of part of the story.
Speaker #3: In areas like engineering and we've talked about this a little bit before, but I guess I would start by saying going back to Ryan's comments with free cash flow up 26%.
and then a
Speaker #3: I mean, what you're seeing across the business is our ability to drive a level of increases across the business. And you see it show continued productivity and efficiency up in the free cash flow.
Speaker #3: And that comes from all kinds of different places. One of them is driving automation across the business. And part of that is utilizing AI in areas like engineering, but we're also using that from a broader operations perspective to help create a better, faster, more engaged client experience that is still driven by our service team and so I think that's part of the story that you're seeing play out as it relates to our profitability increases in both adjusted EBITDA and free cash flow.
Product roadmap faster further. Um, speed time to Market with critical solutions that we think are really strategic. And I think that
Ryan Glenn: But we're also using that from a broader operations perspective to help create a better, faster, more engaged client experience that is still driven by our service team. And so I think that's part of the story that you're seeing play out as it relates to our profitability increases in both Adjusted EBITDA and Free Cash Flow. So I think that's a significant part of the story.
Toby Williams: But we're also using that from a broader operations perspective to help create a better, faster, more engaged client experience that is still driven by our service team. And so I think that's part of the story that you're seeing play out as it relates to our profitability increases in both Adjusted EBITDA and Free Cash Flow. So I think that's a significant part of the story.
You know that that opportunity continues to exist, we continue to focus on it, but I think our our threshold for what makes sense, for us has not changed. I mean, I think you see valuations sort of evolve Eevee and flow in any given quarter from a Target perspective. But I mean I I think our our threshold for being able to find
Speaker #3: So I think that's a significant part of the
solutions that make sense for our platform that will add value to clients and that we can tightly integrate. That's those are still the things that we're focused on and if we can find things that will add value and
That will speed our time to market then.
Speaker #3: story. And Yeah. From a capital allocation
They'll continue to be interested in.
Great. Thank you.
Operator: And M&A?
Mark Marcon: And M&A?
Speaker #2: M&A?
Ryan Glenn: Yeah. From a capital allocation standpoint, I mean, I think we have always been focused on looking for areas in M&A that would be able to drive our product roadmap faster, further, speed time to market with critical solutions that we think are really strategic. And I think that opportunity continues to exist. We continue to focus on it. But I think our threshold for what makes sense for us has not changed. I mean, I think you see valuations sort of ebb and flow in any given quarter from a target perspective. But I mean, I think our threshold for being able to find solutions that make sense for our platform that will add value to clients and that we can tightly integrate, those are still the things that we're focused on.
Toby Williams: Yeah. From a capital allocation standpoint, I mean, I think we have always been focused on looking for areas in M&A that would be able to drive our product roadmap faster, further, speed time to market with critical solutions that we think are really strategic. And I think that opportunity continues to exist. We continue to focus on it. But I think our threshold for what makes sense for us has not changed. I mean, I think you see valuations sort of ebb and flow in any given quarter from a target perspective. But I mean, I think our threshold for being able to find solutions that make sense for our platform that will add value to clients and that we can tightly integrate, those are still the things that we're focused on.
1 moment for our next question.
Speaker #3: Been focused on M&A that would be able to drive our product roadmap faster, further speed time to market with critical solutions that we think are really strategic.
Our next question comes from City fenri with mizuho, your line is open.
Speaker #3: And I think that that opportunity continues to exist. We continue to focus on it. But I think our threshold for what makes sense for us has not changed.
Great. Uh, thanks for taking my question. Uh, I just wanted to ask about employment level. Uh first. Uh, what do you saw this quarter? Uh, I mean in December quarter, I'm plugging level. And what's the big thing to your, uh, guidance?
Speaker #3: I mean, I think you see valuations sort of ebb and flow in any given quarter from a target perspective. But, I mean, I think our threshold for being able to find solutions that make sense for our platform, that will add value to clients, and that we can tightly integrate—those are still the things that we're focused on.
Speaker #3: And if we can find things that will add value and that will speed our time to market, then those are the things that we'll continue to be interested in.
Ryan Glenn: If we can find things that will add value and that will speed our time to market, then those are the things that we'll continue to be interested in.
Toby Williams: If we can find things that will add value and that will speed our time to market, then those are the things that we'll continue to be interested in.
Speaker #3: in. Great.
Operator: Great. Thank you.
Mark Marcon: Great. Thank you.
Speaker #2: Thank you. One moment for our next
Ryan Glenn: Yep.
Toby Williams: Yep.
Speaker #3: Yep.
Operator: One moment for our next question. Our next question comes from Siti Panigrahi with Mizuho. Your line is open.
Operator: One moment for our next question. Our next question comes from Siti Panigrahi with Mizuho. Your line is open.
Speaker #2: question. Our next question comes from Siti Pengrai with Nuzuho. Your line is open.
Hey City. It's it's Ryan good to hear from you. Um, a lot of stability in employment levels, very similar to to what we called out in overall demand environment. So we continue to see year-over-year, Workforce levels up modestly in Q2, uh, spot on to what we saw in the first quarter. So continue to to watch and and see those numbers on a weekly basis, but have seen a lot of stability, and, and no real change. And I think that extends into January as well. We continue to have an assumption in the back, half of the year of, of flat employment levels year-over-year, which would be a slight degradation from what we've seen in the first half of the year.
Speaker #7: Great, thanks for taking my question. I just wanted to ask about employment levels. First, what did you see this quarter? I mean, in the December quarter—employment levels—and what's baked into your...
Siti Panigrahi: Great. Thanks for taking my question. I just wanted to ask about employment level. First, what did you see this quarter, I mean, in December quarter, employment level, and what's baked into your guidance?
Siti Panigrahi: Great. Thanks for taking my question. I just wanted to ask about employment level. First, what did you see this quarter, I mean, in December quarter, employment level, and what's baked into your guidance?
Speaker #7: guidance? Hey, Siti.
Okay, that's great. And then uh the broader high level question on employment. We keep hearing from uh you know people around saying that how AI is going to disrupt in terms of employment more layoffs coming how do you what's your view on that? How exposed are not exposed? Uh yeah, velocity is
Ryan Glenn: Hey, Siti. It's Ryan. Good to hear from you. A lot of stability in employment level is very similar to what we called out in overall demand environment. So we continue to see year-over-year workforce levels up modestly in Q2, spot-on to what we saw in the first quarter. So continue to watch and see those numbers on a weekly basis, but have seen a lot of stability and no real change. And I think that extends into January as well. We continue to have an assumption in the back half of the year of flat employment levels year over year, which would be a slight degradation from what we've seen in the first half of the year.
Ryan Glenn: Hey, Siti. It's Ryan. Good to hear from you. A lot of stability in employment level is very similar to what we called out in overall demand environment. So we continue to see year-over-year workforce levels up modestly in Q2, spot-on to what we saw in the first quarter. So continue to watch and see those numbers on a weekly basis, but have seen a lot of stability and no real change. And I think that extends into January as well. We continue to have an assumption in the back half of the year of flat employment levels year over year, which would be a slight degradation from what we've seen in the first half of the year.
Speaker #3: It's Ryan. Good to hear from you. A lot of stability in employment level is very similar to what we called out in overall demand environment.
Well, I think just give you a couple thoughts. I mean I think
Speaker #3: So, we continue to see year-over-year workforce levels up modestly in Q2, spot on to what we saw in the first quarter. So, we continue to watch and see those numbers on a weekly basis.
You know, we we don't have any specific vertical concentration. Um and so I don't think we
Speaker #3: But have seen a lot of stability and no real change. And I think that extends into January as well. We continue to have an assumption in the back half of the year of flat employment levels year-over-year, which would be a slight degradation from what we've seen in the first half of the
we have any particular exposure, given any concern that anybody might have about a particular vertical being disrupted, um, and I then go back to, you know, Ryan's commentary that he just shared around us seeing things, be relatively stable. Um, you know, despite any of the commentaries that's out in the market, I mean, we've seen stability and I think if you go back to the commentary, uh,
Speaker #3: year. Okay.
Siti Panigrahi: Okay. That's great. And then at a broader, high-level question on employment, we keep hearing from people around saying that how AI is going to disrupt in terms of employment, more layoffs coming. What's your view on that? How exposed or not exposed Paylocity is?
Siti Panigrahi: Okay. That's great. And then at a broader, high-level question on employment, we keep hearing from people around saying that how AI is going to disrupt in terms of employment, more layoffs coming. What's your view on that? How exposed or not exposed Paylocity is?
Speaker #7: That's great. And then at a broader high-level question on employment, we keep hearing from people around saying that how AI going to disrupt in terms of employment, more layoffs coming.
Most recently, from any of the large providers, you'll you hear the same thing. So, I mean, I think what we see in real time is stability across the employees and the platform in our business. And I think that's what you hear from others as well.
Great, thanks for the caller.
Speaker #7: How do you what's your view on that? How exposed or not exposed velocity
1 moment for our next question.
Speaker #7: is? Well, I think just give you a couple of
Ryan Glenn: Well, I think just give you a couple of thoughts. I mean, I think we don't have any specific vertical concentration. And so I don't think we have any particular exposure given any concern that anybody might have about a particular vertical being disrupted. And I then go back to Ryan's commentary that he just shared around us seeing things be relatively stable despite any of the commentary that's out in the market. I mean, we've seen stability. And I think if you go back to the commentary most recently from any of the large providers, you hear the same thing. So I mean, I think what we see in real time is stability across the employees in the platform in our business. And I think that's what you hear from others as well.
Toby Williams: Well, I think just give you a couple of thoughts. I mean, I think we don't have any specific vertical concentration. And so I don't think we have any particular exposure given any concern that anybody might have about a particular vertical being disrupted. And I then go back to Ryan's commentary that he just shared around us seeing things be relatively stable despite any of the commentary that's out in the market. I mean, we've seen stability. And I think if you go back to the commentary most recently from any of the large providers, you hear the same thing. So I mean, I think what we see in real time is stability across the employees in the platform in our business. And I think that's what you hear from others as well.
Our next question comes from Scott, Berg with Native & Company, your line is open.
Speaker #3: thoughts. I mean, I think we don't have any specific vertical concentration. And so I don't think we have any particular exposure given any concern that anybody might have about a particular vertical being disrupted.
Speaker #3: And I then go back to Ryan's commentary that he just shared around us seeing things be relatively stable, despite any of the commentary that's out in the market.
Speaker #3: I mean, we've seen stability. And I think if you go back to the commentary most recently from any of the large providers, you hear the same thing.
Speaker #3: So I mean, I think what we see in real time is stability across the employees and the platform in our business. And I think that's what you
Hi everyone. Nice quarter and thanks for taking my questions. Um, I have 2, non AI questions. I hope you're ready for them. Um, the first 1 I guess is uh, you know, any commentary on you know, win rates since you've had Paylocity for finance and asset management, it Asset Management out in the market. I heard, it's someone in the ecosystem. Tell me, you know that they're um seeing some at least chatter around it. That people have some interest in it and just don't know it's early obviously but didn't know if you're seeing any, you know, changes to your win rate based on having the availability of those modules.
Speaker #3: hear from others as Great.
Siti Panigrahi: Great. Thanks for the caller.
Siti Panigrahi: Great. Thanks for the caller.
Speaker #7: Thanks for the
Speaker #7: caller. One
Operator: One moment for our next question. Our next question comes from Scott Berg with Needham & Company. Your line is open.
Operator: One moment for our next question. Our next question comes from Scott Berg with Needham & Company. Your line is open.
Speaker #2: Moment for our next question. Our next question comes from Scott Berg with Needham & Company. Your line is open.
Speaker #2: open. Hi, everyone.
Well I think uh I think we've we've been going back to my prior comments man. I think throughout the first half of the fiscal year we've been really happy with how we've performed overall from a go to market standpoint. I think we've seen a relative, you know, level of of consistency in win rates. Um
Scott Berg: Hi, everyone. Nice quarter, and thanks for taking my questions. I have two non-AI questions. I hope you're ready for them. The first one, I guess, is any commentary on win rates since you've had Paylocity for Finance and asset management, IT asset management, out in the market? I heard someone in the ecosystem tell me that they're seeing some, at least, chatter around it, that people have some interest in it. Just don't know if it's early, obviously, but didn't know if you're seeing any changes to your win rates based on having the availability of those modules.
Scott Berg: Hi, everyone. Nice quarter, and thanks for taking my questions. I have two non-AI questions. I hope you're ready for them. The first one, I guess, is any commentary on win rates since you've had Paylocity for Finance and asset management, IT asset management, out in the market? I heard someone in the ecosystem tell me that they're seeing some, at least, chatter around it, that people have some interest in it. Just don't know if it's early, obviously, but didn't know if you're seeing any changes to your win rates based on having the availability of those modules.
Speaker #8: Nice quarter, and thanks for taking my questions. I have two non-AI questions—I hope you're ready for them. The first one, I guess, is any commentary on win rates since you've had Paylocity for finance and asset management, IT asset management out in the market?
Speaker #8: I heard someone in the ecosystem tell me that they're seeing some at least chatter around it, that people have some interest in it and just don't know it's early, obviously, but didn't know if you're seeing any changes to your win rates based on having the availability of those
Speaker #8: I heard someone in the ecosystem tell me that they're seeing some at least chatter around it, that people have some interest in it and just don't know it's early, obviously, but didn't know if you're seeing any changes to your win rates based on having the availability of those modules.
I do think though that there's there's a few things in the market Scott that are helping. It's just, it's sometimes difficult to have perfect attribution as to, you know, what exactly those things are contributing and how much, but I think they're all positive. So, you know, I think the differentiation that we're able to create through things like Paylocity for finance, I think that is in the helpful column and I also think it helps from a incremental RPO standpoint, I would say the same thing with respect to uh,
Speaker #3: Well, I think we've been going back to my prior comments. I mean, I think throughout the first half of the fiscal year, we've been really happy with how we've performed overall from a go-to-market standpoint.
Ryan Glenn: Well, I think we've been going back to my prior comments. I mean, I think throughout the first half of the fiscal year, we've been really happy with how we've performed overall from a go-to-market standpoint. I think we've seen a relative level of consistency in win rates. I do think, though, that there's a few things in the market, Scott, that are helping. It's sometimes difficult to have perfect attribution as to what exactly those things are contributing and how much. But I think they're all positive. So I think the differentiation that we're able to create through things like Paylocity for finance, I think that is in the helpful column. And I also think it helps from an incremental ARPU standpoint. I would say the same thing with respect to our IT solutions.
Toby Williams: Well, I think we've been going back to my prior comments. I mean, I think throughout the first half of the fiscal year, we've been really happy with how we've performed overall from a go-to-market standpoint. I think we've seen a relative level of consistency in win rates. I do think, though, that there's a few things in the market, Scott, that are helping. It's sometimes difficult to have perfect attribution as to what exactly those things are contributing and how much. But I think they're all positive. So I think the differentiation that we're able to create through things like Paylocity for finance, I think that is in the helpful column. And I also think it helps from an incremental ARPU standpoint. I would say the same thing with respect to our IT solutions.
Speaker #3: I think we've seen a relative level of consistency in win rates. I do think, though, that there's a few things in the market, Scott, that are helping.
Speaker #3: It's sometimes difficult to have perfect attribution as to what exactly those things are contributing and how much, but I think they're all positive. So, I think the differentiation that we're able to create through things like Paylocity for Finance, I think that is in the helpful column.
From our teams, um, I think was really strong in the quarter. So I think there's a lot of positive there, uh, against the, a fairly stable demand environment. It's it's tough. Sometimes to create perfect attribution on those things, but I think that's the overall picture.
Speaker #3: And I also think it helps from an incremental ARPU standpoint. I would say the same thing with respect to our IT solutions. I think it's helpful from a differentiation perspective, also helpful for ARPU. It's pretty early days for each of those.
Ryan Glenn: I think it's helpful from a differentiation perspective, also helpful for ARPU in pretty early days for each of those. And then I think the other thing that we've seen momentum on is our relationship with brokers, which has always been strong. But I think we continue to see momentum with the broker channel. And so I think all of those things are positive in addition to just the overall value prop of the platform and the execution from our teams, I think, was really strong in the quarter. So I think there's a lot of positive there against a fairly stable demand environment. It's tough sometimes to create perfect attribution on those things. But I think that's the overall picture.
Toby Williams: I think it's helpful from a differentiation perspective, also helpful for ARPU in pretty early days for each of those. And then I think the other thing that we've seen momentum on is our relationship with brokers, which has always been strong. But I think we continue to see momentum with the broker channel. And so I think all of those things are positive in addition to just the overall value prop of the platform and the execution from our teams, I think, was really strong in the quarter. So I think there's a lot of positive there against a fairly stable demand environment. It's tough sometimes to create perfect attribution on those things. But I think that's the overall picture.
Speaker #3: And then I think the other thing that we've seen momentum on is our relationship with brokers, which has always been strong. But I think we continue to see momentum with the broker channel.
Speaker #3: And so I think all of those things are positive. In addition to just the platform and the execution from our overall value prop of the teams, I think was really strong in the quarter.
Uh, fair enough. Thanks Toby. Um, and I guess from a follow-up perspective, now that we've kind of seen what the impact of the tax law changes were, you know on the business and in the last quarter which I assume had some maybe catch up for the year a little bit. Is was there any debate or any conversation around maybe taking some of those cash flows and and trying to you know, invest that and other aspects of the business versus just, you know, harvesting them. I know it's just accounting treatment and timing and and and Etc. But you guys already generate plenty of cash. So my guess is you know probably there wasn't a lot of thought there but I didn't know if there was anything that you thought of that you could maybe, you know, spend on that would be a worthwhile or short term.
Speaker #3: So, I think there's a lot of positive there. Against a fairly stable demand environment, it's tough sometimes to create perfect attribution on those things.
Speaker #3: But I think that's the overall
Yeah. I mean, I think, you know, just echoing Ryan's commentary with free cash flow being up, 26%. I mean, I think we've, we're really happy with how we've been performing, um, in driving that type of free cash flow leverage. Um,
Speaker #3: picture. Fair enough.
Scott Berg: Fair enough. Thanks, Toby. And I guess from a follow-up perspective, now that we've kind of seen what the impact of the tax law changes were on the business in the last quarter, which I assume had some maybe catch-up for the year a little bit, was there any debate or any conversation around maybe taking some of those cash flows and trying to invest that in other aspects of the business versus just harvesting them? I know it's just accounting, treatment, and timing, etc. But you guys already generate plenty of cash. So my guess is probably there wasn't a lot of thought there. But I didn't know if there was anything that you thought of that you could maybe spend on that would be worthwhile in the short term.
Scott Berg: Fair enough. Thanks, Toby. And I guess from a follow-up perspective, now that we've kind of seen what the impact of the tax law changes were on the business in the last quarter, which I assume had some maybe catch-up for the year a little bit, was there any debate or any conversation around maybe taking some of those cash flows and trying to invest that in other aspects of the business versus just harvesting them? I know it's just accounting, treatment, and timing, etc. But you guys already generate plenty of cash. So my guess is probably there wasn't a lot of thought there. But I didn't know if there was anything that you thought of that you could maybe spend on that would be worthwhile in the short term.
Speaker #7: Thanks, Toby. And I guess from a follow-up perspective, now that we've kind of seen what the impact of the tax law changes were on the business in the last quarter, which I assume had maybe some catch-up for the year a little bit, was there any debate or any conversation around maybe taking some of those cash flows and trying to invest that in other aspects of the business versus just harvesting them?
I don't think though that that is coming at the expense of the things that we think we can and should invest in across the business, to create better client experiences, um, and to drive future growth. So, you know, I think we're really happy with, um, what we've been able to both drive down into free cash flow. But while also investing in the things that we need to and want to and think that there's great
Speaker #7: I know it's just accounting treatment and timing and etc., but you guys already generate plenty of cash. So my guess is probably there wasn't a lot of thought there.
Speaker #7: But I didn't know if there was anything that you thought of that you could maybe spend on that would be a worthwhile in the short term.
Speaker #3: Yeah, I mean, I think just echoing Ryan's commentary, with free cash flow being up 26%, I mean, I think we're really happy with how we've been performing.
Ryan Glenn: Yeah. I mean, I think just echoing Ryan's commentary, free cash flow being up 26%, I mean, I think we're really happy with how we've been performing in driving that type of free cash flow leverage. I don't think, though, that that is coming at the expense of the things that we think we can and should invest in across the business to create better client experiences and to drive future growth. So I think we're really happy with what we've been able to both drive down into free cash flow, but while also investing in the things that we need to, want to, and think that there's great opportunity around in the course of the full year.
Toby Williams: Yeah. I mean, I think just echoing Ryan's commentary, free cash flow being up 26%, I mean, I think we're really happy with how we've been performing in driving that type of free cash flow leverage. I don't think, though, that that is coming at the expense of the things that we think we can and should invest in across the business to create better client experiences and to drive future growth. So I think we're really happy with what we've been able to both drive down into free cash flow, but while also investing in the things that we need to, want to, and think that there's great opportunity around in the course of the full year.
Opportunity around in the course of the full year. And I think that includes, you know, a new all a lot of things we talked about new product development, focus in our product and Tech teams. Um, a lot of things within the existing core of the solutions. So, yeah, I think overall, you know, pretty excited about the Investments that we're making across the business not coming at the expense of of also, driving free cash flow.
Excellent. Thank you for taking my questions.
1 of them for our next question.
Speaker #3: In driving that type of free cash flow leverage, I don't think, though, that that is coming at the expense of the things that we think we can and should invest in across the business to create better client experiences, and to drive future growth.
Our next question comes from some odd Samano with Jeffrey. Your line is open.
Speaker #3: So I think we're really happy with what we've been able to both drive down into free cash flow, but while also investing in the things that we need to and want to and think that there's great opportunity around in the course of the full year.
Speaker #3: And I think that includes a lot of the things we've talked about—new product development, focus in our product and tech teams, and a lot of things within the existing core of the solution.
Ryan Glenn: I think that includes a lot of the things we've talked about, new product development focus in our product and tech teams, a lot of things within the existing core of the solution. Yeah, I think overall, pretty excited about the investments that we're making across the business, not coming at the expense of also driving free cash flow.
Toby Williams: I think that includes a lot of the things we've talked about, new product development focus in our product and tech teams, a lot of things within the existing core of the solution. Yeah, I think overall, pretty excited about the investments that we're making across the business, not coming at the expense of also driving free cash flow.
Hi, good evening, and thanks for taking my questions. I guess, uh, 1 that I wanted to ask about is, if you think about customers in a more muted hiring environment, presumably, if they're hiring less Andor, there's less people to hire. What are they focused on? Like, where are they either? Redirecting within the HR, Tech, budget and or are they re directing that HR Tech budget somewhere else? And then I have a follow-up question.
Speaker #3: So yeah, I think, overall, pretty excited about the investments that we're making across the business, not coming at the expense of also driving free cash flow.
Speaker #7: Excellent. Thanks for taking my questions.
Scott Berg: Excellent. Thank you for taking my questions.
Scott Berg: Excellent. Thank you for taking my questions.
Ryan Glenn: Yep.
Toby Williams: Yep.
Speaker #2: One moment for our next question. Our next question comes from Samad Samana with Jefferies. Your line is open.
Operator: One moment for our next question. Our next question comes from Samad Samana with Jefferies. Your line is open.
Operator: One moment for our next question. Our next question comes from Samad Samana with Jefferies. Your line is open.
Yeah, I mean I think we've seen going back to Ryan's commentary. I think we've seen a relative level of stability across um, across the market from an employees on the platform perspective. And I think the clients that were that were serving today and that we're talking to, from a prospect perspective, our focused on again, going back to the, the the fact that we have average client size around. 150 employees. They find significant value in a single vendor providing a broad
Speaker #8: Hi. Good evening. And thanks for taking my questions. I guess one that I wanted to ask about is if you think about customers in a more muted hiring environment, presumably if they're hiring less and/or there's less people to hire, what are they focused on?
Ryan Glenn: Hi. Good evening. And thanks for taking my questions. I guess one that I wanted to ask about is, if you think about customers in a more muted hiring environment, presumably if they're hiring less and/or there's less people to hire, what are they focused on? Where are they either redirecting within the HR tech budget, and/or are they redirecting that HR tech budget somewhere else? And then I have a follow-up question. Yeah. I mean, I think we've seen going back to Ryan's commentary, I think we've seen a relative level of stability across the market from an employees-on-the-platform perspective.
Samad Samana: Hi. Good evening. And thanks for taking my questions. I guess one that I wanted to ask about is, if you think about customers in a more muted hiring environment, presumably if they're hiring less and/or there's less people to hire, what are they focused on? Where are they either redirecting within the HR tech budget, and/or are they redirecting that HR tech budget somewhere else? And then I have a follow-up question.
Speaker #8: Where are they either redirecting within the HR tech budget, and/or are they redirecting that HR tech budget somewhere else? And then I have a follow-up question.
Toby Williams: Yeah. I mean, I think we've seen going back to Ryan's commentary, I think we've seen a relative level of stability across the market from an employees-on-the-platform perspective.
Speaker #3: I mean, I think we've seen going back to Ryan's commentary, I think we've seen a relative level of stability across the market from an employee's on the platform perspective.
Speaker #3: And I think the clients that we're serving today and that we're talking to from a prospect perspective are focused on, again, going back to the fact that we have average client size around 150 employees.
Ryan Glenn: I think the clients that we're serving today and that we're talking to from a prospect perspective are focused on, again, going back to the fact that we have average client size around 150 employees. They find significant value in a single vendor providing a broad swath of solutions on the platform. Echoing some of Steve's comments earlier, they derive a lot of value about the actual service that we're offering, particularly as we come through this time of year. December is certainly a high point from a client service interaction perspective. You have a huge amount of volume coming through the system in January with new business coming onto the platform. I mean, I don't think there's a significant shift in terms of the value prop that clients in the core of our market are looking for.
Toby Williams: I think the clients that we're serving today and that we're talking to from a prospect perspective are focused on, again, going back to the fact that we have average client size around 150 employees. They find significant value in a single vendor providing a broad swath of solutions on the platform. Echoing some of Steve's comments earlier, they derive a lot of value about the actual service that we're offering, particularly as we come through this time of year. December is certainly a high point from a client service interaction perspective. You have a huge amount of volume coming through the system in January with new business coming onto the platform. I mean, I don't think there's a significant shift in terms of the value prop that clients in the core of our market are looking for.
Speaker #3: They find significant value in a single vendor providing a broad swath of solutions on the platform. And echoing some of Steve's comments earlier, they derive a lot of value about the actual service that we're offering, particularly as we come through this time of year.
Swath of Solutions on the platform and echoing. Some of Steve's comments earlier, they derive a lot of value about the actual service that we're offering particularly as we come through this time of year. So December is certainly a high point from a client service interaction perspective and you have uh a huge amount of volume coming through the system, in January with, uh, new business coming onto the platform. So I mean, I think I, I, I I don't think there's a significant shift in terms of the value prop that clients in the core of our Market are looking for. They're looking for a partner they can trust they're looking for breath of solution and a platform that will serve their needs and his purpose build for their use cases. And I think we're we're continuing to deliver all of those things and focused on driving a level of Automation and productivity and efficiency and usability to them, that I think they value more and more by the day. So I think that's the, that's probably how I would characterize the overall state of Engagement with clients.
Speaker #3: So December is certainly a high point from a client service interaction perspective. And you have a huge amount of volume coming through the system in January, with new business coming onto the platform.
Speaker #3: So, I mean, I think—I don't think there's a significant shift in terms of the value prop that clients in the core of our market are looking for.
Speaker #3: They're looking for a partner they can trust. They're looking for breadth of solution and a platform that use cases. And I think we're continuing to deliver all of those things.
Ryan Glenn: They're looking for a partner they can trust. They're looking for breadth of solution and a platform that will serve their needs and is purpose-built for their use cases. And I think we're continuing to deliver all of those things and focused on driving a level of automation, productivity, efficiency, and usability to them that I think they value more and more by the day. So I think that's probably how I would characterize the overall state of engagement with clients. Understood. And maybe just a follow-up in a different direction, just as I think about the pricing environment, we've seen with different software vendors either raising prices, especially over the last couple of years. I know price increases are just a normal course of business.
Toby Williams: They're looking for a partner they can trust. They're looking for breadth of solution and a platform that will serve their needs and is purpose-built for their use cases. And I think we're continuing to deliver all of those things and focused on driving a level of automation, productivity, efficiency, and usability to them that I think they value more and more by the day. So I think that's probably how I would characterize the overall state of engagement with clients.
Understood and maybe just for a follow up in a different direction, just as I think about the, the pricing environment we've seen, you know, with different software vendors either raising price, especially over the last couple of years. I know, um, pricing increases are just a normal course of business. But how are you seeing customer reaction on renewal to either pricing increases in or reduction of discounts? Uh, any changing Behavior versus prior renewal Cycles, uh, and anything that we can extrapolate from that?
No, I don't think we've seen any change there, whatsoever. I mean, it's it's been. It's been very, very stable from that perspective.
Speaker #3: And focused on driving a level of automation and productivity and efficiency and usability to them that I think they value more and more by the day.
Speaker #3: So I think that's probably how I would characterize the overall state of engagement with clients.
Although we we we typically look at price in the springtime as we did last spring and as we will again this spring and from last from the time that we would have looked at it last last spring, I don't think we've seen any meaningful change.
Samad Samana: Understood. And maybe just a follow-up in a different direction, just as I think about the pricing environment, we've seen with different software vendors either raising prices, especially over the last couple of years. I know price increases are just a normal course of business.
Great. Appreciate the time as always. Thank you.
Speaker #8: Understood. And maybe just a follow-up in a different direction. Just as I think about the pricing environment, we've seen with different software vendors either raising price, especially over the last couple of years.
1 moment for our next question.
Our next question comes from Brian Peterson with Raymond James, your line is open.
Speaker #8: I know price increases are just a normal course of business. But how are you seeing customer reaction on renewal to either price increases and/or reduction of discounts?
Ryan Glenn: But how are you seeing customer reaction on renewal to either price increases and/or reduction of discounts, any change in behavior versus prior renewal cycles, and anything that we can extrapolate from that? No. I don't think we've seen any change there whatsoever. I mean, it's been very, very stable from that perspective. Although, I mean, we typically look at price in the springtime as we did last spring and as we will again this spring. And from the time that we would have looked at it last spring, I don't think we've seen any meaningful change. Great. Appreciate the time as always. Thank you.
Samad Samana: But how are you seeing customer reaction on renewal to either price increases and/or reduction of discounts, any change in behavior versus prior renewal cycles, and anything that we can extrapolate from that?
Speaker #8: Any change in behavior versus prior renewal cycles? And anything that we can extrapolate from that?
Toby Williams: No. I don't think we've seen any change there whatsoever. I mean, it's been very, very stable from that perspective. Although, I mean, we typically look at price in the springtime as we did last spring and as we will again this spring. And from the time that we would have looked at it last spring, I don't think we've seen any meaningful change.
Hi, thanks for taking the question. This is John missing on for Brian. Maybe a follow-up to Terry. Tillmans, question earlier as you looked at deep in the penetration of finance and it over time, what are the key execution, milestones? We should look for over the next 18 to 24 months to measure success there and how are sales Cycles, uh, for, for those products.
Speaker #3: No, I don't think we've seen any change there whatsoever. I mean, it's been very, very stable from that perspective. Although we typically look at price in the springtime as we did last spring and as we will again this spring.
Other Landing or expanding versus the traditional HCM modules and then I have a quick follow up.
Yeah, I think.
Taking that apart.
Speaker #3: And from the time that we would have looked at it last spring, I don't think we've seen any meaningful change.
Samad Samana: Great. Appreciate the time as always. Thank you.
Speaker #8: Great. Appreciate the time, as always. Thank you.
To new clients that are coming out of the platform, does the the sales Cycles are right in line with what we would have typically seen from our average client size. I mean, that could be in the, you know, 30 to 45 day window, for the heart of our market and go.
lifetimes in the
Speaker #2: One moment for our next question. Our next question comes from Brian Peterson with Raymond James. Your line is
Operator: One moment for our next question. Our next question comes from Brian Peterson with Raymond James. Your line is open.
Operator: One moment for our next question. Our next question comes from Brian Peterson with Raymond James. Your line is open.
Speaker #2: open. Hi.
John Masinon: Hi. Thanks for taking the question. This is John Masinon for Brian. And maybe a follow-up to Terry Tillman's question earlier. As you look to deepen the penetration of finance and IT over time, what are the key execution milestones we should look for over the next 18 to 24 months to measure success there? And how are sales cycles for those products either landing or expanding versus the traditional HCM modules? And then I have a quick follow-up.
[Analyst] (Raymond James): Hi. Thanks for taking the question. This is John Masinon for Brian. And maybe a follow-up to Terry Tillman's question earlier. As you look to deepen the penetration of finance and IT over time, what are the key execution milestones we should look for over the next 18 to 24 months to measure success there? And how are sales cycles for those products either landing or expanding versus the traditional HCM modules? And then I have a quick follow-up.
Speaker #7: Thanks for taking the question. This is John Massino on for Brian. Maybe a follow-up to Terry Tillman's question earlier. As you look to deepen the penetration of finance and IT over time, what are the key execution milestones we should look for over the next 18 there?
Speaker #7: And how are sales cycles for those products, either landing or expanding, versus the traditional HCM modules? And then I have a quick...
You know, 4 to 6 week time frame or something in that zip code, so there's no meaningful deviation from those products with um, with when they're included in uh, new deals coming out of the platform and then from a back to base perspective, I mean, depends on what the, what the specific product or company is, but those are usually fairly quick time to value. In terms of the client buying those client within the client base, buying those and being able to get them live on them. Um, and there's, you know, depending on what it is. I mean, a lot of times there's there's fairly limited implementation
So I think that's that's what we've seen so far. Um,
Speaker #7: follow-up. Yeah.
Ryan Glenn: Yeah. So taking that apart to me, I think when we're talking about the addition of those solutions to new clients that are coming onto the platform, the sales cycles are right in line with what we would have typically seen from our average client size. I mean, that could be in the 30- to 45-day window for the heart of our market and go-live times in the 4- to 6-week timeframe or something in that zip code. So there's no meaningful deviation from those products when they're included in new deals coming onto the platform. And then from a back-to-base perspective, I mean, it depends on what the specific product or company is. But those are usually fairly quick time-to-value in terms of a client buying those, client within the client base buying those, and being able to get them live on them.
Toby Williams: Yeah. So taking that apart to me, I think when we're talking about the addition of those solutions to new clients that are coming onto the platform, the sales cycles are right in line with what we would have typically seen from our average client size. I mean, that could be in the 30- to 45-day window for the heart of our market and go-live times in the 4- to 6-week timeframe or something in that zip code. So there's no meaningful deviation from those products when they're included in new deals coming onto the platform. And then from a back-to-base perspective, I mean, it depends on what the specific product or company is. But those are usually fairly quick time-to-value in terms of a client buying those, client within the client base buying those, and being able to get them live on them.
Speaker #3: I think, so taking that apart—I mean, I think when we're talking about the addition of those solutions to new clients that are coming onto the platform, the sales cycles are right in line with what we would have typically seen from our average client size.
remind me if there's other parts of your question that you want me to hit on. It was it was just on measuring success from the outside there, on the penetration rate of those products across the base.
Speaker #3: I mean, that could be in the 30- to 45-day window for the heart of our market. And go-live times in the four- to six-week timeframe, or something in that zip code.
Speaker #3: So there's no meaningful deviation from those products when they're included in new deals coming onto the platform. And then from a back-to-base perspective, I mean, it depends on what the specific product or company is.
Yeah. I mean, I think from a what we've always described as as targets for success for new clients, their new new products being launched is if you can get into that, 10 to 20% uh penetration rate over a you know 3 4 5 year period of time and I don't think it's any different from those. I think we're on track to get to those um those milestones.
Speaker #3: But those are usually fairly quick time to value, in terms of a client buying those—a client within the client base buying those—and being able to get them live on them.
Speaker #3: And there's depending on what it is. I mean, a lot of times there's fairly limited implementation. So I mean, I think that's what we've seen so far.
Ryan Glenn: Depending on what it is, I mean, a lot of times, there's fairly limited implementation. So I mean, I think that's what we've seen so far. Remind me if there's other parts of your question that you want me to hit on.
Toby Williams: Depending on what it is, I mean, a lot of times, there's fairly limited implementation. So I mean, I think that's what we've seen so far. Remind me if there's other parts of your question that you want me to hit on.
With each 1 of those products or product areas. And so, I think we're, we're really pleased with the traction that we're seeing in the path that we're on. Um, and I think what, what you see play out overall over time is our ability to continue to win, New Deals, and continue to grow our client base in a fairly consistent fashion year to year. Well, also continuing to drive our poo. So I think those are those are overall the results that that
Speaker #3: Remind me if there's other parts of your question
we really targeted on.
Speaker #3: that you want me to hit on. It was just on
John Masinon: It was just on measuring success from the outside there on the penetration rate of those products across the base.
[Analyst] (Raymond James): It was just on measuring success from the outside there on the penetration rate of those products across the base.
Speaker #7: measuring success from the outside there on the penetration rate of those products across the
Speaker #7: base. Yeah.
Ryan Glenn: Yeah. I mean, I think from what we've always described as targets for success for new clients, their new products being launched, is if you can get into that 10% to 20% penetration rate over a 3, 4, 5-year period of time. I don't think it's any different from those. I think we're on track to get to those milestones with each one of those products or product areas. So I think we're really pleased with the traction that we're seeing in the path that we're on. And I think what you see play out overall over time is our ability to continue to win new deals and continue to grow our client base in a fairly consistent fashion year to year while also continuing to drive ARPU. So I think those are overall the results that we've been really targeted on.
Toby Williams: Yeah. I mean, I think from what we've always described as targets for success for new clients, their new products being launched, is if you can get into that 10% to 20% penetration rate over a 3, 4, 5-year period of time. I don't think it's any different from those. I think we're on track to get to those milestones with each one of those products or product areas. So I think we're really pleased with the traction that we're seeing in the path that we're on. And I think what you see play out overall over time is our ability to continue to win new deals and continue to grow our client base in a fairly consistent fashion year to year while also continuing to drive ARPU. So I think those are overall the results that we've been really targeted on.
Speaker #3: I mean, I think from a what we've always described as targets for success for new clients, their new products being launched, is if you can get into that 10 to 20 percent penetration rate over a three, four, or five-year period of time.
Okay. Thanks. That really helpful color there and then with the announced, uh, consolidation in the industry just can you share any impact that consolidation is having on Pipeline, win rates or go to market efficiency? The execution seems really good but just trying to get at what extent you're maybe benefiting as competitors are are navigating that m&a activity. Thanks.
Speaker #3: And I don't think it's any different from those. I think we're on track to get to those milestones with each one of those products or product areas.
Yeah, I mean again some of the attribution is is challenging probably but I think overall the execution I you know I appreciate your comment. I think the execution has been very good uh across both our
Speaker #3: And so, I think we're really pleased with the traction that we're seeing and the path that we're on. And I think what you see play out overall over time is our ability to continue to win new deals and continue to grow our client base in a fairly consistent fashion year to year, while also continuing to drive our pool.
Speaker #3: So I think those are, overall, the results that we've been really targeted on.
Speaker #7: Okay. Thanks. A really helpful color there. And then with the announced consolidation in the industry, just can you share any impact the consolidation's having on pipeline, win rates, or go-to-market efficiency, the execution seems really good.
John Masinon: Okay. Thanks. A really helpful color there. And then with the announced consolidation in the industry, just can you share any impact the consolidation's having on pipeline, win rates, or go-to-market efficiency? The execution seems really good. But just trying to get at what extent you're maybe benefiting as competitors are navigating that M&A activity. Thanks.
[Analyst] (Raymond James): Okay. Thanks. A really helpful color there. And then with the announced consolidation in the industry, just can you share any impact the consolidation's having on pipeline, win rates, or go-to-market efficiency? The execution seems really good. But just trying to get at what extent you're maybe benefiting as competitors are navigating that M&A activity. Thanks.
Sales and Ops teams in particular and I think you know we see momentum in the business coming through selling season and you know, I think January same thing. I mean we saw momentum with new deals coming out of the platform. So, you know, overall I think the business is executed, well I think our go to market and Ops teams have executed well and you know, I think overall that's what we're really focused on to the extent that there's disruption in the market because of you know, 1 company or another um going through an m&a transaction. And yeah, I think we
Speaker #7: But just trying to get at to what extent you're maybe benefiting as competitors or navigating that M&A activity.
When ready to perform for our clients and perform for the prospects that we're bringing on to the platform. And I think if we can, um, if we
Can maintain that. Focus if
Speaker #7: Thanks. Yeah.
Ryan Glenn: Yeah. I mean, again, some of the attribution is challenging probably. But I think overall, the execution, yeah, I appreciate your comment. I think the execution has been very good across both our sales and ops teams in particular. And I think we see momentum in the business coming through selling season. And I think January, same thing. I mean, we saw momentum with new deals coming onto the platform. So I mean, overall, I think the business has executed well. I think our go-to-market and ops teams have executed well. And I think overall, that's what we're really focused on to the extent that there's disruption in the market because of one company or another going through an M&A transaction. And I think we stand ready to perform for our clients and perform for the prospects that we're bringing onto the platform.
Toby Williams: Yeah. I mean, again, some of the attribution is challenging probably. But I think overall, the execution, yeah, I appreciate your comment. I think the execution has been very good across both our sales and ops teams in particular. And I think we see momentum in the business coming through selling season. And I think January, same thing. I mean, we saw momentum with new deals coming onto the platform. So I mean, overall, I think the business has executed well. I think our go-to-market and ops teams have executed well. And I think overall, that's what we're really focused on to the extent that there's disruption in the market because of one company or another going through an M&A transaction. And I think we stand ready to perform for our clients and perform for the prospects that we're bringing onto the platform.
Speaker #3: I mean, again, some of the attribution is challenging, probably. But I think overall, the execution—yeah, I appreciate your comment—I think the execution has been very good across both our sales and ops teams in particular.
The case that others lose theirs will be well positioned to take advantage of that. So you know, overall just really happy with the level of focus and the execution that we had in the quarter and year to date,
thank you.
1 moment for our next question.
Speaker #3: And I think we see momentum in the business coming through selling season. And I think January same thing. I mean, we saw momentum with new deals coming onto the platform.
Speaker #3: So, I mean, overall, I think the business has executed well. I think our go-to-market and ops teams have executed well. And I think overall, that's what we're really focused on. To the extent that there's disruption in the market because of one company or another going through an M&A transaction, I think we stand ready to perform for our clients and perform for the prospects that we're bringing onto the platform.
Our next question comes from Jared Levine with TD cow and your line is open. No, thanks to start here. Can you talk about Airbase upsell progress here today versus expectations and your expectations for the second half of the year?
Yeah, I think they're right on Pace with our expectations, both through the first half of the fiscal year and from what we can see for the back half. So I mean just commented on that a few minutes ago, I think overall pretty happy with the progress that we've made. Um
Speaker #3: And I think if we can maintain that focus, if, in the case that others lose theirs, we'll be well-positioned to take advantage of that.
Ryan Glenn: I think if we can maintain that focus, if in the case that others lose theirs, we'll be well-positioned to take advantage of that. Overall, just really happy with the level of focus and the execution that we had in the quarter and year to date.
Toby Williams: I think if we can maintain that focus, if in the case that others lose theirs, we'll be well-positioned to take advantage of that. Overall, just really happy with the level of focus and the execution that we had in the quarter and year to date.
Speaker #3: So overall, just really happy with the level of focus and the execution that we had in the quarter and year to date.
You know, be 1 of the integrated solution was launched in July. So um not all that long ago but I think we're, we're pretty pleased with with what we've seen and believed that overall. I mean it's a it's a story that helps with differentiation believe that that's a meaningful. Um, meaningful area of differentiation for prospects that were pitching and I think it's been part of the part of the reason that we've had such such a successful first, half of the, the fiscal year.
Speaker #7: Thank you.
John Masinon: Thank you.
[Analyst] (Raymond James): Thank you.
Speaker #2: One moment for our next question. Our next question comes from Jared Levine with TD Cowan. Your line is open.
Operator: One moment for our next question. Our next question comes from Jared Levine with TD Cowen. Your line is open.
Operator: One moment for our next question. Our next question comes from Jared Levine with TD Cowen. Your line is open.
Jared Levine: Thanks. To start here, can you talk about Airbase upsell progress year to date versus expectations and your expectations for the second half of the year here?
Jared Levine: Thanks. To start here, can you talk about Airbase upsell progress year to date versus expectations and your expectations for the second half of the year here?
Speaker #7: Thanks. To start here, can you talk about air-based upsell progress year to date versus expectations and your expectations for the second half of the year
Speaker #7: here? Yeah.
About passing through all the beat with the prior print. But just with this uh, what would you call out here?
Ryan Glenn: Yeah. I think they're right on pace with our expectations both through the first half of the fiscal year and from what we can see for the back half. So I mean, just commented on that a few minutes ago. I think overall, pretty happy with the progress that we've made. V1 of the integrated solution was launched in July, so not all that long ago. But I think we're pretty pleased with what we've seen and believe that overall, I mean, it's a story that helps with differentiation, believe that that's a meaningful area of differentiation for prospects that we're pitching. And I think it's been part of the reason that we've had such a successful first half of the fiscal year.
Toby Williams: Yeah. I think they're right on pace with our expectations both through the first half of the fiscal year and from what we can see for the back half. So I mean, just commented on that a few minutes ago. I think overall, pretty happy with the progress that we've made. V1 of the integrated solution was launched in July, so not all that long ago. But I think we're pretty pleased with what we've seen and believe that overall, I mean, it's a story that helps with differentiation, believe that that's a meaningful area of differentiation for prospects that we're pitching. And I think it's been part of the reason that we've had such a successful first half of the fiscal year.
Speaker #3: I think they're right on pace with our expectations, both through the first half of the fiscal year and from what we can see for the back half.
The year Annie August earnings call.
Speaker #3: So, I mean, just commented on that a few minutes ago. I think, overall, pretty happy with the progress that we've made. B1, one of the integrated solutions, was launched in July.
Speaker #3: So, not all that long ago. But I think we're pretty pleased with what we've seen and believe that, overall, I mean, it's a story that helps with differentiation.
Speaker #3: I believe that that's a meaningful area of differentiation for prospects that we're pitching, and I think it's been part of the reason that we've had such a successful first half of the fiscal.
Speaker #3: year. Got it.
John Masinon: Got it. And then Ryan, for follow-up here, in terms of the Adjusted EBITDA guide, you didn't pass through all the Q2 here. Anything to call out in terms of timing? Because I think there was a similar dynamic with Q1, there was some timing callout in terms of not passing through all of the B with the prior print. But just with this print, what would you call out here?
Jared Levine: Got it. And then Ryan, for follow-up here, in terms of the Adjusted EBITDA guide, you didn't pass through all the Q2 here. Anything to call out in terms of timing? Because I think there was a similar dynamic with Q1, there was some timing callout in terms of not passing through all of the B with the prior print. But just with this print, what would you call out here?
Speaker #7: And then, Ryan, for follow-up here—in terms of the adjusted EBITDA guide—you did pass through all the Q2 guide here. Anything to call out in terms of timing?
Speaker #7: Because I think there was a similar dynamic with 1Q. There was some timing callout in terms of not passing through all of the B with the prior print.
Speaker #7: But just with this print, what would you call out
Speaker #7: here? Yeah.
Speaker #7: here? Yeah.
Ryan Glenn: Yeah. I mean, I think as we set up the year on the August earnings call, I think the context we provided is if you look back for the last 24 months specific to Adjusted EBITDA, we have driven several hundred basis points of leverage, definitely ahead of where we would have expected to be, and have been really happy with those results. As we guided in August and have now updated in November and here in February, we've increased margin each quarter. The bias, I think, is to continue to drive some reinvestment back into the business. You're seeing us reinvest some of those dollars back into R&D, back into sales and marketing because, as you've heard on the call, we feel really good about the progress in each of those teams.
Ryan Glenn: Yeah. I mean, I think as we set up the year on the August earnings call, I think the context we provided is if you look back for the last 24 months specific to Adjusted EBITDA, we have driven several hundred basis points of leverage, definitely ahead of where we would have expected to be, and have been really happy with those results. As we guided in August and have now updated in November and here in February, we've increased margin each quarter. The bias, I think, is to continue to drive some reinvestment back into the business. You're seeing us reinvest some of those dollars back into R&D, back into sales and marketing because, as you've heard on the call, we feel really good about the progress in each of those teams.
Speaker #3: I mean, I think as we set up the year on the August earnings call, I think the context we provided is if you look back to the last 24 months specific to adjusted EBITDA, we have driven several hundred basis points of leverage definitely ahead of where we would have expected to be and have been really happy with those results.
I provided is, if you look back to the last 24 months specific to adjust the debit, we have driven several hundred basis points of of Leverage, uh, definitely ahead of where we would have expected to be and have been really happy with those results and, you know, as as we guided in August and have now updated in November, uh, and here in February, we've increased margin each quarter. But the, the bias I think is to continue to drive some reinvestment back into the business. So you're seeing us, uh, reinvest some of those dollars back into R&D back into to sales and marketing. Because, as you've heard on the call, we feel really good about the progress in each of those teams. And, and we want to reinvest, uh, in upside that will drive continued growth in the back half of this year and now to 27. So I think that's the context and that is how we're operating this year. Um, obviously you are seeing outsized uh performance from a free cash flow standpoint as as we've talked about. So um, that is not something that we have historically guided to. But when you think about free cash flow specifically in the updated Target of 25 to 30% free cash flow margin.
Speaker #3: And as we guided in August, and have now updated in November and here in February, we've increased margin each quarter. But the bias, I think, is to continue to drive some reinvestment back into the business.
Against a TTM, number of 24%, we are quickly moving, uh, to the high end of the prior range and and not too far away from the updated range. So continue to believe like we have the ability to to balance reinvestment. But also continue to take margins up on a multi-year basis.
Great. Thank you.
1 moment for our next question.
Speaker #3: So you're seeing us reinvest some of those dollars back into R&D, back into sales and marketing because as you've heard on the call, we feel really good about the progress in each of those teams.
Our next question comes from rainbow linshaw with Barclays, your line is open.
Speaker #3: And we want to reinvest in upside that will drive continued growth in the back half of this year and on to '27. So I think that's the context.
Ryan Glenn: We want to reinvest in upside that will drive continued growth in the back half of this year and on to 2027. So I think that's the context, and that is how we're operating this year. Obviously, you are seeing outsized performance from a free cash flow standpoint as we've talked about. So that is not something that we have historically guided to. But when you think about free cash flow specifically and the updated target of 25% to 30% free cash flow margin against a TTM number of 24%, we are quickly moving to the high end of the prior range and not too far away from the updated range. So continue to believe we have the ability to balance reinvestment but also continue to take margins up on a multi-year basis.
Ryan Glenn: We want to reinvest in upside that will drive continued growth in the back half of this year and on to 2027. So I think that's the context, and that is how we're operating this year. Obviously, you are seeing outsized performance from a free cash flow standpoint as we've talked about. So that is not something that we have historically guided to. But when you think about free cash flow specifically and the updated target of 25% to 30% free cash flow margin against a TTM number of 24%, we are quickly moving to the high end of the prior range and not too far away from the updated range. So continue to believe we have the ability to balance reinvestment but also continue to take margins up on a multi-year basis.
Hi, this is Shel McMahon's on for Rhino. Uh thanks for taking the question and I just have 1 here.
Speaker #3: And that is how we're operating this year. Obviously, you are seeing outsized performance from a free cash flow standpoint as we've talked about. So that is not something that we have historically guided to.
Speaker #3: But when you think about free cash flow specifically in the updated target of 25% to 30% free cash flow margin, against a TTM number of 24%, we are quickly moving to the high end of the prior range.
Speaker #3: And not too far away from the updated range. So, continue to believe we have the ability to balance reinvestment but also continue to take margins up on a multi-year basis.
Speaker #3: basis.
Speaker #7: Great. Thank
John Masinon: Great. Thank you.
Jared Levine: Great. Thank you.
Speaker #7: you. One
Operator: One moment for our next question. Our next question comes from Raimo Lenschow with Barclays. Your line is open.
Operator: One moment for our next question. Our next question comes from Raimo Lenschow with Barclays. Your line is open.
Speaker #2: Moment for our next question. Our next question comes from Rainbow Lenshaw with Barclays. Your line is open.
Speaker #8: Hi, this is Shawn McMahon for Rainbow. Thanks for taking the question. I just have one here. The perceived AI risk in the market has been brought up multiple times on the call.
Sean McMahon: Hi. This is Sean McMahon for Raimo. Thanks for taking the question. I just have one here. The perceived AI risks in the market have been brought up multiple times on the call. As you mentioned, things are relatively stable for you. However, we're seeing announcements from AI companies that are moving software stocks significantly. To that point, could you speak a little bit more to some of the specific ideas on why AI advancements are not as big of a risk for your company compared to what maybe some of the recent price action may suggest? You talked about the moat on your service org. Are there a couple other areas you could point out to? For example, the banking relationships and payment rails are not. You can't just code something like that.
Sean McMahon: Hi. This is Sean McMahon for Raimo. Thanks for taking the question. I just have one here. The perceived AI risks in the market have been brought up multiple times on the call. As you mentioned, things are relatively stable for you. However, we're seeing announcements from AI companies that are moving software stocks significantly. To that point, could you speak a little bit more to some of the specific ideas on why AI advancements are not as big of a risk for your company compared to what maybe some of the recent price action may suggest? You talked about the moat on your service org. Are there a couple other areas you could point out to? For example, the banking relationships and payment rails are not. You can't just code something like that.
Uh, the perceived AI risk in the market have been brought up multiple times on the call. And as you mentioned, things are relatively stable for you. How, however, we're seeing announcements from AI companies that are moving software, stocks significantly. And, and to that point, we need to speak a little bit more to some of the specific ideas on why AI advancements are not as big of a risk for your company, compared to what, um, you know, maybe some of the recent price action may suggest and you you talked about the motor on your service org. And um, you know, are there a couple other areas you could point out to, um, for example, the the banking relationships and payment rails are not if you can't buy code, something like that. Um, payroll companies need a certain scale on the from a balance sheet perspective on the float side or that simply you know just throwing a bunch of expensive gpus at a at a payroll run, just isn't efficient and doesn't make sense. And yeah, as I mentioned, you touch upon this um already but I I think we need some more handholding here.
Speaker #8: And as you mentioned, things are relatively stable for you. However, we're seeing announcements from AI companies that are moving software stocks significantly. And to that point, could you speak a little bit more to some of the specific ideas on why AI advancements are not as big of a risk for your company compared to what maybe some of the recent price action may suggest?
Speaker #8: And you talked about the motor on your service org, and are there a couple other areas you could point out too? For example, the banking relationships and payment rails are not—you can't buy code—something like that.
Speaker #8: Payroll companies need a certain scale on the from a balance sheet perspective on the float side. Or that simply just throwing a bunch of expensive GPUs at a payroll run just isn't efficient and doesn't make sense.
Sean McMahon: Payroll companies need a certain scale from a balance sheet perspective on the float side. Or that simply just throwing a bunch of expensive GPUs at a payroll run just isn't efficient and doesn't make sense. Yeah, as I mentioned, you touched upon this already, but I think we need some more handholding here. Thank you.
Sean McMahon: Payroll companies need a certain scale from a balance sheet perspective on the float side. Or that simply just throwing a bunch of expensive GPUs at a payroll run just isn't efficient and doesn't make sense. Yeah, as I mentioned, you touched upon this already, but I think we need some more handholding here. Thank you.
Speaker #8: And yeah, as I mentioned—you touched upon this already—but I think we need some more
Speaker #8: hand-holding here. Thank you. Sure.
Toby Williams: Sure. So I think you hit some of the points. I think let me start with I think AI can certainly improve our client experience in a number of ways, make the software easier to navigate, make the data more accessible, provide additional use cases where we have an opportunity to be able to expand our footprint and drive ARPU. All those things, I think, are opportunities in front of us. I think on the concept that some company is going to quickly kind of build a replacement product, there's challenges to that. So you mentioned one. There is a lot of interaction with the customer. So they call us. We email interaction. There's projects that we do on their behalf.
Steve Beauchamp: Sure. So I think you hit some of the points. I think let me start with I think AI can certainly improve our client experience in a number of ways, make the software easier to navigate, make the data more accessible, provide additional use cases where we have an opportunity to be able to expand our footprint and drive ARPU. All those things, I think, are opportunities in front of us. I think on the concept that some company is going to quickly kind of build a replacement product, there's challenges to that. So you mentioned one. There is a lot of interaction with the customer. So they call us. We email interaction. There's projects that we do on their behalf.
Speaker #7: So I think you hit some of the points. I think, let me start with, I think AI can certainly improve our client experience in a number of ways—make the software easier to navigate, make the data more accessible, provide additional use cases, where we have an opportunity to be able to expand our footprint and drive our POO.
Sure. So I think you hit some of the points. Um, I think let me start with. I think AI can certainly improve our client experience in a number of ways. Make the software easier to navigate make the data more accessible uh provide additional use cases. Um where you know we have an opportunity to be able to expand our footprint and drive our poo. Um all those things I think are opportunities in front of us, I think on the concept that some company is going to quickly kind of build a replacement product, there's challenges to that. Um, and so you mentioned 1, there is a lot of interaction with the customer, um, and so they call us, we email interaction. There's projects that we do on their behalf. Implementation is largely a handheld process, where we lose money on implementation, right? Um, to be able to, to bring the customer on board which well worth it when we think of how long we retain them for. So the service is absolutely an element. The other thing is there, we interface with thousands of agencies on the back end from a tax filing perspective. So locally
Speaker #7: All those things, I think, are opportunities in front of us. I think on the concept that some companies are going to quickly kind of build a replacement product, there are challenges to that.
Speaker #7: And so you mentioned one. There is a lot of interaction with the customer. And so they call us. We email interaction. There's projects that we do on their behalf, implementation is largely a handheld process where we lose money on implementation, right?
Agencies, state federal agencies, those formats change, the rules change, you're constantly changing your engine and those are all deterministic calculations. They're not something that you can do and be probably, right? Um, and they require a fair amount of investment in testing. And so another example of where AI, at least today is really not necessarily suited to be able to solve that problem mostly, um, and, and you even got into a little bit of the capital structure behind that to do that, uh, you know,
Toby Williams: Implementation is largely a handheld process where we lose money on implementation, right, to be able to bring the customer on board, which, well, worth it when we think of how long we retain them for. So the service is absolutely an element. The other thing is we interface with thousands of agencies on the back end from a tax filing perspective. So local, state, federal agencies, those formats change. The rules change. You're constantly changing your engine. And those are all deterministic calculations. They're not something that you can do and be probably right. And they require a fair amount of investment and testing. And so another example of where AI, at least today, is really not necessarily suited to be able to solve that problem most efficiently. And you've even gotten into a little bit of the capital structure behind that.
Steve Beauchamp: Implementation is largely a handheld process where we lose money on implementation, right, to be able to bring the customer on board, which, well, worth it when we think of how long we retain them for. So the service is absolutely an element. The other thing is we interface with thousands of agencies on the back end from a tax filing perspective. So local, state, federal agencies, those formats change. The rules change. You're constantly changing your engine. And those are all deterministic calculations. They're not something that you can do and be probably right. And they require a fair amount of investment and testing. And so another example of where AI, at least today, is really not necessarily suited to be able to solve that problem most efficiently. And you've even gotten into a little bit of the capital structure behind that.
Speaker #7: To be able to bring the customer on board—which, well, is worth it when we think of how long we retain them for. So the service is absolutely an element.
Speaker #7: The other thing is, we interface with thousands of agencies on the back end from a tax filing perspective. So, local agencies, state, federal agencies—those formats change.
Speaker #7: The rules change. You're constantly changing your engine. And those are all deterministic calculations. They're not something that you can do and be probably right.
Speaker #7: And they require a fair amount of investment and testing. And so, another example of where AI, at least today, is really not necessarily suited to be able to solve that problem most efficiently.
Speaker #7: And you even got into a little bit of the capital structure behind that. To do that, with an AI model, and to be able to make the capital investments, it's much easier to be able to have deterministic algorithms to get you to that answer.
Toby Williams: To do that with an AI model and to be able to make the capital investments, it's much easier to be able to have deterministic algorithms to get you to that answer. And so as we think of this in a layered approach, the service capability that we have, the fact that we've got the data from a system of record perspective that allows us to continually expand our use cases, AI making those even better, and then the fact that we're moving billions of dollars through banks and to thousands of tax agencies across, we believe, all are natural moats that we have and certainly many of our competitors have. And again, I'll just end with we see AI as a big opportunity. And we certainly see an opportunity to be able to drive utilization, make our products easier to use, even integrate broader use cases into other applications.
Steve Beauchamp: To do that with an AI model and to be able to make the capital investments, it's much easier to be able to have deterministic algorithms to get you to that answer. And so as we think of this in a layered approach, the service capability that we have, the fact that we've got the data from a system of record perspective that allows us to continually expand our use cases, AI making those even better, and then the fact that we're moving billions of dollars through banks and to thousands of tax agencies across, we believe, all are natural moats that we have and certainly many of our competitors have. And again, I'll just end with we see AI as a big opportunity. And we certainly see an opportunity to be able to drive utilization, make our products easier to use, even integrate broader use cases into other applications.
To use even integrate broader use cases into other applications. Um, and so, we're excited about that opportunity and we are, we certainly understand the nature of the question, but I think there's more complexity behind the scenes, um, in our business,
Um, very clear. Thank you.
Speaker #7: And so, as we think of this in a layered approach, the service capability that we have, the fact that we've got the data from a system of record perspective that allows us to continually expand our use cases, AI making those even better, and then the fact that we're moving billions of dollars through banks and to thousands of tax agencies across—we believe all are natural moats that we have, and certainly many of our competitors have. And again, I'll just end with: we see AI as a big opportunity.
1 more for our next question.
Our next question comes from, Patrick Wall Ravens with citizens, your line is open.
Great. Thanks for taking the question. This is Austin Cole on for Pat.
Um, a lot of questions here have been asked, I wanted to ask uh, 2 on the new, the new offerings in HCM, maybe, uh, rewards and recognitions. Um, and some of the other offerings there. What what, what is kind of the
Speaker #7: And we certainly see an opportunity to be able to drive utilization, make our products easier to use, and even integrate broader use cases into other applications.
Upsell, um, motion. Um
Uh H, how is that performed recently? And and um and what's the opportunity around? Uh some of those new offerings.
Speaker #7: And so we're excited about that opportunity, and we certainly understand the nature of the question. But I think there's more complexity behind the scenes in our business.
Toby Williams: And so we're excited about that opportunity. We certainly understand the nature of the question, but I think there's more complexity behind the scenes in our business.
Steve Beauchamp: And so we're excited about that opportunity. We certainly understand the nature of the question, but I think there's more complexity behind the scenes in our business.
Sean McMahon: Very clear. Thank you.
Sean McMahon: Very clear. Thank you.
Speaker #8: you. Very clear. Thank
Speaker #2: One moment for our next
Operator: One moment for our next question. Our next question comes from Patrick Walravens with Citizens. Your line is open.
Operator: One moment for our next question. Our next question comes from Patrick Walravens with Citizens. Your line is open.
Speaker #2: Our next question comes from Patrick Walravens with Citizens. Your line is open.
Austin Cole: Great. Thanks for taking the question. This is Austin Cole on for Pat. A lot of questions here have been asked. I want to ask two on the new offerings in HCM, maybe rewards and recognitions and some of the other offerings there. What is kind of the upsell motion? How has that performed recently, and what's the opportunity around some of those new offerings?
Austin Cole: Great. Thanks for taking the question. This is Austin Cole on for Pat. A lot of questions here have been asked. I want to ask two on the new offerings in HCM, maybe rewards and recognitions and some of the other offerings there. What is kind of the upsell motion? How has that performed recently, and what's the opportunity around some of those new offerings?
Speaker #8: Great, thanks for taking the question. This is Austin Colon for Pat. A lot of questions here have been asked. I want to ask two on the new offerings in HCM—maybe rewards and recognitions, and some of the other offerings there.
Yeah, I think Toby summarized it. I think best if you look at our historical formula and average revenue per customer growth versus unit growth, you know, those have moved a little bit year by year. Um, but we've been fairly consistent on a year-over-year basis, where unit growth is and so you can see we're getting broader product adoption across the board. That's really driving that incremental difference, in terms of, you know, our uni growth versus our overall Revenue growth and I would not call out a singular product.
Speaker #8: What is kind of the upsell motion? How is that performed recently? And what's the opportunity around some of those new—
Speaker #8: offerings? Yeah.
Toby Williams: Yeah. I think Toby summarized it. I think best if you look at our historical formula and average revenue per customer growth versus unit growth, those have moved a little bit year by year. But we've been fairly consistent on a year-over-year basis where unit growth is. And so you can see we're getting broader product adoption across the board that's really driving that incremental difference in terms of our unit growth versus our overall revenue growth. And I would not call out a singular product. I think to be able to move the needle at our size and scale, our goal is we want to get to 10 or 20% penetration for early products, things like Reward and Recognition. And then we want to move that to 30 and 40%. And then you've got products in our portfolio where we're seeing 70 and 80% adoption.
Steve Beauchamp: Yeah. I think Toby summarized it. I think best if you look at our historical formula and average revenue per customer growth versus unit growth, those have moved a little bit year by year. But we've been fairly consistent on a year-over-year basis where unit growth is. And so you can see we're getting broader product adoption across the board that's really driving that incremental difference in terms of our unit growth versus our overall revenue growth. And I would not call out a singular product. I think to be able to move the needle at our size and scale, our goal is we want to get to 10 or 20% penetration for early products, things like Reward and Recognition. And then we want to move that to 30 and 40%. And then you've got products in our portfolio where we're seeing 70 and 80% adoption.
Speaker #4: I think Toby summarized it. I think best if you look at our historical formula growth versus unit growth, those have moved a little bit year by year.
Speaker #4: But we've been fairly consistent on a year-over-year basis where unit growth is. And so you can see we're getting broader product adoption across the board that's really driving that incremental difference in terms of our unit growth versus our overall revenue growth.
I think to be able to move the needle at our size and scale, you know, our goal is, you know, we want to get to 10 or 20% penetration for early products, things like reward and recognition and then we want to move that to 30 and 40 and then you've got products in our portfolio where we're seeing 70 and 80% adoption. And for those products we think about what's the opportunity to be able to potentially add, you know, plus offerings or get more value um from product enhancements that allow us to be able to continue to increase that average revenue per customer from those modules. So we see a ton of opportunity within the HCM category. Those continue to be probably because they're generally bigger and been around longer the bigger driver today. And then you've got earlier in that in that, you know, product portfolio. Things like it and finance still being relatively small, but off to a really good start. And so, I think we're really happy with seeing our product strategy resonate in the market and see the adoption across our client base.
Speaker #4: And I would not call out a singular product. I think to be able to move the needle at our size and scale, our goal is we want to get to 10 or 20 percent penetration for early products, things like reward and recognition.
Speaker #4: And then we want to move that to 30 and 40 percent. And then you've got products in our portfolio where we're seeing 70 and 80 percent adoption.
Speaker #4: And for those products, we think about what's the opportunity to be able to potentially add Plus offerings or get more value from product enhancements that allow us to be able to continue to increase that average revenue per customer from those modules.
Toby Williams: For those products, we think about what's the opportunity to be able to potentially add plus offerings or get more value from product enhancements that allow us to be able to continue to increase that average revenue per customer from those modules. So we see a ton of opportunity within the HCM category. Those continue to be probably because they're generally bigger and been around longer, the bigger driver today. And then you've got earlier in that product portfolio, things like IT and finance, still being relatively small but off to a really good start. And so I think we're really happy with seeing our product strategy resonate in the market and see the adoption across our client base.
Steve Beauchamp: For those products, we think about what's the opportunity to be able to potentially add plus offerings or get more value from product enhancements that allow us to be able to continue to increase that average revenue per customer from those modules. So we see a ton of opportunity within the HCM category. Those continue to be probably because they're generally bigger and been around longer, the bigger driver today. And then you've got earlier in that product portfolio, things like IT and finance, still being relatively small but off to a really good start. And so I think we're really happy with seeing our product strategy resonate in the market and see the adoption across our client base.
Great. And then just as a quick follow-up. Um, there's a comment made about the the AI system. Uh, monthly usage, increasing 100% core over recorder. How should we think about that that metric and maybe how it compares to um you you guys expectations and and that um that going forward and as a catalyst for some of that upsell as well.
Speaker #4: So we see a ton of opportunity within the HCM category. Those continue to be probably because they're generally bigger and been around longer, the bigger driver today.
Speaker #4: And then you've got earlier in that product portfolio, things like IT and finance still being relatively small but off to a really good start.
Speaker #4: And so I think we're really happy with seeing our product strategy resonate in the market and see the adoption across our client base.
Speaker #7: Great. And then just as a quick follow-up, there's a comment made about the AI assistant monthly usage increasing 100 percent quarter over quarter. How should we think about that metric, and maybe how it compares to your guys' expectations and that going forward, and as a catalyst for some of that?
Austin Cole: Great. And then just as a quick follow-up, there was a comment made about the AI assistant monthly usage increasing 100% quarter-over-quarter. How should we think about that metric, and maybe how it compares to your guys' expectations, and that going forward and as a catalyst for some of that upsell as well?
Austin Cole: Great. And then just as a quick follow-up, there was a comment made about the AI assistant monthly usage increasing 100% quarter-over-quarter. How should we think about that metric, and maybe how it compares to your guys' expectations, and that going forward and as a catalyst for some of that upsell as well?
Speaker #7: upsell as well? Yeah.
Toby Williams: Yeah. So our strategy is to continue to embed AI across the suite, really adding additional use cases, increasing flexibility, and making the assistant more powerful over time. So certainly, part of that utilization increase is the features that we've added. We talked about the policies and procedures. We talked about third-party content, whether that's Department of Labor, IRS, or state websites, and really helping our clients not only answer their questions but, in many cases, save them time by answering a bunch of their employee questions. And so that's been really positive.
Steve Beauchamp: Yeah. So our strategy is to continue to embed AI across the suite, really adding additional use cases, increasing flexibility, and making the assistant more powerful over time. So certainly, part of that utilization increase is the features that we've added. We talked about the policies and procedures. We talked about third-party content, whether that's Department of Labor, IRS, or state websites, and really helping our clients not only answer their questions but, in many cases, save them time by answering a bunch of their employee questions. And so that's been really positive.
Speaker #4: So our strategy is to continue to embed AI across the suite, really flexibility, and making the assistant more powerful over time. So certainly, part of that is adding additional use cases, increasing utilization, increases in the features that we've added.
Yeah, so you know, our strategy is to continue to embed AI across the suite. Really adding additional use cases, increasing flexibility and making the assistant, you know, more powerful over time. So, certainly part of that utilization increase is the features that we've added, we talked about, you know, the policies and procedures. We talked about third-party content, whether that's Department of Labor IRS, or state websites. Um, and, and really helping our clients, not only answer their questions, but in many cases, save them time by answering a bunch of their employee questions. And so that's been really positive. We see an opportunity to continue um investing in AI, adding additional use cases and really driving agents experiences that are going to really embed, multi-step processes into single clicks, that's going to be able to drive insights and anticipate. What their next steps are going to be all of which is part of our goal, which is to be able to save our customers time so that they can, you know, really spend time with with people, uh, versus spend time on administ.
Speaker #4: We talked about the policies and procedures. We talked about third-party content, whether that's Department of Labor, IRS, or state websites. And really helping our clients not only answer their questions but, in many cases, save them time by answering a bunch of their employee questions.
Of tasks. And so, um, we're really, really happy with where we are, how that's really resonated with our customers and we would anticipate that, you know, that single kind of text box interaction that you see in AI assistant is going to allow customers to do an increasing number of things over time.
Great. Thank you.
1 moment for our next question.
Speaker #4: And so that's been really positive. We see an opportunity to continue investing in AI, adding additional use cases, and really driving agents’ experiences that are going to really embed multi-step processes into single clicks—that's going to be able to drive insights and anticipate what their next steps are going to be.
Our next question comes from Jason Selena with keybanc capital markets, your line is open.
Toby Williams: We see an opportunity to continue investing in AI, adding additional use cases, and really driving agent experiences that are going to really embed multi-step processes into single clicks. That's going to be able to drive insights and anticipate what their next steps are going to be, all of which is part of our goal, which is to be able to save our customers' time so that they can really spend time with people versus spend time on administrative tasks. And so we're really happy with where we are, how that's really resonated with our customers. And we would anticipate that single kind of textbox interaction that you see in AI assistant is going to allow customers to do an increasing number of things over time.
Steve Beauchamp: We see an opportunity to continue investing in AI, adding additional use cases, and really driving agent experiences that are going to really embed multi-step processes into single clicks. That's going to be able to drive insights and anticipate what their next steps are going to be, all of which is part of our goal, which is to be able to save our customers' time so that they can really spend time with people versus spend time on administrative tasks. And so we're really happy with where we are, how that's really resonated with our customers. And we would anticipate that single kind of textbox interaction that you see in AI assistant is going to allow customers to do an increasing number of things over time.
Great. Thanks for taking my questions. This is Zayn mihan on for Jason seleno. Uh just 2 quick ones for me. Um 1 of your peers noted that they had been seeing you know, slightly smaller lands.
Speaker #4: All of which is part of our goal, which is to be able to save our customers' time so that they can really spend time with people, versus spend time on administrative tasks.
or, uh, just the initial lands for for new customers, maybe due to, you know, macro or increase budget scrutiny,
Set anything you saw in the quarter, anything new there.
No.
Speaker #4: And so we're really happy with where we are, how that's really resonated with our customers. And we would anticipate that single kind of text box interaction that you see in AI assistant is going to allow customers to do an increasing number of things over time.
Speaker #4: time. Great.
Difference that we've seen from that standpoint.
Austin Cole: Great. Thank you.
Austin Cole: Great. Thank you.
Speaker #7: Thank you.
Speaker #2: One moment for our next question. Our next question comes from Jason Zelina with KeyBanc Capital Markets. Your line is open.
Operator: One moment for our next question. Our next question comes from Jason Celino with KeyBank Capital Markets. Your line is open.
Operator: One moment for our next question. Our next question comes from Jason Celino with KeyBank Capital Markets. Your line is open.
Okay, great, good to hear. Um, secondly, I believe last year, second quarter, you noted, um, seeing a little bit of pull forward.
Speaker #8: Great, thanks for taking my questions. This is Zane Mehan on for Jason Zelino. Just two quick ones for me. One of your peers noted that they had been seeing slightly smaller lands for just the initial lands for new customers, maybe due to macro or increased budget scrutiny.
Zane Meehan: Great. Thanks for taking my questions. This is Zane Meehan on for Jason Celino. Just two quick ones from me. One of your peers noted that they had been seeing slightly smaller lands or just the initial lands for new customers, maybe due to macro or increased budget scrutiny. Is that anything you saw in the quarter, anything new there?
Zane Meehan: Great. Thanks for taking my questions. This is Zane Meehan on for Jason Celino. Just two quick ones from me. One of your peers noted that they had been seeing slightly smaller lands or just the initial lands for new customers, maybe due to macro or increased budget scrutiny. Is that anything you saw in the quarter, anything new there?
Is that any that Dynamic reoccur, this quarter, um, anything that might have pushed or pulled out of the quarter?
No, I don't think we saw anything this quarter. And what we mentioned last year was
Extraordinarily small, which we noted at the time.
Great. Appreciate it. Thank you.
1 moment for our next question.
Speaker #8: Is that anything you saw in the quarter? Anything new there?
Our next question comes from Steve Anders with City. Your line is open.
Speaker #4: No, we haven't seen that at all. I think we've seen a huge amount of consistency from a go-to-market standpoint, and new business being brought in during selling season.
Ryan Glenn: No. We haven't seen that at all. I think we've seen a huge amount of consistency from a go-to-market standpoint and new business being brought in during selling season. Really happy with the performance that we've seen there. I wouldn't call out any difference that we've seen from that standpoint.
Toby Williams: No. We haven't seen that at all. I think we've seen a huge amount of consistency from a go-to-market standpoint and new business being brought in during selling season. Really happy with the performance that we've seen there. I wouldn't call out any difference that we've seen from that standpoint.
Speaker #4: And really happy with the performance that we've seen there. And I wouldn't call out any difference that we've seen from that
Uh, all right, great. Thanks for um things like in the questions here. I guess just to start. Um, sounds like you had a good strong selling season. I guess. What are you seeing kind of in the forward?
Speaker #4: standpoint. Okay.
Zane Meehan: Okay. Great. Good to hear. And secondly, I believe last year, Q2, you noted seeing a little bit of pull forward. Does that dynamic reoccur this quarter? Just anything that might have pushed or pulled out of the quarter?
Zane Meehan: Okay. Great. Good to hear. And secondly, I believe last year, Q2, you noted seeing a little bit of pull forward. Does that dynamic reoccur this quarter? Just anything that might have pushed or pulled out of the quarter?
Speaker #7: Great. Good to hear. And secondly, I believe last year, second quarter, you noted seeing a little bit of pull forward. Is that any dynamic reoccur this quarter?
Forward Pipeline. And and maybe how we're kind of the, uh, new employment request or kind of the other forward leading indicators kind of looking for for pipeline development.
Yeah, I think they've been really stable. So I mean, I think, you know, going going back to Prior comments. I mean, really, really happy with the team's execution from a
Speaker #7: Anything that might have pushed or pulled out of the
Speaker #7: quarter? No.
Ryan Glenn: No. I don't think we saw anything this quarter. What we mentioned last year was extraordinarily small, which we noted at the time.
Toby Williams: No. I don't think we saw anything this quarter. What we mentioned last year was extraordinarily small, which we noted at the time.
Speaker #4: I don't think we saw anything this quarter in what we mentioned last year noted at the—
Speaker #4: time. Great.
Zane Meehan: Great. Appreciate it. Thank you.
Zane Meehan: Great. Appreciate it. Thank you.
Speaker #7: Appreciate it. Thank you.
Operator: One moment for our next question. Our next question comes from Steve Enders with Citi. Your line is open.
Operator: One moment for our next question. Our next question comes from Steve Enders with Citi. Your line is open.
Speaker #2: One moment for our next question. Our next question comes from Steve Enders with Citi. Your line is open.
Speaker #3: All right. Great. Thanks for taking the questions here. I guess just to start, it sounds like you had a good, strong selling season. I guess what are you seeing kind of in the forward pipeline and maybe how are kind of the new appointment requests or kind of the other forward-leaning indicators kind of looking for pipeline
Steve Enders: All right. Great. Thanks for getting the questions here. I guess just to start, it sounds like you had a good, strong selling season. I guess what are you seeing kind of in the forward pipeline? And maybe how are kind of the new appointment requests or kind of the other forward-leading indicators kind of looking for pipeline development?
Steve Enders: All right. Great. Thanks for getting the questions here. I guess just to start, it sounds like you had a good, strong selling season. I guess what are you seeing kind of in the forward pipeline? And maybe how are kind of the new appointment requests or kind of the other forward-leading indicators kind of looking for pipeline development?
From a go to market sales perspective in q1 and then through selling season, I think we've seen the demand environment maintain uh, as stable. And, you know, there's nothing that I would really call out in terms of changes there and I think that's also. So I think that that is a big part of what allowed us to over-perform uh, relative to expectations for both Q2 and the first half. And, you know, I think that's also what gives us the confidence um, to carry that through from a raise perspective on the year. And, you know, I think to your question on activity and pipelining, I mean, I think that's that, that that is all our confidence in that carrying forward from selling season is also what gives us the ability to take the Europe? So I think we feel pretty good in that respect.
Speaker #3: development?
Okay, great. And then, um, just on the on the broker Channel.
Ryan Glenn: Yeah. I think they've been really stable. So I mean, I think going back to prior comments, I mean, really, really happy with the team's execution from a go-to-market sales perspective in Q1 and then through selling season. I think we've seen the demand environment maintain as stable. And there's nothing that I would really call out in terms of changes there. And I think that's also so I think that is a big part of what allowed us to overperform relative to expectations for both Q2 and the first half. And I think that's also what gives us the confidence to carry that through from a raise perspective on the year. And I think to your question on activity and pipelining, I mean, I think that is all our confidence in that carrying forward from selling season is also what gives us the ability to take the year up.
Toby Williams: Yeah. I think they've been really stable. So I mean, I think going back to prior comments, I mean, really, really happy with the team's execution from a go-to-market sales perspective in Q1 and then through selling season. I think we've seen the demand environment maintain as stable. And there's nothing that I would really call out in terms of changes there. And I think that's also so I think that is a big part of what allowed us to overperform relative to expectations for both Q2 and the first half. And I think that's also what gives us the confidence to carry that through from a raise perspective on the year. And I think to your question on activity and pipelining, I mean, I think that is all our confidence in that carrying forward from selling season is also what gives us the ability to take the year up.
Speaker #4: I mean, I think going back to prior comments, yeah. I think they've been really stable. So, I mean, really, really happy with the team's execution from a go-to-market sales perspective in Q1 and then through the selling season.
Speaker #4: demand environment I think we've seen the maintain as stable. And there's nothing that I would really call out in terms of changes there. And I think that's also so I think that is a big part of what allowed us to overperform relative to expectations for And I think that's also what gives us the confidence to carry that through from a raise perspective on the year.
Uh side of it. Um, I guess have you seen kind of any changes in terms of uh the you know, the the number of opportunities or maybe the share of opportunities that you've been able to capture within that channel. Um, and then how does kind of the new Solutions and capabilities that you're releasing here to, to the broker side? How does that maybe impact, how you're thinking about that kind of go forward opportunity and and, and I guess how it could change the number of opportunities coming from, uh, from from the burgers.
Speaker #4: And I think, to your question on activity and pipelining, I mean, I think that is all our confidence in that carrying forward from selling season is also what gives us the ability to take the year up.
Speaker #4: So I think we feel pretty good in that respect.
Ryan Glenn: So I think we feel pretty good in that respect.
Toby Williams: So I think we feel pretty good in that respect.
Speaker #3: Okay. Great. And then just on the broker channel, side of it, I guess have you seen kind of any changes in terms of the number of opportunities or maybe the share of opportunities that you've been able to capture within that channel and then how does kind of the new solutions and capabilities that you're releasing here to the broker side, how does that maybe impact how you're thinking about that kind of go-forward opportunity and, I guess, how it could change the number of opportunities coming from the
Steve Enders: Okay. Great. And then just on the broker channel side of it, I guess have you seen kind of any changes in terms of the number of opportunities or maybe the share of opportunities that you've been able to capture within that channel? And then how does kind of the new solutions and capabilities that you're releasing here to the broker side, how does that maybe impact how you're thinking about that kind of go-forward opportunity? And I guess how it could change the number of opportunities coming from the brokers?
Steve Enders: Okay. Great. And then just on the broker channel side of it, I guess have you seen kind of any changes in terms of the number of opportunities or maybe the share of opportunities that you've been able to capture within that channel? And then how does kind of the new solutions and capabilities that you're releasing here to the broker side, how does that maybe impact how you're thinking about that kind of go-forward opportunity? And I guess how it could change the number of opportunities coming from the brokers?
Speaker #3: brokers?
Speaker #4: Yeah, I mean, I think we've—
Ryan Glenn: Yeah. I mean, I think we've always had a great relationship from a broker standpoint with that channel. It's consistently been more than 25% of our new business referred from that channel. And that continued through the course of the first half of the year and through selling season in Q2. I think we've had just directionally, I think we've had great momentum over the last year with the brokers in particular. And I think there's been some disruption from a market perspective with certain other competitors that have played in that space before. But I think we've gotten the benefit of some of that. I think we have great momentum. And I think part of that is our execution, focus, and value-added delivery to that channel. And part of that is also focus there from a product perspective. So Benefits-Guided Setup, a product that we've launched.
Toby Williams: Yeah. I mean, I think we've always had a great relationship from a broker standpoint with that channel. It's consistently been more than 25% of our new business referred from that channel. And that continued through the course of the first half of the year and through selling season in Q2. I think we've had just directionally, I think we've had great momentum over the last year with the brokers in particular. And I think there's been some disruption from a market perspective with certain other competitors that have played in that space before. But I think we've gotten the benefit of some of that. I think we have great momentum. And I think part of that is our execution, focus, and value-added delivery to that channel. And part of that is also focus there from a product perspective. So Benefits-Guided Setup, a product that we've launched.
Speaker #4: I've always had a great relationship, from a broker standpoint, with that channel. It's consistently been more than 25% of our new business referred from that channel.
Yeah, I mean, I think we, we've, we've always had a great relationship from a broker standpoint with, um, with that channel. It's consistently been more than 25% of our new business, um, uh, referred from that channel. And that continued through the course, of the first half of the year. And, and through selling season in Q2, um, I think we've had just, you know, directionally I think we've had great momentum over the last year with a brokers in particular. And I think there's been some some disruption from a market perspective with with certain other competitors that have played in that space before, but I think we've we've taken, we've, we've gotten the benefit of of some of that. I think we have great momentum and, you know, I think part of that is, is our execution and focus and value added delivery to that channel. And part of that is also, um, focused there from a product perspective. So benefit guided setups. It's a product that we've we've launched. And I think that that is certain 1, that accrues to the benefit of, uh, Brokers being able to give more help and service to their clients. So I think we, we continue to focus on that channel in every
Speaker #4: And that continued through the course of the first half of the year and through selling season in Q2. I think we've had, just directionally, I think we've had great momentum over the last year with the brokers in particular.
Respect. Whether it's from a go to market standpoint from a service standpoint being able to partner with them and service their clients and from a product perspective, launching new products that are not just useful to clients, but also helpful to the brokers
Okay. Awesome. Thanks for taking the questions here.
1 moment for our next question.
Speaker #4: And I think there's been some disruption from a market perspective with certain other competitors that have played in that space before. But I think we've gotten the benefit of some of that.
Our next question comes from Matt Van Vleet with KY, your line is open.
Speaker #4: I think we have great momentum. And I think part of that is our execution and focus, and value-added delivery to that channel. And part of that is also focus there from a product perspective.
Speaker #4: So, benefit-guided setups—a product that we've launched—and I think that is certainly one that accrues to the benefit of brokers, being able to give more help and service to their clients.
Ryan Glenn: I think that is certainly one that accrues to the benefit of brokers being able to give more help and service to their clients. I think we continue to focus on that channel in every respect, whether it's from a go-to-market standpoint, from a service standpoint, being able to partner with them and service their clients, and from a product perspective, launching new products that are not just useful to clients but also helpful to the brokers.
Toby Williams: I think that is certainly one that accrues to the benefit of brokers being able to give more help and service to their clients. I think we continue to focus on that channel in every respect, whether it's from a go-to-market standpoint, from a service standpoint, being able to partner with them and service their clients, and from a product perspective, launching new products that are not just useful to clients but also helpful to the brokers.
Yeah, good afternoon. Thanks for taking the question, um, just looking towards uh, the rest of the year and and even into fiscal, 27 curious, where you feel, you are from a sales capacity, uh, an overall Market coverage especially with the addition of um, Paylocity for for finance. And and it there and just kind of how you think you can continue to meet the demand in the market.
Speaker #4: So I think we continue to focus on that channel in every respect, whether it's from a go-to-market standpoint, from a service standpoint—being able to partner with them and service their clients—and from a product perspective, launching new products that are not just useful to clients but also helpful to the brokers.
Steve Enders: Okay. Awesome. Thanks for taking the questions here.
Steve Enders: Okay. Awesome. Thanks for taking the questions here.
Speaker #3: Okay. Awesome. Thanks for taking the questions here.
Yeah, I think overall we feel pretty good about our our coverage. I mean I think as we've said for you know, probably the last 18 months or so. We've been really focused on making sure that we have that we have adequate coverage across the opportunity set but also that we're continuing to focus on uh driving productivity across those teams. And I think we're really happy with what we've seen.
Ryan Glenn: Yep.
Toby Williams: Yep.
Speaker #2: One moment for our next Yep question. Our next question comes from Matt Van Vliet with Cantee. Your line is open.
Operator: One moment for our next question. Our next question comes from Matt Van Vliet with Cantor Fitzgerald. Your line is open.
Operator: One moment for our next question. Our next question comes from Matt Van Vliet with Cantor Fitzgerald. Your line is open.
Speaker #2: open. Yeah.
Matt Van Vliet: Yeah. Good afternoon. Thanks for taking the question. I guess looking towards the rest of the year and even into fiscal 2027, curious where you feel you are from a sales capacity and overall market coverage, especially with the addition of Paylocity for Finance and IT there, and just kind of how you think you can continue to meet the demand in the market.
Matt VanVliet: Yeah. Good afternoon. Thanks for taking the question. I guess looking towards the rest of the year and even into fiscal 2027, curious where you feel you are from a sales capacity and overall market coverage, especially with the addition of Paylocity for Finance and IT there, and just kind of how you think you can continue to meet the demand in the market.
Speaker #9: Good afternoon. Thanks for taking the question. I guess looking towards the rest of the year and even into fiscal '27, I'm curious where you feel you are from a sales capacity and overall market coverage, especially with the addition of Paylocity for finance and IT there, and just kind of how you think you can continue to meet the demand in the market.
As we're looking ahead, I feel pretty good with where we sit today. In terms of, uh, go to market investment and the productivity that we're seeing from those teams.
Speaker #4: Yeah, I think overall we feel pretty good about our coverage. I mean, I think as we've said for probably the last 18 months or so, we've been really focused on making sure that we have adequate coverage across the opportunity set, but also that we're continuing to focus on driving productivity across those teams.
Ryan Glenn: Yeah. I think overall, we feel pretty good about our coverage. I mean, I think as we've said for probably the last 18 months or so, we've been really focused on making sure that we have adequate coverage across the opportunity set but also that we're continuing to focus on driving productivity across those teams. And I think we're really happy with what we've seen so far this fiscal year from a sales productivity standpoint. And I think that's also a big part of what helped us perform well in Q2 and through selling season. And that's also a big part of, I think, what gives us confidence to take the year up for Q3 and Q4 as we're looking ahead. I feel pretty good with where we sit today in terms of go-to-market investment and the productivity that we're seeing from those teams.
Toby Williams: Yeah. I think overall, we feel pretty good about our coverage. I mean, I think as we've said for probably the last 18 months or so, we've been really focused on making sure that we have adequate coverage across the opportunity set but also that we're continuing to focus on driving productivity across those teams. And I think we're really happy with what we've seen so far this fiscal year from a sales productivity standpoint. And I think that's also a big part of what helped us perform well in Q2 and through selling season. And that's also a big part of, I think, what gives us confidence to take the year up for Q3 and Q4 as we're looking ahead. I feel pretty good with where we sit today in terms of go-to-market investment and the productivity that we're seeing from those teams.
Speaker #4: And I think we're really happy with what we've seen so far this fiscal year from a sales productivity standpoint. And I think that's also a big part of what helped us perform well in Q2 and through selling season.
And then a quick follow-up on the broker, uh, Channel. You've obviously seen better momentum there and you highlighted some disruption from competitors. But in terms of resource allocation um, you know, is is there still more to be done in terms of total brokerage, or is it now? Just, you know, kind of leaning into those that that have um, greater I guess success of, of selling through Paylocity and um, how you do that, you know, kind of how you you leverage that um, relationship there uh, and and within that have win rates gone up at all, given some of that disruption in the market,
From an execution standpoint. It's it's all of the above. I mean it's always been
Speaker #4: And that's also a big part of, I think, what gives us confidence to take the year up for quarters three and four as we're looking ahead.
And building those relationships at the ground level also managing them from a corporate perspective.
Matt Van Vliet: Then a quick follow-up on the broker channel. You've obviously seen better momentum there, and you highlighted some disruption from competitors. But in terms of resource allocation, is there still more to be done in terms of total broker coverage, or is it now just kind of leaning into those that have greater, I guess, success of selling through Paylocity? And how you do that, kind of how you leverage that relationship there. And within that, have win rates gone up at all given some of that disruption in the market?
Matt VanVliet: Then a quick follow-up on the broker channel. You've obviously seen better momentum there, and you highlighted some disruption from competitors. But in terms of resource allocation, is there still more to be done in terms of total broker coverage, or is it now just kind of leaning into those that have greater, I guess, success of selling through Paylocity? And how you do that, kind of how you leverage that relationship there. And within that, have win rates gone up at all given some of that disruption in the market?
A lot of that, a lot of that work is in a lot of the partnership and a lot of that success is driven in the field with and through our reps. And I think it is just it, it is continuing to drive that Focus from an execution standpoint. It's continuing to invest in the things that the Brokers, find the most value in. That's in part the relationship in the field that is in part.
Ryan Glenn: Well, I think from an execution standpoint, it's all of the above. I mean, it's always been an important part of our selling motion. It's an important part of the selling motion in the field with our reps and building those relationships at the ground level, also managing them from a corporate perspective. But a lot of that work and a lot of the partnership and a lot of that success is driven in the field with and through our reps. I think it is just continuing to drive that focus from an execution standpoint. It's continuing to invest in the things that the brokers find the most value in. That's in part the relationship in the field. That is in part the service that we provide to our client, to our mutual clients, and the clients they refer to us.
Toby Williams: Well, I think from an execution standpoint, it's all of the above. I mean, it's always been an important part of our selling motion. It's an important part of the selling motion in the field with our reps and building those relationships at the ground level, also managing them from a corporate perspective. But a lot of that work and a lot of the partnership and a lot of that success is driven in the field with and through our reps. I think it is just continuing to drive that focus from an execution standpoint. It's continuing to invest in the things that the brokers find the most value in. That's in part the relationship in the field. That is in part the service that we provide to our client, to our mutual clients, and the clients they refer to us.
And then a quick follow-up on the broker, uh, Channel. You've obviously seen better momentum there and you highlighted some disruption from competitors. But in terms of resource allocation um, you know, is is there still more to be done in terms of total brokerage, or is it now? Just, you know, kind of leaning into those that that have um, greater I guess success of, of selling through Paylocity and um, how you do that, you know, kind of how you you leverage that um, relationship there uh, and and within that have win rates gone up at all, given some of that disruption in the market,
The service that we provide to our client to our mutual clients and the clients they refer to us. Um and it's in part being a good partner to them as clients, go through implementation and service and it's continuing to also Drive, uh, the delivery of a platform and a solution set, including new product launches, like benefit guided setup that add value to to them and give them the ability to add more value to their clients. So it is, it's it's it's all the above.
All right, great. Thank you.
1 moment for our next question.
I think from an execution standpoint, it's all of the above. I mean, it's always been an important part of our selling motion, and it's an important part of the selling motion in the field with our reps and building those relationships.
So, managing them from a corporate perspective.
Our next question comes from Jacob, Smith with the Google home security, is your line is open.
But a lot of that, a lot of that work is and a lot of the partnership and a lot of that success is driven in the field with and through our reps. And I think it is just it, it is continuing to drive that Focus from an execution standpoint. It's continuing to invest in the things that the Brokers, find the most value in. That's in part the relationship in the field that is in part um the the service.
Ryan Glenn: And it's in part being a good partner to them as clients go through implementation and service. And it's continuing to also drive the delivery of a platform and a solution set, including new product launches like Benefits-Guided Setup that add value to them and give them the ability to add more value to their clients. So it's all the above.
Toby Williams: And it's in part being a good partner to them as clients go through implementation and service. And it's continuing to also drive the delivery of a platform and a solution set, including new product launches like Benefits-Guided Setup that add value to them and give them the ability to add more value to their clients. So it's all the above.
Matt Van Vliet: All right. Great. Thank you.
Matt VanVliet: All right. Great. Thank you.
In service, and it's continuing to also drive the delivery of a platform and a solution set, including new product launches like Benefit Guided Setup, that add value to them and give them the ability to add more value to their clients. So it is—it's all of the above.
Operator: One moment for our next question. Our next question comes from Jacob Smith with Guggenheim Securities. Your line is open.
Operator: One moment for our next question. Our next question comes from Jacob Smith with Guggenheim Securities. Your line is open.
All right, great. Thank you.
One moment for our next question.
Jacob Smith: Hey. Thanks for taking my question. Retention's been consistently around 92% over the past couple of years. But as you look at the elements from cross-selling Paylocity for Finance, expanding IT offerings, getting greater AI adoption across the platform, how do you see that retention rate evolving over the next few years? Is there a structural reason it should move higher as customers become more embedded across HCM, finance, and IT? Or are there any offsetting factors we should be mindful of? And maybe related to that too, are you seeing any early evidence that customers who adopt multiple modules have different churn characteristics than single-product customers? Thanks.
Jacob Smith: Hey. Thanks for taking my question. Retention's been consistently around 92% over the past couple of years. But as you look at the elements from cross-selling Paylocity for Finance, expanding IT offerings, getting greater AI adoption across the platform, how do you see that retention rate evolving over the next few years? Is there a structural reason it should move higher as customers become more embedded across HCM, finance, and IT? Or are there any offsetting factors we should be mindful of? And maybe related to that too, are you seeing any early evidence that customers who adopt multiple modules have different churn characteristics than single-product customers? Thanks.
Ryan Glenn: Yeah. Our retention rate has been north of 92% for over a decade. I think we are very, very happy with being able to maintain that level of client retention. Huge shout-out to our operations and service teams that work really hard to maintain those relationships with our clients and partner with them, and particularly coming through this time of year when December and January is the biggest two months that we have for client engagement and client interaction. So yeah, I think overall, our belief has been and has played out that the more value that you can add to clients, whether that's through the adoption of a broader part of the platform and coupled with our service model and our service teams, that's the recipe for success.
Toby Williams: Yeah. Our retention rate has been north of 92% for over a decade. I think we are very, very happy with being able to maintain that level of client retention. Huge shout-out to our operations and service teams that work really hard to maintain those relationships with our clients and partner with them, and particularly coming through this time of year when December and January is the biggest two months that we have for client engagement and client interaction. So yeah, I think overall, our belief has been and has played out that the more value that you can add to clients, whether that's through the adoption of a broader part of the platform and coupled with our service model and our service teams, that's the recipe for success.
Hey, thanks for taking my question. Retention has been consistently around 92% over the past couple of years as you look at the elements from cross-selling. Philosophy for finance, expanding its offerings, getting greater AI adoption across the platform—how do you see that retention rate evolving over the next few years? Is there a structural reason it should move higher as customers become more embedded across the HCM, finance, and IT? Or are there any offsetting factors we should be mindful of? And maybe related to that too, are you seeing any early evidence that customers who adopt multiple modules have different churn characteristics than single-product customers? Thanks.
yeah, I
Yeah, our retention rate has been north of 92% for over a decade and I think, you know, we are very, very happy with with being able to maintain that level of of client retention. Um, you know, huge shout out to our our operations and service teams that work really hard to, um, maintain those relationships with our clients and, and partner with them, and particularly coming through this time of year. When December January is the biggest 2 months that we have for uh, for client engagement and client interactions. So, yeah, I think overall, our belief has has been and has played out that the more value that you can add to to clients whether that's through the adoption of a broader, part of the platform, um, uh, and coupled with our service model and our service teams, you know, that's the recipe for success. And I think that's a, that's a, a large part of the reason we've been able to maintain those, uh, those retention rates for such a long period of time. And I think that's, you know, that that is a reflection of the value that's added from an overall platform and
And service perspective. So you know, really pleased with our ability to maintain those levels over a long period of time.
Great, thanks.
And I'm not showing any further questions at this time, I turn the call back to management for any further remarks.
Well, thank you very much. Uh, I really appreciate everybody joining the call and you're interested in Paylocity, and I want to send a special shout out to all of our teams and all of our employees, um, helping our clients through, uh, through year end and onboarding. In January, great job, very much, appreciate all the effort effort, and I hope everybody has a great night. Thank you.
Hello, ladies and gentlemen, this is include today's presentation. You may now disconnect and have a wonderful day.
Ryan Glenn: I think that's a large part of the reason we've been able to maintain those retention rates for such a long period of time. I think that is a reflection of the value that's added from an overall platform and service perspective. So really pleased with our ability to maintain those levels over a long period of time.
Toby Williams: I think that's a large part of the reason we've been able to maintain those retention rates for such a long period of time. I think that is a reflection of the value that's added from an overall platform and service perspective. So really pleased with our ability to maintain those levels over a long period of time.
Retention rate has been north of 92% for over a decade and I think, you know, we are very, very happy with with being able to maintain that level of of client retention. Um, you know, huge shout out to our our operations and service teams that work really hard to, um, maintain those relationships with our clients and, and partner with them, and particularly coming through this time of year. When December January is the biggest 2 months that we have for uh, for client engagement and client interactions. So, yeah, I think overall, our belief has has been and has played out that the more value that you can add to to clients whether that's through the adoption of a broader, part of the platform, um, uh, and coupled with our service model and our service teams, you know, that's the recipe for success. And I think that's a, that's a, a large part of the reason we've been able to maintain those, uh, those retention rates for such a long period of time. And I think that's, you know, that that is a reflection of the value that's added from an overall platform and and service perspective.
Jacob Smith: Great. Thanks.
Jacob Smith: Great. Thanks.
So, you know, really pleased with our ability to maintain those levels over a long period of time.
Great, thanks.
Operator: I'm not showing any further questions at this time. I'll turn the call back to management for any further remarks.
Operator: I'm not showing any further questions at this time. I'll turn the call back to management for any further remarks.
Ryan Glenn: Well, thank you very much. I really appreciate everybody joining the call and your interest in Paylocity. And I want to send a special shout-out to all of our teams and all of our employees helping our clients through year-end and onboarding in January. Great job. Very much appreciate all the effort. And I hope everybody has a great night. Thank you.
Toby Williams: Well, thank you very much. I really appreciate everybody joining the call and your interest in Paylocity. And I want to send a special shout-out to all of our teams and all of our employees helping our clients through year-end and onboarding in January. Great job. Very much appreciate all the effort. And I hope everybody has a great night. Thank you.
And I'm not showing any further questions at this time, so I’ll turn the call back to management for any further remarks.
Operator: Well, ladies and gentlemen, this does conclude today's presentation. You may now disconnect and have a wonderful day.
Operator: Well, ladies and gentlemen, this does conclude today's presentation. You may now disconnect and have a wonderful day.
Well, thank you very much. Uh, I really appreciate everybody joining the call and you're interested in Paylocity, and I want to send a special shout out to all of our teams and all of our employees, um, helping our clients through, uh, through year end and onboarding. In January, great job, very much, appreciate all the effort effort, and I hope everybody has a great night. Thank you.
Hello, ladies and gentlemen, this concludes today's presentation. You may now disconnect, and have a wonderful day.
