Q4 2019 Earnings Call
They they show and welcome to the Paylocity holding Corporation fourth quarter 2019 fiscal year results Conference call.
At this time all participants are in listen only mode. Later, there will be a question answer session and instructions will follow at that time.
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As a reminder, this call is being recorded.
I would now like turn the conference over to Ryan Glynn, Vice President of S.P., Acne and Investor Relations.
Sir you may begin.
Good afternoon, and welcome to pay lots of these earnings results call for the fourth quarter and fiscal year 2019, which ended on June Thirtyth 2019, I am Ryan Glenn Vice President of EFT, DNA and Investor Relations and joining me on the call today, Steve Beauchamp CEO of Paylocity and Toby Williams CFO 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.
Before beginning we must caution you that today's remarks, including statements made during the question and answer session contain forward looking statements.
These statements are subject to numerous important factors risks and uncertainties, which could cause actual results to differ from the results implied by these or other forward looking statements.
Also these statements are based solely on the present information and are subject to risks and uncertainties that can cause actual results to differ materially from those projected in the forward looking statements.
For additional information please refer to our filings with the Securities and Exchange Commission for the risk factors contained therein and other disclosures, we do not undertake any duty to update any forward looking statements also during the course of today's call. We will refer to certain non-GAAP financial measures. We believe that non-GAAP measures are more representative of how we internally measure the business and there is a reconciliation schedule detailing. These results currently available in our press release, which is located on our website at pay lastly, dotcom under the Investor Relations tab and filed with the Securities and Exchange Commission.
Please note that we are unable to reconcile any forward looking non-GAAP financial measures to the directly comparable GAAP financial measure because the information which is needed to complete a reconciliation is unavailable at this time without unreasonable effort.
In regards to our upcoming conference schedule, Toby and I will be attending the HR Tech conference in Las Vegas on October 2nd. Please let me know if you'd like to schedule time with us at this event with that let me turn the call over to Steve.
Thank you Ryan and thanks to all of you for joining us on our fourth quarter and fiscal 2019 year end earnings call. We completed fiscal 2019 with recurring and total revenue growth of 25.7% total revenue growth for the fourth quarter was 25.4%, which exceeded our guidance and was driven by another strong quarter of new sales.
We were very pleased with the consistency of our revenue growth. This fiscal year with Q4, marking our 10th straight quarter of total revenue growth in the mid Twentys.
Adjusted EBITDA for the fourth quarter was $29.9 million, which exceeded the midpoint of our guidance by $2.1 million for fiscal 2019, we were pleased with our ability to make investments to drive growth in both sales and marketing and research and development, while also making progress towards our profitability goals adjusted EBITDA for fiscal 2019 with 28.7%.
An increase of 50 basis points from our initial fiscal 2019 guidance as we work towards our revised adjusted EBITDA margin target of 30% to 35% of revenue.
Our growth Formula continues to be driven by adding new clients to our platform and selling more products to each client.
We on boarded a record number of new clients in fiscal 2019, finishing the fiscal year with 20200 clients compared to 16700 at the end of last fiscal year, an increase of 21%. We continue to see unit strength coming from clients with under 50 employees and we continue to see clients. In this segment, taking a broader array of HCM products, such as Onboarding recruiting and performance management.
We have also seen healthy momentum in the core and upper end of our market, which demonstrates the strength of our product portfolio and service offerings.
We also increased average recurring revenue per client by 4% to $22616 from $21768, primarily by selling more HCM products to new clients.
We also continued to gradually expand our efforts to sell our growing HTM portfolio back into our client base. Overall, we are pleased by the attach rates. We are realizing throughout our target markets as clients continue to see the value in our comprehensive product suite.
Our commitment to product development continues to be recognized in the marketplace with Paylocity ranking high on multiple gtwo crowd grid reports during fiscal 2019, including placing number one in satisfaction on six category reports overall and Midmarket HR management suite, Midmarket payroll Midmarket core HR and overall and mid market benefit administration.
We increased our investment in research and development in fiscal 2019 by over 30%. When you consider what we Expensed and capitalized continued investment in research and development positions us to extend our industry, leading platform by adding functionality to our existing product suite and introducing new products through the strength of our development team. We have released two new modules. This year PPA solutions, which we released in January and now I'm pleased to announce the release of our learning management system or LMS, which is currently available to all of our clients.
Our LMS focused on micro learning, which allows our clients to deliver curriculum in small bite size pieces to drive higher levels of engagement.
Our product also democratizes learning so that every employee in the organization can record create and share their expertise with coworkers.
Early feedback from our clients has been very encouraging with over 40000 custom courses already launched by our clients. In addition to our clients content Paylocity compliance courses have been launched nearly 200000 times through our learning platform.
I am also excited to announce the addition of on demand pay to our portfolio, which is now available for all of our clients with this feature employees can easily access a portion of earn wages earlier than their normal pay cycle all via our mobile app.
Our early adopters have provided great feedback, including how easy it is to use and how much of their employees appreciate having this option.
On demand pay is another example of our commitment to provide innovative software that appeals to the modern workforce.
The release of LMS allows us to achieve our target of $400 and we are now setting our new target at $500 Pp why.
We continue to believe there are additional modules features and functionalities that will help us achieve this new goal and that will deliver incremental value to our clients and prospects.
We have also continued to invest in our salesforce by adding new sales reps, while at the same time investing in training initiatives.
And marketing and channel programs to drive productivity, we have expanded the salesforce by 23%. This fiscal year from 310 sales reps in fiscal 2019 to 382 sales reps in fiscal 2020.
I am pleased to report these efforts were very successful with our sales team fully staffed prior to entering fiscal 2020, which positions us for a strong start to the fiscal year.
Consistent with last year, our Rep count does not include the emerging market sales teams.
In addition to investing in the growth of our Salesforce. We also continued to invest in our channel initiatives and we remain pleased with the consistency in our broker channel, which continue to deliver 25% plus of our new business referrals.
Throughout fiscal 2019, our operations teams focused on delivering exceptional service to our more than 20000 clients. While at the same time implementing a number of new initiatives to help clients take advantage of our robust payroll and HCM platform. This combination of service and technology allowed us to once again deliver revenue retention of greater than 92% for fiscal 2019, our focus on client service has also been recognized in Gtwo crowd Summer 2019 grid report, where paylocity led the relationship and implementation indices in multiple categories, which ranks companies on quality of support ease of setup implementation time end user adoption.
I'm also pleased to announce that we have completed the move.
Out of our former headquarters and that all of our Chicago and employees are now working out of our Schaumburg corporate headquarters, which include a number of modern employee centric features as well as ample space for training and collaboration for our teams to work cross functionally.
We're also very proud of Paylocity culture and are honored to have won a number of best places to work awards. This past fiscal year, including being recognized as an elite winner on the list for Chicago's best and brightest companies a best place to work by built in Chicago, one of the best companies to sell four by selling power magazine cranes fast 50.
A best place to work by Glassdoor and battery ventures, 2019 highest rated cloud companies list.
Finally, I would like to thank our more than 3000 highly dedicated employees across the country for all the efforts. This past fiscal year, Let me now turn the call over to Toby to discuss our financial results in more detail.
Thanks, Steve total revenue for the fourth quarter was $120.4 million, which is a 25.4% increase from the same period in the prior year.
Total revenue for the fiscal year was $467.6 million up 25.7% from last fiscal year and as Steve mentioned Q4 marked our 10th straight quarter with total revenue growth in the mid Twentys.
For the fourth quarter, our total recurring revenue was up 25.5% from the same period last year with recurring fees of 23.3% in interest income on client funds of 92.2% primarily as a result of balance increases increased average interest rates and because we continue to invest a portion of client funds.
For the year, our total recurring revenue was up 25.7% and interest income on client funds was up 118.6%.
For the fourth quarter, our adjusted growth gross profit was 71.2% and for the fiscal year. It was 71.9% as we continue to focus on consistent revenue growth, while also driving scale in our business model.
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 combined non-GAAP basis total research and development investments were 14.6% of revenue in the fourth quarter compared to 14.1% in the year ago quarter.
Full year total research and development investments were 13.8% of revenue compared to 13.2% in fiscal 18.
On a dollar basis, our investment in total research and development increased by 31.3% in fiscal 19, when compared to fiscal 18.
On a non-GAAP basis sales and marketing expenses were 24.7% of revenue in the fourth quarter and 22.4% for the fiscal year.
On a non-GAAP basis, DNA costs were 15.3% of revenue in the fourth quarter as compared to 17% of revenue in the same period last year.
Full year DNA costs were 14.8% of revenue as compared to 15.5% of revenue in fiscal 18, and we are pleased to have entered our long term gene a target range of 10% to 15% of revenue in fiscal 19.
Our adjusted EBITDA was $29.9 million or 24.8% of revenue for the quarter as we exceeded the midpoint of our guidance by $2.1 million.
Our adjusted EBITDA for the year was $134 million or 28.7% of total revenue and we were pleased to continue to make progress towards our adjusted EBITDA target of 30% to 35% of revenue.
As Steve mentioned in the fourth quarter, we completed the move of our remaining Chicago land employees to our corporate headquarters in Schaumburg in connection with our move we accelerated depreciation on certain property and equipment that will not be used in the new facility and have taken certain lease exit costs in the quarter related to our old headquarters.
As a result, adjusted EBITDA in the fourth quarter and full fiscal 19 includes the add back of $1.4 million of noncash property and equipment and lease exit costs associated with the move please refer to the GAAP to non-GAAP reconciliation table included in the press release issued after the market close today for more information.
Briefly covering our GAAP results for the quarter gross profit was $80.3 million operating income was $9.2 million and net income was $10.2 million and on a full year basis gross profit was $313.8 million operating income was $56.2 million and net income was $53.8 million.
In regard to the balance sheet, we ended the year with cash cash equivalents and invested corporate cash of $162.5 million as compared to 137.2 million as of the end of last year, an increase of $25.3 million or 18.4%, which includes the impact of the $35 million share repurchase we completed in Q1 fiscal 19.
Free cash flow, which we define as cash from operating activities less capitalized internal use software costs purchase of property and equipment and lease allowances used for tenant improvements was $76.1 million or 16.3% of revenue for fiscal 19 versus $48.8 million or 12.9% of revenue in fiscal 18, a 340 basis point or 56% improvement.
Im pleased to announce we have entered our target free cash flow range of 15% to 20% of revenue as we continue to focus on growing our business, while also increasing free cash flow and profitability.
Before I review, our financial guidance I would like to outline a change to our financial statement presentation beginning in fiscal 2000.
As our overall business has grown and as our HCM suite has become a larger part of the portfolio implementation revenue has become a smaller piece of our total revenue mix and for fiscal 19 was 2% of total revenue as such the breakout of recurring fees and implementation revenue has become less meaningful to our business. Therefore, beginning with the first quarter of fiscal 20, we will simplify the presentation of revenue and cost of revenues on our income statement and we'll consolidate recurring fees and implementation and other revenue into a single revenue line item of recurring and other revenue consistent with our revenue presentation cost of recurring revenues and implementation and other revenue will be combined into a single cost line item. We will however continue to breakout interest income on funds held for clients as we have historically.
Finally, I'd like to provide our financial guidance for the first quarter and full year fiscal 2000.
For the first quarter of fiscal 20 total revenue is expected to be in the range of $123.5 million to $124.5 million or 23% to 24% growth over Q1 fiscal 19, and adjusted EBITDA is expected to be in the range of 28.1 million to $29.1 million.
And for the full year fiscal 20 total revenue is expected to be in the range of $563.5 million to $565.5 million or approximately 21% growth over fiscal 19, and adjusted EBITDA is expected to be in the range of $161.5 million to $163.5 million.
In summary, we are very pleased with our performance during the fourth quarter and full year fiscal 19, with 25.7% total revenue growth and adjusted EBITDA margin of 28.7% and free cash flow margin of 16.3%.
Operator, we're now ready for questions. Thank you.
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Our first question comes from Scott Berg with Needham Your line is open.
Hi, Stephen Tobey, Congrats on a great quarter and thanks for taking my questions here.
See Steve I'd like to start off with the new LMS product today I'd like to micro learning aspect to that certainly popular today, but as you reach the 400 target how should we think in the next $100 million $100 E. T Y target that you that you discussed more maybe heavier in analytics or are there other things that maybe you're looking at today.
Yeah sure Scott So yeah, we're really pleased with the feedback we've gotten in the RMS product in the.
Good start that we've gotten off to with our with our customers and our Salesforce is pretty excited about having that product in their bag.
I think from a product perspective, I would look at each of the categories think of time and labor benefits.
Talent management.
Really core HR, all having product opportunities that we think we may be able to pull as we drive towards that $500 pp why so we don't like to get into specifics in terms of what that next module might be.
But we are actively working on additional modules that we think will both create differentiation and will be demanded by our customers.
Got it helpful. And then a question for you Toby you mentioned you you have a change of 15, 20% free cash flow target or at least your prior target how should we think about the model leverage going forward now that you're in that range at that you're at the top end of that or or Boston, good feedback say, but.
Do you have a maybe a timeframe or revenue goal in mind that maybe get net 20% to 25% range or even better.
Yes, I mean, I think step one was getting into the range I think we feel pretty good about the progress weve made going from.
Just under 13% to am just over the 16% in the course of fiscal 19. So I think we feel pretty good about that but as you pointed out I mean, we've still got a good bit ahead of us between where we are today and the top of the range and I think it was a big step up this year I think same is probably how we would have talked about.
EBITDA I think we will have.
Continue to drive margin, including in free cash flow.
Maybe smaller increments, but I think we still we're happy to be in the range and we've still got plenty of runway to continue to drive leverage so.
Feel good about the progress in fiscal 19.
Very helpful. On this slide one quick one for you Steve the success from the strategic segment seems to be better than your expectations do you start to invest a little bit more quickly in that segment relative to your expectations from maybe six to nine months ago.
Yes, I think we are off to a good start in our emerging market. It's still is relatively small when you compared to our overall business and I think you got to remember if you think about a 1000 emerging market clients they might be roughly a couple of thousand revenue may be a little bit more than that so thats only a couple of million in revenue. So I think you see the strength in the unit growth this year.
But its still not that material is still in early stage investment we will increase the level of investment overtime, but we think about it in a gradual fashion rather than some sort of step up.
Great. Thanks, guys.
Thank you. Our next question comes from Terry Tillman with Suntrust. Your line is open.
Hi, This is actually Nick on for Terry So.
I guess just stepping back for a second.
We just wanted to ask how newer products or product adoption has evolved over the years.
So things like time to ramp per ton of monetization.
Change over the years and then.
If you could just give an idea of what you see is a good attach rate fees that are modules.
Like 20, or 30% adoption would be great. Thank you.
Sure I think our philosophy has been.
First of all we interact with our customers a lot we try to get feedback in terms of what they're looking for we'll build a brand new module and product based off that feedback, we'll get it out to customers a small subset of customers will garner feedback from them.
And then will iterate to the point that we are ready to launch into the Salesforce just like we did with LMS.
I would say from a longer term perspective, we like to think of products are getting certainly 10% to 20% penetration across our client base. We believe that's kind of the rate the minimum range that we need to have to be able to kind of justify the investment.
In terms of R&D investment to get a product launch.
And I would highlight anything I think over the last year or even the last couple of years. The talent management category has probably been one of our fastest growing categories and it's also the place that we've added most product and so I think LMS is going to be another great addition to our to our talent portfolio.
Okay, great. Thank you.
Thank you. Our next question comes from Brian Peterson with Raymond James Your line is open.
Hi, guys and I'll Echo my congratulations on the solid quarter. So so Steve obviously, you've had a lot of success with the emerging markets I'm curious.
Typically we've seen about a 120 employees per customer I think that's been the average.
Any help on where that figure stands today.
Yes, So I think were in a similar range I don't think we give you the exact number and I think we talked about greater than a 100 in our filings that still very consistent.
I think as we have success with an emerging market. There is some possibility that might come down a little bit there our iconic customers available to us there and we're definitely seeing more product demand in that market.
And we're adding customers both with our core salesforce and our smaller emerging team. So.
I think if we continue to have that success you might see that come down just a little bit but currently its hasnt changed enough worth updating.
Got it and just maybe on the learning management offering I'm curious if you look across your customer base any sense for what they are using today and maybe how many if customers actually really don't have anything that they are actually using from a real technology perspective. Thanks, guys. Yes, sure I think in our target market I would say most of our customers that we brought on so far we're going to be their first learning management system. There's clearly exceptions to that and we do have some people that have converting but I would say the large majority of our customers. We are going to be the first learning management system and and we think the way we built the product from both an ease of use and the feature functionality and really terms of trying to have an easy way to share videos across the organization really appeals to that customer rate in our target market and so.
But generally speaking to answer your question, we are largely going to be the first implementation of an LMS for most of our customers.
Good here thanks.
Thank you. Our next question comes from some maximum.
Jefferies. Your line is open.
Hi, good afternoon, and thanks for taking my questions.
Steve I think first one for you on demand pay is something that.
Several of the apparel software companies have been talking about and I'm. Just curious if you could help us understand if youre.
Maybe the economics of how it on demand pay works for payload capacity and should we think about it as a per employee per month type of opportunity or are you actually making money on moving those funds allow maybe just a little bit of color on how you see adoption of that going over time in that follow up question.
Sure. So what I would say is we're really leveraging the fact that we move a lot of money for our customers already and obviously paying their employees as a key part of our value proposition and so well on demand pay allows employees to be able to draw from the pay that they've already earned on an earlier basis, and we're leveraging kind of our capabilities to be able to do that which we can do relatively efficiently.
I think we've left ourselves open to how the industry is going to go from an on demand perspective, So we wouldn't call it out as a big revenue driver today.
And it's really a benefit that the employer is going to offer and it's not one that's going to drive meaningful P. M.
But it's something that we think helps differentiate us and really appeals to that modern worker, who is entering the workforce. So think about it more today as a differentiator and if there is an opportunity for us to monetize it over time, it's something we could certainly take advantage of.
Great and then Toby maybe a question for you as I think about rates, Dave would have come down dramatically. So far this year and I think they're going to start to be a little bit of that.
Just give more treasuries are I'm just curious how we should think about interest income or interest revenue for fiscal 2000, and given that it's such high margin revenue and how we should think about maybe like that trend in the context of actual balance probably growing.
Mr customer growth is growing as well.
Yes, so I think those are the right point. So I think if you look at the average daily balance increases over last year, and historically, you would see that trend with closer to client growth and I think thats, probably the right expectation to have in fiscal 20, and then from a rate perspective, I think youve.
Properly characterize the the rate environment and I think our.
We have seen the recent rate move and I think.
Many of US are contemplating another one in the course of the fiscal and I think that's that's how we thought about the guidance from a fiscal 20 perspective.
Great. Thanks for taking my questions guys and great quarter.
Thanks.
Our next question comes from Mark Miller with Baird. Your line is open.
Let me add my congratulations I was wondering with regards to the sales force build out I know youre not really talking much about the merging the small business.
Sector, but how from a management team's perspective are you thinking about.
Some of the metrics that you would evaluate in terms of how quickly that should expand or.
Philosophically, how should we think about it.
Sure.
So I think weve built up a series of metrics for our core salesforce or over many years that we look at and it certainly really all revolves around new annual recurring revenue that the sales team can drive to the organization and so that would be no different when we look at the emerging market opportunity. Obviously, there would be more units involved and last average revenue per customer and those folks are generally a little bit earlier in their career that we bring on so you know there is a cost equation.
That we look at as well.
We definitely think it's a very profitable space and it's something that we can manage the cost of client acquisition efficiently, but those are the things that we're looking at internally what are those quarters look like what is the cost to be able to drive that new recurring revenue.
As you mentioned, we are still early in the process. We're also investing in channels, which are going to be an important part of that emerging market opportunity.
As well as our digital presence, which is another way to be able to drive that so there's really multiple facets than purely the salesforce.
And I think we're happy with the results so far, albeit at an early stage.
Okay, Great and then go back to the on demand payroll.
What what's the reception been like with the current state you pilot and what.
Kind of take up rates in terms of the usage.
Yes. So we're just launching that now so we've got a series of early adopters that we've garnered feedback from what I would say is our customers.
With maybe.
A large number of hourly workers, particularly one where they may have seasonality or they have a little bit of turnover involved in that and where that workforce might be on the younger end of the spectrum is where we've seen that really resonate well where people have needs that they need that come up in a once in a while and they can access part of that earn pay as really being valuable.
Is really the feedback that we've gotten from our customers. We've also received feedback that it just super easy to use you literally log on your mobile App you see how much you've actually earned we actually calculate with the value with what Youve earned with real time calculation capabilities and then you can withdraw up to some sort of maximum.
Amount of that and so the simplicity is probably the biggest point of feedback that we've heard.
Thats great. Thank you.
Thank you. Our next question comes from Nandan Amladi with Guggenheim Partners. Your line is open.
Hi, Thanks for taking my question so on the LMS system.
What does your content sourcing strategy of content that.
You don't build I know you've talked about building like learning and also making.
Available the platform for your customers to build their own content, but how about other types of content that you might be able to source from it.
Those contracts are living.
Yes. Good question. So I think we have a three pronged approach towards content. So first we want to be able to build maybe the core compliance content that we know pretty much all of our customers are going to need. So I think we've talked about in the past sexual harassment training in certain states, where thats mandated that content, we're going to build we're going to deploy.
As part of our LMS platform and our customers can use that.
Embedded in the platform I think the second part of the content strategy is allowing our customers to be able to use video capabilities to do these kind of short micro learning training videos that can be shared across the organization. We use that capability ourselves a lot and we've really enjoyed the benefit of being able to share knowledge seamlessly across the organization and then the third part of the strategy is our clients can purchase content.
And then upload purchase content and then be able to distribute it through our LMS. So we give the choice.
Of all three options for our customers.
Thank you.
Thank you once again, ladies gentlemen, if you wish to ask a question at this time. Please press Star then one are you touched on telephone.
Our next question comes from Corey Greendale with first analysis. Your line is open.
Hey, good afternoon, and congratulations on the good year.
So I asked a question I think related to the emerging market.
If you look at your client growth and revenue per client growth in fiscal 19, I think your client growth was the best it's been in multiple years, even better than the FDA benefit year.
But your revenue per client growth was lower than it has been.
I would have for the emerging market was responsible for both those dynamics, but can you just dig into that.
Yes, I think.
The idea of getting more of our clients in that under 50 segment is really the key driver of why you've got higher client growth and lower percentage growth in average revenue per customer. So it's really just the size.
Mix now that's happening because our core salesforce does sell clients in that segment and we've seen more demand for our products and then on top of that we've added this emerging market investment Thats also had some success and so it's really simply the result of a mix shift we're really happy with the penetration rates that were driving our both our you know our products that we released several years ago as well as our newest product. So we're certainly still seeing that lift.
But you are absolutely correct that it's the success in that under 50 marketplace, that's driving the higher client growth.
And fair to say you see a similar split in fiscal 20, assuming you succeed much higher growth in clients and in revenue per client.
I think if we continue to be successful in the under 50 market and emerging market investments continue to grow that the app client growth would be higher than that ARPU growth on a go forward basis that would be correct.
Great. Thanks very much.
Thank you. Our next question comes from Adam Fourq with Stifel. Your line is open.
Great and thanks for taking the question just as we think about the broker channel are there any new processing steps that you're taking for fiscal 2008 to help ensure the greater than 25% range that that's helped delivered in recent years. Thanks.
Sure, Yes of the broker channel continues to be an important part of our go to market strategy.
Last year, we were pretty happy to once again deliver more than 25% of our new business revenue from brokers.
Particularly as we grow the salesforce meaningfully and so we're growing the sales force by 23%. So we need to be able to both deepen the relationship with existing brokers as well add new brokers to up to our network and so we have a number of initiatives to be able to do that I would think of those as incremental based on the feedback that we're getting from our brokers no big changes in the strategy, we think our value proposition resonates really well that broker channel.
And we think we're in a good position to be able to do so but that will remain a key part of our go to market strategy going forward.
Great and just maybe as a follow up you talked about some some good experience and good success down in the emerging in emerging channel.
As you continue to build experience down there is any discernible change in either buying behavior or sales cycles. Obviously, you talked about the good adoption of some of your add on products, but anything on the sales cycles are just buying behavior more broadly. Thanks, yeah. So I think focusing on the smaller end of our target market has certainly helped us optimize some of the experiences for our customers and so we have the ability to onboard a smaller customer rather than weeks in days.
And we certainly have.
Use last fiscal year to kind of perfection processes around that we've also made sure that.
We've been able to also deliver them the service experience that they're looking for as well so I would call small tweaks to kind of our implementation process and ongoing service process.
And then lastly, I think we also learned last year that we would does require a little bit more investment in channels as well some digital presence online.
For that market Theres, just a ton of businesses down in that segment and so we think we can leverage both of those things at a greater level overtime and Thats why I go back to the idea that emerging market will be a gradual expansion overtime that we think is just a very interesting opportunity for paylocity.
Great. Thanks again.
Thank you. Our next question comes from Shankar Silver lining with Bank of America. Your line is open.
Hi, Thanks for taking the question just on on the emerging market.
You have decided it said that the mix of customers again is come some either we view of opportunities and our peers.
Can you characterize.
Who are you getting the dividends from.
Is it more the legacy as lumpy.
You know I would say we're still early so we'll see how this develops over time, but I think that the traditional.
Payroll outsources.
Sources of probably the primary method that we see in emerging market in terms of displacing them you do have a little bit more new business activity as you as you might imagine in that segment on the channels are a little bit different. So you see things like SCPA channels being certainly more prevalent in the emerging market than maybe mid market.
But I wouldn't say, it's significantly different than outside of the new business, it's not that significantly different from where we get our midmarket customers from.
Got it got it and then.
On the benefit side.
As a whole because of the contribution some benefits.
Since its going like units what to be how should we think about for your contribution was completed.
Sure. So if you remember we acquired benefit lacks really last spring at this past spring, but the one prior.
And I think we called out the fact that we needed some time to build out our own product over top of that.
And we would then be in a position where a lot of those ta buying decisions happen in the fall. So we're really trying to ramp our products. So that we can kind of hit this fall selling season. So we did not characterize Bennett flex is having a meaningful impact last fiscal year and I wouldn't change that I think that actually played out we've got our product ready it's available in the market. We've got great experience from our users and so we're going to be able to ramp up a little bit more volume with our new product in the tpa space going into this fall.
Got it thank you guys.
Thank you and I'm showing no further questions at this time I'd like to turn the call back over to Steve Chen for closing remarks.
Great well I'd like to just take a brief moment to thank all of you for your interest on the call, but also take some time to be able to thank our more than 3000 employees for all their time energy and dedication over this list last fiscal year, everyone have a great night.
Ladies and gentlemen, this concludes today's conference thank for joining and everyone have a wonderful day.