Paylocity Holding (PCTY) 4 May 232023 Q3 Earnings call transcript

Good day, and welcome to the Paylocity Holding Corporation Third Quarter 2023 Fiscal Year Results Call. At this time all participants are in a listen-only mode. After the speaker presentation, there will be a question-and-answer session. [Operator Instructions] Please be advised that today's conference is being recorded.

I would now like to hand the conference over to your speaker, Mr. Officer. Financial Chief Glenn, Ryan Please go sir. ahead,

Officer; Good the third and March are XXXX. Chief Steve welcome call Toby on which to for call XX, Financial Glenn, Ryan Co-CEOs results Beauchamp earnings I'm joining quarter today on me the Paylocity's ended afternoon, and Williams, next of and XXXX, replay press after the the market of Paylocity. discussing days be available issued will XX call the results be A website release Investor webcast of our Today, we announced this will in under our tab. Relations on closed. for the fiscal

differ we these could that by you contain the on risks statements information forward-looking implied beginning, actual these Also, other cause from in statements. differ can based actual cause risks to today's from session, made statements and These or remarks, factors, statements subject are subject solely results are to to Before the including must forward-looking results caution and materially statements. to uncertainties numerous those the statements. question-and-answer which are during uncertainties, the projected present important that forward-looking and results

other the our factors additional Commission please Exchange the contained undertake for duty do We For Securities any information, therein and with filings forward-looking statements. not to refer and any disclosures. update risk to

internally release, believe at is that forward-looking our are the Exchange without detailing to in filed our GAAP business, complete reconciliation time measure of the and their non-GAAP unavailable unable measure schedule directly We information Commission. are located currently tab is a to Relations certain which Please the with Investor which this any the the non-GAAP Securities because available that effort. today's a how measure is under financial on at to measures. unreasonable course needed comparable is financial during reconcile financial and measures we we note Also, representative call, results to we refer press and website non-GAAP will these reconciliation more there of paylocity.com

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Steve. that, to me turn With the let over call

Thanks, quarter XXXX thanks Ryan, call. you to for third earnings our and fiscal on joining all us of

our continued quarter to differentiated momentum of overall our most Our across continues execution with in providing industry market. in solid proposition value QX was target modern revenue growth third in the marketplace. as software the resonate the XX.X%

release the of on of generative in with integration of AI modern software industry build continue We recent unique the to the first proposition the providing our industry's Assist, HCM value most AI.

index, labor our and analysis step ready-to-send employees. broader and Assist time with Assist risk translate announcement allows reach easily in performance feature such reviews. messages simple sentiment with tone modern or integration more retention the and capabilities, forecast employees. to multilingual a AI-based and platform Assist communications clients dashboards, to building AI next in prompt, effectively an help to new announcements Leveraging our with engage the Community, AI ChatGPT, is tailor within to and represents machine developer of audiences even learning, and investment designed languages Paylocity's in upon other as into workforce OpenAI, their communicate as specific AI users Included draft AI a and other

recently number in also Paylocity XX Our market the development list Global with recognized commitment continues overall product GX's inside be Software GX's one to Companies. and Best Top ranking in placing of to HR Products

named Spring overall XX received XXXX recognized all Loved Diversity continues product Similarly, Award as management Award second for leader human Employers in be at Report culture the Paylocity Most Additionally, Grid Forbes' won in categories for consecutive XXXX by XXXX year. strong Best capital the an was to a externally TrustRadius. and GX's we Paylocity

to pass further provide like on I to would Toby color the to the quarter. now call

QX, in the team differentiated providing value in turned industry solid our market. modern as highlighted, to In across sales our Steve. our continues Thanks, target software the most Steve of proposition another performance. resonate And

and and engagement of higher a clients staff. Community in strong Our over employees retailer to including Similarly, is the with in up via across Community, engagement, a retain engage and strengthen dispersed a close real surveys leveraging particular, continued product recognition see our most our industry to software mobile over employee we've number pay, a self-service analytics AI leasing platform across agents for QX, a managers, property fiscal across areas and and measure sustained its XXXX. to and drive us drive continues is geographically and as that platform peer-to-peer alerts employees. the engagement increasingly as mobile, mobile with in and employees investment employees higher capabilities, help locations XX sets leveraging X,XXX position with developer trend on-demand estate to highlighted to In the XXX and key modern mobile such through connectivity

last to build market. over Solid execution million $XXX.X year, QX drive XX.X% as beating momentum across we midpoint operational to the by revenue sales and our continue our $X.X helped total guidance million of our target of or growth

go-to-market in our next continue hiring with and to we year. staffing success attracting be hit are in the pleased start sales to fiscal and also targets our reps, talented to We ability confident

as and events maintain meetings we help referrals, more continue quarter virtual broker primarily third and than referrals. to financial advisers, XX% again us leverage strong for Additionally, benefit brokers business to both new and source once the the of channel of from represented in-person

continue activity fiscal referrals and funnel and in driven We this increased support to investing top-of-sales both marketing efforts, productivity of have channel digital which year.

income on continued the and also Reserve result as in sustained of from daily a interest increases client Federal has balances. Interest to rate average funds increases rise

operational helped midpoint line with outperformance, $XXX.X EBITDA guidance margin, drive adjusted the by top million coupled our efficiency, continued of exceeded of Our or $X.X XX.X% million. which

day form employees, live through busiest and to clients support I'd their our Lastly, time thanks our to QX send needs. represent annual all hard like X,XXX more single represents who out worked so values our filing support to our a year work who processing to we of QX. as year-end tax than and big clients and in our every

like XXXX financial I would Ryan to and now detail updated to fiscal to pass review in provide guidance. the the call results

to Total and period Toby. was pleased of we for $XXX.X were the last Thanks, and in other an from our million, with revenue by increase XX.X% year, XX.X% $X.X revenues same and XX% $X.X fiscal QX growth. come recurring at the midpoint to million guidance XXXX above resulting million guidance QX the XXXX in of revenue of revenue guidance midpoint, raise fiscal revenue up

while service continued adjusted basis industry-leading fiscal, a QX QX of XX.X% overperformance as costs focus in and scaling of on profit XXX levels. operational points versus Our was maintaining result our for leverage representing of revenue last gross XX.X%

the investment significant we a we combine our build expense year-over-year by both R&D third as in We total out to on of we continue compared XXXX. in serve On important the needs focused to R&D R&D and fiscal development. dollar capitalize. increased we in XX.X% what continue making make workforce. to to of the our is when research And Paylocity modern what and investments quarter remain And in the investments to to incremental platform investment overall basis, understand

non-GAAP and G&A focused basis, drive expense QX. of to quarter on the On last growth to revenue revenue the year, in in XX.X% XX.X% and regards we basis business XX.X% leverage XXX in area was In of in forward. points making of basis, go-to-market versus third QX, on going our of activities, remain period costs were a investments incremental same the marketing in this sales representing non-GAAP a

to of XX% for XX.X% quarter, was midpoint. target million of EBITDA $X.X remain revenue. the which EBITDA committed the at against adjusted to adjusted exceeded revenue million And progressing we guidance our Our $XXX.X of by XX% or our

by free be adjusted free ability and period, our cash cash growth. EBITDA leverage improved margin XX% expanded a year-to-date On flow cash to our margin. free gross flow and we're flow pleased to XXX within drive pleased our prior in margin, and while increased well XX.X% basis, versus to strong of revenue basis profitability to XX% the be through target range adjusted to continue We maintaining also points

the ended cash $XX.X outstanding. Briefly with GAAP sheet, million and Operating million. $XXX.X profit regards net and invested to balance we the corporate gross our results $XXX.X and for income cash million, cash, $XX.X was debt was QX, was no In million. income covering equivalent of quarter

average income, balance be In regard client an And yield average basis average estimating to our the approximately funds was daily daily approximately are annual QX. of interest $X.X billion billion XXX client $X.X we points. in QX will with balance held funds in and of

that includes impact expect this in impact increase, this the recency in of rates. expect the guidance more materially given please XX QX to week’s not future we our material Additionally, the of do to be rate periods, we although note impact and basis results the on interest point have increase

January, client February, versus employees the on over and increase April consistent March to sequential and levels, in QX on sequential on regard for only nominal a the platform basis In our a each client flat QX with of a in month was basis. workforce number

fiscal client to the continues overall workforce rest the guidance flat assume year. levels Our of for

provide QX like XXXX. for to financial With full I’d that, fiscal our guidance and

growth in or quarter $XX.X expected total $XXX.X expected For the range total revenue. fourth range adjusted EBITDA is is approximately be to million of revenue quarter to of $XX.X fiscal million. million And XXXX, of the the $XXX.X fourth XXXX to XX% million, to fiscal over

over $X.XXX is and million year. XXXX, million, be XXX in XX.X% approximately year range growth fiscal billion or to is EBITDA points expected $X.XXX $XXX.X fiscal representing be $XXX.X of the approximately implying for to EBITDA basis versus And leverage billion the fiscal last and of range XX% total margin to of of expected adjusted revenue adjusted in XXXX an to

remain represented exceeds are to margin, and the of free and midpoint, to fiscal revenue conclusion, which to growth gross combination guide confident of driving XX% the and leverage margin the adjusted our fiscal guidance going flow our also XX% remain on plus annual EBITDA increased adjusted to full with ability pleased results basis. year forward we in In growth our XXXX we’re cash We raise Rule for QX with XXXX. support in in XX adjusted pleased EBITDA committed an

for ready now are we questions. Operator,

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taking my I for was here. Sorry thanks the the I Steve, about couple, start start year on I so a about quarter that. let’s guess far. questions – of on the Congrats great topic mute. and with AI have

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an communication things to can sure getting getting your where across you’re descriptions job reviews, of places to as really energized employees lots people another you written or announcement. with to having of You an example, performance to need excited be point able potentially that or make that think provide assistant like

see platform assistance deliver to a get cases use we initial our those we from perspective. AI And and lot AI an value will can into I our add is You where clients. Assist of think

complicated. the become over start to time, But more much algorithms

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the the about AI embed Assist And so opportunity excited throughout really we’re to platform.

more sales your about any all know seeing more levels you. today? or forward. cautiously? are indicated Ryan’s talked relatively little of out you Our maybe And sales SMB cycle to here I Thank employment HCM’s But the are kind changes normal how seeing a even seem, you commentary, around there. flat cycles Understood. work assumptions has But positively mid-market in you going

performance, Hey, I I think, commentary the cycles. think Scott, we changes with in the quarter the consistent mean, the it’s I I sales seen significant and Toby. on mean, haven’t

also then both has perspective shaped I up and the relatively I from think an with and the quarter we’re how performance sales standpoint. think been from steady sales a execution overall, happy operational

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taking I for appreciate Meares Thanks Hey guys. it. the for This Joe Terry. on is questions,

are updates new announced So easier recently LinkedIn texting posting feature fillable we including you for integration new saw guys feature for if acknowledgements. be or for And and there you’d point to for and and most several could I’m XXXX beyond? a just excited meal other forms – any job then hires, customers updates a curious in signatures movers feature that are anything then if [ph] about? you that

Sure.

we’ve off strongly a and a client release history great client to So had co-creator. being based able is feedback. believe of We improvements

inserted. and see to our so our you more from And examples and other platforms capabilities that in be several we continue clients modern used we listed got also you’ll feedback improve product software

great but connections. all about So AI example, another we just leveraging are things like mobile chat the talked Assist,

sold had in forward monetizable improve and rich And remarks pipeline product amount that and see and of we’ll us product the new Toby prepared that same modules a also we then you’ll product going since the level really IPO from than of examples basis. to are platform time. engagement, on we’ve able I continue add with to our more continue that confident to trend doubled think employee pretty new higher so a some be ongoing drive are at the we’ve the perspective,

And as just Very follow-up. helpful. a

you’ve XX% growth think plus retention I target. about talked

again. to performed Just rest trend curious you metric Thanks calendar that quarter of how XXXX? the how and the through in expected then

we I of prior comments, I course mean, mean, consistent of the the to through – out with coming with think solid revenue in of and we’ve date, retention the part of pandemic still benefited higher and quarter consistent through the from the to retention. think quarter what that pretty year was think I the in. the contributed we then put industry. I that think And others I I Yes, pleased are course with it

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is pace that the the Jessica Thanks. hiring for announcing. Wong ongoing in given towards of wanted has investments this to new start investments been these I looking the year. year product up on follow and you’ve Hi, on quickly considering rest macro a of the and fiscal areas, into been you’re as just [ph] especially of competition? How And sales calendar Brian Peterson. development calendar

examples technology Yes, security, the go great so the practices to, perspective. by that as always gotten we’ve excited a product pipeline in been has to data product But software I hiring hire talented to layoffs really engineer folks challenging. about hot think try product been investments. some years the there’s continuing all the what tech Especially our been others got in despite market We’ve get we’ve like macro I back ROI org. previous you’re on looking pretty still or at fact to from we’re

and strong that been has customer the by a introductions per we’ve that’s performance driven got. revenue Average new been product for us,

understand the more from a perspective. the pretty But kind are macro bit uncertain time things deliver we’re that strategy. to we same able And of strong little sticking leverage. a we’re at to So

has And been so advantage the we component going going a out our monetizable strategy come we’re opportunities investments balance with we forward of like the in forward, and can getting our customers feel which feedback new take from product key historically. of

the question well. market events crisis? Thanks. banking recent in follow-up as SMB customers impact have you quick the seen one broader sector, And a or banking existing Great. on a recent any Considering from

take to I is can Sure, answer The that that one. no.

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kind held we that incremental you grew OpEx funds you from think forward, next reverses somewhat appreciate a year, scenario and But the revenue. where a commentary. the Thanks. got XXXX benefit and the on revenue in expenses fiscal this year margin I with there line of gross side? going as OpEx big Do So about obviously, envision

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Hi. guys. Thank afternoon you. Good

First one you. may how year XXXX? headcount force how us you on this sales some early for a thoughts you have Can plans fiscal on give and progressed and sense the expansion just sales for

Sure. XX%, sales I ability minus. think, of with staff force or we right mean, I with, pleased think to zip that we ex-one growing our year plus sales in came which to COVID, year. fairly the consistent, into I the maybe is coming high-teens headcount up the year up into And were code, around

for of how we we've we've favorable a year got I here I support need shaping we in with think path year. our sit to fully up staffed into fiscal. growth the able as a being headcount next think history into to we view able be the think today, of to the fiscal And the got that's that come

we looking that forward here XXXX. we fiscal we're as I about feel so think to And today, we sit as think pretty good

on Okay. then XXXX. just broader a fiscal And question

mindful client fiscal conversations, XXXX in margin think assess key Just as anything right and – we environment, current if growth just the the that just potential? be should we now of considerations you about and

XXXX, think the think sales the think I about look mean, for we just that. mean, think I've XXXX, force obviously – talked fiscal I about Well, I putting together we're at we the into plan I throes of as I fiscal in how just build

we've comments us I we're And I create coming close job the we've has done had busiest place of through we year. as and before, the both ops any innovation great that create the fiscal that's fiscal us in success of set performance and as think a the differentiation think looking history got think team helped Steve's I year future a up year. out product of for for also time an at

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Yes, would interest industry just year, perspective, been revenue in per. And the has growth Toby. thing add which of tailwind had The an haven't tailwind. pace a is we we've really any then macro only I from obviously, this seen really

of GDP do kind normal you environment, get on So pace a low-growth per growth. typically

tailwind, type year, And don't anticipating so go growth. next into no we're we necessary that pace you get as and per interest revenue

confident couple we a but Toby said, the execution things of control those pretty are all with that macro perspective, we're an as can aware from to be So things from of. a

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you As activity. similar our you and to look it type guidance, quarter next starts very to look go pre-COVID at into

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to we so think fiscal all I market going Probably the across you to the executing more that normalized a say, place you're the probably the been executing you're highlight back segments. fourth as And were of is really I go a well still into if would get be upper best year. would to highlight. still we've which But quarter quarter that end the of market.

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about how about increasingly again, the incremental to in opportunity been guys. better ecosystem. XXXX, cycles? fiscal up you're any Thanks not the maybe, appears does that of it's take again, headwinds guess guess question. seeing seeing lengthening XXXX? in a by incremental the Hi, traction, take Any stretched the I It kind any do of the longer, traction in you is sales you then at time as for you see Yes. of -- Do how asked bookings And macro market. just impacted global if are, sales -- you important rates It close more sound as that? be moment. out or importance approvals taking talked look I times. like cycles towards for couple you think

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that's margins Thanks just what's float are of expansion underlying good there's the beyond I'm maybe for the just scale supporting as Maybe Hi, evening. outside what margin software questions. really strip one, out or kind float your driving gross of gross that I changed in that side. maybe year-over-year. taking maybe anything up side or still curious increase terms if is core of nicely if my implied contribution, hosting costs first what's just on

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Great. follow-up. And maybe a then Steve Toby, or as

about of right largely of is is working? think customer nature products leverage more what's kind manage or right? leveraging what it just that the the the we're incremental world to new kind you're months where last to So or is over tools already having better now, have get they the [indiscernible] called in, it that more world they that the adopted more? conversation Or better it better As typical finding of be understood about seems XX to have XX the what modules do you about how how to of are they people

Yes.

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industry tech to and exposure are what you Any there? seeing

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big Thanks evening. upside to of maybe the as taking tailwind Good great. just has seen been quarter, on sort exclude Hey, the so. The revenue for my we’ve quarter, which if for it the a year in you a recurring from while. nice the Maybe wasn’t as from last in or question. flow, upside with start

something last going So maybe or such guidance execution that contrast what significant forward? year there, in call isn’t to terms is repeating maybe your in like dig upside if just you you that drove compare out would the there maybe in of and quarter

Sure, Dan.

obviously, across I think, back for recurring at we as total beat the results raise look quarter the that step plus year. and the and implied and

earlier, felt to momentum quarter within the comments the think that about the in really good results I So team. and sales the

you’ve little last the a of those years quarters. in think had I few certain bit of noise

You the into obviously had weren’t some tailwinds from client factored workforce levels that guidance.

six the was the last overperformance bit seen of probably eight quarters. to you that a So for would’ve

as we been it’s steady a there. state outlined think I

well good years. that’s feel Retention So bit for last well to no the high, time, would about real of I been about really a as the out that been trend little call really upside few where had good I in as beat and there’s of nothing past as one that, think feel continues the headed performed QX nicely has Outside tailwind. well.

the this is platform couple that there’s the quarters. you. steady comment Thank about suggest a And employees Obviously, growing. data market Great. job then, being other that and for I

If the your in substantially you – or time just platform I’m here… periods different sort macro look than I’m back historically, all to dots connect has trends overall? when in of trying been there the the employees

Sure.

…about what underlying Thank going you. is on.

the employees, so year-over-year do – think, getting We looking the that’s I And we focused pre-COVID, same there’s employees growth were like at the we’re really digits. you single low or digit of about and kind if in GDP employees of employees have often we’re the single talk on. when what And employees. more clients It’s they on less right? on so a go platform. in was Ye, normal, platform, low

employee more we the are employees that’s go probably see on seeing bit when had pre-COVID. GDP, a state period kind if you And platform. you of in kind And on even we’ve that’s are bump negative normal GDP people But years then the definitely many on of growth back, the time of and recessionary the platform shedding we growth, of of a employees little X% if platform. you’re seeing

perspective we haven’t going a one is forward. and seen that difference from So macro the we’re that not seeing forecasting

if And jobs think But sometimes the like a described rate it about versus we’ve generally yes, so up up I hasn’t I number line way numbers something perfectly, don’t just that’s you shifts. what and the GDP but some unemployment added. think employment gone speaking, seen But exactly historically. there’s

the for next of moment come line our Steve that from And Enders Thank Citi. with question. you. will One

open. is line Your

great. you’re like types making of Thanks in the about of kind for on taking rep kind kind of of there bets question. How you the of what Okay, sales coverage in I point at out environment. seeing guess be the this you’d current at and just types or your terms where thinking further that are investments of looking the you’d be base here? based

of time We the to So after kind hiring of going this We we’re ourselves of that to start typically quarter. of and the try we spring the the throughout a up ramp carriers kind reps. target year. quota fiscal is just kind get last into year then of completed, number we

mid-teens while. been think that questions. one We’ve kind of that mentioned growth for last Toby that was XX-ish year number to percent. getting I We’ve of in earlier of success the had up kind a rate

we year. perspective next proposition value in give target resonates well We sentiments, good next sales will are for about we’re really exact and But feel right from the earnings hiring We we a the I as good our think now. the for think, number to towards you echo Toby really marketplace where making reps call. the on progress

you’re looking the up more or environment? change in customers or and is types of profiles that the add, inside of kind it sales guess like focused need there more I to any coverage of reps is the like mid-market like, how on in like building of of you in that terms viewing larger reps you’re this

question. a good that’s No,

years success a said, called almost having end we’ve we’ve larger over with of the even I maybe out market. two bit more the little I where think now, the last, been like

lead And a so bring reps. industry probably industry definitely handling and on still reps. BXB were those sales, but capturing and industry are you’re kind we And experience more on with that yet mid-market inside non-industry, our sales experienced heavily digital of the generation We lean towards reps core people those. mix of then experience

need less those so And experience.

the And going across to we’re board. so potentially adding be people

it’s all But looks like, expand mix bit would through we in as that been shift what that larger on forecast but the client if a that anything, a we going And we’ve small forward. see markets. We’re to opportunities end. many continue as not maybe going slight quite generating likely little to

perfect. you taking Okay, Appreciate questions. the

would time. closing any call this management questions for to to showing over like I’m in I turn you. Thank now no further queue the at the back remark.

Paylocity. the special of wanted much. for very hard to for employees you also for to thank work just in Thank their all their our thank a I and to joining throughout the quarter. Thank of interest the everybody give wanted call Thanks course you. all you

This concludes program. all you Thank participating. for today’s

now may You disconnect.