Ladies and gentlemen, thank you for standing by and welcome to the Paylocity's Q3 FY 2021 Earnings Conference Call. All participants' lines are in a listen-only mode. If you require any further assistance, please press star zero. I would now like to hand the conference over to Ryan Glenn, Vice President of FP&A and Investor Relations. Please go ahead. Good afternoon, and welcome to Paylocity's earnings results call for the third quarter of fiscal year 2021, which ended on March 31st, 2021. I'm Ryan Glenn, Vice President of FP&A and Investor Relations, and joining me on the call today is 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. 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. 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's a reconciliation schedule detailing these results currently available in our press release, which is located on our website at paylocity.com 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 their directly comparable GAAP financial measure because the information which is needed to complete a reconciliation is unavailable at this time without unreasonable effort. In regard to our upcoming conference schedule, Toby and I will be attending the Needham Technology & Media Conference on May 17th. Steve and Toby will be attending the William Blair Growth Stock Conference on June 1st. Toby and I will be attending the Cowen Technology, Media & Telecom Conference on June 3rd, and Toby will be attending the Baird Global Consumer, Technology & Services Conference on June 8th, and the Stifel Cross Sector Insight Conference on June 10th. Please let me know if you'd like to schedule time with us at any of these events. With that, let me turn the call over to Steve. Thank you, Ryan, and thanks to all of you for joining us on our third quarter fiscal 2021 earnings call. Our solid results continued in the third quarter of fiscal 2021, with a total revenue of $186.1 million, an increase of 8.4% versus the same quarter last year, despite continued COVID-related headwinds. Recurring and other revenue grew by 10.7%, which included a headwind of $3.5 million-$4 million or approximately 2% of total revenue due to annual W-2 billing as a result of lower employee levels at our clients in 2020. Despite those COVID-related headwinds, we still had a strong selling season and are pleased to have started more business in the quarter than we did in Q3 of last fiscal. We continue to be pleased with the execution of our sales team throughout the pandemic, including at the upper end of our target market, as our modern, comprehensive product suite continues to gain traction with larger clients. Our sales team continues to gain momentum as we anniversary the impact of COVID-19, with both April new business starts and April first-time appointments up substantially over last April as selling conditions continue to improve. We are optimistic about the potential to return to a more normalized sales environment as vaccine rollout continues and state restrictions gradually ease across the U.S. and remain committed to continuing our investment in digital marketing and digital lead generation to support the effectiveness and efficiency of our go-to-market motion. Additionally, channel referrals, primarily from benefit brokers and financial advisors, once again represented more than 25% of new business in Q3, led by increased use of virtual broker connection activities, events, and virtual gatherings that helped us maintain strong channel referral levels. Adjusted EBITDA for the third quarter was $66.9 million or 36% margin, which exceeded the midpoint of our guidance by $6.4 million. We are pleased with our ability to be efficient with operational and G&A costs while we remain focused on incremental investments in research and development and sales and marketing initiatives in fiscal 2021 and 2022 to continue our momentum in product and sales and to position us for driving future growth once we return to a more normalized macro environment. Our commitment to product development, including sustained investment in R&D, continues to be a key differentiator in the marketplace. Last month, we introduced the Paylocity Modern Workforce Index or MWI, a proprietary algorithm and index that analyzes, scores, and tracks a company's progress in delivering a more engaging experience to their employees with the goal of improving overall employee sentiment, retention, and productivity. MWI uses machine learning algorithms created by our data science team to deliver an MWI score that can be benchmarked versus peer companies in the same industry. We leverage the data and best practices from more than 25,000 clients to deliver customized recommendations that will improve employee engagement and increase a client MWI score. An independent research study performed by Deloitte confirmed that companies with the higher MWI scores experience lower levels of attrition as higher levels of platform utilization drive improved workplace satisfaction and longer employee tenures. As individuals begin to return to the office, and as the war for talent accelerates, we believe driving more efficient processes and focusing on employee engagement will be a key priority for businesses, and we remain committed to better servicing our clients across these areas through our expanded product suite. I would now like to pass the call to Toby to review the quarter's results in detail and provide updated guidance. Thanks, Steve. Total revenue for Q3 was $186.1 million, an increase of 8.4%, with recurring and other revenues up 10.7% from the same period last year. Our adjusted gross profit was 73.5% for Q3, with continued pressure from both COVID-19 and interest rate-related headwinds. We continue to make significant investments in research and development. 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 R&D investments were $22.4 million or 12% of revenue in Q3. On a non-GAAP basis, sales and marketing expenses were 19.4% of revenue in Q3, as we remain focused on making incremental go-to-market investments in fiscal 2021 and fiscal 2022. On a non-GAAP basis, G&A costs were 11.9% of revenue in Q3 versus 10.7% in Q3 of last fiscal year, and we remain focused on consistently leveraging our G&A expenses on an annual basis. Our adjusted EBITDA was $66.9 million, or 36% of revenue for the quarter, which exceeded our guidance by $6.4 million at the midpoint. We remain committed to progressing toward our adjusted EBITDA target of 30%-35% of revenue once we return to a normalized macroeconomic environment. Covering our GAAP results. For the quarter, gross profit was $128.7 million, operating income was $39.1 million, and net income was $36.8 million. In regard to the balance sheet, we ended the quarter with cash equivalents, and invested corporate cash of $182.3 million, and we fully repaid the $100 million drawdown on our revolving credit facility during the quarter. We're pleased with our performance in Q3, which included another strong quarter for our sales team, while also identifying opportunities to demonstrate scale in operational and G&A costs. We're happy with the progress we've made to that end in Q3. In regard to client-held funds and interest income, our average daily balance of client funds was $1.9 billion in Q3. We are estimating the average daily balance will be approximately $1.6 billion in Q4, and we assume an average yield of approximately 5 to 10 basis points in the fourth quarter. Before reviewing guidance, I'd like to provide some additional context on the current operating environment. As Steve mentioned, we continue to be pleased with the performance of our sales team this fiscal year to date and this past quarter. In regards to the ongoing impact of COVID-19, we continued to see last quarter a double-digit impact on recurring revenue growth, primarily related to the sustained lower level of client employees on our platform. Within the quarter, while we did not see any improvement in January or February, we did see a notable increase in client workforce levels in March, particularly in the back half of the month, with further improvement during the month of April. Finally, I'd like to provide our financial guidance for Q4 and full fiscal 2021, which incorporates known and some estimated impacts related to COVID-19. In regard to employees per client, our guidance incorporates the improvements we have seen to date, but no further increases during the remainder of the fiscal year. For the fourth quarter of fiscal 2021, total revenue is expected to be in the range of $159.5 million-$163.5 million, or approximately 22%-25% growth over fourth quarter fiscal 2020 total revenue. Adjusted EBITDA is expected to be in the range of $31.5 million-$34.5 million. For full fiscal year 2021, total revenue is expected to be in the range of $627.7 million-$631.7 million, or approximately 12% growth over fiscal 2020. Adjusted EBITDA is expected to be in the range of $164.3 million-$167.3 million. In conclusion, we are pleased with our Q3 results, particularly in the context of the current operating environment, and we remain committed to investing in the business to ensure we are well- positioned for a return to a more normalized macroeconomic environment. Operator, we are now ready for questions. Thank you. Thank you. At this time, if you would like to ask a question, please press star, then the number one on your telephone keypad. We'll pause for just a moment to compile the Q&A roster. Our first question comes from Scott Berg of Needham. Your line is open. Hey, Steve, Toby, Ryan, congrats on a good quarter, and thanks for taking the questions here. I just have a couple here. Steve, on the second quarter call, you commented on how your customer additions were in line with the additions that the company saw in the back half of 2019 for that six-month period. I didn't hear you comment on that metric here on the call, but how should we think about the pace of adds? Were you able to kind of sustain that rate, which I think was up 19.5% roughly year-over-year, or was there a meaningful change one way or the other to customer additions? Yeah, Scott, I think being the midpoint of the fiscal year, we wanted to give some color of that, knowing that we had just kind of made it through the January selling season. The fact that we didn't call it out this quarter was not because we'd seen a change. More, it's really continued. So we've had really strong, I think, unit growth through the first half of the year and continued momentum in the quarter. Got it. Steve, one of your comments was about the strength of your sales on the upper end of your target customer segment. Can you point to a factor or two that might be driving better sales there? I assume that means slightly improved win rates, but is there something about the platform or the service that is really resonating well with customers right now? Sure. I think, the investments we've made in product, both in terms of modules that we've added, but also some of the innovations that we've added to the platform with products like Community, the addition of Premium Video. We feel like that's really resonating in the marketplace with the COVID backdrop and the fact that so many employees are working remotely. In many cases, some of the larger clients still have enough resources where they're still out there evaluating HCM platforms and looking at it. I think it's a combination of, I think the market on the upper end is probably a little bit more robust in terms of the earlier recovery, but more important than that is the fact that our product investments are really resonating. Got it. I'll sneak a quick one in for Toby. Toby, your R&D expense in the quarter is actually down sequentially from Q2, and you didn't spend any more on the capitalized R&D necessarily in the quarter. Any reason for that dynamic? Because that typically doesn't happen seasonally for you. No, I think you're seeing some timing things from a quarter to quarter, year-over-year, from that perspective, Scott. I think what we've said pretty consistently is, throughout this fiscal year, and I think this will also be true in the back half and in the last quarter, is we'll be focused on putting incremental investment against both R&D and everything from a go-to-market and sales and marketing perspective to continue to drive future growth. I think, despite timing differences that you may see, that's still where the effort is, and I think, as we look at getting back to 20% plus growth in Q4 and in the tee-up for next year, I think we're still focused on driving R&D and sales and marketing investments to drive future growth. Great. That's all I have. Congrats again. Thank you. Our next question comes from Brian Peterson of Raymond James. Your line is open. Hey, gentlemen. Thanks for taking the question. Good to hear from you guys. Toby, it's nice to see the 24% growth guidance for the fourth quarter. I know you just mentioned maybe the follow-up to Scott's question, that there will be some investments. As we think about that 20%+ growth profile, is there any framework that you would give us in terms of how to think about the cadence of margins as we're thinking about fiscal year 2022 and beyond? I think the big picture backdrop is, we've talked about still being focused on getting into that 30%-35% range over time. I still think that's the right framework that we would point to. I think we've performed better from a margin perspective as we've gone through the year than maybe we would've thought at the outset, and I think a lot of that comes from some of the costs that we've been able to manage through the course of this year and the pandemic. Things like T&E being down substantially. I think the consistency in the investment philosophy and the strategy is to continue to spend on things like R&D and continue to drive investment in sales and marketing to be able to continue to drive future growth. I think that's still how we're thinking about coming through this year, and I think that will be consistent as we go into next year. I think that investment focus will remain constant. I think the one thing I would add is we're excited about what we're seeing in the market right now, as we're starting to see things return to pre-COVID levels when you look at first-time appointments in the sales force, number of leads coming in, number of clients we're bringing on. We definitely want to invest and take advantage of that opportunity. Last year, there were some constraints with travel and T&E and so many other things. We're definitely focused on getting into that mid-20s. You can see us forecasting that for next quarter, and that's our number one focus, and we definitely want to invest back in sales and marketing, certainly at a higher rate than we have over this past year, as well as R&D, while at the same time kind of balancing our long-term EBITDA objective of, over time, getting to that 30% plus. We think we can do that responsibly. Steve, maybe it's too early to ask this question, but if you think about the pipeline, a lot of the early indicators that you're seeing, any changes into where the sources of business may come from? I'm just curious how the competitive dynamics may potentially evolve over time. Thanks, guys. Yeah. First thing I would say is we have been pretty happy with the sales force. We have absolutely sold more business than we did last year. It has affected productivity a little bit over this past year. Over the last couple of months, in particular, we're starting to see activity levels, the amount of bookings, the amount of appointments all start to get much closer to that pre-COVID level. That's certainly exciting to us. No big change from a mix perspective. We made the one call-out that we're seeing a little bit more traction at the upper end of our target market, but we're getting the customers from kind of the usual people that we would see and the usual competitors in the market. Thanks, Steve. Thank you. Our next question comes from Brad Reback of Stifel. Your line is open. Great. Thanks very much. Guys, if you look at the pace of hiring picking up in April, as you talked about, and you play that through to the installed base returning to where it was pre-COVID on their employment levels, do you think it takes a couple of quarters or a year plus to get back to where they were? I think we've been hesitant to try to forecast the economic recovery. As Toby mentioned in the prepared remarks, we basically took what we saw in April, and then we played that through and incorporated that into our guidance. It's difficult for us to assume anything further out there. Obviously, there's positive news in terms of vaccination rates number of cases right now. I think that's the approach that we'll take. We'll try to give you better color as we give guidance towards next fiscal year in terms of what those set of assumptions are. I think at this point so far what we've seen is, has been a very gradual recovery. Whether that starts to accelerate or not is still probably to be determined in our mind. Great. Thanks very much. Thank you. Our next question comes from Terry Tillman of Truist. Your line is open. Yeah. Hey, Steve and Toby. Thanks for taking my questions. I guess, thanks for the color, Steve, in terms of the April appointments up 30%. You're going to get in the habit here, we're going to ask you every month how the appointments are coming along. Maybe pre-pandemic, what was a good month for appointment growth year-over-year? I'm assuming there was growth every year because you're adding more to your sales capacity, et cetera. What does 30% growth sound like? I know it's better than prior couple of months, I assume, but just a little bit more color around that, and is that a lot of that from the upper end of the target market? Yeah. First of all, I don't think we've called out a specific number on it being up 30%. That would actually be low relative to what we saw, but we're not going to call out the number specifically. We're seeing it really across the board. We're seeing it down at the lower end of our target market, which, those businesses were obviously very much impacted during COVID. We're seeing that come back. It's happening a little bit more in the U.S. states that are more open, no surprises there. Mid-size has also started to come back. I think throughout COVID, the upper end of the market has probably been the steadiest, now we're starting to see the mid and lower end of the market really start to come back. Yeah, I just looked at my notes. You said substantially. Somehow, I made that 30%, so good call out there. Maybe the second part of the question, and then I had a follow-up for Toby is, at the upper end of your target market, what's their propensity right now to buy a plethora of your add-on modules? Are you seeing any changes there? I had a follow-up for Toby. Yeah. I think what's really resonating at the upper end of the market is maybe the complete value proposition. The idea of us being the most modern platform and giving our clients tools to manage a workforce that's gone through a whole bunch of changes, flexible schedules, people working from home, higher demand for transparency. That value proposition's really resonating. If you look at our product roadmap over the last few years, we've filled in a lot of the HCM modules. We've got much more complete offering and a much more modern capabilities. I think that has really translated in terms of both our ability to generate leads, in the upper end of the market, and then ultimately translate those into closed sales. I think that has gradually improved throughout COVID to the point that it was worth at least us calling it out. Again, we've really got to emphasize, we're starting to see things come back across the entire target market. Yeah, that's great. I guess, Toby, and maybe Steve actually mentioned this, but the $3.5 million-$4 million impact, I guess, from lower employment levels. Did you talk about or quantify in Q4 what you expect there? I know it sounds like April was better from an employment standpoint, but did you actually quantify the headwind in Q4? Thank you. I guess what I'd say is, I think the 3.5 million-4 million was in reference to W-2s for Q3. I think that was the call-out for that. I think in terms of quantifying the employees on the platform as we're looking at Q4, I think that we didn't call out the quantification of that. I think what Steve's comment was, we started to see improvement mostly in the back half of March. We did see improvement in April, and we carried that through to the guide. We didn't include any incremental improvement from that point forward. I think that's consistent with how we've been issuing guidance since the beginning, and that's what we did for Q4 as well. Thanks. Thank you. Our next question comes from Mark Marcon of Baird. Your line is open. Hey, good afternoon, thanks for taking my question. Just curious with regards to the modules and the attach rates. Can you talk a little bit more about Community and Premium Video, what you're seeing there? Then, separately, obviously there's all sorts of stories about worker shortages and demand for workers. Wondering if you can talk a little bit about your talent acquisition modules and if you're seeing a big uptick there, from a usage perspective, and what else you can do in order to help companies alleviate some of the worker shortages. Yeah. I think on the first point, we definitely have seen throughout COVID increased utilization in Community. Now that's a module that is available for all of our customers, and really gives the ability to communicate and connect in ways that mirror how people might communicate in their social lives, and it's a very social experience. That has continued to grow. We have definitely been pleased with the initial launch of Premium Video, which was available to new customers at the start of this last calendar year. That's done probably better than we would've expected, and no surprise since people are communicating a lot via video today. I think the other two that's done really well throughout COVID is Learning Management, Surveys. All of these modules that are about communicating and connecting with your employees in a much more digital fashion has been a consistent trend throughout COVID-19, and we've been really pleased with it, and we continue to innovate around that idea of really truly being a modern experience for employees. I think the second part of your question, Mark, was? Helping clients basically address the talent shortages that are creeping up across the board. What are you seeing in terms of talent acquisition, attach rates? Onboarding? Anything new that you can do to further help your clients? Sure. Well, I think, early on in the pandemic, a module like recruiting is probably not quite as in demand as people are downsizing and trying to figure out where their business is. We definitely have seen that return back to kind of our normalized level of penetration rates. We launched text-based features on our recruiting application, so you can connect with candidates via text, which gives you a much higher response rate. That's a really good example of something that we've added to really help our customers. We'll continue to innovate because I think you're right. As the economy starts to recover, it will become more challenging to be able to find the talented people that you're looking at, especially in growth markets. Great. Then just on the upper end, when you're talking about the upper end, are you talking all the way at the tippy top of your range, or are you talking kind of the midpoint to the upper end? From who are you bidding from? Because we've heard, obviously, from the big incumbents that we all know. They've been talking about increases in terms of their retention rates, I'm wondering how that coincides. Sure. We basically do not cap our sales force. It's really about a product fit to the customer. We are focused up to 1,000 employees. In many cases, and for many years, we'd bring on customers above 1,000 employees. I would say, it's really the upper half, so it's 500 plus. We have customers with several thousand employees, and we have a number of customers with thousands of employees on the platform. We probably have seen a little bit more momentum at the upper end of our target market and even beyond than maybe we had seen 12 months ago, and we felt like that was probably worth a call-out because that was a particular strength in the quarter. Great. Who are you taking away from? No real big differences there. We continue to see some of the service bureau providers. We continue to see in-house offerings. Once in a while, you run into some players in the enterprise space that we don't typically run into, but it's still fairly infrequent. At the end of the day, I think our product suite offers a level of difference where if we get pretty far in the process, you won't see some of the enterprise folks alongside of us. Great. Just for next year, should we think about things like travel and entertainment really creeping back? In other words, should we expect margin improvement next year, or is it possible that we're going to, with the sales additions and maybe some expenses coming back, that maybe we have a lower level of margin expansion next year than normal? Yeah, I think that's a good question. First, we're really excited about continuing to invest and grow. I'm excited about the momentum that we're seeing in the market, and you can see that we have not grown maybe places like sales and marketing and R&D in a way we would normally would. We had kind of done a pause early in COVID. We've been certainly working at increasing those numbers since then. We are in investment mode, and at the same time, we're going to be comping a time period where we haven't had a lot of travel. People weren't moving around. They weren't getting together. We want to get our people back together. We don't envision everybody being in the office the same way. It'll be more of a hybrid environment long term. We absolutely think getting people together, driving the culture, is absolutely going to happen. It probably becomes a tougher margin year next year because of that. From a long-term perspective, it won't really hinder our ability to get to our long-term model, and we think that that's the right type of investment because the opportunity is still very large in front of us. Great. Thank you very much. Thank you. Our next question comes from Bryan Bergin of Cowen. Your line is open. Hi, guys. Good afternoon. I wanted to follow up on the employment-related headwinds on the pre-pandemic client base and just trying to understand the magnitude of this improvement that you saw through April. Is it still assumed to be a double-digit headwind to recurring in Q4, or has that kind of moved into the single digits? It's definitely moved into the single digits. I'm not sure we want to get into calling it out specifically. There's different elements. It's mostly driven by employees on the platform. I think about it as gradually getting better, and slowly moving out of those double digits, and then obviously being less so into next quarter. That's probably kind of the right way to think about it. You can kind of see it obviously in our guide, right? We're back into that mid-20s kind of guide. Obviously, we're anniversarying kind of that COVID period. Our anticipation was what we saw through April. We didn't include anything else in terms of the assumptions for the guide. So far, it's been kind of a slow but steady recovery. Okay. That's helpful. Then can you give us a sense on where sales headcount stands, and how would you say you're doing in this environment adding new sales professionals? Yeah. I think, as I mentioned earlier, we had a bit of a pause early last fiscal year just in terms of hiring. We definitely felt like the sales team was doing well in the COVID environment, and we started to kick that back up. This is really our hiring season that we're in right now. Spring is really where we really do a lot of our hiring so that we can go into next fiscal year with the right number of headcount. We feel pretty good about the progress that we're making. We'll give you more color on the next call in terms of where we're at, but I would say so far so good. All right. Thank you. Thank you. Our next question comes from Samad Samana of Jefferies. Your line is open. Hi, good afternoon, thanks for taking my question. Maybe on the product side, just when I think about the company's last couple of tuck-in acquisitions, could we get an update on maybe just where the back-end integration process there is along with that gross margin, I know it bumps up seasonally in the March quarter, it was actually quite a bit ahead of what we were looking for. Are we starting to see gross margin gains there as those integrations are completed? I think overall, as customers buy more of the HCM modules, we have historically gotten a lift in gross margin. If you think of something like Premium Video, a lot of the work is on the product dev side, less of the work's naturally going to be from a support perspective, because, once we turn that on for you've got video embedded in different parts of the application, and you can start taking advantage of that, and it's really easy to use, right? That's kind of the goal that we have with a lot of the new modules. As module penetration increases, that's certainly going to be one of the primary drivers of gross margin. We also mentioned we had pretty good expansion of Surveys and Learning Management throughout COVID, so another good example. I think there is some element of travel and expense and so on that we do, even in the gross margin line, not nearly as much as you would see in maybe sales and marketing. There is an element of, from a cost perspective, we certainly didn't take on any additional facilities or anything that we might consider in normal headcount growth environment. I think there's a little bit of cost benefit from it, but most of that is coming from the module penetration of these newer modules. Great. As I think about maybe the historical trend between kind of the rack rate PPY and kind of realized pricing, as you add more of these modules, are you starting to see kind of better conversion there? How should we think about the effectiveness of the add-on sticking in terms of price up list or PPY up list? I think what we've historically found is when we release a module, we're pretty confident that with a little bit of time, we can get that thing into 10% of our customers and then grow it from there. We've had pretty good success being able to do that. Some products will accelerate much faster than others, and some take a little bit longer, right? Overall, when I look at all of the modules and how we're doing from a pricing perspective in terms of getting that realized PPY, it continues to increase, and we feel pretty good about that. Now, at the same time, during COVID, you've got less employees on the platform, so you've got some mitigating circumstances there. I think from a module penetration and the utilization that we're seeing from clients of those modules on our platform, we're very encouraged. Great. Now I'm going to apologize in advance for squeezing one more in. I know normally we're down to two, but just as I think about CAC, are we starting to see any changes in trends there? I think that especially with retention, as someone mentioned earlier, some of the incumbents increasing and a fight for adding more units. Any changes in your customer acquisition costs that we should be aware of? Hey, Sami. We've been pretty consistent from a retention perspective, and so, I think we've seen relatively consistent client retention rates throughout the course of the pandemic. I think that consistency would have continued through Q3. I think just go back to the investment comments that I and Steve would've made earlier in the call and in the prepared remarks. I think we are still remain focused on investing in sales and marketing. That's true of this year. Obviously, Steve's referenced a couple of times the timing difference in the year in terms of being a little bit lighter because of pauses at this point last year. I think as we look at Q4 and as we look at next fiscal year, the effort is to get back on pace with investments in sales and marketing, and that's all focused on being able to continue to drive growth into the future. Great. Thanks again for taking my questions. Sure. Thank you. Our next question comes from Matt Ball of William Blair. Your line is open. Hey, guys. Thanks for taking my questions. Just one for me on the competitive environment. Wondering if you've seen any changes in your competitive win rates. I think one of your competitors was out there talking about them seeing better win rates. Just wondering what you guys are seeing out there in the market. Yeah. I think what I would tell you is I think our win rates have been fairly consistent over time. Not necessarily a lot of change there. I think what the call-out is, we're seeing more activity, so more first-time appointments, more deal flow, more activity. That's probably the part that's more encouraging. I think we feel good about the win rates that we've had and the consistency that we've been able to deliver wins versus our competitors, and wouldn't call out a change there. Great. Thanks, guys. Thank you. Our next question comes from Robert Simmons of RBC. From the RBC, your line is open. Hi. Great. Thanks for taking the question. You gave the forms headwind as $3.5 million-$4 million. I just want to check two things. That was versus trend, right? Not year-over-year. Does that include both W-2s and ACA-related filings and that kind of thing? The $3.5 million-$4 million was the actual impact in the quarter. That was related to W-2s. That's almost all of it. Yeah. Okay. Was there also like additional ACA impact as well for the ACA annual form filing requirements? The ACA impact would've been embedded in kind of the employees on the platform on an ongoing basis because we typically, for most of the clients, we bundle that as an ongoing service. Rather than just charging one time, it gets spread out throughout the year. Got it. Okay, great. Thanks. Then, you mentioned retention being pretty consistent, but can you give a little more color there, like, are you still seeing some businesses that drop down to zero employees and they're sticking around and paying the very low minimums, but they haven't turned you off? What's the overall view? That's a detailed question, for sure. Yeah. Retention has been strong overall, right? When we're generally focused on revenue retention, being above 92%, and we continue to see that. It's been a strong year for us from a retention perspective. We do manage the clients that might go down to no employees and tell us, "Hey, I'm not going to process any payrolls for the next month. I'm going to pay you some minimum amount." We are pretty quick at going back at those clients and making an assessment in terms of whether they're going to continue. We would never have a buildup of customers who are not doing anything on our platform for any period of time. We would actually take those as a loss and re-engage them when their business came on if we had to. It's a really small number. Small number of clients and very small amount of revenue. Got it. Great. Thank you. Thank you. Our next question comes from Alex Zukin of Wolfe Research. Your line is open. Hey, guys. Thanks for taking my question. I'll try to keep it to just the two. Maybe just stepping back a little bit, Steve, if you think about where your pipelines are, where your pipeline coverage is, when you were going into the pandemic, you started really seeing almost an acceleration in some of those metrics and the execution. Are we at a point now where we're back to that pre-pandemic new sales execution mode? Are you seeing anything like, is there almost like a coiled spring of people that were hesitant to move that maybe now as budgets have loosened, the environment's maybe reopened, there's a little bit more willingness, and so there's almost like a pent-up demand type of situation? Well, it's hard to know exactly where we sit right now. What I would tell you is going into the pandemic, we called out the fact that we were over 40% bookings versus the prior year. We had a significant amount of momentum, and that was both in activity and then obviously in terms of getting those customers started. What I would tell you is throughout the pandemic, it certainly is a little bit more of a challenging sales environment, but it's a big market and a big opportunity. We were able to focus on industries and states where those opportunities existed and still continue to have what we thought was pretty good growth. We are now, I think, more recently, meaning the last couple of months, and maybe not uniformly across the country, but as different markets have reopened, activity levels have certainly increased. We see that both in first-time appointments, in bookings. We're probably not quite at that pre-pandemic level yet, but we feel like we're heading towards it, and that's giving us the reason for the optimism. Got it. Maybe just one for Toby. I realize we're not giving any guidance for next year, but if I look at the tailwinds in the business, comping the COVID period, you're getting a little bit of a boost in productivity. You're getting some incremental modules that you're now able to sell. You're seeing some recovery, at least in flow and interest rates, some recovery in employment trends. Is there anything that should be different about the seasonality of the business from a sequential growth perspective as we think about the shape of fiscal 2022 or any elements around why we couldn't see a little bit heightened growth trajectory versus previous years? Well, there's a lot in that question. I don't think there's anything structurally different in the business that would give you a different shape to the things that you watch on a quarter-to-quarter basis throughout the course of the year. I think the only thing I'd say is an awful lot of the things that you mentioned are early days of tailwind, and they're pretty hard to foresee how exactly those are going to play out from a timing standpoint in the course of next year or if they do. I think you're hearing optimism from us in terms of what we've seen in the back half of March and in April. Certainly would be great for the world to see those things continue. It's hard to necessarily quantify how they're going to play out next fiscal year or the timing that you might see associated with them. There's nothing structurally different in the business from if you're in steady state perspective. Understood. Thank you, guys. Congrats on a good quarter. Thanks. Thank you. Our next question comes from Siti. Siti Panigrahi of Mizuho. Your line is open. Hey, guys. This is actually Matt on Siti's behalf. Thanks for taking the question. I want to ask Alex this question a little bit differently. It was noted that Premium Video and the modernity of the platform is starting to resonate. I'm very curious. I would imagine that the customer base is going to start thinking about a return to the office as most of corporate America has. Does that have any ramifications for your sales cycle? Would people consider Premium Video and learning management systems, at least the modernity of those, any different priority-wise as in-person interactions resume and people are more than pixels on a screen? I think the conversations that we've been having with our customers, as you mentioned, everybody is trying to figure out how they're going to do this, particularly in a knowledge worker economy where they can be effective from home. Most of the conversations that we've had with people is that new normal is some sort of hybrid. What that means is maybe I was in the office five days a week, now I'm going to be in the office three days a week. Maybe I've just got more flexibility around what my scheduling is. We've come to a level of trust, and we've been able to see what productivity can look like from work from home from the scenarios. I think it's going to be difficult to be able to keep that, and return back to the way it was before, particularly as the economy's growing and finding the right talented people is going to be a challenge. I think that those products are going to continue to resonate, even if people are back in the office for some period of time. Actually, they could become very important as part of driving your culture in an environment where you don't have everybody in the office every day. We feel like that trend will very much likely continue based off the conversations we've had. That's certainly what it's going to look like here at Paylocity. Understood. That dovetails really nicely into my next question. Do the plans for your own virtual sales approach in the second half, and it was alluded to earlier as T&E potentially comes back, has that been dialed into a point where the virtual sales approach could be something that's longstanding, and it wouldn't gradually fade away as reopening pervades more and more? Yeah. What I would tell you is the great thing about salespeople is they're very creative, they're entrepreneurial, and they want to follow where the market is to find the revenue. What I mean by that is if customers are much more comfortable having in-person conversations and they want to move that way, then our sales force is certainly ready to do that, and there are absolutely cases where they're having on-site appointments today. The salespeople also recognize that if they can do that virtually and avoid a drive, and the customer is very comfortable, they'll do that. We want to make sure we arm our salespeople with all the tools they need to be successful, either virtually selling clients from their home office, as they're doing today, or getting back on site with customers and making sure that we can do it the way that the customers are most comfortable. I think, like my answer before, you're going to see a bit of a hybrid and a bit of a new normal, where it's going to happen both ways. We're going to make sure that the sales reps are ready to do it either way. Excellent. Thanks so much, guys. Thank you. Our next question comes from Jeff Van Rhee of Craig-Hallum, your line is open. Great. Thanks for taking my question. Just one for me. On the quarter, in terms of the variance, can you just put maybe a little finer point on it? I think you had about $1 million of revenue upside, give or take, but about $6 on the EBITDA side. Maybe just spend a second there in terms of the variance around margins and spend, just so I have a little more clarity on the quarter itself. Sure. Some of the variance certainly comes from the fact that we got a little bit of recovery right at the end of the quarter. As Toby said, more in the back half of March. That's certainly a smaller portion of it. We were hopeful at the start of the year that we would be able to be back to travel and doing some of the meetings and have much more in-person contact. As we kind of budgeted in the quarter, we were able to do better from an expense perspective. I think lastly, to my earlier point, some of these products that we're able to get higher penetration rates on are driving some margin expansion. You saw that in gross margin. I think it's a combination of factors that have translated to a bigger beat on adjusted EBITDA than we had in revenue. Yep. Fair enough. Thank you. Thank you. Our next question comes from Arvind Ramnani of Piper Sandler. Your line is open. Thanks for taking my question, and congrats on a good quarter. I just wanted to ask about the competitive environment. I know the question has been asked a couple of times, but what I'm really looking to understand is certainly some of the more legacy players like ADP and Paychex have been making investments on making their solution more cloud and more agile. You've had some of the more niche players, whether it's Paycor or BambooHR, really come at it from a different perspective. Have you seen increased competition from either of these two groups? The follow-up is from a product roadmap perspective, do you feel you're making the right investments to keep ahead of the competition over the next couple of years? Sure. I think on your first question, it's always been a pretty competitive environment. I think it's pretty typical that a customer is going to look at two or three providers. Our size market, they probably can't handle evaluating a lot more than that. That's always the case. Yes, you see the bigger players in those deals all the time, and some of the newcomers we're used to competing with. As I mentioned earlier, we have not seen really a change in our win rate. We've been pretty effective throughout the pandemic in terms of competing. I think your second point on, we really do believe that some of the bigger macro trends in terms of work from home, increased flexibility, Gen Z entering the workforce and having different demands on their employers, and people wanting tools at work that feel like their tools at home all really bode well versus our product roadmap. We're excited about what we just launched with our Modern Workforce Index, where we actually have a proprietary recommendation engine built and a scoring model that'll allow people measure their progress in terms of how effective they are with their communication, how engaged their employees are. That's an example of something that's pretty unique and innovative. That combined with what we've done in Community, we think is a good proof point of us really being one of the more modern platforms, if not the most modern platform in the marketplace. I think those trends are going to absolutely continue in this new hybrid work environment. We feel really good about the investment we've made in our data science team, in Community, in video, even with the most recent acquisition, which is still in the integration process of Samepage, all really speak to that modern employer. Sure. Again, Steve, I know when we met in 2019, you were excited about Community and Video, and certainly, you probably didn't anticipate the pandemic at that point, but certainly usage of this must have gone up with your clients. Have you taken a look at the product roadmap over the next couple of years? Are there certain areas where you need to make bigger investments in a lot more quickly than if the pandemic had not happened? Yeah, it's a good question. I would call it our data science team and some of the stuff we've done around the algorithms and machine learning. One of the challenges customers have, and this was brought up earlier, is they're not sure oftentimes what to do, especially the average customer with a little more than 100 employees. Now I've got employees who are only in Monday and Wednesday, and other employees are in Thursday and Friday, and I've got this whole flexible schedule environment, and I've got younger people entering the workforce, and I'm having a hard time connecting with them. We're really excited about actually leveraging the data that we have from the more than 25,000 clients on our platform and figure out who's got the lowest turnover, who's got the best practices, and then being able to surface that to our clients so that they know what they do, so they know how to use Community, they know what to post, they know how employees are going to engage. This idea of investing in data science and then really helping our clients with best practices. If we do that well, those clients are going to see higher retention of their employees, and they're going to get more productivity for those employees that stay longer, and we think that's a really powerful value proposition. Yeah. Makes a lot of sense. Thank you very much, and good luck for the rest of the year. Thank you. Thank you. I'm showing no further questions at this time. I would like to turn the call back over to Steve Beauchamp, CEO of Paylocity, for any closing remarks. Yeah. Great. Thank you. Just take a brief moment to thank all of you for your interest in Paylocity, and definitely want to thank our nearly 4,000 employees across the country who've been working hard during a very challenging time. Hope everyone has a great evening. Thank you. Ladies and gentlemen, this does conclude today's conference. Thank you all for participating. You may all disconnect. Have a great day.