We're going to get started. My name is Brian Peterson. I'm the application software analyst here at Raymond James. Very happy to have Toby Williams with Paylocity with us. So Toby, maybe kind of high level, get things started, spend a minute or two just on a overview of Paylocity. Sure. Thanks for the time. It's great to be here. So Paylocity is a payroll and human capital management software business focused on businesses in the U.S. with between 10 employees and 5,000 employees, and we have 36,000 clients. We've guided to about $1 billion in revenue this year, and that's right around a 20% growth rate at that level. And a big part of our growth algorithm over time has been both acquiring new logos in the market. So in that section of the market where we're competing, there's around 1.2 million businesses, and we have 36,000 of those businesses, and so relatively small market share. So new client acquisition has been part of the growth algorithm, and another important part has been our ability to grow our product set. Mm-hmm. So when we went public in 2014, we would have had $200 in per employee per year chargeability across the product suite, and as we sit here today, we've grown that to around $550. So we've had significant increase in the amount of product that we have available to sell. And I think that's been important, not just from a growth perspective, but it's also been important for us to be able to differentiate against the competition. A big part of our focus from a product and product strategy perspective has going beyond just sort of the basics of payroll and HR solutions, and being able to push into solutions that really go towards engaging and re-attracting and retaining the workforce, which is, I think, the biggest thing that is on the minds of C-suite executives in the clients and prospects that we serve. The ability to attract and retain and engage the talent that they have in a what remains a very, very tight labor market. So I want to hit on that, but I also want to hit on the macro. I think everyone's kind of- Sure asking what's going on here. Yep. So, you know, I'd love to understand if you think about, like, the platform in terms of employment trends and everything else, w hat did you guys see last year, and, and how has that trended so far into fiscal year 2024? Yeah, I think you've got a couple of different trends at work, and so one, I'll get to what I think is the heart of your question, but I think there's a—t here has been a generational shift in the labor market and in the workforce, and their expectations of technology that they're using at work. And I think one of the. We have benefited from that from the standpoint of, we've been able to differentiate ourselves against the competition by hitting from a technology perspective and from a product perspective the demands and the expectations of the changing labor market and the changing workforce. It's been a demographic shift over the course of the last, you know, 5 years +. People are expecting consumer-grade technology. They expect to be able to do everything that they want to do on their phones in an engaging way, and I think that's been where we've been focused from a product strategy perspective. Things like video and communications and Community on our platform that really differentiate against anybody else in the market. That's, I think, the overarching trend that is multiyear in nature and is. I think it will continue and accelerate in the future. One of the other, which I think is kind of the heart of what you're getting at in the macro question, is we would've seen employees on our platform in a normalized economic environment. So you go back to pre-COVID levels, we would've typically seen growth in employees in the platform at somewhere between 2% - 4%. And as we came into—w hen you went through COVID, you saw, obviously, a dramatic decline of employees on the platform that corresponded to the unemployment rates going up. And then for the probably 18 months post-COVID, you saw employees in the platform come back up to pre-COVID levels. And then through the course of last year, you really saw a flattening out of employees in the platform. Mm-hmm. You weren't getting that same level of tailwind that you would have seen pre-COVID in a normalized economic environment. So as we came into this fiscal year in July, which is the turn of our fiscal year, when you came into July, what you were seeing was a sequentially flat month-to-month level of employees on the platform. And so in our guidance for the year, we guided to flat, and what we saw in Q1, in the last two months of Q1 in particular, was a slight decline in terms of the number of employees in the platform. Okay. And what about, you know, macro? I guess, question number two. Yep. Just, you know, in terms of net new business and sales cycles, anything that you've called out through the fiscal first quarter? Yeah. The one thing that we talked about on our, on our Q1 call was that you started to see... Again, this was sort of on the edges, around the margins. You started to see things like deal cycles taking slightly longer. I think that was, you know, probably more so true with the upper end of the market, and you certainly heard that commentary both from other, I think, software companies and other folks in the industry, but I think we started to see that creep in in Q1. And I think it's, you know, I think when you look at all of these different elements, I think it just, it paints to what we're probably all seeing every day, which is a, you know, just, you know, a bit of a macro overhang. I think a lot of people still ask, and I ask you this every time I talk to you, ju st how the competition, has the competitive dynamic changed at all as you're looking at win rates or the source of new business? Any, any update there? Yeah, I don't think there's been any fundamental shift in the competitive landscape. So this has always been a competitive industry, for you know, more than a decade, and you tend to see— I don't think there's been any shift in terms of the tactics of those competitors. I don't think there's been any shift in who you're competing with, so it tends to be the same folks that we've competed with for a long time are the competitive set that we're facing day in and day out. And for us, you know, that tends to be we from a source of business perspective, we would get the biggest piece of our new business coming from the mix of ADP and Paychex. That's historically been true, it continues to be true, and also probably not surprising, given though, that those are the two biggest players in the market. So, you know, I think in environments like this, no doubt competition gets tighter in a tighter economy or with a bit of a macro overhang. But I don't think there's been any fundamental shift in terms of who we're competing with or, you know, what that competitive environment looks like. I mean, our focus has always been on differentiating through product versus the competition, and I think that continues to be true today. You know, we were just kinda unpacking that lens a little bit. If you're looking at an upmarket versus downmarket, have you seen any trends that have diverged a little bit there, just based on the size of the customer? No, I mean, I don't think we've seen—t he only thing that's probably a little bit different, which is always the case, is I think deal cycles in larger clients take longer. This is a you know massive generalization, but deal cycles in larger clients or larger prospects take longer than you know deal cycles in smaller clients or smaller prospects. That's always been the case. I think that remains true today. And so, you know, it's interesting- But I don't think we've seen any fundamentally different behavior from them, nor have they had a divergent set of interests from a product perspective. So you know, our product set has tended to resonate with sort of equal weight across the market that we serve. So it's interesting, in talking to customers that have adopted the platform, I'd say, you know, maybe 5 years, 6 years ago, like, the analytics and the reporting was really mentioned as a key area of why somebody would pick Paylocity. Has that diversified a bit, right? You're hitting on different products that are kind of focused on engagement. Yep. When people ask: Like, why are we going with Paylocity? Like, I'd be curious maybe how that's changed. Yeah, I mean, I think, you know, going to your, to your question, if you look back by, you know, three... If you go back even further, probably five years ago, we started to build out a data and analytics team that was really focused on using machine learning and artificial intelligence in the platform to try and give people better insights, better analytics in terms of their usage by their employees, the usage of the platform, sentiment analysis around what that engagement really looked like, to give people insights into how they're doing with their workforce, is really targeting engagement from a retention perspective. Mm-hmm. And I think that was, that was a significant differentiator at that point in time. I think we have continued with that, with that engagement focus, and what's sitting underneath that is the ability to attract and retain talent in a very tight labor market that has been tight, and I think we all expect will continue to be tight. That's really been a big part of our focus, so continuing to build out the platform with products that resonate in the market, that differentiate from the competition, and that are focused on giving employers the ability to drive engagement with their employees in a different way, that really resonates with the next two generations in the workforce more so because that's been very, very important in a way that it has not been previously. You— I'll let you open your water there, but, yes. You mentioned AI. Obviously, that's a popular term these days. You know, I'd just be curious, you know, how are you guys thinking about AI as part of the value proposition, and how do you see the evolution as you think about kind of the broader market opportunity? Yeah, I mean, I mentioned it because while it is certainly an extremely hot topic today, it's been one that we've invested in for, you know, more than, you know, more than five years. Building a team and building the technical capabilities to be able to drive the usage of machine learning and AI across the platform, starting with our efforts around data. And I think what you see today is the ability to create different experiences in the product. So it starts with things that I think are as simple as giving people ChatGPT-type functionality to be able to start communications with. So one of the things that I think a lot of people, including HR admins and professionals, struggle with is, hey, it takes time to create a job spec. It takes time to create an all-employee communication. It takes, you know, line managers time to create communications for all of their employees. And by leveraging AI, we've been able to give them the ability to describe what they want to say and create comms for them to react to, which, yeah, I think in terms of the creating of communications, is sort of a nice to have. It shaves time out of their day. It's much more efficient. When you think about things like creating job descriptions, that is a significant time saver for hiring managers and for talent teams and for HR teams. So, I mean, I think those are where you start to see the use of AI bleed into the platform, and I think it also gives you the ability to serve customers better. Sure. So if you can anticipate their needs based on the patterns that you've seen, and you can deliver answers to the questions in the platform at the point in time when you know they're going to ask them, or you should be able to know and anticipate that they're going to ask them, that's a much better client experience. And so I think those are all of the ways that we're investing in AI at this point across the platform. You know, I'd be curious, how do you think about that resonating on the model? I know it's early, but is that just a value provided to customers? Does this drive incremental PEPY? I know it's always a tough balance to think about pricing, but how do you think about the monetization side of AI long term? Yeah, I mean, I think the opportunity exists. I mean, I think it hasn't— The things that I've just talked about, that we've introduced into the platform, are not separately chargeable. So I think a lot of the early stages of how, you know, we or others might use AI on the platform has not been separate chargeable modules, so much as it's been incremental value being delivered. And I think on the other side of the coin, I think over time, there's no doubt that you should be able to create efficiency, but I think out of the gates, it's really about creating just a fundamentally better customer experience. $200-$550 PEPY- Yep. ... plans probably to continue to expand that. Yep, of course. What are you guys investing in now, and where do you kind of see the future frontier on the product side? Yeah, I mean, so, so we've introduced, you know, to, to that comment, we've gone from, you know, $200 in PEPY to $550 in PEPY, since 2014. That's been a fairly steady march of new product introduction, and that's really been a core to our growth strategy. It's about not just growing the PEPY, but delivering more value and differentiating in the market. And if you look at some of the things that we've introduced over the course of the last three, four years, it really was around the employee experience. So things like, our Community product, which is really the communications hub of the platform, giving employers and giving employees the ability to communicate with each other via the platform. The differentiation there is really—it became very, very clearly important during the course of COVID, when you had remote workforce being much more popular. You had employee expectations of a different way of communicating outside of just email. Mm-hmm. So, we introduced the ability to communicate with video. I can, on my phone, take a video, which we did, you know, weekly, at least during the course of COVID. Gave you the ability to record a video on your phone, push that out to all of your employees. That was not just a form of engagement communication, but a here's what's going on communication. And the ability to do that with video versus doing that in an email resonates really, really well with every generation in the workforce, but particularly the younger generations in the workforce, which are comprising a much larger portion of the mix. So I use that as an example of products that we have introduced that, I think have driven a ton of efficiency for people, but they've also been able to drive a level of engagement and certainly differentiate it. So those are things that nobody else has on their platforms, which have been really important to us. The more recent introductions, things like rewards and recognition, again, giving companies, giving admins, giving managers the ability to recognize the efforts of their employees. Employee Voice is another product that we introduced, giving employers, clients, prospects, the ability to get feedback on the platform from all of their employees. That being a really, really important part of engagement in terms of that two-way dialogue, of not just being able to communicate with, but get feedback from. As you think about kind of the adoption curve of some of these products, like, where are we, and how would you guys maybe define success of some of these products as we ramp long term? Yeah. So historically, I mean, our gauge of product launch has been, hey, do you think you can get between 10%-20% penetration with a product over the first, you know, 2 years -3 years type timeframe? And I think, you know, that continues to be the sort of the goal. We have to believe that we'll be able to get that type of adoption in order to be successful. I think that's been the benchmark. That still is today. And I think, you know... So the products that we've just launched over the last, call it 2 quarters, very early in the adoption curve, for sure. Sure. But some of the others that go back in, in sort of the wave before that, things like video, I mean, we would have seen, and some of this was really important during the course of the pandemic, but those have—you would have expected those to be a little bit lighter, and they've, they've met the same sort of adoption and penetration curves as some of our more core products like, you know, benefits or time and labor. As you think about— You hit on COVID and some of the impacts. Yep. Like, I think you can totally see, even just for the HR functionality for small and mid-market employer, the need for that remote work modernizing off of legacy solutions or technology, how big of a growth driver is that now? And, like, is that something that's maybe an evolution versus a revolution? Like, how, how is that gonna change post-COVID? Well, I think it was— It became, some of those things we would have introduced pre-COVID, they just became much more important during the course of COVID. But I think you saw probably a heightened need or a heightened appreciation because of COVID for some of these things. But I think, you know, as we've come out of COVID, so much of that has been unchanged. Mm. So you still have the expectations of the next generations in the workforce of working that way, having tools like that, engaging with those types of technology offerings. That has not changed, nor do I believe that will change. I think that will continue to be the case and to accelerate, so. All right, go-to-market investments then. Yep. You still got a lot of opportunity in front of you, but it sounds like you also have a lot of PEPY that you can sell back into the base. So- We do. How are you thinking about the go-to-market, and what are the next steps from here? Yeah. So for us, I mean, we have, we have, you know, 36,000-some clients in a market where we're focused on over 1.2 million businesses. So we have you know, a relatively small share of a relatively large market. So the priority focus from a go-to-market perspective has been focused on new logo acquisitions, so sales teams in the field. We've continued to get more than 25% of our new business referred to us from financial advisors and benefit brokers, so that's a really you know, highly productive lead channel for us. We still sell those deals, but that's a referral source that's been very valuable to us. So we've continued to lean in on investments from a sales and marketing perspective, focused on new logo acquisition. But, as we were talking about, as we've also grown the client base and as we have grown the breadth of our portfolio, we've also continued to invest in growing a team that sells back into the client base from a cross-sell/upsell perspective. I'll open it up to the audience if there's any questions? Yeah. Yeah, go ahead. Just on, you mentioned in a tougher macro, competition heats up a little bit. What are the tactics that you [audio distortion] I mean, listen, I don't think you see we have not seen fundamentally different tactics. I think you see, you know, you know, maybe a slightly different level of intensity in certain competitive situations, but I don't think we've seen—a gain, I go back to my earlier comment. I don't think you've seen a different set of competitors in the market, nor do I think you've seen a fundamental change in how people are competing. I'm gonna give you an example. For us, I mean, we would, we would typically be driving on differentiation in from a product perspective, and that's still the case today. You know, pricing is has always been an important dynamic in the industry, but you—t here has been, you know, I think historically, little, not a ton of variation in like-for-like pricing, and I still think that's largely the case today. So, I don't think there's any dynamic that I would point to specifically that's, you know, fundamentally different than it would have been a year ago or two years ago or so. How do we think about the cost of, you know, for migrating for a customer, from migrating off of a legacy solution over to Paylocity? Obviously, maybe there's more solutions that they're buying, b ut, you know, how do you think about the price to the customer, and is that ever a point of friction? Yeah, I think that. So in that example that you asked about, Brian, what you would see sometimes is you would see a business that has a prospect that has used one of the legacy providers and who has gotten a, you know, 5% increase year over year over year compounding for, you know, 5+ years, and who hasn't adopted a broader set of products from that provider. And that's a really fruitful conversation for us because we would be able to come in and say, "Hey, we have this, this really broad and, and deeply valuable product set that allows you to modernize the— not just the experience for your business, but the experience for your employees in", and they care about that because every CEO or, or CFO or CHRO that you're talking to, talent is their focus. The labor market remains very tight, and so they're really, really focused on not just driving the ROI of a new system, which is what you always get, but they're interested in driving a different experience. And that is a—t hose are great conversations for us because we're able to come in, deliver that platform, and deliver that experience, and, you know, most of the time, they're not. It's not like they're paying some significant upcharge to us versus what they are using after having gotten, you know, years upon years upon years of price increase. How influential is the broker channel in this type of macro environment? More, less, and, you know, I'd love to understand, too, like, as you think about it, is there room to expand that broker channel to kind of widen the reach in terms of the influence? Yeah, I mean, we've always— So we've gotten 25% plus of our new business referred to us from the broker channel, meaning, you know, benefit brokers and financial advisors for a long, long time. And I think we've been very happy with our ability to maintain that level of referral and engagement with that referral source, you know, now that we're over $1 billion in revenue. I think it's been outstanding to be able to continue that level of contribution to our go-to-market from that source, and I think, you know, when times get tougher, I think people rely more upon the advice of people like brokers. And so I think that's—i t's always been strong in different economic environments. It certainly was during the course of COVID, and I think it is today as well. Maybe the last question before we wrap up here. Sure. But, you know, as we just think about your key priorities for, you know, kind of fiscal year 2024 and beyond, what are the top two or key two, three things that you would highlight there? Yeah, I mean, I think our priorities in terms of how you run the business are fairly consistent over time. I mean, driving on product strategy and product growth has been a key part of our algorithm. I think in addition to that, you have to take really good care of your clients. So you have to drive an incredible client experience from a service perspective. And then, I mean, you are always focused on go-to-market motion, and that's largely investments in our sales team. It's investments in our channel partners, so those that are referring us business, benefit brokers and financial advisors, and in things like digital marketing, to be able to drive efficiency with the go-to-market process. I think those are all the things that you focus on sort of year in and year out, and same is true fiscal 2024 for us. Great. Awesome. Thanks, everyone. Great. Thanks. Appreciate it. Thanks, Brian.