Good day, and welcome to the Paylocity Holding Corporation 3rd 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. To ask a question during the session, you will need to press star 11 on your telephone. You will then hear an automated message advising that your hand is raised. To withdraw your question, press star 11 again. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker, Mr. Ryan Glenn, Chief Financial Officer. Please go ahead, sir. Good afternoon, and welcome to Paylocity's earnings results call for the third quarter of fiscal 23, which ended on March 31st, 2023. I'm Ryan Glenn, Chief Financial Officer, and joining me on the call today are Steve Beauchamp and Toby Williams, Co-CEOs 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 measure to the directly comparable GAAP financial measure because the information which is needed to complete a reconciliation is unavailable at this time without unreasonable effort. In regards to our upcoming conference schedule, Toby will be attending the Cowen Annual Technology, Media & Telecom Conference in N.Y. on June 1st. I will be attending the Jefferies Software Conference in L.A. also on June 1st. Toby and I will be attending the Stifel Cross Sector Insight Conference in Boston on June 6th, and the Baird Global Consumer, Technology & Services Conference in N.Y. on June 7th. Steve will be attending the William Blair Growth Conference in Chicago also on June 7th. 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. Thanks, Ryan. Thanks to all of you for joining us on our third quarter fiscal 2023 earnings call. Our overall momentum continued in third quarter with solid execution across our target market. Q3 revenue growth was 38.2% as our differentiated value proposition of providing the most modern software in the industry continues to resonate in the marketplace. We continued to build on our unique value proposition of providing the most modern software in the industry with the recent release of AI Assist, the HCM industry's first integration of generative AI. Leveraging an integration with OpenAI, the developer of ChatGPT, AI Assist is designed to help our clients more easily and effectively communicate and engage with their employees. Included as a new feature within Community, AI Assist allows users to draft ready-to-send communications and announcements with a simple prompt, tailor messages to specific audiences, or even translate announcements into other languages to reach multilingual employees. AI Assist represents the next step in Paylocity's broader investment in AI and machine learning, building upon other AI-based platform capabilities such as our Modern Workforce Index, retention risk dashboards, time and labor forecasts, and tone and sentiment analysis in performance reviews. Our commitment to product development also continues to be recognized in the market, with Paylocity recently placing 1 overall in G2's Best HR Products list and ranking inside of G2's top 25 global software companies. Additionally, Paylocity was named an overall leader in all 12 human capital management product categories in G2's Spring 2023 Grid Report and won a 2023 Most Loved award by TrustRadius. Similarly, the strong culture at Paylocity continues to be recognized externally as we've received Forbes' 2023 Best Employers for Diversity award for the second consecutive year. I would now like to pass the call to Toby to provide further color on the quarter. Thanks, Steve. In Q3, our sales team turned in another solid performance. As Steve highlighted, our differentiated value proposition of providing the most modern software in the industry continues to resonate across our target market. Our sustained investment in key product areas such as mobile, engagement, AI, and analytics continues to strengthen our position as the most modern software platform in the industry and sets us up for a strong close to fiscal 23. In particular, we've continued to see employees increasingly engage with the platform via mobile and through Community, a trend highlighted across a number of clients in Q3, including a real estate developer with over 400 employees that is leveraging mobile alerts and peer-to-peer recognition to drive and measure higher engagement and connectivity across its geographically dispersed property managers, leasing agents, and staff. Similarly, a retailer with 1,300 employees across over 70 locations is leveraging our mobile self-service capabilities, on-demand pay, Community, and surveys to drive higher employee engagement and help retain employees. Solid sales and operational execution helped drive our total revenue to $339.9 million or 38.2% growth over Q3 of last year, beating the midpoint of our guidance by $7.4 million as we continue to build momentum across our target market. We also continue to be pleased with the success in go-to-market hiring and attracting talented sales reps, and we are confident in our ability to hit our staffing targets to start next fiscal year. Channel referrals, primarily from benefit brokers and financial advisors, once again represented more than 25% of new business for the third quarter as we continue to leverage both virtual and in-person broker meetings and events to help us maintain this strong source of referrals. We continue investing to support channel referrals and in digital marketing efforts, both of which have driven increased top-of-sales funnel activity and productivity this fiscal year. Interest income on client funds has also continued to rise as a result of sustained interest rate increases from the Federal Reserve and increases in average daily balances. Our top-line outperformance, coupled with continued operational efficiency, helped drive adjusted EBITDA of $130.7 million or 38.4% margin, which exceeded the midpoint of our guidance by $7.7 million. Lastly, Q3 represents our busiest time of year as we work to support our clients through all their year-end processing and annual tax form filing needs. I'd like to send out a big thanks to our more than 6,000 employees who live and represent our values every single day and who worked so hard to support our clients in Q3. I would now like to pass the call to Ryan to review the financial results in detail and provide updated fiscal 2023 guidance. Thanks, Toby. Total revenue for Q3 was $339.9 million, an increase of 38.2%, with recurring and other revenues up 28.3% from the same period last year. We were pleased to come in $7.4 million above the midpoint of our Q3 revenue guidance and to raise fiscal '23 revenue guidance by $8.5 million at the midpoint, resulting in fiscal '23 guidance of 37% revenue growth. Our adjusted gross profit was 76.0% for Q3 versus 73.1% in Q3 of last fiscal, representing 290 basis points of leverage as a result of revenue overperformance and continued focus on scaling our operational costs while maintaining industry-leading service levels. We continue to make significant investments in research and development. Understand our overall investment in R&D is important to combine both what we expense and what we capitalize. On a dollar basis, our year-over-year investment in total R&D increased by 53.5% when compared to the third quarter of fiscal 2022. We remain focused on making incremental investments in R&D as we continue to build out the Paylocity platform to serve the needs of the modern workforce. In regards to our go-to-market activities, on a non-GAAP basis, sales and marketing expense was 19.1% of revenue in Q3. We remain focused on making incremental investments in this area of the business to drive growth going forward. On a non-GAAP basis, G&A costs were 10.4% of revenue in the third quarter versus 12.2% in the same period last year, representing 180 basis points of leverage in Q3. Our adjusted EBITDA was $130.7 million or 38.4% of revenue for the quarter, which exceeded our guidance by $7.7 million at the midpoint. We remain committed to progressing against our adjusted EBITDA target of 30%-35% of revenue. We continue to be pleased by our ability to drive increased profitability through leverage in adjusted gross margin, adjusted EBITDA, and free cash flow while also maintaining strong revenue growth. On a year-to-date basis, our free cash flow margin expanded to 19.2% and improved 900 basis points versus the prior period. We're pleased to be well within our target range of 15%-20% free cash flow margin. Briefly covering our GAAP results, for Q3, gross profit was $244.1 million, operating income was $80.4 million, and net income was $57.6 million. In regards to the balance sheet, we ended the quarter with cash equivalents, and invested corporate cash of $233.7 million and no debt outstanding. In regard to client held funds and interest income, our average daily balance of client funds was $2.8 billion in Q3, and we are estimating the average daily balance will be approximately $2.5 billion in Q4, with an average annual yield of approximately 380 basis points. Additionally, please note that our guidance includes the impact of this week's 25 basis point interest rate increase, and although we expect the impact to be more material in future periods, we do not expect this to have a material impact on Q4 results given the recency of the increase in rates. In regard to overall client workforce levels, the number of client employees in the platform was flat for January, February, March, and April on a sequential basis in each month, consistent with Q2 and versus only a nominal increase in Q1 on a sequential basis. Our guidance continues to assume overall flat client workforce levels for the rest of the fiscal year. With that, I'd like to provide our financial guidance for Q4 and full fiscal 2023. For the fourth quarter of fiscal 2023, total revenue is expected to be in the range of $299.2 million-$303.2 million, or approximately 32% growth over fourth quarter fiscal 2022 total revenue. Adjusted EBITDA is expected to be in the range of $93.5 million-$96.5 million. For fiscal year 2023, total revenue is expected to be in the range of $1.165 billion-$1.169 billion, or approximately 37% growth over fiscal 2022. Adjusted EBITDA is expected to be in the range of $368.1 million-$371.1 million, implying an adjusted EBITDA margin of approximately 31.7% and representing leverage of 380 basis points versus last fiscal year. In conclusion, we are pleased with our Q3 results. We're pleased to raise fiscal 2023 guidance to 37% growth at the midpoint, which in combination with the adjusted EBITDA margin represented in our full year guide, exceeds the Rule of 68 for fiscal 2023. We remain confident in our ability to support 20% plus revenue growth going forward, and also remain committed to driving increased adjusted gross margin, adjusted EBITDA and free cash flow leverage on an annual basis. Operator, we are now ready for questions. Thank you. As a reminder, to ask a question, please press star one one on your telephone and wait for your name to be announced. To withdraw your question, please press star one one again. Due to time restraints, we ask that you please limit yourself to one question and one follow-up question. You may then return to the queue. Please stand by while we compile the Q&A roster. Our first question will come from the line of Scott Berg with Needham & Company. Your line is open. Mr. Berg, your line is open. Sorry about that. I was on mute. Congrats on the great quarter, and thanks for taking my questions here. I guess I have a couple. Steve, let's start about, start with the AI topic of the year so far. You mentioned AI Assist and how it will help your customers communicate better. As you think more holistically across the HR space over the next couple or 3 years, how can AI impact both your product and maybe industry products even more so than what you're already seeing today? Sure. I think, you know, most of the AI use cases you see early in the cycle really revolve around writing assistance. Clearly, that's going to evolve very quickly over time. There's lots of examples within the HR suite where that can be helpful. You can think of things like job descriptions as another example, performance reviews, lots of places where you need to provide written communication to employees that having an assistant to be able to make sure that you're really getting your point across, or potentially getting people excited or energized with an announcement. You can get assistance from an AI perspective, and I think we see a lot of those initial use cases is where we will add AI Assist into our platform and deliver value to our clients. Over time, you know, the algorithms start to become much more complicated. You know, you'll see us impacting Modern Workforce Index over time with new ideas for clients to be able to engage with employees differently, and really drive higher retention and higher attraction from new employee perspective and better culture. We're really excited about the opportunity to embed AI Assist throughout the platform. Understood. Thank you. I know in Ryan's commentary, you talked about your assumptions around flat employment level tier going forward, but how are y'all seeing sales cycles today? Our work has indicated kind of the SMB to mid-market HCM sales cycles seem, you know, relatively normal out there. Are you seeing any changes maybe more positively or even a little more cautiously? Hey, Scott, Toby. I mean, I think, you know, consistent with the commentary on the quarter and the performance, I mean, I think we haven't seen significant changes in the sales cycles. I think the sales performance has been, you know, relatively steady. I think overall, you know, we're happy with how the quarter shaped up, both from a, from a sales perspective and then also from an operational execution standpoint. Thank you. One moment for our next question. That will come from the line of Terry Tillman with Truist. Your line is open. Hey, guys, this is Joe Meares for Terry. Thanks for taking the questions, I appreciate it. We saw you guys recently announced several feature updates, including texting for new hires, a new integration for LinkedIn for easier job posting, and then fillable forms for signatures and acknowledgments. I'm just curious if there are any other feature updates that you'd point to that you and customers are most excited about, and then if any you think could be needle movers in 2023 or beyond. Sure. You know, we've had a great history of being able to release improvements based off client feedback. We believe strongly in client as a co-creator. You listed several examples that we got feedback from our clients, and we continue to improve our product. You'll also see, you know, more modern capabilities used in other software platforms be inserted. We just talked about AI Assist, but things like chat are another great example. Leveraging all the mobile connections. I think Toby had some examples in the prepared remarks to really drive higher level of employee engagement. You'll see us continue to improve the platform on an ongoing basis. From a new product perspective, we've more than doubled the amount of product we've sold since our IPO, and we are pretty confident with a rich product pipeline that we'll be able to continue that trend going forward and add new modules that are also monetizable at the same time. Just as a follow-up, I think you've talked about 92% plus gross retention target. Just curious how that metric performed in the quarter, and then how you expect it to trend through the rest of calendar 2023. Thanks again. Yeah, I mean, I think consistent with prior comments, you know, we've I think benefited from higher retention through the course of the pandemic and then coming out of it, consistent with others in the industry. I mean, I think we still, you know, through the course of the quarter and year to date are pretty pleased with the revenue retention. You know, I think that was part of what contributed to the solid quarter that we put in. Thank you. One moment for our next question. That will come from the line of Brian Peterson with Raymond James. Your line is open. Hi, this is Jialin Jin on for Brian Peterson. I just wanted to quickly follow up on investments into 2,000 product development that you've been announcing. How has the pace of hiring investments been in these areas, especially given the start of a new calendar year, and as you're looking towards the rest of the calendar fiscal year, considering ongoing macro and competition? Thanks. I think hiring in product technology has always been challenging, you know, especially to try to get the talented folks you're looking at, you know, examples like software engineer or data practices, security, all pretty hot markets still, despite the fact that there's been some, you know, macro layoffs by the others in the tech org. We've been continuing to hire. As I go back to we're really excited about what we've got from a product pipeline perspective. We've gotten great ROI on our previous year's product investments. Average revenue per customer has been a strong performance for us, and that's been driven by the new product introductions that we've got. We understand that things are a little bit more uncertain from a macro perspective, but we're sticking kinda to the strategy. At the same time, we're able to deliver pretty strong leverage. We feel like we can balance the investments in product going forward, take advantage of the feedback we're getting from our customers, and come out with new monetizable opportunities going forward, which has been a key component of our strategy historically. Great. One quick follow-up question as well. Considering recent events in the banking sector, have you seen any impact on existing customers or the broader SMB market from the recent banking crisis? Thanks. Sure. I can take that one. The answer to that is no. I think we obviously are working with a very diverse set of banking partners, both on the corporate and client-held fund side. I think feel good about the redundancy we have with a multitude of banking partners, and there's nothing that I'd call out as far as noise there, whether it's with existing clients or with prospects. Thank you. One moment for our next question. That will come from the line of Brad Reback with Stifel. Your line is open. Thanks very much. I appreciate the fiscal 2024 kinda revenue commentary. As we think about expenses going forward, obviously, this year you got a big benefit from funds held and the incremental gross margin there, and OpEx grew in line with revenue. Do you envision a scenario where that somewhat reverses next year on the OpEx side? Thanks. I think the simple answer is we've had really years and years of, if you take out the COVID year, we've pretty much expanded, our adjusted EBITDA year after year, and we're not necessarily, you know, changing our approach towards that. As we go into next year and we don't have the same type of tailwind from an interest revenue perspective, we're still committed to adjusted EBITDA expansion. That's great. Thanks very much. Thank you. One moment for our next question. That will come from the line of Bryan Bergin with Cowen. Your line is open. Hey, good afternoon, guys. Thank you. First one on the sales force for you. Can you just give a sense on how sales headcount expansion progressed this year and how you may have some early plans and thoughts for fiscal 2024? Sure. I mean, we came into the year with, I think, sales headcount up right around 18%, which is, you know, fairly consistent, maybe ex 1 year of COVID to, you know, growing the sales force in that high teens ZIP Code plus or minus. You know, I think we were pleased with our ability to staff up coming into the year. You know, I think as we sit here today, you know, we've got a favorable view of how that's shaping up for, you know, our path into next fiscal year. I think we've got a history of being able to come into the year fully staffed with the headcount that we think we need to be able to support the growth in the fiscal. I think as we sit here today, you know, we think we feel pretty good about that as we're looking forward to fiscal 2024. Okay. Then just a broader question on fiscal 2024. Just as you assess the current environment just and the key considerations right now in client conversations, anything we should be mindful of as we just think about that fiscal 2024 growth and margin potential? Well, I think, I mean, just as we look at fiscal 2024, I mean, I think we're obviously, you know, in the throes of putting together the plan for fiscal 2024. I think I've just talked about how we think about the sales force build into that. I think, you know, Steve's comments before, we've had, you know, a history of product innovation that I think has helped both create differentiation and also create the performance as we're looking at any future fiscal year. I think we've got, you know, an ops team in place that's done a great job of coming through the busiest time of year for us and set us up for success as we close out the fiscal year. I mean, I think we're at the planning point for what fiscal 2024 is gonna look like. I think we are positive on the momentum that we've seen in the business, both from a sales perspective, and from an operational standpoint. Yeah, Toby, the only thing I would add is just from a macro perspective, obviously, we've had the tailwind of interest revenue this year, which has really been an industry Tailwind. We really haven't seen any growth in PEPM. In a normal kind of low growth GDP environment, you do typically get, you know, PEPM growth. As we go into next year, you know, you don't get that necessary interest revenue tailwind and, you know, we're anticipating no PEPM type growth. As Toby said, we're pretty confident with all the things that we can control from an execution perspective, but those are a couple things from a macro to be aware of. Thank you. One moment for our next question. That will come from the line of Mark Marcon with Baird. Your line is open. Hey, good afternoon and congratulations. Thinking a little bit about the, you know, the guidance for this coming quarter, what are you thinking with regards to, you know, the a reasonable effective yield on the float balance for this coming quarter? Because if I'm just doing the raw math, you know, I'm not sure that the revenue guide, you know, was raised, and it looks like you've got really good momentum. I'm just trying to think that part through. Sure, Mark, this is Ryan. I think for the third quarter, as I said in the prepared remarks, the average daily balance was about $2.8 billion. The average yield, if you back into that, was 360 to 370 basis points, and we guided to Q4 to about 380 basis points. I think our expectation is continue to step up in yield as you've seen consistently each quarter this fiscal year. Obviously, we got a 25 basis point rate increase yesterday. The impact of that in Q4 is negligible, but you will see the yield continue to build in Q4 as you have earlier part of the year. Okay. I mean, just staying on the topic, just how are you thinking about the momentum into Q4? 'Cause it looks like things are going really well. You know, perhaps you can comment a little bit with regards to the sales pipeline and the implementations, and particularly if you're seeing any more traction on the upper end of the market, as you mentioned during prior quarters. Sure. Yeah, I think you're right. We've had really good execution in the quarter and throughout the fiscal year from a sales perspective. As you go into next quarter and you look at our guidance, it starts to look very similar to pre-COVID type activity, so we're anniversarying a lot of the noise from COVID tailwind. I think that's one thing to kind of think about, is it's kind of getting back into... We were kind of in that 20-plus category, and we were focusing on that, and we were executing above that pre-COVID. There's been a lot of, you know, headwind early on and tailwind late. I think you're gonna get back to a more normalized quarter as we go into the fourth quarter of the fiscal year. We've been executing really well across all market segments. I would still highlight the upper end of that market. Probably if you were to say which is probably the place you're executing the best, that would still be a highlight. Thank you. One moment for our next question. That will come from the line of Alex Zukin with Wolfe Research. Your line is open. Yeah. Hey, guys. Thanks for taking the question. I guess it's been asked a couple times. It does not sound like you're seeing any macro headwinds at the moment. I guess if, as you look towards 2024, you know, you just talked about seeing better traction up market. Do you see any lengthening in sales cycles? Any, maybe, again, as sales cycles take longer, approvals take more time, that close rates are again stretched out or impacted by that? How do you think about, you know, how the importance of global in kind of the incremental traction, incremental bookings opportunity for fiscal 2024? It appears to be increasingly important in the ecosystem. Maybe I'll start with the global part of the answer. You know, we acquired Blue Marble to be able to have a global offering, where companies can be paid through a network of providers in, you know, a number of countries around the world. We've integrated that business into the rest of our organization. Now when we look at that, it's very much a customer that might be on the Blue Marble platform but also on the Paylocity platform. We think that's been a nice differentiator for us. It also creates a nice revenue stream on top of that. I think, though, it's still relatively small compared to the rest of our business. We think about that as now being kind of part of our core strategy and not so separate, and certainly being helpful, even more so from a differentiation perspective than a new revenue stream. Thank you. One moment for our next question. Our next question comes from the line of Samad Samana with Jefferies. Your line is open. Hi, good evening. Thanks for taking my questions. Maybe first one just if I strip out, you know, what's kind of the implied float contribution, gross margins on the core software side are still up really nicely year-over-year. I'm just curious maybe what's driving that underlying increase beyond scale or if there's anything that's changed in terms of what maybe your hosting costs are or what's maybe supporting that gross margin expansion outside of just the float side. Yeah. Samad, I can take that one. I think, you know, as you said, we're really pleased with, I think the leverage across the business, certainly from a gross margin perspective. Almost 300 basis points of leverage in the quarter. As you outlined, stripping out the float impact, I think you're still at about 100 basis points. Nothing I'd call out there from a one-time perspective. I think it's as the business continues to scale, you're driving efficiencies and scale and automation in those teams. At the same time, feel really good about the service and implementation and overall ops experience we're driving for clients. I think it's just that continued strategy of investing in that part of the business but at the same time, driving efficiencies. Great. Maybe Steve or Toby as a follow-up. you know, as you think about the nature of the typical customer conversation that you're having right now, is it more about how to leverage better what's called the incremental modules or the products that they've adopted over the last 18-24 months as we're in what seems to be just a largely, you know, kind of understood world of where people are working? Or is it more about how do they get new tools to better manage the world that we're in, right? is it? Yeah. you know, kind of better leveraging what they already have or finding more? Yeah, I think it's a combination really. I think it starts with, you know, how do we really digitize all of our back-office HR processes? Ultimately that puts more control in the hands of employees and managers and saves the HR team time. That's still a big part of the equation. On top of that, you know, part of the equation then is with the time that you save, what are you gonna be doing from a strategic perspective? That's really driving in initiatives to create the right culture, to make an engaging environment, to drive productivity. That's where a lot of the new tools come into the equation. That's where you've seen things like, you know, surveys and LMS and Community and video really create a better engaging experience. That always becomes part of the conversation, but it still starts with how do you get as efficient as possible first. Thank you. One moment for our next question. That will come from the line of Jason Celino with KeyBanc Capital Markets. Your line is open. Great, thanks. Appreciate it. You know, this year, you know, you've been taking advantage of the favorable flow environment to reinvest in the platform. You know, my question has to deal with like the pace of innovation, specifically with this AI feature. If we take a step back, it's really only been about six months since the AI rhetoric has really upticked. I'm curious on maybe, you know, when you started developing this product, like how long did it take? And if we could see, you know, additional features here on the AI side near term. Yeah, sure. I think what we called out in the, in the prepared remarks is that we've been investing kind of in broader data science, machine learning, AI for a number of years now. We gave examples of a number of products that are leveraging those types of capabilities. More recently, AI Assist is obviously leveraging large language model in that category. We continually invest, and we believe that that's really part of the whole engagement and more modern platform story is our investments, multi-year investments in there. We think we've got a pretty good pipelines of places that we can take either products like AI Assist or making Modern Workforce Index more robust or being more predictive across our insights over time. I see. Okay, perfect. appreciated the update on international. Sounds like it's been a good differentiator. I guess where does international kind of fit in some of your more near term to medium term priorities? Thanks. Yeah. I think we're focused on kind of the mid-market US TAM opportunity. We still have relatively low penetration into a very large opportunity. We recognize that there are segments of the market that are adding employees, you know, internationally. Certainly post-COVID, that has increased a little bit before. That trend will likely continue, and so having an international solution for our clients is super helpful. The primary focus for us is really continuing to gain market share when it comes to mid-market companies in the US. Thank you. One moment for our next question. That will come from the line of Robert Simmons with D.A. Davidson. Your line is open. Hey, thanks for taking the question. I was wondering if you could give a little more color on AI Assist, just in terms of the revenue model, then also are there customers who are using it live today? Yes. I think from a functionality perspective, the first use case that we have enabled is, many of our customers use Community to actually communicate HR updates to their employees. They use our announcement feature to be able to do that. Sometimes that's, you know, Community we use to talk about events that they're having. Sometimes it's just updates of what's happening in the organization, policy changes. It really replaces email for those customers. At times, you know, an HR team can spend a fair amount of time drafting those communications. AI Assist is built right into the Community announcement feature, and you can actually, you know, prompt it. You can ask it questions. You can ask it to change language. You can ask, you can ask it to make it sound more exciting, you know, all the things that you can normally do in ChatGPT. It really helps HR teams just be more efficient from an announcement perspective. That's where we have it today. Community is a free feature available to all of our customers. We're not monetizing that separate. We certainly see an opportunity to take that type of capability and embed it in other places in the suite over time. Got it. That makes sense. Can you talk about what you're seeing in the competitive landscape? Any changes to how others are operating? Yeah. I mean, I think we've seen relative consistency through the course of the quarter from a competitive landscape perspective. I think, you know, going through a lot of the things Steve just ran through, I think we've tried to differentiate on product strategy with things like Community and being able to drive a different level of engagement with things like surveys and LMS and video and things like we announced with AI Assist through Community. I think the competitive landscape's been fairly steady. I think those continue to be the points that we've driven from a value prop perspective, and those have continued to resonate in the market. Thank you. One moment for our next question. That question will come from the line of Siti Panigrahi with Mizuho. Your line is open. Thanks for taking my question. Just wondering, are you seeing any strength and weakness in any particular verticals? Also, what are you seeing in your, you know, 50 below 50 employee segment versus upmarket? Sure. You know, we're pretty happy with sales execution across all segments. Start there. I think I highlighted earlier that if you think of the upper end of the segment, we have been having increasing success. That's probably less of a Comment from the quarter, but that's really happened over the last couple years. Really that's a function of all the new products and the new features that we've added. We've just been more competitive upmarket. No real changes in terms of our go-to-market motion or the success rate that we've had. We're pretty happy whether it's a customer with, you know, 25 or 30 employees or whether they've got, you know, several thousand employees. We're really seeing that the product that we're putting in front of them is resonating, and delivering value to them. Any exposure to tech industry and what are you seeing there? Yeah. Sorry I missed that part of the question. We really operate horizontally across the industry. If you think of how we organize our sales force, they're really focused on a zip code-based geography, and they'll sell across all industries. We certainly emphasize different parts of the product for different industries and certain features. I would say no call-outs from an industry perspective. You know, I think we look at that from both a sales perspective and within our client base, and we've got a pretty even distribution. If you look at the SMB distribution across the U.S., our client base looks very much like that. Thank you. Thank you. One moment for our next question. That will come from the line of Daniel Jester with BMO Capital Markets. Your line is open. Hey, great. good evening. Thanks for taking my question. maybe just to start with on the quarter. you know, if you exclude sort of the upside from flow, which has been a nice tailwind for a while, the recurring upside from revenue in the quarter maybe wasn't as big as we've seen in the last year or so. Maybe can you just dig in there? Like, is there something that you would call out in terms of execution in the quarter? Or maybe compare and contrast what drove such significant upside to your guidance last year that maybe isn't repeating going forward? Sure, Dan. I think, you know, as we step back and look at the quarter results, obviously beat across the implied recurring and total and raised that plus for the year. I think to the comments earlier, felt really good about the results in the quarter, the momentum within that sales team. I think the last few years you've had a little bit of noise in certain of those quarters. You obviously had some tailwinds from client workforce levels that weren't factored into the guidance. That was probably a bit of the overperformance you would've seen for the last, you know, 6 to 8 quarters. I think it's been a steady state as we outlined there, no real tailwind. Retention has been high, continues to trend nicely. That had been a little bit of upside in the past as well as that's performed really well for the last few years. Outside of that, I there's nothing I would call out one time. I think feel really good about the beat and feel good about where Q4 is headed as well. Great. Thank you. Then, you know, this comment about employees and the platform being steady for a couple quarters, you know, obviously there's other data that suggests that the job market is growing. You know, if you look back historically, has there been periods in time when your employees in the platform trends are substantially different than the macro overall? I'm trying to kind of connect all the dots here. Sure. about, you know, what underlying is going on. Thank you. Yeah. I think, you know, when we talk about, you know, employees on the platform, you know, we're often looking at, you know, it's the same clients year-over-year. Do they have more employees or less employees, right? There's, you know, that's really kind of what we're focused on. In a normal, like if you go pre-COVID, GDP was in the low single digits. We were getting low single digit growth of employees on the platform. If you're in a recessionary time period and if that's kind of negative GDP, you definitely see people kind of shedding employees on the platform. If you go back, we've had many years of employee growth on the platform pre-COVID. That's probably the more normal state. Even when we were seeing, you know, 2% GDP growth, we were seeing a little bit of bump of employees on the platform. The one difference from a macro perspective is we haven't seen that, and we're not forecasting seeing that going forward. The employment numbers sometimes don't exactly line up perfectly, but yes, there's some jobs added, but unemployment rate hasn't gone up and shifts. Generally speaking, I think if you think about it the way I just described versus something like a GDP number, that's what we've seen historically. Thank you. One moment for our next question. That will come from the line of Steven Enders with Citi. Your line is open. Okay, great. Thanks for taking the question. I guess just based on kind of like what you're seeing out there in the current environment, how are you thinking about, you know, kind of further sales investments at this point and where you'd be, you know, making your bets in terms of the types of coverage or the rep kind of base that you'd be looking at here? This is the time of year that we're hiring reps. We typically start kind of after the last quarter we just kind of completed. We ramp up throughout the spring, we try to get ourselves to kind of a target number of quota carriers going into the fiscal year. I think Toby mentioned one of the earlier questions. We've had success getting up to that number. Last year that was kind of 18%. We've kind of been in that mid-teens growth rate for a while. We will give you the exact number on the next earnings call, I think to echo Toby's sentiments, we really feel good about where we are from a hiring perspective right now. We think our value proposition for sales reps really resonates as well in the marketplace, and we're making good progress towards the target for next year. I guess in terms of like the profiles of reps that you're looking to add, like is it more focused on, you know, larger customers and building out more of like the mid-market coverage or, you know, inside sales or like is there any kind of change? Sure. how you're viewing the types of reps that you? Yep. that you need in this environment? No, that's a good question. I think we've called out over the last, like I said, maybe even almost 2 years now, where we've been having a little bit more success with the larger end of the market. Those are experienced people with industry experience that we bring on. You know, our core mid-market reps were probably a mix of non-industry, but yet B2B sales experience and industry reps. We definitely lean still heavily more towards industry reps. On the inside sales, you're capturing kind of digital lead generation and handling those. Those need less experience. We're gonna be potentially adding people across the board. We're going through what that mix looks like. You know, if anything, it's a slight shift to a little bit larger client that we've been generating that would likely continue as we forecast going forward, and maybe not quite as many on the small end. We see opportunities to expand in all markets. Okay, perfect. Appreciate you taking the question. Thank you. I'm showing no further questions in the queue at this time. I would now like to turn the call back over to management for any closing remarks. Thank you very much. I just wanted to thank everybody for their interest in Paylocity. Thanks for joining the call, and also wanted to give a special thank you to all of our employees for all their hard work throughout the course of the quarter. Thank you. Thank you all for participating. This concludes today's program. You may now disconnect.