Good to start? All righty. Well, thanks to everyone joining today. Just to kick things off, my name is Jake Roberge. I'm the research analyst at William Blair that covers Paylocity. And for a full list of our research disclosures, please visit our website, WilliamBlair.com. But with that, really excited to have Co-Chief Executive Officer Steve Beauchamp from Paylocity here with us today. Thanks for coming down. Appreciate it. Making the trip into the city. But I guess just to kick things off, maybe if you could just share a high-level overview of the story for those that might be newer to the Paylocity business. Yeah. So Paylocity focuses on payroll and HR software for small, medium-sized businesses. We define our target market as really 10 employees all the way up to 5,000 employees. We went public back in 2014. We've expanded our market segment a little bit below and a little bit higher than where we started. But today, it's 10 to 5,000 employees. And we really offer everything. It starts with payroll. We really leverage that employee of record that we get with payroll to offer all of the HR software around that benefits, time and labor, all the talent modules, recruiting and onboarding and performance management, and really being able to offer those customers a one-stop shop. We've organically built the platform and have added a fair number of modules since our IPO in 2014. We've more than doubled the amount of product that we sell to our customers since then. Part of our growth algorithm has been increasing that average revenue per customer by selling existing customers more product, but even more so selling new customers more of the products that we've organically built and launched. This past year, we've launched 4 additional SKUs. So that's been a big part of our focus. We go to market with over 800 salespeople, really feet on the street for the most part, meaning they get ZIP code-based territories. We can sell to any customer in any industry. We have no customer concentration, no vertical market concentration. Everybody has to get paid. So it starts with payroll and then obviously all the rest of the services that we offer. Today, I would say payroll is less than half of our revenue. A ll these other products have really expanded and are a meaningful part of our revenue and kind of margin profile that we've been able to generate. We forecast this year to do approximately $1.4 billion in revenue. Our fiscal year starts July 1st. So we've got one quarter left in our year. And it's really a combination. Our value prop is service and technology. These medium-sized businesses call us a lot. They email us. We're there for them from a service perspective. They get a dedicated provider to be able to provide them the advice and answer their questions. And then it's all powered with the differentiated technology. Organically building what we would kind of label as the most modern platform in the industry focuses on saving the HR team time, really digitizing the back office, but at the same time providing modern employee experiences, modern mobile app, modern capabilities to automate workflows so that we can drive efficiency for our customer, but also for that next generation of employee. Think of Gen Z being a growing part of the market, that we give them tools that are much more consumer-oriented in look and feel, allowing our customers to drive the right level of communication, connection, and collaboration. And that's been a real big part of our success, is really being focused on innovation and technology. That's really helpful. I think just to kick things off, a common feedback point that I get around Paylocity is it's a great company. It's operating in a big market, but there are a lot of other alternatives out there. So how do you think about competing against some of the large-scale competitors out there? And what gives you the right to be one of the long-term winners in this space? Yeah. So I think one of the great parts of this market segment is everybody is doing payroll in some way. So a lot of the time we bring on a new customer, a fair amount of their spend with us will be displacement spend because they're obviously spending money internally, but largely externally, getting their employees paid. They might add on additional modules with us and increase spend, but it is a displacement market. So we're always kind of competing with somebody. Pretty typical for a customer to be entertaining three or four different options if they're going through a process. It often comes down to the demonstration of the software, how much time you think you can save them, plus how you can modernize a lot of their experiences. And you really have maybe different types of competitors. Kind of regional, local kind of providers is still a pretty significant part of the market. The big players that have been in the industry for a long time, ADP and Paychex, are players where we really try to emphasize technology advantage versus them. And then some of the growth players like us have really kind of taken advantage of the fact that it's not just software in the back office anymore. It's every single employee, every manager of the company uses this on an ongoing basis. So that whole experience becomes really important. And that becomes a big point of differentiation for us is the investment that we've made in technology. As an example, not only can you use our software for things like performance reviews and onboarding and payroll, but you can use our software to create communities and communicate with your employees, create communication videos. You can use our platform for Rewards and Recognition, Employee Voice, listening to employee feedback. So it really goes beyond just automation. It really gets into this concept of engagement. And that's something that we really lean into and places that we've made pretty significant investments, even pre-COVID, to become a leader in modern capabilities to communicate, connect, and allow your employees to collaborate. Yeah, that's helpful. So the regional in-house, you can have the more legacy vendors like ADP and Paychex, but to zero in on some of the cloud vendors out there, so the Paycoms, the Paycors of the world. Is it that you've talked a lot about employee experience and the differentiation there, but are there any kind of segments of the market or customer profiles that you see the most in terms of why you win? Yeah. So 10-5,000 is our market segment. No vertical market concentration. I think at the end of the day, everybody in that segment can be a pretty good prospect for us. We have traditionally really focused on investing. Our target is 10%-15% into R&D. It's been closer to that 15%. And you've seen that in new product SKUs and innovation. And so I think if we go against some of the other cloud providers, we do pretty much lean heavily on the new SKUs that we have launched over the last couple of years, some of the capabilities that drive that employee experience. Because part of our pitch is, listen, we're going to help you save time. We're going to digitize the back office. But with the time that you save, we're going to allow you to modernize your HR practices and use our software to be able to drive higher retention of your employees, better attraction, and better productivity. That's really the sales pitch that we really try to push, no matter who we're competing against, whether it's a legacy provider like ADP and Paychex or whether it's some of the other cloud growth players that have kind of gone public in similar time frames to us. Yeah, that's helpful. Then just kind of last market-related question. Curious if you've seen any changes to the competitive environment over the last few years? There's been some private companies down market that might be making some more noise, but curious just in terms of your win rates and the deals you're seeing, how much of them are popping up versus just the traditional competitors you've been going up against for years? Yeah. So we've been public now for over 10 years, and we've seen different cycles of kind of investment. Obviously, if you go back several years ago, really low interest rates environment, there was a little bit more investment in HCM. And so there's certainly some private players out there that are of size and we monitor and we take them very seriously from a competition perspective. But we've really invested a lot in our product platform to create differentiation not only against them, but the market as a whole. We've been the fastest-growing public provider for 2 years plus. We've really gotten the benefit of these investments. Even during COVID, we never did any layoffs. Obviously, we managed expenses carefully and were responsible, but we really continue to invest from an R&D and new products like Video and Community. Some tuck-in acquisitions that we did really allowed us to create some product differentiation. And so it is a competitive market. We look at everybody seriously, but we've been really focused on our ability to execute both the service experience for our customers and our product roadmap as the differentiator. Yeah. I love leading with technology and then fastest-growing vendor in that space. So very helpful to be able to point to that. But just shifting gears to the macro environment, how has the macro environment impacted Paylocity over the last few years? Has there been any notable changes recently? And then just last prong of that question, how sensitive is the model to changes in employment? Yeah. I'm going to go back just a few years to tell the whole story, and I'll focus on the last 12 months in terms of the impact. So obviously, COVID, employees on the platform, we get paid per employee per month. So employees on the platform were reduced, and that certainly impacted our revenue during COVID. And then coming out of COVID, we really accelerated. And many people in the industry did. We accelerated even more than many. And then you saw that kind of start to even out. In this fiscal year, we've definitely seen some deceleration from a revenue growth perspective. Some of the impact of that is the employees on the platform has certainly flattened. Most recently, in fact, that was negative at the start of our fiscal year. Because we get paid on a per-employee-per-month basis, if you've got negative employees on the platform, that directly affects your revenue. It's the same impact to your follow-up question, which is in a growth environment, you get some tailwind, typically a couple points of tailwind in a normalized GDP-growing environment. In a recession, you might get the opposite. You might get a negative couple of points. And that translates pretty directly to revenue. We saw that kind of at a dramatic scale in COVID. So this last year, we've seen some macro pressure. We've also seen a little bit of deal cycles get a little bit elongated. And we've talked about the fact that we think we can execute better at the upper end of our market segment, and we've been focusing on that as we go into the next fiscal year. We feel really good about the product differentiation that we have, the investments that we've made there, the feedback that we get from prospects, from customers, and from our sales force is that we're well-positioned going into the next fiscal year. Yeah. I think a lot of investors focus on just how much churn ADP and Paychex throw off a year. A n opportunity that gets a little bit less focused is just how much you displace the in-house and the regional providers. So how large is that opportunity? And then what are some of the catalysts that get customers off of those types of products to move to a Paylocity solution? Yeah. If you look at this industry from the most macro level, it's gone from payroll being the anchor software, which was really about reporting and two or three users at a company using it, to every single employee constantly using it to complete transactions, time-off requests, pay, punch, benefit enrollment, to the point where now that employees are already on that platform, wait, there's so many other things that I can do. Let's get them onboarding their paperwork. Let's get them doing performance reviews. Let's start communicating company updates to them. Let's get them engaged in employee resource groups and connections. T he market has certainly very much evolved and changed. And I think we take pride in the fact that in many of these cases, we've been first to market with a lot of those solutions. From our perspective, that's certainly been a big driver of our growth. Yeah, that's helpful. And then close to a 1/4 of your new customers comes from actual channel referrals. So maybe talk about what you're doing there and what's allowed Paylocity to kind of address that opportunity so effectively? Yeah. So when we first started expanding our sales organization, one of the things that was important to us was to find partners that could provide mutually beneficial relationships. And for us, we would get leads from these partners. Our sales rep would get the lead. The partners have typically been insurance brokers selling health and benefit plans to the same customers or 401(k) plans to the same customers who we don't compete with. So oftentimes, some of our providers are natural competitors to those partners. And our sales team, being geographically dispersed, work and meet with them. They exchange leads. They talk about growing the business together. We get over 25% of our new business revenue referred to us from that partner network with very little concentration. So there are thousands of different individual providers in different geographies. That has remained at over 25% even since the time of IPO, where we were about $100 million in revenue. Now at nearly $1.4 billion in revenue, we still get over 25% from partners. It was really valuable to us as those close at a much higher rate. There's really not like an economic agreement with them where we're paying a certain referral fee. They're basically passing us a lead and using us as a point of differentiation. The fact that we are friends and allies, not necessarily competitors, has been a really nice point of differentiation to our go-to-market motion. Yeah. You talked about that being over 25% since the IPO and just how sustainable that's been. Do you feel like that's the right level for the business moving forward, or is there opportunity to even expand that over time? Yeah, it's a good question. We kind of give the number over 25%. So it does fluctuate a little bit, but it's been consistently over 25%. I wouldn't want it to be 70% or 80% because you get too reliant on a single channel for your new business. I think it's important to be able to have a strong digital marketing strategy to make sure that you've got this channel opportunity and then to make sure that we're hiring hunters. So our reps are really focused on bringing on new ARR and new customers. And they're not focused on service or renewals because most of our customers are actually on greenfield agreements, meaning they renew automatically every year. There's a notice provision if they want to leave us, but we have to perform every day to be able to keep that business. It makes it also a lower barrier to entry in terms of being able to bring them on board. But making sure that our reps are hunters and are looking for new business, we like that balance that we have right now. Yeah. No, that makes sense. And then you talked about win rates being higher whenever they actually refer you the deal. How important is the broker channel in a bad macro? Do you feel like customers lean into the broker channel and that referral even more? Does the importance of that motion actually rise up the stack? Yeah, I would say a lot of our reps that have been here a while have established relationships over a longer period of time. And certainly, if maybe the market's a little tighter, you don't see as many switchers, it's easier for them to be able to leverage these relationships and say, "Listen, in your customer base, if you heard anybody complaining about their vendor, are there people that maybe you could just give me an introductory conversation to?" So I think that certainly helped us in COVID when there was a little bit less activity. I think that helps us today in terms of being able to open up doors that would be a little bit more difficult to be able to open up on our own. Yeah, that's helpful. And then one of the recent dynamics we've seen in the HCM space is just customers looking for tool consolidation onto broader platforms. W hat's driving that dynamic? How palpable is it? H ow does it change kind of your positioning in the market moving forward? Yeah, we've always believed that having a singular platform to manage all of your payroll and HR needs would be value-added to customers. We've added many of these modules over the last decade since going public. The way we typically build it is we build it for our average-sized customer of about 140 employees, and then we expand capability based off customer feedback over time. It gets more robust over time. What we have seen is higher module penetration as those products continue to get better. We've seen even larger customers adopt those modules as they get more robust. So that's certainly become kind of a key part of our growth algorithm. It's really allowed us to be able to build product based off of customer feedback. And so that's something that we will continue to kind of focus on, which is driving robust capabilities for even the larger end of the market. And if you think of it from the customer perspective, the idea is I got one single vendor. I'm getting typically some level of bundled and consolidated pricing. So that's simple. And then I'm calling one provider when I need help or they're implementing new capabilities. And so even if you might have 80% or 90% of an individual product's capabilities, but you have a singular platform and you leverage that employee of record, it's just so much easier for that mid-sized business to manage because these aren't Fortune 1000 companies. They don't have project management teams and a whole bunch of resources on their own. They're typically constrained. And so I think that value proposition has definitely resonated and has driven more adoption of a broader swath of products. And it also puts us in a position to be able to continue to add product. Yeah, that makes sense. Do you think HCM platform consolidation is something that's really just being driven by the macro, or do you think it actually continues to accelerate even as the macro starts to normalize? I think this has been a longer-term trend than maybe more recent macroeconomic conditions. If we went public, we basically, when we went public in 2014, we really had payroll, HR, time. And then we've added so many other modules since then. And what we've seen consistently is as we add these new modules, we immediately get a nice little uptick of adoption in terms of new customers. And then that has grown pretty steadily over time. So I think it's probably a broader trend than more recent macro. And I haven't really seen there's not been any extended period of times where that has gone the other way, where all of a sudden people have said, "Oh, I don't need this module," and now they're buying less. It's been pretty much more modules since the time of IPO. Yeah, that makes sense. And then just from a product perspective, you've increased PEP and PEPM quite a bit over the years. Could you talk about some of the bigger product launches and what do you feel like has been some of the more successful drivers of the effective PEPM that you're actually able to charge customers? Yeah, sure. I'll probably just go into categories. If you look at the talent management category, which we would think about as really kind of managing the talent pool, recruiting, performance management, onboarding, learning management, compensation management, things that really kind of get into how you're managing your workforce, those have been really nice growth product modules for us and really tried to start to differentiate us as not just managing kind of transactions and automation, but also being able to find ways for managers to be using the platform, to employees to be engaging in that, and for organizations to drive initiatives. And then the second category that we believe that we've really innovated on is this idea of, "Let's talk about how you're communicating with your employees. Let's talk about how those employees are learning." So Community, Video, most recently Rewards and Recognition, Employee Voice are all about creating the right culture for our customers because certainly it's been proven the stronger the culture an employer has, the better they retain talent. Typically, the more attention you have, the higher productivity of those folks. And so that's also been a big category expander for us. That makes sense. When you think about going into a new category, what does product uptake success look for you? How much penetration within the existing base are you looking to drive when you launch these new products? Yeah, I would say we typically would target a new product to be somewhere between, depends on the product and capability, $1-$4 per employee per month. So those are kind of the incremental fees that you would typically see. And we look to be able to be confident that to build that product, we want to make sure that we can get in a reasonable period of time, 20% of our new customers to be able to buy that product. And that's where we can make that economics work at the $1 PEPM or the $4 because typically it's more expensive to build the $4 PEPM product, right? And we've been really good at being able to get to that. So lots of times people say to us, "Well, you've got this Rewards and Recognition, and you've announced Market Pay, and you've announced some surveys." Like, do those really penetrate at the same rate? Well, maybe it's not as high as something like payroll and HR, obviously, but we're able to hit those type milestones relatively quickly. And then at the same time, we've got an inside sales force that kind of goes back to the customer base and then sells back to the customer base, which has been a growing part of our growth algorithm, is more sales back to the client base. We're still much more heavily reliant on new business sales, but that's also been a nice part of our strategy. Yeah, that's helpful. Leads into my next question there. I know the new logos are your largest driver of growth, but just given the expanded portfolio, what are some of those changes that you're doing on the inside sales motion, on the customer success side to drive more effective PEPM within your base? Yeah, we typically try to launch the products to new customers first just because it creates that differentiation. It gives that revenue opportunity for the reps. We learn from the feedback from them. And then as we get comfortable that we're on the right track from a product perspective, we then start selling it back to the client base. And that's an inside sales force. So that's typically a pretty efficient go-to-market motion and cost structure that we leverage. And we have been expanding that team at a faster rate than the rest of the sales force. So we expanded our sales force last year at 18%. That inside sales team would expand even faster than that. It's still a smaller portion of our new business revenue, but it's certainly the fastest growing part of our new business revenue. That makes sense. And then just thinking about the PEPM expansion from here and how you're looking to drive that, do you feel like it's more about going deeper within the existing products that you have on the platform, or are there still more horizontal areas that you could expand into? Yeah, I think we believe we've got both opportunities. I'll give you recent examples of both. We recently, as part of our product launch in our time and labor category, launched a Scheduling Plus offering. That's an incremental module that's monetizable. We've seen really good attach of that this past fiscal year. That's just really going deeper in time and labor capabilities. That's a great example of going deeper and then being able to monetize some of that. A second category is how do you start thinking about leveraging that employee of record, all the data that we have about employee to maybe horizontally expand? We acquired a company called Trace, which is really in the headcount planning category. That almost starts to expand you a little bit into the office of the CFO. Our plan will be to launch next fiscal year. So when we acquire something, we essentially build it right into our platform. So from a user perspective, it's like we've organically built that. And so it takes us a little bit of time to be able to integrate that, but we've got great people and great technology. And that product will come out, and that will allow an organization to do all of their Headcount Planning loaded in at the start of the year as you have people terminate, or you're making new hires, or you're making salary adjustments, all updating your budget in real time, and then doing all the workflows to be able to approve the new positions. That's an example of maybe horizontally expanding outside of what somebody might have thought of as traditional HCM, but it leverages all of the data that we have about that person record to create what we think will be a pretty unique experience. Yeah. Y ou talked about launching a lot of your newer products to new customers first to kind of battle test the solutions before cross-selling them back into the existing base. How has the attach rate of those newer solutions trended over the last three to five years? Are you seeing a higher propensity to adopt those newer solutions right off the bat? Yeah, I think two things. I think the market dynamics are such that it's a competitive labor market in a fairly low unemployment environment. And certainly, coming out of COVID, you saw a lot of job switchers, less so today than you saw back then, but it's still a tight labor market. You've got Gen Z as a growing part of the market that every time there's a generational shift in the workforce, there's different demands that that creates on an employer. That's certainly been another dynamic. You've seen continued remote work, although not to the same extent as COVID, but much more readily adopted on a hybrid basis. That creates different demands for the HR teams. And so I think there's been a lot of change that HR organizations have had to try to manage. And they start looking for tools to be able to think about, "Well, how do I manage this different environment?" That most of those things that I just talked about are not really going to go away. They might have peaked during COVID, but they still exist today. And that has been a big driver for thinking about product innovation and different ways to be able to serve our customers. That makes sense. Then just shifting over to AI because we're in software land, so we got to talk about it a little bit. What's the opportunity for you there? How do you see monetization moving forward? Is it more about increasing win rates, improving churn, or do you see there being additional modules that you're actually able to sell into customers down the road? Yeah, so I am excited about the opportunity in AI. It's probably less about some new SKU that's going to kind of revolutionize our industry, but it's more about embedding AI use cases across our platform. So we have started our data science team where we've got AIs in existence for five years. So it's not completely new to us. But a lot of the personalization and recommendation engines that we have in our platform, we have some Modern Workforce I ndex scoring models that are all AI-based. We've obviously got the writing use cases in terms of job descriptions that you performance reviews. And so we've got a lot embedded from a differentiation. So that's where we started. I think another big opportunity that we are working on that we're excited about is really serving our customers better. So we have a lot of modules, and the customers call us and email us and chat with us in a variety of different ways. It's hard for a single person to be able to answer all those questions. The reality is a customer wants a better self-service experience. We're in the process of also building a chatbot that will provide better experience than our knowledge management does today. We think that can really improve the client experience, giving our teams more time to be consultative, drive product utilization, drive best practices with our customers. We think that's a really big opportunity for us as well. Then I think just lastly, just on the back end, there's things at an organization with 6,000+ employees. We think we can leverage AI to be able to kind of automate. I think from a P&L perspective, we think there's revenue growth opportunities from a differentiation perspective, but there's also margin opportunities with AI. That makes sense. And then just digging into some of those newer solutions you were talking about with job descriptions, performance reviews, what has been the kind of early uptake of those solutions and the demand trends you're actually seeing from customers to adopt those products? Yeah, I mean, obviously we tie into some of the large language models, and then we overlay that with the data that we have to be able to kind of enhance that experience. And so if you were to put something in a job description that wouldn't necessarily be appropriate to put out there, then we would flag that, right? And it's just the fact that it's completely embedded. So I can hit create job description. I can use my writing assistant. I can describe exactly what it is. It'll write it for me. I can edit it and obviously queue different use cases. And the fact that it's fully integrated, it kind of goes back to that same story, which is, yeah, I could buy a recruiting module, a payroll module, a benefit module, and try to connect this whole thing, but it just takes more time. I'm now switching to different interfaces and so on. It's the same example with this AI. I could go to ChatGPT, right, and type it in or Google Bard. Having these embedded capabilities, we have found that it drives higher utilization of those capabilities, and it gets more people in that organization comfortable and efficient. Yeah. Then just shifting over to another topic here, something that's been coming up more in the HCM space is just the international payroll opportunity. So maybe talk about what you're doing with Blue Marble potentially to allow you to address that opportunity and potentially is more scalable versus what some of the other vendors are doing in the market. Yeah, so we are U.S. focused in terms of the market opportunity. However, there are times where a 150-employee or a 1,000-employee company in the U.S. has 50 or 80 people abroad. It could be in one country, it could be in several countries. Getting those employees paid can be a pain point for that organization because most vendors don't necessarily offer payroll. Nobody really offers it everywhere across the globe. And there's a lot of complexities and nuances. Even if you have some capabilities, the service experience is very different because all the laws and money movement and everything is completely different, tax laws. So what we offer our customers is we acquired a company called Blue Marble several years ago. We integrated that into our platform where we leverage in-country providers, and then we create the software interface on top of that so that customer can interact with us instead of having to interact with three different in-country providers. Then obviously we simplify all the payments of that from their perspective as well. We don't necessarily have to own payroll engines in every single country. You could choose to do that. It's a big investment. There's a big R&D investment. You got to make sure that those things are going to be fairly big market opportunities. Some of our competitors, especially those that are upmarket, have decided to go down and build those. We think we can serve that customer better by leveraging those in-country providers that have been there for decades and then really create a software experience for that end user. The reality is most of our customers that have an international employee base, they typically have more employees in the U.S. That's the much bigger part of their problem. The number of employees that they have abroad is typically smaller because, again, our average size customer is 140 employees. We feel that's a better model than trying to build an in-country payroll capability in every globe and a separate go-to-market motion in every part of the globe. This aggregator model, I think, has served us very well. Yeah. And then the international payroll, it somewhat ties into the move-up market in terms of serving larger customers. So maybe talk about what have been some of the effective platform unlocks to be able to help you better address some larger customers and being able to move up the stack. Yeah. So we increased the size segment several years ago from 1,000 to 5,000. That was purely based off the success we were already seeing from existing reps. We promoted some of those existing reps. We had them focused exclusively on the larger end of the market. We've added to that sales force pretty aggressively. I think that was a really nice tailwind for the last two fiscal years. We got it to a certain size and scale that we just had to focus on execution because we had hired a fair number of people from outside the organization. It takes them a little bit longer to ramp. And we've learned a lot, right? So the products have gotten more robust. We've certainly closed product gaps through that customer feedback. And on top of that, we've really enhanced the sales process to be much more team-based. Sales engineers are going to be involved. The sales management team is going to be involved. Our operational partners are actually going to be involved in the sales process. I think when we first started, it was less so that way. So we think as we go into the next fiscal year, we feel like we've done a lot of changes into the large end of the market that are within our control. The receptivity of the product has still been really strong. The activity levels and the pipelines are pretty strong. We feel good about where we are upmarket. What we typically do is we get the feedback from the customers, and then we add capabilities. Like most recently, we've got a whole texting capability and recruiting to really drive candidate engagement. That's been really powerful for our customers to adopt. And so it just continues to kind of get better over time with customer feedback. Well, thanks, Steve. I think we're up on time here, but appreciate you taking the questions. Thank you. Thanks to everyone who joined in the room.