Welcome to the Paycor HCM First Quarter 2022 Earnings Conference Call. As a reminder, all participants are in listen-only mode, and the conference is being recorded. After the presentation, there will be an opportunity to ask questions. To join the question queue, you may press star then one on your telephone keypad. Should you need assistance during the conference call, you may signal an operator by pressing star and zero. I would now like to turn the conference over to Brian Denyeau with ICR. Please go ahead, sir. Good afternoon, and welcome to the Earnings Conference Call for Paycor HCM for the First Quarter of Fiscal Y ear 2022, which ended on September 30th. On the call with me today are Raul Villar, Paycor's Chief Executive Officer, and Adam Ante, Paycor's Chief Financial Officer. Our financial results can be found in our press release issued today, which is available in the investor relations section of our website. Today's call is being recorded, and a replay will be available on our website following conclusion of the call. Statements made in this call include forward-looking statements related to our financial results, products, customer demand, operations, the impact of COVID-19 on our business, and other matters. These statements are subject to risks, uncertainties, and assumptions and are based on management's current expectations as of today and may not be updated in the future. Therefore, these statements should not be relied upon as representing our views as of any subsequent date. We also refer to certain non-GAAP financial measures and key business metrics to provide additional information to investors. Definition of non-GAAP measures and key business metrics and the reconciliation of non-GAAP to GAAP measures is provided in our press release on our website. With that, let me turn the call over to Raul. Thank you, Brian, and thanks to all of you for joining us to discuss Paycor's fiscal first quarter results. We are off to a great start in fiscal 2022, with both revenue and profitability exceeding our guidance for the quarter. Our success in Q1 is further evidence that our strategy is proving effective and that we're establishing Paycor as a leading SaaS-based provider of human capital management solutions for small and medium businesses. We believe this is a multi-billion dollar market that is still in the early stages of shifting to the cloud, which positions Paycor to accelerate revenue growth and increase profitability over time. Paycor is built to empower the leaders of small and medium businesses to build winning teams by attracting, developing, engaging, and retaining employees. As we have all seen from recent headlines, the war for talent is a pressing challenge for small and medium businesses. We believe our success demonstrates that our focus on leaders and their teams is resonating in the market. We delivered strong results for the first quarter of FY 2022, with total revenue of $92.7 million, up 17% year-over-year, and adjusted operating income of $3.4 million. We also exceeded our internal expectations for bookings in Q1. This is continued validation of our differentiated value proposition, solid execution against our growth levers, and that the efforts that Chuck Mueller, our Chief Revenue Officer, undertook in fiscal 2021 to level up and expand our sales organization are yielding results. With these strong results, we are once again raising our guidance, which Adam will discuss in more detail shortly. We had broad-based success in the quarter, with significant progress made across each of our key growth initiatives. First, our increased focus on Tier 1 markets is paying off. We continue to significantly grow our bookings in Tier 1 markets. One of our biggest strategic focus areas is aggressively expanding our sales organization. We had a strong hiring performance in Q1, exceeding our internal targets, and we are specifically pleased with our staffing results in Tier 1 markets. As we have discussed previously, hiring in these dense markets like Los Angeles, San Francisco, and New York provides Paycor a great opportunity to expand its sales coverage and accelerate bookings. Second, we continue to experience strong performance from the broker channel. Bookings through the broker channel exceeded expectations for the quarter and continue to deliver outsized results. We now have five national partnerships that are contributing to our success in this channel. Our decision to proactively engage the broker community and empower them to choose the right benefits administration solution for their customers while leveraging our platform for the insights, tools, and competitive advantage that increases client satisfaction retention is working. Third, our vertical focus is resonating in the market. We have developed purpose-built offerings that focus specifically on three key verticals that represent a significant portion of the SMB market, healthcare, manufacturing, and food and beverage. By understanding the specific needs of companies in these markets, we have built tailored solutions that help solve the most pressing human capital issues facing customers. These are small and medium businesses with limited technical capacity. The fact that our products are built for their needs out of the box is compelling and a key driver of wins. We had a strong quarter in all three of our target markets. Lastly, we continue to expand our product offering and drive greater adoption of our bundles. A core part of our growth strategy is to expand our HCM platform by adding new solutions and increase the total per employee per month, or PEPM, available. During the first quarter, we increased our full product suite to $39 PEPM per month, from $35 PEPM per month. We have aggressively expanded our product portfolio over the past couple of years, and we are seeing very positive results. In particular, we are seeing great adoption of our talent management bundle, which provides leaders with the tools they need to identify, attract, hire, and onboard the best people for their teams, and then develop, coach, train, recognize, and engage them. Talent is top of mind for every SMB today, and as a result, is driving a significant increase in attach rates for both new and existing customers. We announced several new product features in Q1 that highlight our ability to quickly introduce new capabilities that add value for our customers. First, we bolstered our COVID-related offerings to help our customers navigate impending compliance changes and to promote workplace safety with the launch of our immunization tracker and facial recognition time clocks. The immunization tracker allows business leaders to manage and track immunization and testing status of their employees. Workers can upload proof of vaccination or a negative COVID test directly to the system, and HR leaders can run a report to see immunization status across the organization. This new feature will assist businesses with employment policies and position Paycor as the first HCM cloud provider to offer an immunization tracker that is fully integrated into their platform. In addition, our time product now offers a facial recognition time clock promoting a touchless employee experience. We also launched OnDemand Pay, an earned wage access solution that provides HR leaders with more flexible pay options for their employees. OnDemand Pay allows employees to access earned wages before their pay day directly from our mobile app, where they can also view their current wages and compensation history. OnDemand Pay is an exciting evolution in pay that enables employees to control their own financial health and provides leaders with another benefit to attract and retain talent, a benefit that resonates well in our core verticals. We are also extremely proud to be recently named a Top Workplaces 2021 for diversity, equity, and inclusion practices. This coveted list celebrates companies with a welcoming and inclusive culture across all levels of the organization. Our commitment to DE&I is also reflected in the success of our associate-focused programs, such as our employee resource groups and development opportunities through the Black Leadership Academy, which we conduct in partnership with McKinsey. To reinforce this commitment, I signed the CEO Action Pledge for Diversity and Inclusion, the largest CEO-driven business commitment to advance diversity and inclusion in the workplace. Before I turn it over to Adam, I just want to reiterate how excited I am by our performance. We are executing our detailed growth plan and setting the stage for Paycor's future. We believe we have all the elements in place to be a winner in the HCM market. With that, let me turn the call over to Adam to talk about our financial results in more detail. Adam? Great. Thanks, Raul. I'll begin with a review of our first quarter results and then finish with our outlook for the second quarter and the full fiscal year 2022. As a reminder, my comments related to financial measures are on a non-GAAP basis. Total revenue was $92.7 million, a 17% increase year-over-year. Recurring revenue grew a point faster at 18% year-over-year as our new business continues to layer into the portfolio. We ended the quarter with 28,700 clients, growing about 3% year-over-year. However, this growth comes as our micro segment of under 10 employees is effectively flat. Our go-to-market strategy targets companies with 10 - 1,000 employees, and we are seeing all of our customer count growth come from this segment, growing 6% year-over-year. This segment represents just over 80% of our total revenue and just over 60% of the number of our customers. Balance of our revenue growth was split between continued PEPM expansion and a continued mix shift towards the mid-market segment of our portfolio, as well as marginal organic employee growth of our customers. Net retention in the first quarter remained steady over the prior quarter as we start to approach pre-pandemic levels. While still below our historical rate in the mid-90s, we are seeing it improve with recovering employment levels and expect it to continue improving as we move through the year and lap the quarters most affected by COVID. Adjusted gross profit margin was 65.2%, which was down from 70.5% in the first quarter of fiscal 2021. The primary drivers of the change in adjusted gross margin are an increase in amortization related to capitalized software and contract acquisition costs, as well as the anniversary of certain COVID-related cost initiatives and continued investments in our service organization to ensure a great experience for our customers. The increase in amortization is primarily driven by purchase accounting related to the Apax transaction in November 2018. Adjusted gross margin excluding depreciation and amortization was 75.1% for the quarter, an increase of 40 basis points over the prior quarter. Sales and marketing expense was $32.1 million or 35% of revenue, compared to 30% of revenue in the year ago period. As Raul discussed, investing in our sales teams and expanding capacity across all markets and Tier 1 locations specifically is a core focus for us. We are seeing great results and attractive returns on the investments we've made, and we intend to continue investing aggressively in our sales capacity build-out. This is a very large market at the early stages moving to the cloud, and we strongly believe in these investments will enable us to capture more share quickly and drive meaningful value for shareholders. We have aggressive seller expansion plans and are on track to achieve our full year sales headcount target growth of 20%-25%. R&D expense was $8.7 million or 9% of revenue, compared to 10% of revenue in the year-ago period. R&D expense excluding capitalization of $7.2 million, so on a gross basis was $15.9 million or 17% of revenue, in line with the year-ago period. We will continue to make meaningful investments in R&D and expand our product portfolio and path of opportunity. G&A expense was $16.3 million or 18% of revenue, compared to 14% of revenue in the first quarter of 2021. The increase in G&A expense was largely attributable to the incremental cost of becoming a public company and the anniversary of certain COVID-related cost initiatives. We expect to begin driving leverage on the G&A line in the coming quarters now that most of our public company costs are in our run rate. Operating income was $3.4 million or a 3.7% profit margin, compared to 16% in the year ago period. The change in profitability reflects the drivers I mentioned. We have been a consistently profitable business and expect to generate steady margin expansion over time. This is a highly scalable business model, and we are confident we can deliver strong top-line growth and attractive levels of profitability over time. With regards to the balance sheet, we ended the quarter with $126 million in cash and no debt. We ended the quarter with $1.6 billion in funds held for clients with average daily client funds of $760 million. Interest income generated on these funds was $316,000 or approximately 17 basis points. Now turning to guidance. Starting with the second quarter, we expect total revenue of $99 million-$100 million or 16% growth at the midpoint of the range, and adjusted operating income of $5 million-$6 million. For the full year, we are raising our revenue guidance to $402 million-$406 million or about 15% year-over-year growth at the midpoint of the range, and we expect adjusted operating income of $32 million-$34 million. A couple things to keep in mind regarding our outlook. We remain optimistic about the growth opportunities and underlying trends in our business. As a reminder, we expect the growth in bookings in FY 2021 will take 12+ months to fully ramp into revenue. While we've experienced a modest tailwind from improved employment trends in our underlying portfolio, we continue to remain cautious in our guidance, including minimal benefit from the labor market growth. This is driven in part by continued uncertainty related to COVID. Our guidance still assumes interest rates remain low and will continue to be a headwind to interest income through FY 2022. It's also important to keep in mind that our comps get harder throughout the fiscal year, and this will be particularly true in the fourth quarter. To wrap, we are off to a strong start in fiscal 2022. The strength of our cloud-based HCM platform is resonating with customers, and we are executing at a high level. We believe we are well-positioned to deliver on our target of sustainable revenue growth of 20%+ and improve profitability over the long term. With that, we'll open the call for questions. Operator? Thank you. We will now begin the question and answer session. To join the question queue, you may press star then one on your telephone keypad. You will hear a tone acknowledging your request. If you're using a speakerphone, please pick up your handset before pressing any keys. To withdraw your question, please press star then two. We will pause for a moment as callers join the queue. Our first question is from Bhavin Shah with Deutsche Bank. Please go ahead. Great. Thanks for taking my question, and congrats on the great start to the year. Just quickly, first on the broker channel. You continue to have success here. Anything particular driving growth here, and how should we just think about the pipeline of adding more brokers, whether regionally or nationally, to your arsenal? Yeah, thanks for the question. You know, the broker channel is really a combination of our value prop, where we continue to work with the broker community and enable them to select the benefit admin solution of choice, and we provide them a preferential implementation, and it's a winning formula. You know, our five national partners have helped drive our growth, but the majority of our growth, the lion's share of our growth, is coming from the non-national partners. It's really about field execution and the value proposition driving it. We continue to grow our broker relationships across the entire ecosystem. We're winning more transactions with the broker, and that's driving our overall growth. Got it. That's helpful. Just to follow up, maybe just on the OnDemand Pay offering, can you just elaborate on this a little bit more? Are you working with any partners or is this a native solution? Just how should we think about the mon- Yeah. As we think about the OnDemand Pay solution, we are using a partner for all the card processing in the background. We'll continue to evaluate that over time, but that we feel is the best strategy for us right now. In terms of the economics, you know, it's included in our overall core offering in our go-to-market bundle. There are no costs to the employee or the customer as long as they're using the native solutions that and the cards that we offer them. Great. Thanks. Thanks again, and congrats. Yeah, thank you. Our next question is from Mark Murphy with JP Morgan. Please go ahead. Yes, thank you very much, and I'll add my congrats. My first question is, I was curious if this immunization tracker you think could create any kind of tangible uplift to the results in the coming quarters. Intuitively, you would think that that'd be a pretty popular option for many of your customers. I'm not sure if perhaps you've bundled that in for free or if it's something that is priced separately. Yeah. From an immunization tracker perspective, it's bundled into our offering. Where I think you'll see it provide an advantage is I think, you know, if you're on a regional service bureau or an in-house solution, bringing an immunization tracker to market is complicated and expensive. That tends to be a gap in those two key segments. I think we'll benefit in those two areas specifically. Okay. Raul, I had another one, which is when you just look at the strangeness of the labor force issues in the U.S. today and the participation rates, do you think that is some kind of a new reality, in which case it probably would drive demand for your recruiting module, which is differentiated? Or do you think it is kind of a temporary log jam and, you know, I think in that scenario, you would benefit as they rejoin the labor force perhaps next year? Yeah, I think from our perspective, it's temporary. Now how long that lasts is unknown. I think the ability to work from anywhere has created, you know, massive transitions in the workforce, which has helped accelerate, you know, our recruiting solutions and our talent solutions. We're seeing them overperform in general. Without question, you know, we think that it will come back into play, you know, at some time next calendar year, that the labor market will probably restore to what we're used to previously. Yeah. Okay, Raul, one last one just on the comments on the bookings trends. You referred to strong bookings in Q1 and, you know, we understand you're not providing any numbers. I don't think any of your peers are. But is there any additional color? You know, was it driven more by volume or maybe were there any discrete large wins? Just directionally, are you able to say if the bookings were higher or lower sequentially compared to the June quarter? Yeah. I mean, the way I would put it in perspective, it was our best first quarter in the history of the company, and one of our strongest quarters ever. We had a really strong quarter across the board. We had broad demand in all market segments for our solutions. And it's really driven by, you know, we continue to outperform in Tier 1 markets. We continue to get great contributions from the brokers, and our industry play continues to help accelerate our win rate. The combination of those things, you know, we exceeded our internal plans, and we have, you know, fairly aggressive internal plans to achieve our long-term goals. We're off to a great start, and we're in a great place from a headcount perspective, in the seller position, which it really positions us for a strong year in bookings. Excellent. Thank you very much. Thank you. Our next question is from Terry Tillman with Truist Securities. Please go ahead. Hey, good afternoon, gentlemen. Hey, Raul and Adam. Congrats as well from me. I have, I think, two and a half questions. The first question, first half, one and a half questions. I can't count. On bookings, a couple of questions have been asked. You did talk about expansion bookings. I think they were solid or strong. Could you maybe kind of double-click on that in terms of expansion sales? I know new logos are very important, but you know, how is that muscle tissue in terms of expansion sales? The second part of that first question is, of the three kind of key vertical focus areas, which of the three seems to be you know kind of rising above the others at this point? I have follow-up. Yeah, thanks, Terry. I think from an expansion perspective, we're seeing really strong cross-sell in our base. As I mentioned in our previous call, you know, we're really reinforcing that muscle within Paycor, and we had really strong cross-sell, particularly on the talent side. I think that's a real standout for us, cross-selling talent into the base. What was the second question, Terry? I'm sorry. The, uh- Oh, the verticals. Of the three verticals. Sorry. Yeah. Yeah. On the verticals. Yeah I would say this year healthcare is outperforming overall, and that's really a bounce back, you know, post, you know, COVID, as we've become more normalized and the entire healthcare system is open for business. We've seen strong performance in healthcare of the three, particularly. That's good to hear about the bounce back there. Thanks. I guess the follow-up question, my second of two questions is related to, you know, I don't know if Chuck's around, but, hopefully Chuck's doing well and the idea of enabling him or giving him 20%-25% more sellers. What I'm curious about is what are the early trends in terms of these sellers in the Tier 1 market in terms of their time to ramp? 'Cause what I'm getting at is could they actually affect the model materially in bookings by the end of the year? Thank you. Yeah, Terry. You know, in many times the highest of all the tiers. I think from our perspective, Tier 1 market expansions is operating as planned, and we're really excited. You know, we're, you know, well above, you know, our path to 20%-25% headcount growth for the full year. We're on a really good track to exceed those targets for the year. Hey, Terry, one thing I would add there is even if those sellers do outperform their sort of ramp and are accelerating their ramp, which we feel like we're seeing that performance already, it's still gonna be marginal in terms of its overall addition to the 22 number. Coming in over our headcount, adding sellers more quickly, ramping them faster, it still has a marginal impact on the in-year bookings performance. Understood. Thank you. Thank you. Our next question is from Kevin McVeigh with Credit Suisse. Please go ahead. Great. Thanks so much and congratulations on the results. It sounds like the clients in the micro segment under 10 was flat and a lot of the growth was in the larger clients. Any thoughts around that? I guess just following up on the broker channel, can you give us what percentage of bookings in the quarter were sourced with the brokers as opposed to internal? Yeah. I'll take the brokers and then, Adam will take the mix shift. From a broker perspective, over 40% of our bookings in the quarter came from brokers. Yeah. Hey, Kevin. As we think about the customer mix, it's really operating exactly as we designed. You know, we're really focusing all of our investments and resources in our target segment, 10 - 1,000, and we're seeing outsized performance even in the 100+ segment, which is growing in the double digits. It's exactly as we would expect. We see dramatic increases in LTV to CAC as you go above 10, and the average deal size of those clients is more than 10x what we see in the micro segment, in the under 10 segment. Yeah, we're seeing the flat growth there in the micro segment, but again, operating exactly as we would expect as we continue to focus on that target segment. That's helpful. Then just real quick, I mean, that on-demand sounds like it can be a real differentiator. Any sense of what the adoption rate, whether in the quarter already or is that something we'd expect in the next quarter? Any way to think about what you think the adoption rate will be on that? Yeah, I'd say it's gonna be a little early right now to talk about the adoption rate, but I would say that it's slightly better than what we would have expected right out of the gate. We're seeing pretty good uptake, and the partnership that we have, you know, with our partner on the product, has been strong so far. We're excited about it. Again, it's a little early, but something that we'll definitely wanna be, you know, keeping our eye on and we expect to talk a little bit more about in the future. Thank you. Thank you. Our next question is from Samad Samana with Jefferies. Please go ahead. Hi, good evening. Thanks for taking my questions. Good to see the solid results. Maybe first, if I could just dig into. I know we talked about bookings and some of the Tier 1 expansion, but when I think about the source of new bookings, has there been any change that you're seeing in who's contributing to your new bookings or maybe the win rates that you're seeing, especially with the context of what some of your incumbent competitors have said around their own retention rates? Our mix of business remains the same. 80% of our wins are still coming from legacy providers that we define as regional service bureaus, in-house, ADP, and Paychex. Again, we have traditionally and still overweight to regional service bureaus and in-house versus ADP and Paychex like some of our peers just based on our market coverage. That will continue to change as we move forward. Our win rates continue to accelerate, so we feel really good from that perspective. I would say that our win rates are accelerating against all of our key competitors and we feel really strong about the value proposition in the marketplace. Great. When I think about, you know, one of the things that really differentiates Paycor, I think it's the vertical focus in a couple of key verticals, even though you're available broadly. I'm just curious if you're seeing anything in particular on the vertical side that's notable in terms of strength and some additional traction there. Maybe just how should we think about maybe additional verticals now that you've seen strong success in the ones that you already have? Yeah. I think, you know, we'll be launching our fourth vertical professional services this quarter coming up. That's exciting news. We're excited about that. It's a strong outsourcer to begin with, and we'll continue to develop solutions for that vertical. I think in general, it just gives our sellers a lot of confidence in the marketplace, because we coach them on the nomenclature, and the value proposition, and we have not only workflow oriented for those three verticals, but also, you know, key partner integrations. Then the confidence that they're being implemented by someone that only implements that industry. That combination has proven to be a really good winning formula for us. You know, we're gonna continue to press in on it with our fourth industry being launched this quarter. Great. If I could maybe just squeeze in one more. Yeah, sure. Out of curiosity, I know we've talked about Tier 1 and the coverage that you have there from a sales headcount perspective. When I think about your broker channel relationships, is it kind of consistent in terms of where your sales coverage is in those Tier 1 markets, or are there big differences between broker channel coverage in your markets right now versus where your sales coverage is? No, it kind of mirrors our sales coverage. As we expand sales coverage, the great news is that's why we're seeing continued growth in the broker channel because, you know, there are more brokers in Tier 1 markets than there are in Tier 2 and Tier 3. And our national partnerships are also centralized in those key areas, so it reinforces our strategy. Great. Very helpful and good to see the strong results. Thanks again for taking my questions. Yeah. Thanks, Samad. Our next question is from Pat Walravens with JMP. Please go ahead. Oh, great. Thanks very much, and let me add my congratulations. Raul, one of the questions that I get a lot is, you know, investors saying, "Hey, Pat, isn't this whole SMB payroll space getting crowded?" Now we have Paycor, and before that, we had Paylocity and Paycom. I know you feel like the space is $26 billion, I think, was what you had on the deck. If you could just sort of remind us of your thinking of how big this TAM is and why there's room even with three good vendors in that target market, I think that would be really helpful. Yeah. I mean, it is an enormous marketplace. And you know, we look at the TAM at $26 billion. And you know, the way we think about it is, you know, if you think about the three cloud providers, you know, combined, you know, we'll have somewhere between, you know, depending on how you look at the market, somewhere between 8%-12% penetration. So 88% of the market is available. Yes, ADP and Paychex are, you know, obviously, donors to the cloud, and will continue to be donors to the cloud for the foreseeable future, just based on the relative size of those two organizations to the other three organizations. I think what people also fail to realize is that the in-house and regional service bureau markets are really large and provide lots of opportunity for us as well. We’ve seen, you know, outsized wins from that perspective in those areas. Great. Thank you. Thank you. Our next question is from Scott Berg with Needham. Please go ahead. Hey, everyone. This is Michael Rackers. I'm on for Scott Berg. Congrats on the quarter, and thanks for taking my question. Just had one quick one, basically around some of the additional modules outside of the core HCM bundle. You mentioned gaining some traction, especially with talent management. Have you seen that mainly within existing customers or within new logos as you move into Tier 1 markets? Yes, primarily new logos. You know, while we've seen strong cross-sell, the majority of our results are in new logos since the majority of our bookings are in new logos. So we're seeing really strong adoption of talent into the portfolio, and I think that's something we're really excited about, it's exceeding our expectations. You know, we continue to see strong adoption of workforce management as well. But ultimately, you know, the talent and recruiting are top of mind for the market, and we have a really compelling value proposition for people as they're really focused on retaining their employees. Some of our unique competitive tools are, you know, focused on enabling managers to coach their associates, set goals, really help people keep on track and engage their associates, which will drive associate retention at this point in time, which is more critical than probably in my lifetime in the U.S. workforce. Great. Thank you. Thank you. Our next question is from Brad Reback with Stifel. Please go ahead. Great. Thanks very much. Raul, competitively, I think we almost always focus on sort of either the legacy- Service bureaus or the other cloud vendors. Are you seeing any change in the market with PEO vendors, especially sort of in the sub-100 segment? Yeah, not really. We just don't, you know, come across them that often. They don't show up in the win-loss at any kind of outsized rate. You know, we win, you know, call it 4%, I think, of our wins come from PEO. You know, it's a small trade between us and PEO. We just don't see it as a big value prop because of the cost. Again, we're not, you know, spending a lot of time in the sub-50 space, which is where that value prop tends to resonate a little more for a small business owner who's looking, you know, for someone to provide all those services for them. As you get above 50, it becomes less compelling and we just don't see 'em that often. Okay. That's great. Then just unrelated, but with the U.S. economy now having added back basically all the jobs that were lost during the pandemic, as of last week, should we now think of employment gains within your installed base as sort of that modest tailwind that it was pre-COVID, so a small driver to incremental revenue growth as opposed to, you know, something that's maybe been a bit larger over the last few quarters? Yeah, I think that's definitely right. We see sort of low single-digit growth, which is what we've seen prior to COVID. I think, you know, as you think overall labor market growth over time, I think that makes sense. That's how we're thinking about it going forward. Of course, as we think about guidance, you know, we haven't really expected much out of that line. Yeah, low single-digit growth would be sort of what we would expect otherwise. That's great. Thanks a lot, guys. Yeah, thank you. Our next question is from Bryan Bergin with Cowen. Please go ahead. Hi, guys. Good afternoon. Thank you. Regarding the comments on the continued services investments, are you at a full run rate for the incremental expenses you've had to put into the services org? How in general should we think about this margin for the balance of the year? Yeah, I mean, we've made some pretty intentional investments in the service organization as we head into, you know, sort of two things on our mind as we head into the end of the year, which is a peak season for our clients, and we wanna make sure that we're creating the right service dynamic, and then getting in front of a lot of the future headcount or the future customers that are coming in that we've booked and are in the backlog. We're getting in front of both of those dynamics. At this point, we don't expect any outsized investments in service in the future. We think that we've, you know, appropriately staffed heading into the peak season, so we feel really good about those investments. Okay. Gross margin, do you expect to build off of these levels? Yeah, I think you're gonna see us continue to build off of these levels for sure. I think we noted in Q4, coming off of Q4, that adjusted operating income margin was sort of at the trough. We were at the low end of where we expect to be. I think that you should expect us to continue to drive margin over time. Of course, there's some seasonal dynamics with year-end revenue, so it's not always exactly straightforward like that, but we feel good about the leverage that we're gonna expect out of those investments for sure. Okay, thanks. Just how much did the client employment tailwind contribute here in the quarter? It was marginal in this quarter. We saw, again, like in that sort of low single digits, if you remember in Q4, we drove sort of four to five points of growth off of an easy comp over Q4 of last year. We really didn't see that significant of an increase, so more in that low single-digit range from the overall labor market this quarter. Okay, thank you. Thank you. Our next question is from Brian Peterson with Raymond James. Please go ahead. Hey, thanks for taking the question. This is Chase Donovan for Brian. Nice to see the increase in PEPM this quarter, but just curious how you guys are thinking about M&A and the ability to do tuck-ins, bring in functionality and help grow PEPM over time. Thanks. Yeah. We're, you know, extremely diligent and opportunistic with M&A. We've had a history of successful acquisitions to expand our platform and provide a unified platform for our clients. We're gonna continue to do that. I think, you know, we'll be thoughtful about that and we're evaluating lots of different opportunities. You know, we have a history of one or two transactions per year, and I think that will probably, you know, be something that we'll target on a go-forward basis. You know, again, the opportunities we look at are primarily product IP related, and we're really focused on unifying that technology into our platform and selling it as part of our unified suite. We're not looking for any significant installed bases that we're going to, you know, retain on a long go-forward basis. Perfect. Thanks. Yeah, thank you. Our next question is from Mark Marcon with Baird. Please go ahead. Good afternoon, thanks for taking my questions. In terms of the West Coast and the Northeast, you mentioned the pace of selling and sales hires in Tier 1 markets increased. I was wondering if you could just be a little more granular in terms of what you've added both in those two key territories. Yeah. Hey, Mark. You know, we weren't expecting to necessarily talk through the dynamics at each of the markets. Of course, there's lots of dynamics in terms of hiring and when leaders are moving around, and so it's just not quite as helpful. I would say that over the first three months and through this, through October, I mean, we've had a lot of success in hiring across all of our Tier 1 markets. And you know, we're well on our way to achieving that 20%-25% headcount growth for the year. You know, we're gonna it... We're gonna be opportunistic when it makes sense to bring sellers into markets where we've hired new leaders, where we have strong leaders, where we have opportunities for continuing to round out teams. The bulk is still gonna go into those Tier 1 markets. Great. Can you talk a little bit about, you know, some of the investments that you've made in the service? What's the feedback been like? What are you seeing in terms of response times, any sort of, you know, NPS feedback, just sense of, you know, client retention and how that would trend going into the key fall selling season? Yeah. We've made a handful of really strong technology investments to enable our customers to be able to interact with us more effectively, to be able to engage with our reps more effectively, and then for our own service reps to be more effective as well. You know, we noted on prior calls some noise that we had last year and feeling like we were understaffed. Making those investments in partnership with the technology has seemed to come through really well. We've been able to improve our handle times and our wait times to levels that we think are better than they've ever been. We've gotten really good feedback on that. We've seen some really good returns, and it's still early for a handful of these investments as well. Great. Can you just talk a little bit about the expectations with regards to PEPM? I just wanna make sure I understood it correctly. It sounds like, you know, in the prior quarter was up, you know, 4%-5%. This quarter it was, you know, low single digits. You mentioned COVID at the beginning when you were talking a little bit about the expectations. I was just wondering, are you saying low single digits in terms of increases, in terms of PEPM for the balance of the year or something more modest in terms of what's being baked into the formal guidance? Yeah. I mean, as we think about our guidance, I think we've been really conservative in terms of including any sort of growth from the labor market. You know, what I would say is that prior to COVID, we were sitting in that sort of 72 employees per company, and we're back above that now. Again, as we think, Mark, about the future guidance, I mean, we really haven't baked in any continued growth from the labor market. Great. One last one. Just how would you describe pricing in the market now? I would say that maybe it feels a little different for us because we're seeing some really strong success with our new modules, especially again, that talent solution. Across our base, we're seeing higher take rates of our products. We're seeing some really strong success with continued attach. I would say that we've seen some from some of our competitors maybe a little bit more pricing pressure. Nothing that's necessarily changed anything for us as we think about, you know, that overall new business coming in and the rates that it's coming in at. We feel really good about that. Yeah. Your talent module really did get a lot of really good reviews coming out of HR Tech. I was wondering, what are the attach rates and to what extent can you even further market that particular module? Yeah. I mean, we weren't giving specific attach rates, but I'd say, you know, workforce management continues to be our highest attach rate, and that's still in the sort of, you know, sort of 50% range. Similar to the dynamics that we've shared over the last, you know, handful of quarters. There's plenty of room left for talent. Talent has grown dramatically and I'd say really quickly relative to other products that we've historically released in terms of how quickly it's penetrated and attached. But still not to, not even yet to the workforce management rates. We think that there's plenty of room for that. This concludes the question and answer session. I would like to turn the conference back over to Raul Villar for any closing remarks. Again, we wanna thank you for your time today. We're excited about our Q1 performance, and we're even more excited about Paycor's future. We look forward to working with all of you over the next few quarters. Thanks so much. This concludes today's conference call. You may disconnect your lines. Thank you for participating.