Everyone, we're gonna get started. My name is Brian Peterson. I'm on the application software team here at Raymond James. Very happy to have Paycor with us today. Adam Ante, CFO, Rachel White from the investor relations department. Adam, maybe just to get started, I think there's some people in the room that may be newer to Paycor. maybe just a high-level overview, and then we'll kinda get into a fireside chat from there. Yeah. Sounds great. We are a modern HCM cloud-based provider, and we're focused, of course, on HCM, payroll that includes talent attraction, talent retention, Talent Management, and the whole payroll suite that wraps around that as well. We've been around for about 30 years, but we've been public for just about two now. Really came with a recapitalization of the business by a private equity firm called Apax in 2018. Since then, we've really reset the entire leadership team. New CEO came in, Raul Villar, in the summer of 2019. Then we've really focused on a couple key areas. When he came in, we revamped and re-upped the leadership team really for this next phase of growth and scale. We recut our value proposition, really focused the organization and began to expand then distribution across the country. For us, it's really about two things, of course, the employee growth on the platform, you know, driving new business, continuing to grow the platform, and then expanding our product suite and adding PEPM at the point of sale. We've been pretty successful with that strategy over the last couple of years. Of course, going through COVID and then taking the company public this last, call it four quarters, has been a really great opportunity for the team for the first time to really be able to just focus on execution. I think you've seen that shown up in our, in our financials now. Maybe just, you know, keeping it high level, like what do you think are Paycor's kinda main competitive differentiators? What's really helping you guys gain share? Yeah, I mean, first, we are focused on providing products for the leaders inside of the organization to better attract talent, find talent, manage their talent, and manage their workforce more broadly. That's the number one focus that we have as an organization. Of course, it comes with employee self-service and employee engagement type tools, but we're really focused on, you know, engaging that leader so that they can manage their teams more effectively. We've invested quite a bit in our interoperability platform, and I think this is a really big point of differentiation for us, especially versus some of our closer peers, where we've created the most API endpoints, the most integrations, most partnerships in the space now. That's how mid-market SMB firms wanna go to market. They have a lot of solutions, they're using a lot of solutions, and they want to be able to minimize the cost of using those systems, simplify the workflows, and our interoperability platforms really help that. How do you think about the market size broadly? We get some different stats, but, like, how big is the market and where are you guys specifically focused in looking at the spectrum in terms of the size of the employees? Yeah, we really focus on that 10-1,000 segment. Mm-hmm. You know, now we characterize in HCM in the industry, we characterize by employee sizes. That's not exactly how it works in reality. It's not exactly how employers think about themselves. That's just how us chuckleheads say it. Yeah, that's just how we like to. Yeah. ... you know, make it easier for us to understand. We do have customers that go up over 2,500 employees. 90% of our revenue is within 10 employees up to 2,500 employees. We scope that market out in the 10 - 1,000 space at about $30 billion. It's under $30 billion, really based on the employment levels and then our full suite of solutions. Who are the main share donors as you're growing there? Is it the service bureaus or, you know, how do you think about that opportunity and what's kinda the cadence of displacement for what are, you know, some of the legacy solutions? We get about 80% of our business from what we call the legacy providers, which is, you know, ADP, Paychex, and then in-house processors and regional providers. I think the story's been relatively easy over the last 10 years. A lot of the providers have come out and said, "Hey, we're taking share from ADP." It's just an easy story. I think that you actually see that more share is being donated from those in-house providers and the regional providers who can't keep up with the solution set. They tend to not own their software, so they're not developing new solutions, and they can't keep up with the compliance and the regulatory environment. You know, ADP continues to grow, but they've really been stepping more into PEO and benefits and other ancillary solutions. Their, their technology, especially in the mid-market, has really not grown. They have been donating share, but we really see quite a bit of share donation from the regional and the in-house providers. Interesting. I'll just go out over here, but, you know, in terms of the resilience of the business, like just seeing a lot of other areas of software, it's amazing how well your business has performed. You know, I'd love to maybe unpack a little bit on why you think you guys have been much more resilient than, let's say, other areas of software. Yeah. I mean, I think that the first thing is that the software is mission-critical. You can't operate without a payroll capability as a company. Benefits, if you're offering... I mean, we sort of break our solution down into four key areas. You know, our Core HR, which includes Benefits and HR, excuse me, Payroll and HR, then Benefits Administration, Workforce Management, now our Talent Management. Again, you know, being mission-critical, you're using these solutions. If you track labor and time, you have to have a Workforce Management solution. More recently, we've seen that the labor market has been exceptionally tight. Mm-hmm. The labor participation rate has remained down. Non-farm payrolls, you know, continue to grow, but more open jobs than not. That has put a lot of pressure on talent attraction, talent retention. You know, there was a sort of, Great Resignation that really led to a lot of employers focusing more on, of course, attracting talent, but then managing the talent that they've gotten in a different way or that so that they could retain it. I think that that's really helped us. In this market too, to the extent that it sort of goes the other way or starts to contract, we're an efficiency play as well. I mean, everybody's using Payroll, and most folks are doing it inefficiently. It's also an opportunity for folks to improve their process internally, not have to hire folks and can use the software instead. What have you seen from a macro perspective? If you look back, I guess maybe calendar year 2022, and then I know you guys have a bit different fiscal year, but, like, what are you thinking in terms of the macro and how that may impact the business as we're thinking about calendar year 2023? I mean, most broadly, of course, with the labor market still growing, even though it feels like there's this macro pressure, that's been, I think, a marginal tailwind for us. These last, call it four quarters, it's been low single digit, what you would call sort of a same-store sales equivalent of employers hiring, has been low single-digit contribution overall, and this last quarter is probably a marginal drag. I think that the majority of our business comes from new business. Mm-hmm. Winning new deals in the marketplace. That organic same-store sales growth is really not a main contributor. I think that's probably gonna persist. I mean, our macro view is that that doesn't probably get too much better in the near term, at least. You know, we're not factoring that in as we think about going forward, you know, at least over the next four to six quarters. It's also not a material impact on our overall business. It's one or two points one way or the other. It's just not that big of a deal. Okay. All right. Well, sales hiring, I know you get that question a lot. Yeah. You know, the Tier 1 expansion, I know it's been a big topic since the IPO. Where are you guys in that effort, and how much more room do you have to expand there? We break up the markets in the U.S. by the top 50 MSAs, top 15 we call Tier 1 markets. You know, the way that we look at this is based on coverage, how many reps can we fit into a market based on the number of accounts or businesses that are there. Tier 1 coverage for us right around the IPO was just under 20% coverage, and we've grown that to just over 30% now. We're growing our headcount by about 20% annually, 23% last year. We're at 20% through December. Really with the aim to continue to drive expansion. Most of those sellers are going into Tier 1 markets. Yeah. We think that that coverage has room to double, if not more, over the next couple years. We feel good about the position that we came in, you know, out of December being in a 20% range, just over 30% coverage in the Tier 1 markets. We're still also hiring and filling heads across other tiers as well. Like Tennessee, for example, continues to be a really great market growing really well right now. We'll continue to look for those opportunities. Maybe just a little bit more color on the type of sales reps that you're bringing in and has that market to bring in talent, has that changed at all over the last couple of quarters? I think that the. You know, broadly, we see less resignations, like high level of resignations like we saw in the Great Resignation, folks were leaving for sort of ridiculous offers where they're doing the exact same thing. Sure. That has really slowed down. I think that that's actually helped us to hit our internal hiring and internal targets a little bit faster. We see more folks, and this is broadly across employment, more folks stay, which has been positive. You know, we really are looking for sellers who have maybe three to seven years experience in what we would call like a gray collar job, where there's high transactions, not necessarily software, but you know, things like Verizon or phone sales or Cintas uniform sales, printers, those... They come with the sales experience, they come with the transaction and the sort of high level of activity, and then we teach them how to sell software. We haven't had much luck in bringing other sellers from our competitors. You just don't. We of course, get sellers from some of our competitors like ADP, but it's not the majority of our hiring. All right. Well, I'll unpack that a little bit more. Like, what has that done to your retention levels and people kind of working in and taking the Paycor philosophy, like, has that led to like better sales retention, you think than maybe some of your competitors? I'm not sure if it's led to better retention than competitors. It's definitely helped us in the last, you know, two years now, the last two years. We see that those sellers really more important than anything. They run the plays that we teach them versus them coming in and having some expectation on how, you know, well, Paylocity's product used to work like this, and I used to position it like this. We say, forget that. You know, we wanna teach them the plays, run it like this, develop these partnerships, focus on these brokers. We've seen more success with that strategy now. Where do the brokers play in terms of they go to market? Maybe unpack that a little bit. Yeah. Brokers really tend to play these benefits brokers in the mid-market segment above 50 employees, up until maybe 500 employees, 750 employees is where they really have the most influence. They're really the only partner that we found that has strong influence in the mid-market space. Mm-hmm. We go in and look to create relationships, of course, top-down with like national firms like Brown & Brown. Each of those relationships is managed at the local level. You're looking for this opportunity to get a piece of their client, get a referral, just one referral from these brokers, and then it builds over time. We find that sellers who come in, newer sellers, they, you know, take six, 12 months to start developing those relationships, and they start paying off, you know, in month 18, and after like two years, those referrals. How penetrated are you into that opportunity in terms of the broker network? Is there a lot of room to expand that or where are you on that effort? I think it's really early days. I mean, we think that the total broker space is somewhere in the 13,000-14,000 across the country, and we probably have like 10% of that today. Lots of opportunity to expand, to build those relationships and continue to get, you know, strong referrals is what we see from that channel. Maybe just pivoting a little bit on the product side. Sorry, I don't know if you guys can hear me, but, just on the product side, maybe walk us through kind of the PEPM expansion that you've had and where you think that PEPM could go longer term? Yeah. There's a couple of dynamics as we think about it. First, it's the list price, the total cost of our suite if you were to buy 100% of it at the list price. Today, that sits at $44. We've grown that from $29 just a couple of years before and a couple more dollars from before that. We've seen some really good expansion. It comes really across the suite. We go to market with four key bundles, and our Core HR solution includes things like payroll and HR, onboarding, analytics. We've been able to continue to grow that functionality. It's about really adding functionality at the point of sale, lifting that floor, lifting that PEPPM. We now feel like we have a more complete suite than all of our other competitors in the market. It also shows up in an effective rate, so what actually hits the P&L. Every single deal is individually negotiated, so we're rarely getting that 100% list price across all of the suite. We've seen really strong expansion. It's been growing. Our effective PEPMs have been growing in sort of the high single digits, low teens for the last handful of quarters. That comes because, of course, you have things like price increases, but really you're seeing more clients at the point of sale, buying more, buying more complete adoption of the suite, and that's really been lifting. Then some cross-sell opportunities as well. I was gonna say, how do you unpack that a little bit between, like, you know, people landing bigger with more products versus kind of the cross-sell motion to go back to the base, maybe on renewal? Like, where are you guys focused on that? Yeah, we see about a third of the growth comes from each of those items. Net new business comes on at a higher rate. That accounts for about a third of the growth that we see in our effective PEPPM. Cross-sell opportunities is another third, we get about a third from price increase. I think that the cross-sell motion is a motion that we've under invested in still. I mean, I think there's a lot of room, there's a lot of opportunity there as we continue to focus more on the field sales and the direct market, capturing more market share. I think the cross-sell opportunity is gonna be a tailwind for us. I'll open it up to the audience. In terms of the progress, the market that you address, where do you sit between [audio distortion], and some other peers? Yeah, we focus primarily in the 10-1,000 segment. We do go up market. Beyond that, we sell clients, you know, over 2,500 employees, but primarily in that 10-1,000 segment. Some of the peers tend to play a little bit more upmarket and have focused on going more upmarket. We tend not to run into or, you know, do too many accounts over 5,000 or 10,000. That gets a little bit outside of our sweet spot. The SMB segment for us really with a sweet spot in that, call it 50-750 range. So the average for us sits at just under 80 employees per company. We're selling quite a bit, though, in that 130-150 average in the mid-market. Maybe just hit on some of the verticals where you've had some success and, you know, like talk about your penetration there maybe versus some other end markets. Is that something you wanna flush out a little bit? Yeah. We have a horizontal platform that scales across all industries, but we've really put some focus behind four key segments of food and beverage, healthcare, manufacturing, and professional services. There's a couple of dynamics around it that really enable us to be more effective in those spaces. You know, there's reporting and advanced analytics capabilities, specific compliance that's needed across those industries. There's opportunities to build partnerships where those industries just come to life a little bit more where they might need more specific solutions. We've been focused on that for the last couple of years. We just more recently within the last year added professional services. Really what it does is it helps sellers at the point of sale really focus their talk track, enables them to feel a little bit more on their front foot and a little bit more, you know, confident in the solutions that we're able to offer. We see that it translates to slightly higher win rates. Yeah. I'd say thus far we haven't been outsized in terms of, overall, you know, concentration across those industries. Those four represent about half of the entire market, and we're, you know, a little bit, overweighted there, but not materially. Are investments maybe to specific verticals, that's not maybe anything close to compared to like the PEPM expansion. Where are you kinda balancing some of the product expansion efforts? Yeah, I mean, you don't see new functionality that we're adding specific to an industry that might make it outsized there where we have to put certain development. Again, it's more about like the analytics capabilities, reporting engine, and it's that interoperability that really helps across all these verticals, but then we can just put some more concentration. The majority of the PEPM expansion has really come from our Talent Suite, and we've really built out our Talent Suite over the last couple of years. It was founded on an acquisition that we made called 7 Geese back in 2020. We've wrapped our both organic solutions around it in inorganic. More recently, we just acquired a company called Talenya- Mm-hmm. ...which is a smart sourcing capability that sits on front end of our applicant tracking solution. What do you think that brings you in terms of the M&A? Then maybe more broadly, how do you think about that build versus buy discussion, you know, as we're thinking about product development long term? Yeah. I mean, what's been critical for the success of our acquisition strategy and the inorganic strategy is that we've built the platform and this interoperability capability so that we can bring those products in quickly. Mm-hmm. We acquired Talenya in November. We're already taking it to market. Within three months, we've been able to, you know, get it launched. It's not about just selling it through our distribution. It's about, you know, bringing it into our environment, fully integrated, one single sign on capability. It's all integrated. We've seen a lot of success with that. As we look at, you know, the space to put new resources, what's really interesting as a suite provider, of course, you're a mile wide and an inch deep usually in these areas, and you can go find these small IP, really strong technology who's just lived, you know, deep in one set of functionality. We're deep in payroll and HR and those core systems, like time and Workforce Management, you know. When you get outside of that, you start to see all of these niche providers that have gone really deep with their IP, and it's been a really good fit for us to be able to bring them in, take them to market through our distribution, make it one single experience for the client. Any more from the audience? Your favorite topic, interest rates. Just walk us through, you know, the impact that has on the business, and does that actually maybe give you a little bit more, you know, invest dollars to invest or flexibility in an environment where maybe some other software companies are doing things a little different? Yeah, sure. I mean, when we came into the year, we saw about $20 million of interest income that was going to, you know, flow through this year, which I think we were at, like, $3 million last year, so quite a lift. We saw it as an opportunity to take some of that and invest outsize in our business so that and in our strategy. We focused in on a couple key areas. One, marketing programs, demand gen that really supports the field expansion strategy. We focused on marketing programs. Then we looked at opportunities to accelerate our product roadmap. To a lesser extent, you know, some infrastructure programs to, you know, continue to scale the business. We were targeting about half of that interest income spend to go put back into the or interest income revenue to go put back into the business. Of course, interest rates continue to expand, and now we're looking at $30 million, and, you know, it looks like it's gonna go up even more with the more recent, you know, language that we're hearing. What we haven't taken that opportunity to say, "Hey, let's just go accelerate more and more investment." We've really been intentional around the marketing programs and around the product. There's only so much that you can go slam into your product before everybody's touching, you know, the same thing and you're not gonna make any additional progress. What we're seeing now is that additional interest rate increases are going to flow down. To the bottom line? To bottom line. Yeah. Maybe I'll just wrap it here. Just the longer term, like, how are you thinking about the growth or the balance between growth and profitability? Maybe hit on some of the longer-term margin targets. Yeah. You know, we're still focused on revenue growth, and we've been intentional about expanding margins at the same time. This is not a growth at all cost play, and it never has been for us. Okay. We're looking at, you know, 20%-25% headcount growth on the sales side, which is one of the limiting factors. It's an operationally limiting factor. You know, we just don't think that we can get to 30% headcount growth on the sales side and be effective. Mm-hmm. What that means is that there's just a natural limit where we're not gonna keep burning cash at the same rate. Where we don't burn cash today. We'll be cash flow positive this year while we continue to expand margins. The revenue growth targets of 20%-25%, 20% sustainable revenue growth really comes on the back of how quickly can you expand your sales organization. We like that, we like that target, and we like the ability to continue to expand margins, which we've been successful at here for the last handful of quarters now. Awesome. We'll wrap it there. Adam, thanks so much. Thank you.