- Earnings call transcript Q1 2023

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Operator

Ladies and gentlemen, thank you for standing by, and welcome to Paycor’s First Quarter Fiscal Year 2023 Earnings Call. [Operator Instructions] As a reminder, this conference is being recorded.

I’d like to turn the call over to Rachel White, Vice President of Investor Relations. Please go ahead, ma’am.

Rachel White

Good afternoon, and welcome to Paycor’s earnings call for the first quarter of fiscal year 2023, which ended on September 30.

me and Raul Financial Adam with Chief Jr., Officer. call Officer; Executive Ante, the today Villar, are Paycor’s On Paycor’s Chief

issued will our of website. Our our call the is on be conclusion can and Today’s on Investor today, a our recorded, release following replay the of financial available available which the section found Relations call. being is be results press in website

representing operations, to results, the call this forward-looking on related and views subsequent products, any future. based may include our customer these as not financial as and statements demand, updated and of Statements matters. date. management’s are made on as business of Therefore, impact today be to and statements our current on risks, COVID-XX expectations not statements These of the in our assumptions should other be are upon uncertainties relied subject

measures provide in of We and of non-GAAP release refer business and a provided GAAP financial certain non-GAAP Definitions website. our on investors. press key to reconciliation to to also measures to non-GAAP business information metrics is and metrics our key will measures additional

to With call that, over Raul. I’ll the turn

Raul Villar

us Thank level years results. you you, thank for discuss expand our the all we quarter as Rachel, fiscal Paycor’s in first Revenue joining XX%, and reached X growth to highest over motion. go-to-market

we this Adam detail. momentum, more basis which points XXX in strong more than once of our to delivered year-over-year. We and continue improvement Based operations cover also on our scale again will margin guidance, are raising

[platform]. our strategy progress sales growing and and executing continue go-to-market to expanding We are significant against coverage our make

record. QX we have been dynamics consistent, Competitive and remains strong, had best our on demand

on established Tier count target year. expanding increasing coverage for X in Tier is our sales X all We sellers XX% markets. ongoing fiscal over focus today, continue in to head the markets With

have team, to the for more the future. sales opportunity our triple significant foreseeable With we runway than sellers add

Bengals and both Pac-XX really and are business increasing brand with awareness new sports early, still ongoing it’s are pleased While sponsorships the how we development.

industry, and in the leaders market. Paycor’s XXXX. to modern purpose-built priority by open combination a platform leader continues and that as identified for CHROs for configured Gartner among a A survey recent manager effectiveness top is win

and excited This COR for and technology. to The differentiators tools frontline built the into improve effective leaders: framework evaluate the organizations award-winning understanding that coaching and are leadership retaining organizations frontline is the leaders X the candidate on provide to we effective employees, Talenya’s leadership performance leaders to leadership managers talent. announce key and COR means framework needed framework thought focus their of The empowers leaders. efficacy with quarter, We performance. on to optimizing transform top the sourcing leader

HCM easier at continue for our leaders use. technology candidate our recruiting automated making out talent frontline quickly to and cost. that fully find platform, skilled frontline talent for and The stands to solution significantly enhance add are AI-powered it lower Talenya’s in is and solution. We to to easy to suite acquired Talenya’s sourcing leaders unified it leapfrogging diverse intelligent will have technology be to thrilled our innovation industry-leading into and

acquisition PEPM DE&I often not are that expand are solutions technology only placing passive competitive impressively, new that also role. our not are our their actively for diverse a but jobs, war The sources best-in-class companies Talenya systems. strategy traditional change today’s on more rapidly that integrating help an successful and In to looking candidates against execute track by overlooked on provide builds advantage opportunity. record talent, This by emphasis seeking actively candidates recruiting point a of candidates that will

versatility product strategy. of our the These advancements showcase

Paycor in on to us are focused increasingly leapfrogging valuable add further to market. options functionality, enables platform Our modern valuable the select differentiate buy partner as build, whether that to technology or to

further we of for our Business differentiation, Analytics. Award Intelligence Solution proof Business XXXX category in Paycor the in As Platinum the are TITAN product

on are analytics valuable providing intelligent We focused leaders that drive with increasingly deliver business insights performance. to

resignation the drivers help and employees resignation prevent employee example, identify insights turnover. top provides with at-risk potential to the of For predictive to leaders

analytics addition, In and key are that critical such by time we over tenure. to provide or labor, many scheduled analysis manage [industries] our helping as time

females In particularly business ongoing and diversity I ethnic to in address by year-over-year. ESG among our pleased September, representation XX% first ESG associates by we we emissions topics. Scope X% X Scope efforts describing and commitment X and published increased Paycor’s am our reduced respectively. report material sustainable our to and the practices of XX%, And leadership

XXXX proud by We categories year compensation Energage. consecutive Awards inclusion won been recognized DE&I second the This for practices, has and equity diversity, are Paycor in and incredibly and is excellence. benefits Excellence Paycor Top Culture Workplaces innovation,

Over the year, options continued benefit rewards, expand innovation. to and advance enhanced fiscal associate DE&I past Paycor has its strategy, [indiscernible]

from to pre-COVID And unlikely our great levels. levels. to elevated our our is the mission and In critical very business most defensible dynamics highly talent. cloud-based in market market remain modern and have openings materially payrolls or proposition terms labor logo as are Nonfarm of of Modest is the attracting still openings solutions, impact the revenue growth value Job HCM risen job remain market, to continues be new slowly tight. is at changes unchanged. retaining labor unemployment early to as paying in plus HCM derived additions adopting is

would are results. of Lastly, [Paycornians] who like all the these amazing I the amazing thank foundation to

to I’ll and turn Adam call discuss results to that, our With guidance. financial over the

Adam Ante

Thanks, and I’ll our first the our Raul. quarter quarter year. results, share then review outlook for fiscal second

financial basis. my reminder, non-GAAP to are measures a comments a on As related

and quarter record. the our recent increasing XX% highest million, year-over-year, $XXX was for revenue Total

diligent by of our exceeded revenue revenue outperformed income, end Excluding by through and management. top the guidance income adjusted investment of XX%. significantly the impact We interest grew recurring guidance operating X% our

to continued point of of conversion newest bundles new Revenue was cross-sales, initiatives adoption initiatives business our clients at our by bundles Pricing strong expansion, of the of pricing of and sale. growth and PEPM and our program. execution driven primarily product growth partner include higher

our employees of number more prior XX% than The X.X increased up to million, on over the year. platform

of the compared investment benefiting Net a continue with the among to end trended retention growth average clients employees. ago price employees favorably, sales. initiatives continued more Our in our XX customer accelerate we QX increased focus XXX than mid-market as to from and cross size at to XX and year

expansion gross increase to XX.X%, year year-over-year. team margin, a versus gross support XX.X% X and amortization margin points of Adjusted of profit improved Adjusted was across increased XX.X% ago. excluding third-party scale The a result costs. an depreciation was our lower and nearly

and million returns market continue we’re Based and strategy in expense new marketing in and to continued our attractive seeing, XX% or the capture sales marketing demand programs and XX% X slightly invest Tier revenue, was primarily we business of year below ago. $XX drive share, markets. Sales on expansion to growth a

line lower a revenue, year in gross we $XX in targets. XX% ago our On basis, invested and slightly than XX% or a long-term million of with R&D

continues clients functionality tuck-ins expand Our efficiently product for and through our that and value PEPM new team to partnerships opportunity. our add create organic development, best-in-class

facilities percentage first $XX from intend XX% footprint drive was progressively expense scale costs. the consolidate public G&A our of as the million business, down we down G&A to or revenue and [anniversary] quarter as company of a of XX% We ‘XX. revenue, in

expand we revenue XX% sustainable we remains plus steadily objective primary our to intend growth, as margins scale While business. the

double us greater-than-XXX-basis-point to XX% margin, [XX] when quarter. more the deliver adjusted income we of million our margins quarter, X.X% XX%. And rule with X.X% or enabled expansion the $XX.X profit combined growth this operating exceed than year. an This last The EBITDA to revenue of increased

balance the flow. and cash sheet to Shifting

$XX negative a was flow compared year. cash last million $XX free quarter, a million This negative to

cash due The first quarter of tends to bonus use largest our the to annual of timing have the payment.

quarter, be quarterly this made full we forward. first addition, which naming the rights In covered and year moving our will made payment,

cash cash year to and free be the forward. flow we million going for ended no fiscal $XX the plan and in quarter positive However, We with full debt.

of interest of million $XXX on million. $X income approximately funds generated we quarter, average client This

Fed faster rates income began points raises overnight completely. rate benefiting to basis reflected rates recent fund this more overall quarter effective Fed as As Interest more compared to basis quarter. XX rate last overnight increases, and tripled expectations our our points exceeded XXX than from

Turning to fiscal XXXX. our outlook for

to market have market. Paycor’s the environment continue business. the macro continue And we the while We demand business, in and to strong material any labor tight. position not monitor HCM the seen environment, we positive remained about closely momentum be has our to The in leadership impact

continue these the of assumes guidance for trends year. remainder Our the

we Talenya’s immaterial PEPM are to year. about our innovative financials and While integrating enthusiastic technology our expanding it into opportunity, fiscal to this the expect platform be we

$XX quarter We interest quarter. programs be income billion. income of $XX support average we million points for first fund increase map in the to our the expect million to today’s year in income product the basis reinvest second further that interest currently to will half XXX of accelerate on interest to just sales to anticipate $X in rates, of rate and about about range At the client generated and expanding or of plan balances our marketing expansion. either under road We our full

million operating total $XX.X of the or second XX% $XX.X end between $XXX of $XXX the million. the and we For adjusted at and quarter, high and expect million growth between million revenue income range of

revenue million or expect $XXX anticipate to adjusted and XX% to the of million income million. of $XXX we million of $XX at top year, $XX range, end full operating the growth For we the

growth while continue we top summary, In strong line to deliver expanding profitability.

industries. through segment platform focused share winning leaders in are our We on and SMB differentiated the

about is Tier PEPM X we share on growth total execution, business. continued $XX market, expansion. for runway addressable laser-focused market continued remain team enthusiastic billion of less of and Our significant our With X% the than penetration and trajectory the have

call questions. that, for the we’ll Operator? With open

Operator

from [Operator Sachs. of Instructions] is Goldman Our first question Borges Gabriela

Unidentified Analyst

early sellers in This about time you Tier for market? wanted to in last particularly in ask the terms up are What to terms fiscal Gabriela. ramp, I is hired on year. Kevin the X of seeing ramping of trends

Adam Ante

of more cohorts, historically. We’d room to of been X performance there’s love really to adding it’s -- been like and at on they And cohort for for X sellers out or to like sellers -- seeing early, recently always the larger we’re closer hiring cohorts them who’ve compare track but to each sellers sure. basis to XX-plus like is seen in improvement, we they good look continue previous We’re those those but for and to quarters have we always here that we’ve perform to still cohorts. we’ve quarters what a those track

Unidentified Analyst

a margin and the helpful. talk suite increase? can then, gross as you you as That’s expansion And bit levers to PEPM particularly of going continues the forward, Adam, HCM broaden for

Adam Ante

Yes.

that additional when products us, more increases. the more they’re add we is effective margin of you buying things that gross clients One in the are from when see products and

with you service in payroll. of Payroll management just, level service largest calls the do and service talent like our we callbacks operations new same our just and for the terms management So don’t of in is solution, products, that to of operations. part put service have you and

when these so And helps add to margin. we it really drive additional additional products,

out into way that And use as to bit more segment, segments that we the see product. as effective tend they to do the well little to of tend we micro in a the those buy continue They be clients, more. they the larger

And bit tend driver. That’s so to margins primary on to a the better. little come be the going

Operator

question from Tillman Our next is Terry of Securities. Truist

Robert Dee

And for growth Hoping Dee customers? an little that sensitivity? in then This are into us thinking Is on follow-up. of more you get [smaller] about there? to on becoming Terry. update have how is segment you Can detail with segment. and one or the terms perhaps the segment the a from mix And remind steady I bigger to business overall of mid-market all micro economic Robert hold

Adam Ante

we terms segment XX are in that growth in investing of Yes. that of of we material, X% total we have revenue of drive total terms held And steady about fairly revenue a down seen much revenue. in It or that’s not not segment. under But portfolio our move, quite segment. do so. micro of moves continue in I that the slowed that that It’s growth represents as it’s really terms mean just in actually the of to companies in as in that, intentionally segment. marginal X%

terms do its macro wouldn’t is portfolio, really segment us. then micro expect impact again, sensitivity ends, to of larger say just of where I’d sensitivity, we the impact our in on the so of that the in in large swings it’s enterprise terms we sort the maybe overall But even large changes. see would marginal and segment more

Robert Dee

mention spotlight you’ll taken And particularly quick the sense. have continuing? specific just Makes strong Last believe services as and restaurant verticals a of segments. that follow-up. quarter? this then food Is I momentum in industries, across still any more quarter, the other Or

Adam Ante

It continued. adjust count. has I or sort we that mean hiring No. Yes. seasonally -- is don’t of trend dependent employee on our

what But and have be of do outperformed trends market the continued well more more growth slightly hiring outsized as see tight continued labor with in sort and and broadly. whatnot. in sort in have those of seasonal as peaks market broader has in you’d you see So they line the to the

Operator

Our Cowen. next question is Brian of from Bergin

Jared Levine

on Jared for tonight. actually It’s Brian

In there, are with the it XQ if in adjusted that for your terms margin, expectations? expecting you was Was you And [flow] flat margin? of for year full line gross like it gross what looks remove the adjusted year-on-year.

Adam Ante

Yes.

basis, We did margin interest drive we gross it at the still drive some you actually income haven’t expansion and a guided did look if adjusted recurring back expansion some board. on but We basis. to across full year on out a

really the as adjusted income. gross and is margin we metric margin gross of excluding best And expansionary depreciation our I think drove points for the interest at again, well without benefit as and income. of So across multiple amortization, operating look to adjusted

And long-term is expansion to that continue to is goal drive across business. our the

So at as that said, we -- an like opportunity. we’re haven’t gross we margin but improvement, specifically to going to continue to guided look I

Jared Levine

guidance, updated Okay. additional Great. And hike flow assumptions terms of recent most Fed does rate in there? that include any full the revenue or funds rate then year today from that

Adam Ante

from it future doesn’t raises. any it points No, potential the and XX today includes basis include

Operator

Next Morgan. is Murphy question Mark of JP from

Arti Vula

Mark Arti is This for on Murphy.

question acquisition. Just it a looks on like interesting quick an Talenya,

frontline particular collar, kind In collar, workers, white or there, focus that cetera? any et terms towards of blue company focused maybe of customers the the is of

Raul Villar

Yes. primarily today on focused professional It’s services.

to and health leverage so in I continue verticals. care think professional that we’ll And our services

I identify think use be over to able identify to hourly more effectively. time, we’ll employees, more also for cases employees hourly

Arti Vula

Is Got in move market? commentary terms expect you favorably. kind then retention? it. you guys moved to that as on guys NRR, up gross of something the that Any And of improve you the said

Adam Ante

been Yes. continue for to I while to that improve. think relatively I gross some mean and even retention time now It’s that definitely driving been improvements. we expect we’ve stable retention

continuing been remain into So and coming have those strong ‘XX now.

Operator

next Our is Bank. Deutsche Shah Bhavin of from question

Bhavin Shah

A couple of for me. quick ones

look should terms of the about how of first growth what year? over mean in And today does sales another sellers, guys Just we I XX% the linearity hiring adding like finding hires about the front. talent? you talked sales course think in of on the environment the

Raul Villar

Yes.

people people year will And the that So we hire map out hiring. minor us those first planned budget sales the the to We half obviously our are recruiting fiscal identifying, fourth of hiring the that and majority contribution in to get in this of in for some growth. quarter, but will enable FY ramped up we’ve issues associates. fully And ‘XX. no have seen

our And so about sales we staffing good really position feel in today.

Bhavin Shah

kind some types customers you kind of increasing bring sponsorships, helpful. you of forward? avenue regional very customers? how perspective top thinking you there funnel, in? marketing That’s are Any of about then focused? are And able certain on Are what this additional your of And more kind of of just customers of Are and insight to going recent kind noted size they of of types there?

Raul Villar

Yes.

to X key I think elements there’s consider.

a just overall company. year digital we’re X brand as First awareness awareness. we build trying is we first trillion last to had our quarter the as we sales over more Obviously, did brand coverage. alone, still than And impressions, expand in nationally

our So continue really sales and to I purpose think cover and awareness the team sponsorships expand creating build are we coverage. serving air their for as

I is sponsorships job as actual day of activations. what And leveraging a both the as with we’ve done think far conversion, game great

a formula influence we’re significant prospects us. so of that’s large what And to and seeing the centers winning proven to we’re for activities, be presence doing in is bringing

we’re bookings for to the these the season sponsorships. we’re home about to leveraging both And opportunity And the excited our season. and on based Bengals. favorable, continue really optimistic So indicators away games growth really Pac-XX and drive early the both Bengal and are football we’re games finish to

X than to influence, of I more it’s this think trying in been So Dallas us New for they’ve and that large York had some year games Tier as penetrate and within. markets exciting we’re the the that’s further and just Midwestern

Bhavin Shah

Adam, follow-up cash flow kind that sense. for of of A terms in Makes quick on the dynamics.

this this you Or [more] an payment be year? So and annual have then there to if year quarterly? are the fiscal I’m sub-quarterly payments every on year clear, other paid

Adam Ante

payment made for in year the We beginning the they then the forward. year fiscal will going first be full for already. And ‘XX, quarterly

Bhavin Shah

That’s just what thought. wanted I to clarify. I

Operator

Berg Scott from is question next Our Needham. of

Scott Berg

on to the I the Congratulations quarter. environment. wanted start sales on

look you there versus be back maybe modules they’re of I QX customer that maybe know, year in cetera, types buying, may last deals not might in, the environment changing? the the of quarter, As any sales at that this or size, may don’t new an of in composition difference kind highlight et year, those is

Raul Villar

steady. No, Scott, the has environment, been really

we’re Tier our our consistent go-to-market industry from our strategy. broker in seeing So production X markets partners and

nothing So has changed.

plays winning in running still and rate We’re at all markets. the [indiscernible] same

impacts we about good motion. at of about our And go-to-market purchasing size sale. are no or feel whatsoever people macro the deals modules the of -- number our point of the in So really

Scott Berg

Helpful. And a years a team or do in How cross-sells this new for is acquisition? for it. net over after Obviously, maybe X these question putting going last staffing staffing, Tier company new that count about heads just sales you for adding cities. logo in or big Got in new upsell year. then a area time think head investments further follow-up X in heads your sales focus the the on versus

Raul Villar

Yes.

with X to we already. continue in base. We that coming and or clients our cross-selling attached aboard legacy X the have a modules centralized team against team that Obviously, and handles to invest drive cross-selling, are continue new

or of a the up. following into cross-selling it back is lot legacy base So

be the able are example, XX,XXX. XX fully As when we’ll client base entire cross-sell Talenya, to into an unified of we to

we’re So with you.

invest you’ll team, the XX% our to continuing really seeing and of bookings think results We’re somewhere generate XX% between And see I from us good in and we’re cross-selling cross-sells. come to continue there. will

Operator

reached the back comments. end Raul call over the have closing question-and-answer the Please like I We turn go would to of Villar for to session. ahead.

Raul Villar

Thank tonight. for you again us joining

the We’re connecting enthusiastic to with soon. about the you accelerated look and business momentum in again forward

have out and great free have feel reach any you always, if night. a to As questions

Operator

that you gentlemen, Thank concludes us. today’s and conference. for Ladies joining

disconnect You now lines. your may

Paycor HCM (PYCR) 2 Nov 222023 Q1 Earnings call transcript