Good day, ladies and gentlemen. Welcome to the Paylocity Holding Corporation fourth quarter 2019 fiscal year results conference call. At this time, all participants are in listen only mode. Later, there will be a question and answer session. Instructions will follow at that time. If you require any assistance during today's call, please press star then zero on your touchtone telephone. As a reminder, this conference call is being recorded. I would now like to turn the conference over to Ryan Glenn, Vice President of FP&A and Investor Relations. Sir, you may begin.
Good afternoon, and welcome to Paylocity's earnings results call for the fourth quarter and fiscal year 2019, which ended on June 30th, 2019. I'm Ryan Glenn, Vice President of FP&A and Investor Relations, and joining me on the call today is Steve Beauchamp, CEO of Paylocity, and Toby Williams, CFO of Paylocity. Today, we will be discussing the results announced in our press release issued after the market closed. A webcast replay of this call will be available for the next 45 days on our website under the investor relations tab. Before beginning, we must caution you that today's remarks, including statements made during the question and answer session, contain forward-looking statements. These statements are subject to numerous important factors, risks, and uncertainties, which could cause actual results to differ from the results implied by these or other forward-looking statements.
Also, these statements are based solely on the present information and are subject to risks and uncertainties that can cause actual results to differ materially from those projected in the forward-looking statements. For additional information, please refer to our filings with the Securities and Exchange Commission for the risk factors contained therein and other disclosures. We do not undertake any duty to update any forward-looking statements. Also, during the course of today's call, we will refer to certain non-GAAP financial measures. We believe that non-GAAP measures are more representative of how we internally measure the business, and there is a reconciliation schedule detailing these results currently available in our press release, which is located on our website at paylocity.com under the investor relations tab and filed with the Securities and Exchange Commission.
Please note that we are unable to reconcile any forward-looking non-GAAP financial measures to the directly comparable GAAP financial measure because the information which is needed to complete a reconciliation is unavailable at this time without unreasonable effort. In regards to our upcoming conference schedule, Toby and I will be attending the HR Technology Conference in Las Vegas on October 2nd. Please let me know if you'd like to schedule time with us at this event. With that, let me turn the call over to Steve.
Thank you, Ryan, and thanks to all of you for joining us on our fourth quarter and fiscal 2019 year-end earnings call. We completed fiscal 2019 with recurring and total revenue growth of 25.7%. Total revenue growth for the fourth quarter was 25.4%, which exceeded our guidance and was driven by another strong quarter of new sales. We were very pleased with the consistency of our revenue growth this fiscal year, with Q4 marking our 10th straight quarter of total revenue growth in the mid-20s. Adjusted EBITDA for the fourth quarter was $29.9 million, which exceeded the midpoint of our guidance by $2.1 million. For fiscal 2019, we were pleased with our ability to make investments to drive growth in both sales and marketing and research and development while also making progress towards our profitability goals.
Adjusted EBITDA for fiscal 2019 was 28.7%, an increase of 50 basis points from our initial fiscal 2019 guidance as we work towards our revised adjusted EBITDA margin target of 30%-35% of revenue. Our growth formula continues to be driven by adding new clients to our platform and selling more products to each client. We onboarded a record number of new clients in fiscal 2019, finishing the fiscal year with 20,200 clients compared to 16,700 at the end of last fiscal year, an increase of 21%. We continue to see unit strength coming from clients with under 50 employees, and we continue to see clients in this segment taking a broader array of HCM products, such as onboarding, recruiting, and performance management. We have also seen healthy momentum in the core and upper end of our market, which demonstrates the strength of our product portfolio and service offerings.
We also increased average recurring revenue per client by 4% to $22,616 from $21,768, primarily by selling more HCM products to new clients. We also continue to gradually expand our efforts to sell our growing HCM portfolio back into our client base. Overall, we are pleased by the attach rates we are realizing throughout our target market as clients continue to see the value in our comprehensive product suite. Our commitment to product development continues to be recognized in the marketplace, with Paylocity ranking high on multiple G2 Crowd grid reports during fiscal 2019, including placing number one in satisfaction on 6 category reports. Overall and mid-market HR management suite, mid-market payroll, mid-market core HR, and overall and mid-market benefit administration. We increased our investment in research and development in fiscal 2019 by over 30% when you consider what we expense and capitalize.
Continued investment in research and development positions us to extend our industry-leading platform by adding functionality to our existing product suite and introducing new products. Through the strength of our development team, we have released two new modules this year, TPA Solutions, which we released in January, and now I'm pleased to announce the release of our learning management system or LMS, which is currently available to all of our clients. Our LMS focuses on microlearning, which allows our clients to deliver curriculum in small bite-sized pieces to drive higher levels of engagement. Our product also democratizes learning so that every employee in the organization can record, create, and share their expertise with coworkers. Early feedback from our clients has been very encouraging, with over 40,000 custom courses already launched by our clients.
In addition to our clients' content, Paylocity compliance courses have been launched nearly 200,000 times through our learning platform. I am also excited to announce the addition of on-demand pay to our portfolio, which is now available for all of our clients. With this feature, employees can easily access a portion of earned wages earlier than their normal pay cycle, all via our mobile app. Our early adopters have provided great feedback, including how easy it is to use and how much their employees appreciate having this option. On-demand pay is another example of our commitment to provide innovative software that appeals to the modern workforce. The release of LMS allows us to achieve our target PEPY of $400, and we are now setting our new target at $500 PEPY.
We continue to believe there are additional modules, features, and functionalities that will help us achieve this new goal and that will deliver incremental value to our clients and prospects. We have also continued to invest in our sales force by adding new sales reps, while at the same time investing in training initiatives and marketing and channel programs to drive productivity. We have expanded the sales force by 23% this fiscal year, from 310 sales reps in fiscal 2019 to 382 sales reps in fiscal 2020. I am pleased to report these efforts were very successful, with our sales team fully staffed prior to entering fiscal 2020, which positions us for a strong start to the fiscal year. Consistent with last year, our rep count does not include the emerging market sales teams.
In addition to investing in the growth of our sales force, we also continue to invest in our channel initiatives, and we remain pleased with the consistency in our broker channel, which continued to deliver 25%+ of our new business referrals. Throughout fiscal 2019, our operations teams focused on delivering exceptional service to our more than 20,000 clients, while at the same time implementing a number of new initiatives to help clients take advantage of our robust payroll and HCM platform. This combination of service and technology allowed us to once again deliver revenue retention of greater than 92% for fiscal 2019. Our focus on client service has also been recognized in G2 Crowd's Summer 2019 Grid Report, where Paylocity led the relationship and implementation indices in multiple categories, which ranks companies on quality of support, ease of setup, implementation time, and user adoption.
I'm also pleased to announce that we have completed the move out of our former headquarters and that all of our Chicagoland employees are now working out of our Schaumburg corporate headquarters, which includes a number of modern employee-centric features as well as ample space for training and collaboration for our teams to work cross-functionally. We are also very proud of Paylocity's culture and are honored to have won a number of Best Places to Work awards this past fiscal year, including being recognized as an elite winner on the list for Chicago's Best and Brightest Companies, a Best Place to Work by Built In Chicago, one of the Best Companies to Sell For by Selling Power Magazine, Crain's Fast 50, a Best Place to Work by Glassdoor, and Battery Ventures 2019 highest-rated cloud companies list.
Finally, I would like to thank our more than 3,000 highly dedicated employees across the country for all the efforts this past fiscal year. Let me now turn the call over to Toby to discuss our financial results in more detail.
Thanks, Steve. Total revenue for the fourth quarter was $120.4 million, which is a 25.4% increase from the same period in the prior year. Total revenue for the fiscal year was $467.6 million, up 25.7% from last fiscal year. As Steve mentioned, Q4 marked our 10th straight quarter with total revenue growth in the mid-20s. For the fourth quarter, our total recurring revenue was up 25.5% from the same period last year, with recurring fees up 23.3% and interest income on client funds up 92.2%, primarily as a result of balance increases, increased average interest rates, and because we continued to invest a portion of client funds. For the year, our total recurring revenue was up 25.7%, and interest income on client funds was up 118.6%.
For the fourth quarter, our adjusted gross profit was 71.2%, and for the fiscal year, it was 71.9% as we continue to focus on consistent revenue growth while also driving scale in our business model. We continue to make significant investments in research and development. To understand our overall investment in R&D, it is important to combine both what we expense and what we capitalize. On a combined non-GAAP basis, total research and development investments were 14.6% of revenue in the fourth quarter, compared to 14.1% in the year-ago quarter. Full-year total research and development investments were 13.8% of revenue, compared to 13.2% in fiscal 2018. On a dollar basis, our investment in total research and development increased by 31.3% in fiscal 2019 when compared to fiscal 2018.
On a non-GAAP basis, sales and marketing expenses were 24.7% of revenue in the fourth quarter and 22.4% for the fiscal year. On a non-GAAP basis, G&A costs were 15.3% of revenue in the fourth quarter as compared to 17% of revenue in the same period last year. Full-year G&A costs were 14.8% of revenue as compared to 15.5% of revenue in fiscal 2018, and we are pleased to have entered our long-term G&A target range of 10%-15% of revenue in fiscal 2019. Our adjusted EBITDA was $29.9 million or 24.8% of revenue for the quarter, as we exceeded the midpoint of our guidance by $2.1 million. Our adjusted EBITDA for the year was $134 million or 28.7% of total revenue, and we were pleased to continue to make progress towards our adjusted EBITDA target of 30%-35% of revenue.
As Steve mentioned, in the fourth quarter, we completed the move of our remaining Chicagoland employees to our corporate headquarters in Schaumburg. In connection with our move, we accelerated depreciation on certain property and equipment that will not be used in the new facility and have taken certain lease exit costs in the quarter related to our old headquarters. As a result, adjusted EBITDA in the fourth quarter and full fiscal 2019 includes the add-back of $1.4 million of non-cash, property and equipment, and lease exit costs associated with the move. Please refer to the GAAP to non-GAAP reconciliation table included in the press release issued after the market closed today for more information. Briefly covering our GAAP results. For the quarter, gross profit was $80.3 million, operating income was $9.2 million, and net income was $10.2 million.
On a full year basis, gross profit was $313.8 million, operating income was $56.2 million, and net income was $53.8 million. In regard to the balance sheet, we ended the year with cash equivalents, and invested corporate cash of $162.5 million as compared to $137.2 million as of the end of last year, an increase of $25.3 million or 18.4%, which includes the impact of the $35 million share repurchase we completed in Q1 fiscal 2019. Free cash flow, which we define as cash from operating activities less capitalized internal use software costs, purchase of property and equipment, and lease allowances used for tenant improvements was $76.1 million or 16.3% of revenue for fiscal 2019 versus $48.8 million or 12.9% of revenue in fiscal 2018, a 340 basis point or 56% improvement.
I'm pleased to announce we have entered our target free cash flow range of 15%-20% of revenue as we continue to focus on growing our business while also increasing free cash flow and profitability. Before I review our financial guidance, I would like to outline a change to our financial statement presentation beginning in fiscal 2020. As our overall business has grown and as our HCM suite has become a larger part of the portfolio, implementation revenue has become a smaller piece of our total revenue mix, and for fiscal 2019 was 2% of total revenue. As such, the breakout of recurring fees and implementation revenue has become less meaningful to our business.
Therefore, beginning with the first quarter of fiscal 2020, we will simplify the presentation of revenue and cost of revenues on our income statement and will consolidate recurring fees and implementation and other revenue into a single revenue line item of recurring and other revenue. Consistent with our revenue presentation, cost of recurring revenues and implementation and other revenue will be combined into a single cost line item. We will, however, continue to break out interest income on funds held for clients as we have historically. Finally, I'd like to provide our financial guidance for the first quarter and full year fiscal 2020. For the first quarter of fiscal 2020, total revenue is expected to be in the range of $123.5 million-$124.5 million or 23%-24% growth over Q1 fiscal 2019. Adjusted EBITDA is expected to be in the range of $28.1 million-$29.1 million.
For the full year fiscal 2020, total revenue is expected to be in the range of $563.5 million-$565.5 million or approximately 21% growth over fiscal 2019. Adjusted EBITDA is expected to be in the range of $161.5 million-$163.5 million. In summary, we are very pleased with our performance during the fourth quarter and full year fiscal 2019 with 25.7% total revenue growth, an adjusted EBITDA margin of 28.7%, and free cash flow margin of 16.3%. Operator, we're now ready for questions. Thank you.
Thank you. Ladies and gentlemen, if you wish to ask a question at this time, please press star then one on your touchtone telephone. If your question has been answered or you wish to remove yourself from the queue, please press the pound key. To prevent any background noise, we ask that you please place your line on mute once your question has been stated. Our first question comes from Scott Berg with Needham. Your line is open.
Hi, Steve and Toby. Congrats on the great quarter, and thanks for taking my questions here. Steve, I'd like to start off with the new LMS product today. I like the micro-learning aspect because that's certainly popular today. As you reach the 400 target, how should we think of the next $100 PEPY target that you discussed? More maybe heavy in analytics, or are there other things that maybe you're looking at today?
Yeah, sure, Scott. Yeah, we're really pleased with the feedback we've gotten on the LMS product and the good start that we've gotten off to with our customers, and our sales force is pretty excited about having that product in their bag. I think from a product perspective, I would look at each of the categories, think of time and labor benefits, talent management, and really core HR, all having product opportunities that we think we may be able to pull as we drive towards that $500 PEPY. We don't like to get into specifics in terms of what that next module might be. We are actively working on additional modules that we think will both create differentiation and will be demanded by our customers.
Got it. Helpful. Then a question for you, Toby. You mentioned you've attained your 15%-20% free cash flow target, or at least your prior target.
Yep.
How should we think about the model leverage going forward now that you're in that range? Not that you're at the top end of that or busting to exceed that today, but do you have maybe a time frame or a revenue goal in mind that you can maybe get in that 20%-25% range or even better?
Yeah, I think step one was getting into the range. I think we feel pretty good about the progress we've made going from just under 13% to just over the 16% in the course of fiscal 2019. I think we feel pretty good about that. As you pointed out, we've still got a good bit ahead of us between where we are today and the top of the range. I think it was a big step up this year. I think same as probably how we would have talked about EBITDA. I think we will have
Continue to drive margin, including in free cash flow. Maybe smaller increments, I think we're happy to be in the range, and we've still got plenty of runway to continue to drive leverage. Feel good about the progress in fiscal 2019.
Very helpful. I'm going to slide one quick one in for you, Steve. The success in the strategic segment seems to be better than your expectations. Do you start to invest a little bit more quickly in that segment relative to your expectations from maybe six to nine months ago?
Yeah, I think we are off to a good start in our emerging market. It still is relatively small when you compare it to our overall business. I think you've got to remember, if you think about 1,000 emerging market clients, they might be roughly a couple thousand in revenue, maybe a little bit more than that. That's only a couple million in revenue. I think you see the strength in the unit growth this year, but it's still not that material. It's still an early-stage investment. We will increase the level of investment over time, but we think about it in a gradual fashion rather than some sort of step-up.
Great. Thanks again.
Thank you. Our next question comes from Terry Tillman with SunTrust. Your line is open.
Yes, this is actually Nick on for Terry. I guess just stepping back for a second, we just wanted to ask how newer product adoption has evolved over the years. Things like time to ramp or time to monetization, how that has changed over the years. If you could just give an idea of what you see as a good attach rate for these add-on modules, like 20% or 30% adoption, that'd be great. Thank you.
Sure. I think our philosophy has been, first of all, we interact with our customers a lot. We try to get feedback in terms of what they're looking for. We'll build a brand-new module and product based off that feedback. We'll get it out to customers, a small subset of customers. We'll garner feedback from them, and then we'll iterate to the point that we're ready to launch it to the sales force, just like we did with LMS. I would say from a longer-term perspective, we like to think of products getting certainly 10%-20% penetration across our client base. We believe that's kind of the minimum range that we need to have to be able to justify the investment, in terms of R&D investment to get a product to launch.
If I were to highlight anything, I think over the last year or even the last couple of years, the talent management category has probably been one of our fastest-growing categories. It's also the place that we've added most product. I think LMS is going to be another great addition to our talent portfolio.
Okay, great. Thank you.
Thank you. Our next question comes from Brian Peterson with Raymond James. Your line is open.
Hi, guys. I'll echo my congratulations on the solid quarter. Steve, obviously, you've had a lot of success with the emerging markets. I'm curious, typically we've seen about 120 employees per customer. I think that's been the average. Any help on where that figure stands today?
Yeah. I think we're in a similar range. I don't think we give the exact number, and I think we talk about greater than 100 in our filings. That's still very consistent. I think as we have success with an emerging market, there's some possibility that that might come down a little bit. There are a ton of customers available to us there, and we're definitely seeing more product demand in that market. We're adding customers both with our core sales force and our smaller emerging team. I think if we continue to have that success, you might see that come down just a little bit, but currently it hasn't changed enough worth updating.
Got it. Just maybe on the learning management offering, I'm curious if you look across your customer base, any sense for what they're using today, and maybe how many of customers actually really don't have anything that they're actually using from a real technology perspective? Thanks, guys.
Yeah. Sure. I think in our target market, I would say most of our customers that we've brought on so far, we're going to be their first learning management system. There's clearly exceptions to that, and we do have some people that are converting, but I would say the large majority of our customers, we're going to be the first learning management system. We think the way we built the product from both an ease of use and the feature functionality, and really terms of trying to have an easy way to share videos across the organization, really appeals to that customer rate in our target market. Generally speaking, to answer your question, we're largely going to be the first implementation of an LMS for most of our customers.
Good to hear. Thanks, Steve.
Thank you. Our next question comes from Samad Samana with Jefferies. Your line is open.
Hi, good afternoon, and thanks for taking my questions. Steve, I think first one for you. On-demand pay is something that several of the payroll software companies have been talking about, and I'm just curious if you could help us understand maybe the economics of how on-demand pay works for Paylocity. Should we think about it as a per employee per month type of opportunity, or are you actually making money on moving those funds as well? Maybe just a little bit of color in how you see adoption of that going over time, and then a follow-up question.
What I would say is we're really leveraging the fact that we move a lot of money for our customers already, and obviously, paying their employees is a key part of our value proposition. Our on-demand pay allows employees to be able to draw from the pay that they've already earned on an earlier basis, and we're leveraging kind of our ACH capabilities to be able to do that, which we can do relatively efficiently. I think we've left ourselves open to how the industry's going to go from an on-demand perspective, so we wouldn't call it out as a big revenue driver today. It's really a benefit that the employer's going to offer, and it's not one that's going to drive meaningful PEPM. It's something that we think helps differentiate us and really appeals to that modern worker who's entering the workforce.
Think about it more today as a differentiator, and if there's an opportunity for us to monetize it over time, it's something we could certainly take advantage of.
Great. Toby, maybe a question for you. As I think about rates, they've come down dramatically so far this year.
Yep.
I think they're going to start to be a little bit of just the way, given where treasuries are. I'm just curious how we should think about interest income, or interest revenue for fiscal 2020, given that it's such high-margin revenue, and how we should think about maybe that trend in the context of the actual balance probably growing, since your customer growth is growing as well.
Yeah. I think those are the right points. I think if you look at the average daily balance increases over last year and historically, you would see that trend with closer to client growth. I think that's probably the right expectation to have in fiscal 2020. From a rate perspective, I think you've properly characterized the rate environment and I think we've seen the recent rate move, and I think many of us are contemplating another one in the course of the fiscal, and I think that's how we've thought about the guidance from a fiscal 2020 perspective.
Great. Thanks for taking my questions, guys, and great quarter.
Thanks.
Our next question comes from Mark Marcon with Baird. Your line is open.
Let me add my congratulations. I was wondering, with regards to the sales force build-out, I know you're not really talking that much about the emerging, the small business sector, but how, from a management team's perspective, are you thinking about some of the metrics that you would evaluate in terms of how quickly that should expand or philosophically, how should we think about it?
Sure. I think we've built up a series of metrics for our core sales force over many years that we look at, and it certainly really all revolves around new annual recurring revenue that the sales team can drive to the organization. That would be no different when we look at the emerging market opportunity. Obviously, there would be more units involved and less average revenue per customer. Those folks are generally a little bit earlier in their career that we bring on. There's a cost equation that we look at as well. We definitely think it's a very profitable space and it's something that we can manage the cost of client acquisition efficiently. Those are the things that we're looking at internally. What do those quotas look like? What is the cost to be able to drive that new recurring revenue?
As you mentioned, we're still early in the process. We're also investing in channels, which are going to be an important part of that emerging market opportunity, as well as our digital presence, which is another way to be able to drive that. There's really multiple facets in purely the sales force. I think we're happy with the results so far, albeit at an early stage.
That's great. To go back to the on-demand payroll, what's the reception been like with the clients that you piloted it with? What's the kind of take-up rate in terms of the usage?
Yeah. We're just launching that now. We've got a series of early adopters that we've garnered feedback from. What I would say is our customers with maybe a large number of hourly workers, particularly ones where they may have seasonality or they have a little bit of turnover involved in that, and where that workforce might be on the younger end of the spectrum, is where we've seen that really resonate well. Where people have needs that come up once in a while, and they can access part of that earned pay as really being valuable, is really the feedback that we've gotten from our customers. We've also received feedback that it's just super easy to use. You literally log on to your mobile app, you see how much you've actually earned.
We actually calculate what the value is of what you've earned with real-time calculation capabilities, then you can withdraw up to some sort of maximum amount of that. The simplicity is probably the biggest point of feedback that we've heard.
That's great. Thank you.
Thank you. Our next question comes from Nandan Amladi with Guggenheim Partners. Your line is open.
Hi, thanks for taking my question. On the LMS system, what is your content sourcing strategy for content that you don't build? I know you talked about building microlearning and also making available the platform for your customers to build their own content. How about other types of content that you might be able to source from people who build content for a living?
Yep, good question. I think we have a three-pronged approach towards content. First, we want to be able to build maybe the core compliance content that we know pretty much all of our customers are going to need. I think we've talked about in the past, sexual harassment training in certain states where that's mandated. That's content we're going to build, we're going to deploy as part of our LMS platform, and our customers can use that embedded in the platform. I think the second part of the content strategy is allowing our customers to be able to use video capabilities to do these kind of short microlearning training videos that can then be shared across the organization. We use that capability ourselves a lot, and we've really enjoyed the benefit of being able to share knowledge seamlessly across the organization.
The third part of the strategy is our clients can purchase content, and then upload purchased content, and then be able to distribute it through our LMS. We give the choice of all three options for our customers.
Thank you.
Thank you. Once again, ladies and gentlemen, if you wish to ask a question at this time, please press star then one on your touch-tone telephone. Our next question comes from Corey Greendale with First Analysis. Your line is open.
Good afternoon, and congratulations on the good year. I also had a question I think related to the emerging market. If you look at your client growth and revenue per client growth in fiscal 2019, I think your client growth was the best it's been in multiple years, even better than the ACA benefit year. Your revenue per client growth was lower than it has been. I would have thought the emerging market was responsible for both of those dynamics, but can you just dig into that?
Yeah. I think the idea of getting more of our clients in that under 50 segment is really the key driver of why you've got higher client growth and lower % growth in average revenue per customer. It's really just a size mix. That's happening because our core sales force does sell clients in that segment, and we've seen more demand for our products. On top of that, we've added this emerging market investment that's also had some success. It's really simply the result of a mix shift. We're really happy with the penetration rates that we're driving of both our products that we released several years ago as well as our newest products. We're certainly still seeing that lift. You are absolutely correct that it's the success in that under 50 marketplace that's driving the higher client growth.
Yeah. fair to say you'd see a similar split in fiscal 2020, assuming you succeed much higher growth in clients than in revenue per client?
I think if we continue to be successful in the under 50 market and emerging market investments continue to grow, that the client growth would be higher than that ARPU growth on a go-forward basis. That would be correct.
Great. Thanks very much.
Thank you. Our next question comes from Adam Borg with Stifel. Your line is open.
Great, thanks for taking the question. Just as we think about the broker channel, are there any new processes or steps that you're taking for fiscal 2020 to help ensure the greater than 25% range that it's helped delivered in recent years? Thanks.
Sure. Yeah, the broker channel continues to be an important part of our go-to-market strategy. Last year, we were pretty happy to once again deliver more than 25% of our new business revenue from brokers, particularly as we grow the sales force meaningfully. We're growing the sales force by 23%, so we need to be able to both deepen the relationship with existing brokers as well add new brokers to our network. We have a number of initiatives to be able to do that. I would think of those as incremental based off the feedback that we're getting from our brokers. No big changes in the strategy.
We think our value proposition resonates really well with that broker channel. We think we're in a good position to be able to do so. That will remain a key part of our go-to-market strategy going forward.
Great. Just maybe as a follow-up, you talked about some good experience and good success down in the emerging channel and as you continue to build experience down there, is there any discernible change in either buying behavior or sales cycles? Obviously, you talked about the good adoption of some of your add-on products.
Yep
Anything around the sales cycles or just buying behavior more broadly? Thanks.
Yeah. I think focusing on the smaller end of our target market has certainly helped us optimize some of the experiences for our customers. We have the ability to onboard a smaller customer rather than weeks, in days. We certainly have used last fiscal year to perfect some processes around that. We've also made sure that we've been able to also deliver them the service experience that they're looking for as well. I would call small tweaks to our implementation process and ongoing service process. Lastly, I think we also learned last year that it does require a little bit more investment in channels, as well as some digital presence online for that market. There's just a ton of businesses down in that segment. We think we can leverage both of those things at a greater level over time.
That's why I go back to the idea that emerging market will be a gradual expansion over time that we think is just a very interesting opportunity for Paylocity.
Great. Thanks again.
Thank you. Our next question comes from Shankar Subramaniam with Bank of America. Your line is open.
Hi. Thanks for taking the question. Just on that emerging market, you at the start you said that the mix of customers you get comes from either greenfield opportunities and/or other peers. Can you characterize who are you getting the wins from? Is it more the legacy or is it more greenfield?
I would say we're still early, so we'll see how this develops over time. I think that the traditional payroll outsourcers is probably the primary method that we see in emerging market in terms of displacing them. You do have a little bit more new business activity, as you might imagine, in that segment. The channels are a little bit different, so you see things like CPA channels being certainly more prevalent in the emerging market than maybe mid-market. I wouldn't say it's significantly different than, outside of the new business, it's not that significantly different from where we get our mid-market customers from.
Got it. Quickly on the benefits side, how big is the contribution from BeneFLEX in fiscal 2019, and how should we think about the contribution in fiscal 2020?
Sure. If you remember, we acquired BeneFLEX really last spring, not this past spring, but the one prior. I think we called out the fact that we needed some time to build out our own product over top of that. We would then be in a position where a lot of those TPA buying decisions happen in the fall. We're really trying to ramp our product so that we can hit this fall selling season. We did not characterize BeneFLEX as having a meaningful impact last fiscal year, and I wouldn't change that. I think that actually played out. We've got our product ready. It's available in the market. We've got great experience from our users, and so we're going to be able to ramp up a little bit more volume with our new product in the TPA space going into this fall.
Got it. Thank you guys.
Thank you. I'm showing no further questions at this time. I'll turn the call back over to Steve Beauchamp for closing remarks.
Great. Well, I'd like to just take a brief moment to thank all of you for your interest on the call, but also take some time to be able to thank our more than 3,000 employees for all their time, energy, and dedication over this last fiscal year. Everyone, have a great night.
Ladies and gentlemen, this concludes today's conference. Thanks for joining, and everyone, have a wonderful day.