Good day, ladies and gentlemen. Welcome to Paylocity's third quarter 2019 fiscal year results. At this time, all participants are in listen-only mode. Later, there will be a question and answer session, and instructions will follow at that time. If you require any assistance during today's call, please press star then zero on your touch-tone 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, welcome to Paylocity's earnings results call for the third quarter of fiscal year 2019, which ended on March 31st, 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.
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. 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 measure to their 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 Jefferies Software Conference on May 8th in Los Angeles. Toby will be attending the Baird Global Consumer Technology and Services Conference on June 5th in New York. Steve will be attending the William Blair Growth Stock Conference on June 6th in Chicago. Toby and I will be available for meetings at the SHRM Conference in late June in Las Vegas. Please let me know if you'd like to schedule time with us at any of these events. With that, let me turn the call over to Steve.
Thanks to all of you for joining us on our third quarter fiscal 2019 earnings call. The consistent performance we've seen over the last several quarters extended into Q3 of fiscal 2019, with total revenue of $139.6 million, an increase of 25.3% versus non-GAAP pro forma results for the same period last year. Recurring revenue grew by 25.4%, driven by new client additions, improved HCM product penetration, and an increase in interest income on funds held for clients. The third fiscal quarter represents our largest quarter of new client starts, as many companies prefer to switch providers at the start of a calendar year. We were pleased with the volume of new sales in the quarter and the execution by our implementation teams in onboarding our new clients. Broker referrals remain consistent, once again representing more than 25% of new business for the third quarter.
We continue to make investments in the broker channel, which has provided us with an efficient lead generation source, resulting in new client additions to our platform in both our core target market as well as the smaller end of our segment. We remain focused on investing in channels to add new partners and create deeper relationships with our existing partners. The spring is also a busy time for hiring our sales team. We are pleased with the progress we've made in growing our sales force in advance of next fiscal year. Paylocity's strong employment brand in the marketplace as a great place to work has allowed us to onboard many sales reps with previous payroll and HCM industry experience, as well as talented individuals with broader business-to-business experience. Adjusted EBITDA for the third quarter was $54.8 million, which exceeded the midpoint of our guidance by $2.3 million.
We continue to focus on incremental investments in research and development and sales and marketing initiatives in fiscal 2019, while also continuing to drive operational leverage in the business as we work towards our long-term adjusted EBITDA margin target of 30%-35% of revenue. As a reminder, the third fiscal quarter is our highest margin quarter due to the recurring fees collected for W-2s and annual tax form filings. Calendar year-end is a very busy time of year, requiring significant operational planning and coordination to handle the increased volume of client interactions. We continue to make investments in a variety of cross-functional process initiatives, which have allowed us to maintain a high-touch client experience as we grow our product portfolio.
On our earnings call in November, we announced the launch of Paylocity Education and Knowledge, or PEAK, a free self-service information resource for our clients that also contains supplemental training materials and trending topics for payroll and HCM professionals. Since that time, we've seen strong client adoption of this resource, including more than 60,000 unique logins. These service-related investments, together with our dedicated service teams and continued focus on product innovation, has allowed us to consistently maintain revenue retention above 92%. Our sustained investment in R&D continues to pay dividends as the strength of our product suite remains the number one reason clients switch to Paylocity. In addition to the expansion of our product suite, which has driven an 80% increase in PEPY since our IPO in 2014, we continue to develop features that are driving increased utilization and engagement by our clients and their employees.
Just in this past quarter, our clients have posted over 100,000 jobs through our Recruiting module and received nearly one million applications, resulting in more than 100,000 employees using our onboarding module. Broader usage on our platform also continues to increase, with millions of interactions on a weekly basis. Activity in our employee self-service and mobile app includes time and labor punches, sending and receiving impressions from our social recognition module, performance management journal entries, survey responses, as well as viewing checks and requesting time off. The increase in interactions highlight how our clients are using our platform to both automate tasks to improve efficiency and engage with their employees in a variety of ways to create a positive culture. Like our clients, we are using our own platform to create transparency, improve communication, and continually gather real-time feedback, all critical elements of a great culture.
I'm very proud that we have been named to the 2019 Battery Ventures highest-rated cloud companies list, which is based on employee reviews and ratings on Glassdoor. Before I pass the call on to Toby to review our results in detail, I would like to thank all of our employees for their hard work and dedication during our busiest quarter of the year.
Thanks, Steve. Before going into our financial results, please note that the following discussion on Q3 fiscal 2019 revenue growth will be in comparison to non-GAAP pro forma results for Q3 fiscal 2018. Consistent with last quarter, in the press release we issued after the market closed today, we provided a table that illustrates as reported in non-GAAP pro forma revenue results on a quarterly basis for fiscal 2018. Total revenue for Q3 was $139.6 million, which is a 25.3% increase from the same period last year. We continue to be pleased by the consistency we're seeing in our business, with Q3 marking our ninth straight quarter of total revenue growth in the mid-20s.
Q3 total recurring revenue was up 25.4% from the same period last year, with recurring fees up 22.8% and interest income on client funds up 127.9%, primarily as a result of balance increases, increased average interest rates, and because we continued to invest a portion of client funds. Our adjusted recurring gross profit was 79.9% and adjusted total gross profit was 75.5% for Q3 as we continued 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 R&D investments were 11.9% of revenue in Q3, and on a dollar basis, our year-over-year investment in total R&D increased by 34.3%.
On a non-GAAP basis, sales and marketing expenses were 18.5% of revenue in Q3 as we remain focused on incremental investments in this area of our business in fiscal 2019. On a non-GAAP basis, G&A costs were 12.5% of revenue in Q3 versus 13.1% of revenue in Q3 of fiscal 2018. We remain focused on consistently leveraging our G&A expenses. Our adjusted EBITDA was $54.8 million, or 39.3% of revenue for the quarter, which exceeded our guidance by $2.3 million at the midpoint. Briefly covering our GAAP results. For the quarter, gross profit was $99.8 million, operating income was $36.2 million, and net income was $28 million. With respect to the balance sheet, we ended the quarter with cash equivalents, and invested corporate cash of $140 million.
From a cash flow perspective, we generated $44.9 million in cash from operating activities in Q3 as compared to $35.2 million for the same period last year. We remain confident that we will continue to expand free cash flow margins on an annual basis, including in fiscal 2019. Finally, I'd like to provide our financial guidance for Q4 and updated guidance for fiscal 2019. For the fourth quarter of fiscal 2019, total revenue is expected to be in the range of $116.7 million-$117.7 million, or approximately 22% growth over non-GAAP pro forma fourth quarter fiscal 2018 total revenue of $96 million. Adjusted EBITDA is expected to be in the range of $27.3 million-$28.3 million.
For fiscal year 2019, total revenue is expected to be in the range of $464 million-$465 million, or approximately 25% growth over non-GAAP pro forma fiscal 2018 total revenue of $372.1 million. This represents an increase of $5 million from the revenue guidance provided on our February earnings call and an increase of $12.5 million from the initial fiscal 2019 revenue guidance we provided last August. Adjusted EBITDA is expected to be in the range of $131.5 million-$132.5 million, which represents an increase of $2.5 million to our fiscal 2019 adjusted EBITDA guidance. In conclusion, we are pleased with our Q3 results, including the mid-20s revenue growth we've generated over the last nine quarters, our ability to continuously demonstrate scale in our business, and the progress we're making towards our long-term financial targets. 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 Justin Furby with William Blair. Your line is open.
Thanks, guys, great quarter. Steve, I just want to start with you. You guys have had incredibly consistent results, but this quarter feels even a bit better than normal. I think if you look at the recurring fees, you've added something like $30 million sequentially, which is a pretty big jump from the $25 million you added a year ago. I'm just wondering if there's anything in particular you'd call out in terms of what drove that outperformance this quarter.
Yeah. I don't think there's any really big call-outs. I think it does go back to the consistency. This is definitely a recurring revenue business, and I think we've gotten to a consistent level of execution that's built a little bit into this quarter. Sales team had a good quarter. As you know, it's an important part of our selling season to be able to onboard all those new customers in January. Our implementations team did a great job. I think from a marketplace perspective, I would say our core market, definitely strong. We continue to see success at the low end of the marketplace. That's continued to see that with our core sales force and the small number of emerging market reps did well in January as well.
I think consistent performance on operations and retention, with some strong performance in sales drove the results.
I guess as you guys approach half a billion in revenue and as your competitors continue to scale their businesses as well, can you just take a step back and remind us, I think in the mid-market, Ulti runs into Ceridian most of the time. Just give us a sense for down in your space, how often you're seeing Paycor-
Sure
Paycom, those sort of players versus the legacy guys. Thanks.
Think of our segment. On average, our customers have around 100 employees. Obviously with our emerging markets, we'll go down to very small employers in that under 20 employee segment. Then our target market goes up to 1,000 employees, once in a while, we find customers that are great fits above that as well. That's the market that we go after, really, there's over 600,000 businesses in that space. So you can see from a penetration perspective, there's still a huge opportunity. Really the big players are ADP and Paychex, who I think both have something like 600,000 businesses in the U.S. that they serve. Those are the primary folks that we run into.
The local and regional players, there's hundreds of payroll companies across the country that really operate in a fairly narrow geography, that would be the next group of people that we run into. Then I think you get to smaller percentages as you think of people like a Paycom or a Paycor. Obviously, Ulti's a little bit more focused up market, that would even be a smaller percentage than those. That's the order that it's been like for a long time, it's still the case today.
Okay, got it. Thanks very much, guys. Great quarter.
Thank you. Our next question comes from Scott Berg with Needham. Your line is open.
Hi, everyone. Congrats on a great quarter as well, and thanks for taking my questions. I guess I wanted to follow up, Steve. I wanted to start on your sales hiring efforts. Sounds like you're pleased with the progress of them early in the year. How should we think about those additions in your core segment versus maybe your emerging segment going forward?
Yeah. I think first of all, what I would tell you is our success over next fiscal year and really the next couple of years is going to be driven our success in our core segment. I think emerging markets is still relatively small. It's an area where we definitely have seen success, and we saw success with our core segment selling a little bit smaller client size. You saw the increased unit growth last year start to happen. We love the fact that smaller clients are buying more product. We think that positions us really well. I think it's really going to be driven by our core segment.
I think what you'll actually see is as emerging market gains some momentum, you won't see it as much in revenue, because if you think about it, those clients are going to be maybe one tenth the size, maybe even a little less than that on an annual revenue basis. The units will start to pick up a little bit. We definitely saw some of that in the quarter. Because of that, you'll see most of our hiring happening in that core segment versus emerging market. Emerging market would then, as we gain success, will gradually build over time. You're right, we are very happy with our progress so far with hiring to date.
Great. I guess from a follow-up perspective is when you think about scaling your implementation teams, obviously you're adding a lot more customer units today than what you did even a year ago or two years ago. That doesn't even necessarily take into consideration the smaller units down market in the emerging segment. Can you maybe help us understand how you're scaling the implementation efforts? Are there any challenges or maybe new technologies that you feel like you have to bring in to maintain the level of success you've had in this really busy period?
That's a great question. I think as we anticipated having more success bringing on more units, we really did recast our implementation process for those customers. The great thing about that market segment, they often don't have established processes, so they're definitely more apt to use out-of-the-box configurations, best practices that we've built into the platform. We can get those smaller customers up in a matter of days instead of a matter of several weeks. That's something that we've benefited from. We launched that realistically over the last 12 months. We're bringing on customers faster than we've ever been before. We're doing it relatively efficiently because we're able to build these best practices, pre-built configurations, think about them that way, into the system. That part's been going very well.
Great. That's all I have. I'll jump back in the queue. Thank you.
Thank you. Our next question comes from Brian Peterson with Raymond James. Your line is open.
Hi, guys. Kevin here on for Brian. Thanks for taking my call. You've spoken before about looking to grow PEPY into the $400 range, don't see that as any kind of end goal. Can you just speak to the visibility you have within your product roadmap that suggests there could be some headroom there? How would you characterize the balance between launching new modules versus going deeper within existing areas?
Sure. Well, I think our product strategy is really what's enabled our success for many years, and I think that will enable our success going forward. We need to do both. We need to add new modules, and at the same time, we need to learn from our customers' feedback and continually enhance what we have available to them. That's what we are focused on doing. We don't necessarily give you an exact roadmap because in many cases, we're reacting to our feedback, and we're building based off what our customers are telling us. I can tell you the one module we have talked about that will be out this calendar year will be learning management. We do have customers on our learning management early adopter program today, and we're feeling good about the trajectory of that product. That's probably next up on the list.
I would tell you that we're actively working on things to go beyond $400 per employee per year.
Got you. Maybe just at a high level, can you give us an update on what you see as priorities for cash generation going forward? I think you've completed the prior repurchase authorization a few quarters ago. How should we think about your cash position going forward?
I think we ended the quarter with about $140 million cash on balance sheet, we continue to look at the uses of cash. I think, as we've talked about before, we tend to think about it in terms of what is our ability to use cash to help generate growth. I think that's top of mind for us as we think about the options for our cash usage and cash planning over time.
It's very helpful. Thanks.
Thank you.
Thank you. Our next question comes from Terry Tillman with SunTrust Robinson Humphrey. Your line is open.
Hey, gentlemen. I'll echo the congrats. Nice job on the quarter. I guess the first question is just related to TPA. I know you've kind of played it down, Steve, in terms of it's just too early to know how that's going to play out. One more quarter into some of the early adopters trying it out and maybe some of your partners and your brokers and folks working with it, maybe an update on your confidence level of this making a difference as we move into next year and thoughts on attach rate of the product.
Sure. I think if you go back to our original strategy was to really learn from the knowledge that we acquired in that business build a technology offering over top of the TPA product that we bought, really build it right into our mobile app, into our employee self-service platform, that an employee could check on their paycheck, request time off. At the same time, look at their account balance before they walk into a pharmacy need to be able to pay some of the bill look at all their transactions. I would tell you that we do have that product in early adopter phase. We're making good progress on the product strategy. We rolled it out to our own company, I have it available on my phone right now in terms of looking at my own balance.
I think it's very useful. We're starting to really just introduce that to some early adopter brokers as we figure out what our launch strategy is. That's starting to resonate. We have a really strong roadmap of things that we think we can add over the next 12 to 18 months that's even going to strengthen that portfolio. So far so good with the acquisition. As I indicated before, certainly a little bit of lag before you start to see that having impact. We look at both emerging and our investments in TPA as really having an impact to our revenue growth, call it two or three years from now versus this year or next year.
Okay. Just the follow-up question is I know you're proud of all your products, and you love all your children here, meaning all these modules. If you look at the broader HCM suite and just all the add-on products, if you take a step back and just kind of review the state of the business and the success of those add-on products over the last couple of years, what has impressed you the most? What is the product that you thought you would have seen more from or what could be better? Thank you.
Sure. I think as an industry, we're kind of moving from simply an efficiency conversation with our clients to really having a higher-level conversation where customers are looking at how do they engage their employees differently, how do they use our platform to really attract talent. If you start thinking about gathering data about coaching sessions and feedback sessions in our real-time performance journaling, you start gathering data around surveys to get a pulse check on how your employees are feeling or what the onboarding experience is like for new hires.
As we get through the back half of the year and we start launching something like Learning Management System, and we get data around how people are learning and what the problems are that people are trying to solve, you really start to be able to tell a customer, not only can we make you very efficient by having your employees interacting with the platform and really reducing that administrative burden, but I can really help you drive your culture and make it a great place to work. We're starting to see some of our clients really use some of these newer product offerings to make that happen. To me, that's really exciting and really opens up a whole opportunity going forward.
Thank you. Our next question comes from Corey Greendale with First Analysis. Your line is open.
Hey, good afternoon. Nice work on the quarter. Steve, in your introductory comments, you talked about investing in the broker channel, which is not surprising, but I was hoping you might elaborate on that. Are you talking about technology type investments, like enhancements to the partner portal? Are you talking about investments in kind of managers of those partners? Can you just elaborate on what you're investing in?
Yeah, sure. I would say both. Continued investment in the technology platform that our brokers use. What's available to them in terms of analytics when they come into the partner portal. We're adding different insights that we think they will find valuable about our mutual customers. That's something that we continue to do. Secondly, we will continue to add resources to those that are dedicated to partnering with our brokers. Some of those resources might be coordinating programs here, marketing programs. On the other side of that could be people in the field that are working with our key brokers. That's something that we definitely historically have mostly leaned on our sales force to do, and we think there's an opportunity to do even more with brokers by providing a little bit more support for that channel, both in terms of technology and people.
That makes sense, thanks for that. In terms of that channel, it's obviously been really fruitful for you. Are you seeing anything competitively in terms of any of your competitors trying to more actively partner with brokers?
I would say it's probably the people that we've usually seen in that marketplace. You don't necessarily see people like ADP and Paychex who have pretty decent insurance-oriented businesses, whether it's in the context of their PEO or direct. You see them sometimes, but not a lot. It's probably more of the local and regionals and a couple of the growth players like ourselves that you might see in the broker channel. I wouldn't say the dynamics have changed.
Got it. Thank you.
Thank you. Our next question comes from Samad Samana with Jefferies. Your line is open.
Hi. Thank you for taking my question. This is Anubhav Mehta on for Samad. I guess my first set of questions are around your sub-20 market. Could you, as you've gone deeper into the market and you learn more about the market, could you talk about some of the go-to-market changes that you've made or you're making to drive customer adds from this market compared to maybe the rest of the market segment? Similarly, how do you think the channel mix is differing, and how are you incenting the channel compared to what you would do generally for the rest of the business?
Sure.
I have a follow-up. Thanks.
Okay. I think if you look at the low end of our marketplace, we started really seeing increased success probably 18 months ago with our core sales force just selling more clients in that under 50 employee segment. As we explored it, we realized that these customers were looking for more HCM solutions than what they had looked for in the past, and our solution really resonated with them. Based off the back of that success that we're having with the core sales force, we started to add some resources that would be dedicated to go after this market. We're still early in that process. I think we're happy with the progress of those teams. We don't have a lot of resources focused on that.
It's probably not a big revenue driver. At the same time, our core sales force also continues to have success in that under 50 marketplace. That trend has continued. The clients at the low end of our market are looking for more HCM products, things like onboarding, Recruiting, very popular in that segment of the marketplace. We think that trend will continue, and we'll go at it both with our core sales force, who is always focused on the low end of that market, but we'll also continue to layer in these emerging market folks. We think that'll be a combination of field-based sales reps as well as reps that we may have centrally located. It's going to take a little while because you got to build the channels up over time.
We've been in the broker channel now for probably 12 years. We've built that up year after year by working and creating the relationships and the structure that's necessary. I think we're going to have to do the same things with things like CPAs and banks. We're pretty early in the cycle on the channel side.
Okay. Thanks for that. That was great. Just to follow up, obviously this year, your margins jumped substantially. A lot of that had to do with the ASC 606. Going forward, if you could give us some directional idea, what kind of level of margin expansion should we expect? On similar lines, if you could give us an idea of level of investment you're thinking of making in R&D and sales.
Sure.
How do you balance that versus margin expansion looking forward? That's it. Thank you so much.
We issued a new long-term model at the start of this fiscal year, taking into account some of the 606 benefits, then, of course, the fact that we were able to achieve the model that we put in place four years ago. Think about starting this year around 28% adjusted EBITDA, and we put a long-term target out there that would be 30%-35%. It took us four years to get into our long-term model the first time, so we don't have an exact timeframe. We're clearly going to prioritize growth first, but that gives you a sense of how we thought about it historically and how we think about it going forward. A more measured, gradual growth in margin, simply because we got so much of that benefit in that one-time lift from 606.
Maybe, Toby, do you want to give some thoughts on the other line item spends?
I think what I would say for sales and marketing and R&D is I think we've been pretty consistent around the level of investment there. For R&D, we've been in that 10%-15% range and probably even tighter in sort of the 12%-14% zip code. Sales and marketing has been in the 20%-25% range, both of those, and that's probably even tighter around the 21%, 23%. We've been pretty consistent there, and I think we've called that out in the refreshed long-term model, and I think I'd expect to see a level of consistency around that as we go forward.
Lastly, we expect to continue to leverage G&A, so continued improvements in overall gross margin and G&A.
That's right.
probably the primary drivers to get us into that long-term range.
Thank you.
Thank you. Our next question comes from Ross MacMillan with RBC Capital Markets. Your line is open.
Thanks so much, Mike, congratulations as well. One for Steve and a follow-up for Toby. Steve, obviously the algorithm, if you're successful with the merging, is going to probably skew towards higher unit growth over time.
Yes.
Leaving aside average customer size, I'm just curious, what are you seeing in terms of module attach at that low end? Number of modules per customer relative to your core 100-plus employee market.
What I would say to you is if you look at the average revenue per employee per year, we're still admittedly early in this, it's not that different than the average revenue per employee per year, maybe at our core marketplace. There's a pro and a con there, right? A plus and a minus. The plus is the average price on some of our core offerings can be slightly higher down market on a per employee per year basis. Then two, the module adoption isn't quite as high. When you net those two things out, what we're seeing early on in that initiative is that we're able to generate a similar per employee per year average revenue in both markets.
That's super helpful. Toby, just to follow up, your interest income on fund health for clients was very strong. I understand the dynamic of underlying growth in client funds, but rates were sequentially lower in this quarter versus the prior quarter. Is there some other impact that's impacting that number? Are you laddering slightly further out with the larger fund base? What is the driver, if you will, if you could sort of look through the push and takes?
Yeah. There's probably a couple of different drivers there, Ross. One is, obviously you've got I think we had a little bit more put to work in both buckets than we did before. I think another element that you might see is, and we've talked about before, is as rates have gone up, you don't get everything immediately. There's a lag there. I think two different dynamics with that. One is if there is a rate increase, it's a while before you actually get the rate increase passed through to you. Another element could be with the bucket that we have invested, as that reinvests over time, we have been in a situation as rates have gone up, where as you reinvest, you're taking advantage of a higher rate.
Those are the dynamics I can think of that are probably different over the last year.
I see. There's a lag just by definition around the kind of blocks of capital that are growing, and the fact that you're getting these re-rates higher year-over-year on that higher-
Yeah
higher rate base.
Yep, that's right.
If we move into a more stable rate environment, that number's going to really grow more at the rate of client fund growth predominantly.
Yeah, I think that's largely the right way to think about it. Yep.
Yeah.
I think that moderates.
Super
Over time. Yes.
Great. Thank you very much. Congratulations again. Thank you.
Sure.
Thank you. Our next question comes from Mark Marcon with RW Baird. Your line is open.
My congratulations as well. With regards to the beginning of the year here, where you're typically adding new clients and also renewing the existing ones. Can you talk a little bit about what you're seeing with regards to the client satisfaction rates? How would you characterize the renewal season? It's obviously been great-
Yeah
You do study your clients. What's the data telling you about what you've improved materially and learnings that you can further apply?
As you know, Mark, it's a really busy time of year for customers, whether it's bonus runs or adjustments that they have to make at the end of the year. We were able to come through year-end with very high response times, which is very helpful for customers who are going to call and email much more frequently. I think secondly, the other thing that we were able to do really well this year-end is some of the new things that we've launched in terms of our knowledge management system, which I mentioned on the call, which really gives clients immediate access to the most obvious questions. We've really worked hard to make sure that's become very comprehensive. We still want our customers to give us a call, email us. We love that connection with them.
It's important to be high touch, but just having that self-service capability, I think, has really improved the year-end experience for our customers. I think the last point I would make is the more and more we get product adoption and we get utilization on our platform, the more there's opportunity for these higher-level conversations with customers. We're able to really drive best practices conversations and not just how do I do this, but maybe some other things that they might think about doing to drive either efficiency or engagement with their employees. We were able to do more of that this year-end than maybe any other year-end because of efficiencies and because of the utilization in our platform. Overall, great retention through year-end.
Great. With regards to the new clients that you onboarded and sold recently, how would you characterize the level of module adoption relative to, say, the same time period a year ago? Obviously you're doing more, but I'm wondering if you can just get a little more granular in terms of perhaps number of modules or take-up rate in terms of attach rates, things of that nature.
Yeah. The way we typically look at it is what is that per employee per year price point that people come on, and that's really reflective of the modules that they're buying and the adoption that we have. Then I think we've had pretty good consistent growth in that per employee per year rate of new customers purchasing. I think it's been somewhat consistent. If we look at it over the last several years, it's been growing really nicely. Our new modules we've launched over the last two years has allowed us to keep that growing. We think we've got some stuff in the pipeline that allow us to continue to do that. We've also had success at the lower end of the market.
We've had more units at maybe a slightly smaller size, they're still buying up a lot of our products and modules, we're getting great attachment. I think I would highlight the modules that we've released in the last two years. Recruiting's been a real great success for us. Expense management's attached at a nice rate, well into the range that we would expect with any module. Compensation and surveys are a little bit newer, are on a nice trajectory.
Great. With regards to, I know emerging is new, we're still learning there, any sort of characteristics of the new clients in the emerging side, just in terms of where they're coming from? Are there any consistencies that you're seeing? Relative to, particularly comparing and contrasting to when you used to be at Paychex and what you ended up seeing there.
Sure. Yeah, well, I think down market, you definitely need a user who wants to be as efficient as possible and then want to automate as many of their processes and really want to engage with their employees in a different fashion. Believe it or not, I think there's still a number of people that want to call in their payrolls. That's probably not our target market. We're really focused on software-centric users that really want to drive a different experience with their employees. There is a level of user that probably is a little bit more attracted to our HCM capabilities versus somebody who simply just wants to get payroll done.
I think that's one of the reasons that we're being successful is that trend's increasing, and it is a competitive market, and users are definitely looking for a different kind of HCM platform that's much more modern, and that's where we really resonate.
Great. One last one. You did comment with regards to where the long-term margin target is and what the drivers are going to be, just from a cadence perspective, you ended up doing better than what we expected this year with this, we obviously factored in 606. You did mention moderate cadence, just in terms of setting expectations, what does that mean?
Yeah. Here's what I would tell you. We're going to invest. Growth is going to be our number 1 priority. We want to continue to deliver 20% plus growth. That's part of our long-term model. Obviously, we've been in the mid-twenties now for, well, coming up past two years, really, in terms of the number of quarters we've been able to do that. If we see some growth opportunities, we'll take those growth opportunities, we'll do that in a way that still typically will allow us over a number of years to get into the long-term range. It may not be a straight line. We might get a year with a little bit more margin expansion, a little bit less, be clear, investing in growth is our number 1 priority.
Got it. Congratulations.
Thank you. Once again, ladies and gentlemen, if you wish to ask a question at this time, please press star then one on your touchtone telephone. Our next question comes from Brad Reback with Stifel. Your line is open.
Great. Thanks very much. Steve, as you're beginning to have some success down market here, are you seeing any appreciable differences in getting those customers onboarded up and running from a cost perspective? Thanks.
Yeah. I would say cost perspective, fairly similar. We definitely do it much faster. We need to do it much faster because they don't necessarily have the time or resources to go through a multi-week process. We get them up and running in days, then we really try to drive utilization of the platform more and more over time. I would say very similar kind of cost structure. I don't think there's anything meaningfully different to call out.
Great. Thanks very much.
Thank you. Our next question comes from Nandan Amlani with Guggenheim Partners. Your line is open.
Hi. Good afternoon. Thanks for taking my question. Steve, the employment backdrop has been really, really good the last couple of years. And across HCM, I think most providers have done really well. I'm just curious, if you break down the growth from just new customers versus existing customers adding new employees or new headcount-
Yeah
how would you characterize that mix trending over the past two years or so?
I would say, over the last two or three years, we've been kind of in this slower growth economy. Our customers are adding employees to the platform at a relatively slow and consistent rate. It is helpful, though. It's a slight tailwind, I think, is the way that I would characterize it. It's in the very low single digits on a percentage basis. When you're growing 25%, it's not really a core driver. It's just incrementally helpful.
Okay. On the Recruiting module that you talked about, how does your Recruiting module play with the large recruiting networks that are out there, like ZipRecruiter and iCIMS and Indeed and so on?
Yeah. I think about the question maybe in two different ways. I think we're giving our clients the ability to access candidates where they are. An example of that would be really integrating with Indeed. Indeed is probably the platform that our candidates are hiring from the most. We have the ability to integrate with a whole bunch of different candidate platforms where our customers can then get applications from those platforms. We've got the ability to do that. I think the ease of our platform and the integration into the rest of the suite is really powerful, and probably the thing that resonates the most with our customers.
All right. Thank you.
Thank you. Our next question comes from Shankar Subramanian with Bank of America Merrill Lynch. Your line is open.
Thanks for allowing me to ask a question, and congrats on the results. Just to summarize on the emerging market, it seems like you're getting similar revenue per user in that segment versus the core. If I want to talk about the lifetime value of a customer in the emerging market versus the core and talk about LTV to CAC, how would you compare both, and do you see them kind of be the same over a long period of time? Where is it right now? We can kind of figure out, is it going to be an improvement, or is it going to be the same over a long period of time?
I think the first thing to think about is we have been selling in that market for a long time.
Built into our existing cost structure is selling a certain number of smaller customers. Our core sales force will be a driver of a lot of those smaller customers on a go-forward basis. Emerging will gradually grow. We'll be able to monitor what that cost of acquisition looks like in the emerging marketplace, and decide, do we want to do more of it, or do we want to lean on our core sales force more to be able to drive that growth? I think our thesis overall from a long-term perspective, we expect to be able to drive very similar results. Understanding there's different dynamics. We understand that those clients will naturally go to business a little bit more. You've got to be a little bit more efficient on either both your cost of sales and your gross margin/implementation.
We think we've got experience in this business in the past. We know what that looks like, and we think over the long term, it can be very similar to our core business at scale.
Perfect. Thank you, guys.
Thank you. I'm currently showing no further questions at this time. I'd like to turn the call back over to Steve Beauchamp for closing remarks.
Great. Well, I'd like to thank all of you for your interest in Paylocity, and just take another opportunity to thank all of our employees for all their hard work over a very busy year-end. Everyone have a great night.
Ladies and gentlemen, this concludes today's conference. Thanks for your participation and have a wonderful day.