Earnings Call: Q4 2021

Aug 5, 2021

Ladies and gentlemen, thank you for standing by, and welcome to the Paylock City Earnings Results Call for the Q4 of Fiscal 2021. At this time, all participants are in a listen only mode. After the speaker presentation, there will be a question and answer session. Please be advised that today's conference is being recorded. I I would now like to hand the conference over to your speaker today, Ryan Glenn, Vice President of FP and A and Investor Relations. Please go ahead. Good afternoon, and welcome to Paylocity's earnings results call for the Q4 of fiscal 2021, which ended on June 30, 2021. I'm Ryan Glenn, Vice President of FP and A and Investor Relations. And joining me on the call today is Steve O'Shaughnessy, 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 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 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 on 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 regard to our upcoming conference schedule, Toby and I will be virtually attending the Citi Global Technology Conference on September 13 and the Jefferies Software Conference on September 15, and we will be in person at the HR Tech Conference on September 29 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. Thank you, Ryan. Thanks to all of you for joining us on our Q4 fiscal 2021 earnings call. We finished the year with strong momentum as Q4 and fiscal 2021 results came in ahead of our guidance. Our sales team had an excellent quarter and we exited the fiscal year with 28.2% revenue growth in the 4th quarter. Adjusted EBITDA for the Q4 was $37,300,000 or 22.2 percent margin and exceeded the top end of our guidance by $2,800,000 For fiscal 2021, adjusted EBITDA was $170,000,000 or 26.7 percent margin despite the COVID related headwinds and near zero interest rate environment. Despite a very challenging environment driven by COVID related restrictions, Our sales team had a strong year and we ended fiscal 2021 with 28,750 clients compared to 24,450 at the end of last fiscal year, an increase of 18%. The 18% increase in clients in fiscal 2021 was also aided by very high client satisfaction as revenue retention once again remained greater than 92% and at its highest level in a number of years. Our value proposition of providing the most modern and comprehensive product suite in the industry continues to resonate in the marketplace. New business starts and first time appointments continue to gain momentum and we're very pleased with the execution of our sales team across all market segments. This strong sales execution is driving Q1 and fiscal 2022 revenue guidance to the highest levels we've seen in a number of years. Building off this strong momentum, we've expanded our sales force for fiscal 2022 by adding new sales reps, while at the same time investing in training initiatives and marketing and channel programs to drive productivity. Sales reps have increased by 18% from 4.98 in fiscal 2021 to 588 in fiscal 2022, and I'm pleased that we're fully staffed heading into the New Year. As we move past the pandemic and into a more normalized environment, Paylocity's strong value proposition is also resonating with prospective employees. We're seeing very strong pool of talented candidates across the business, including in sales, marketing and R and D. We plan to take advantage of this momentum as we staff up for fiscal 2022 beyond. We also continue to invest in our channel initiatives and we remain pleased with the consistency in our referral channel, which continued to deliver more than 25% of our new business in Q4 and full fiscal 2021. In addition to an 18% increase in sales reps for fiscal 2022, we remain committed continuing our investments in digital marketing and digital lead generation to support our go to market motion. Our products focused on the modern workforce continue to see utilization growth. In community, we saw an average of over 25,000 announcements per month And our monthly unique visitors doubled during fiscal 2021 with hundreds of thousands of user interactions per month as reactions and comments from employees led the way. As community continues to grow, we see thousands of groups being created that allow for discussion and collaboration. We see increasing potential in the use case as many groups created are centered around a team. We are looking to enable better team engagement and collaboration as a space to get work done and have already started leveraging this internally. In addition to the growth in community, survey usage increased significantly in fiscal 2021 with an average of more than 1,000,000 surveys launched each month and premium video usage surpassed over 500,000 videos played across the product suite. Our learning management product has similarly seen significant growth with over 200,000 learning courses being completed per month by employees with nearly 90% engagement on all video content recorded and uploaded leveraging our video product. We believe this continued momentum further demonstrates how video content across the suite is a powerful communication tool. Lastly, the Paylocity Modern Workforce Index or MWI, which analyzes, scores and tracks a company's progress in delivering a more engaging to their employees has been instrumental in driving client conversations and we're very pleased with the traction this tool is seeing in the marketplace. Our commitment to product development continues to be recognized in the market with Paylocity ranking high in the G2 Crowd Summer Grid reports during fiscal 2021 included being listed as a leader in 12 product categories in addition to be recognized in the mid market and enterprise segments. The success we've had as a company would not be possible without the dedication and commitment of more than 4,000 employees who work hand in hand with our clients through a very challenging year. The strong culture at Paylocity also continues to be recognized as we were once again named a certified great place to work, while also ranking 9th in Fortune 100 fastest growing companies list. The impact that the pandemic had on our employees, clients and communities reaffirm Paylocity's commitment being a leader in social and environmental responsibility and corporate governance. And we have programs in place across our business to deliver on that commitment. Our Diversity Leadership Council strives to create an environment that is focused on diversity, equity and inclusion, and we've created a required unconscious bias training program for our employees, which we also made available to our clients in our learning management product. Additionally, our employee resource groups are organized to give employees the chance to build community and connections, voice their ideas and perspective, personally develop and grow and shape our culture to make a difference at work and in our local communities. I encourage you to review the newly launched Corporate Social Responsibility section of our website, which further outlines our commitment and efforts on this very important topic. I would now like to pass the call to Toby to review the financial results in detail and provide fiscal 2022 guidance. Thanks, Steve. Before I review our results, I would like to congratulate Steve on recently receiving another Glassdoor Employees' Choice Award, which honors the top CEOs in 2021 among large companies. Congrats, Steve, very well deserved. Total revenue for the 4th quarter was $167,500,000 an increase of 28.2 percent with recurring and other revenues up 28.8% from the same period last year. As Steve noted, our sales team had a strong quarter and we were pleased to come in $4,000,000 above the top end of our revenue guidance. For the year, recurring and other revenues were up 15.7% and total revenue was up 13.2%. For the 4th quarter, our adjusted gross profit was 69.5 percent and for the year it was 70.5%. We continue to make significant investments in research and development And to understand our overall investment in R and D, it is important to combine both what we expense and what we capitalize. On a combined non GAAP basis, Total R and D investments were 14.5 percent of revenue in the 4th quarter compared to 16.3% in the year ago quarter. Full year total research and development investments were 14.7 percent of revenue compared to 14.3% in fiscal 2020. On a dollar basis, our year over year investment in total R and D increased by 16.3% in fiscal 2021 when compared to fiscal 2020. We continue to believe our investments in R and D provide us with valuable product differentiation and the ability to drive future growth. On a non GAAP basis, sales and marketing expenses were 25.2 percent of revenue in the 4th quarter and 22.9% for fiscal 2021. On a non GAAP basis, G and A costs were 14% of revenue in the 4th quarter versus 15.5% in the same period last year. Full year G and A costs were 13.1 percent of revenue as compared to 13.8% in fiscal 2020, and we remain focused on consistently leveraging our G and A expenses on an annual basis. Our adjusted EBITDA was $37,300,000 or 22.2 percent of revenue for the quarter, which exceeded our guidance by $4,300,000 at the midpoint. Our adjusted EBITDA for the year was $170,000,000 or 26.7 percent of total revenue. We remain committed to progressing towards our adjusted EBITDA target of 30% to 35% of revenue once we return to a more normalized environment. Briefly covering our GAAP results. For Q4, gross profit was $108,400,000 operating income was $9,100,000 and net income was $11,900,000 For the full year, gross profit was $416,300,000 operating income was $58,000,000 and net income was $70,800,000 In regards to the balance sheet, we ended the year with cash, cash equivalents and invested corporate cash of 206,700,000 We're pleased with our performance in Q4, which included another strong quarter for our sales team, while also identifying opportunities to demonstrate scale and operational and G and A costs, and we're happy with the progress we made to that end in Q4. In regard to client held funds and interest income, our average daily balance of client held funds was $1,700,000,000 in Q4. We're estimating the average daily balance will be approximately $1,700,000,000 in Q1 and we assume an average yield of approximately 5 to 10 basis points in the Q1. Before reviewing guidance, I'd like to provide some additional context on the current operating environment. As Steve mentioned, we continue to be pleased with the performance of our sales team this past quarter and over the last fiscal year. In regard to the ongoing impact of COVID-nineteen, within Q4, we saw a notable increase in client workforce levels in each of April, May June with July also seeing further improvement. Finally, I'd like to provide our financial guidance for Q1 and full year fiscal 2022. For the Q1 of fiscal 2022, Total revenue is expected to be in the range of $171,500,000 to $175,500,000 or approximately 26% to 29% growth over Q1 fiscal 2021 total revenue. And adjusted EBITDA is expected to be in the range of $37,800,000 to 40,800,000 And for full year fiscal 2022, total revenue is expected to be in the range of $790,000,000 to $795,000,000 or approximately 25% growth over fiscal 2021. And adjusted EBITDA is expected to be in the range of $209,500,000 to 213,500,000 In conclusion, we are pleased with our Q4 results and we remain committed to investing in the business to ensure we are well positioned to drive future growth. We're also pleased to guide fiscal 2022 to 25 percent revenue growth at the midpoint, our highest revenue growth guidance to start a fiscal year since August 2016. Additionally, the combination of strong revenue growth and adjusted EBITDA margin represented in our full year guide returns us to above the rule of 50 in fiscal 2022. Operator, we're now ready for questions. Thank you. Your first question comes from the line of Scott Berg with Needham and Company. Your line is now open. Thanks, Steve, Tobey and Ryan. Congrats on a great quarter and thanks for taking my questions. I guess, let's start off with the overall demand environment. We continue to hear the customer demand kind of down market in your core areas Really strong right now. How would you say customer appetite is for buying products kind of across your product set though? Is it really Just maybe replacing core HR and payroll, are you really seeing customers, I don't know, trying to buy the entire suite upfront? Yes, I think we're seeing both. So demand overall is pretty strong just in terms of looking at activity from number of appointments that we're having or Number of new sales that we're bringing on board. And then as we look at the products that people are buying, we're definitely seeing more popularity in the places that we called out. So all of our modern workforce initiatives, surveys, LMS, obviously communities, free product, but we're getting great utilization there. But that's been a big part of the conversation and the differentiation. It's a real tight labor market, I think, as everybody knows. And so being able to have products to engage with employees is really resonating. Got it. And then from a follow-up perspective, kind of along the same line, I know you all have invested more heavily over the last couple of years to sell More backing to the base. Any kind of color or commentary on how those efforts are going in the last quarter? Hey, Scott, it's Tobey. Yes, I mean, I think you're right. We've definitely put a little bit more muscle and more investment into our team that sells back into the customer base. And I think All the same things ring true with what Steve just said in terms of those products, which are most of which are a little bit newer, resonating with Our customer base as much as they are with new sales. And so I think we're pretty pleased with the penetration we're able to drive back into the customer base With those newer products, I mean, it's definitely a smaller part of the overall new sales and smaller part of the overall revenue, but we're pretty pleased with the demand we've seen there. Your next question comes from the line of Terry Tillman with Churys. Your line is now open. Hey, guys. This is Joe Mears on for Terry. Thanks for taking the questions. I'm wondering what you're seeing on the broker side with regards to existing brokers, Any opportunities to expand the broker network? And then do you think over the course of the next 12 months to 24 months That this part of the revenue, this could expand as a portion of overall revenue? Yes. We've been really consistent So even throughout the pandemic, we've been greater than 25% of our new business from broker referrals, which I think we were really pleased with because a lot of those visits Prior to the pandemic, we're happening face to face. We are back to some face to face activity, but a lot of it's still happening virtually from a broker perspective. And so being able to deliver above that 25% we're really pleased with. I think going forward that continues to be kind of our target. It's a good mix In terms of self generated and broker referrals, we feel good about getting that mix kind of across our target market segment. And we've got a lot of initiatives pointing at the brokers that will allow us to And the number of relationships that we have, but also deepen the relationships with existing providers who send us referrals on an annual basis. Excellent. I appreciate it. And then just as a follow-up, it sounds like demand overall is strong, but I'm just wondering if with The way that the Delta variant is playing out, if the demand is consistent across certain parts of the country or if you're seeing any pockets of That is faster or slower right now? We certainly when you look at through the last year, we certainly saw some And places would shut down, we'd see demand being impacted in those markets, I think early on in places like New York and California. And then as those markets It opened up, we would see a little bit of accelerated activity. I think at this point in time, it's pretty much improving across the board. And One of the reasons we feel very bullish in terms of how things look is that our sales teams are able to do well across the size segments that we serve and across all geographies. Like everybody, we all worry about what the impact of Delta could be. If we have to go back to virtual, we're pretty adept at doing that in terms of selling. We feel like we've got good momentum. We feel like there's some pent up demand in terms of people maybe not moving in certain industries for a while. And so we're hopeful that we can continue the momentum Despite some of the increases in Delta. Your next question comes from the line of Mark Marcon with Baird. Your line is now open. Hey, good afternoon, Steve, Toby and Ryan. Congrats. Great quarter, great year, particularly considering the circumstances. Wondering, can you talk a little bit about the revenue performance, both for this quarter And for the guide, with regards to a couple of aspects in terms of the number of employees per client, just within the existing base, How much of an increase did you end up seeing in terms of the employees per client and what sort of revenue impact did that have? And then secondly, With the full suite that you have, there are certain elements that really appeal to some larger clients. I'm wondering what you're Seeing in terms of the average size of client, particularly in this last quarter? Yes. I'll start with the second question first. So we have been targeting the top end of our market segment and many times we go well above 1,000 employees. We've got customers, 5,000 employees on our platform. We don't limit our sales organization. We're looking for the right fit. And you're correct, we've been adding some interesting capabilities that make us even more competitive at the top end or beyond our target market. And we've seen good success. I think if you go to last year, we were calling out Those larger kind of more enterprise like clients as being a really nice growth driver even in COVID. I think what's happened more recently is we're seeing acceleration In our core mid market and even at the low end of our market. And so we now feel like we're firing on all cylinders. And I'll let Toby talk a little bit to how we view the pace per on our platform contributing to revenue growth. Yes. Hey, Mark. I mean, I think what we've seen And building off of what we would have said on the last call, I mean, we saw strength and momentum coming back on a month to month basis All through Q4 and we've seen continued momentum there through July as well. And I think the right way to think about that in terms of the magnitude is, we would have described the impact to our revenue growth through the course of the last through COVID, through last year plus as In most cases, in most quarters, a double digit headwind. And I think we said on the last call that we saw that coming down and I think we would have described that for Q4 as Being sort of a low single digit headwind. So certainly progress, positive progress for sure. Great. And then can you talk a little bit about the solutions like community, video, The surveys, it sounds like the engagement levels are really high. Can you just talk about what that's doing for client retention rates Within the clients that are using it, what's the attraction in terms of positioning with potential new clients and this monetization opportunities? Thank you. Yes. So I think prior to COVID, we were marching down this path of really creating modern Features that really kind of extended how we might traditionally view an HCM product. And so we've had community in the market for a while. We've had Peer to peer recognition product called impressions in the market for a while. And we were continuing to make investments. Obviously, good timing from an acquisition of BigGrid perspective right at Start of the pandemic and integrating that into our suite now, our premium video product. And what we saw from the pandemic is really an acceleration of those trends. So individuals pre pandemic were having a hard time imagining themselves, recording themselves, imagine recording on a phone and sending out to all your employees or Actually using video in an asynchronous fashion to be able to communicate with employees versus Zoom. And what we're finding is our customers are much more comfortable with that because they've spent so many hours In Zoom calls, and communicating that way. And the second part is, it's a tight labor market right now and there is a war for talent out there. And so making sure that you're engaging with your employees and Communicating, connecting, gathering their feedback, training and develop them has really risen in importance within our client base. And so From that perspective, we have the products, we've continued to add the features that our clients are asking for. We're constantly making releases based off their feedback, So they get better and better. And we're seeing the momentum. A place like Community, where we've had that product out in the market for several years, we're absolutely seeing clients who are taking advantage of Community Turnover less than maybe our broader population because once every employee in the company starts touching and connecting with a product like that, it just makes it much more difficult to move to Your next question comes from the line of Brian Bergin with Cowen. Your line is now open. Hey guys, good afternoon. Thank you. Wanted to ask a question on demand and whether you've noticed any improvement in the pace of client decision making when it comes to switching? Yes, I would say it feels more normal now. I don't know if we're all the way back. But during the pandemic, lots of things would And in terms of new restrictions in that state, we then take a project and put it on the shelf. We had issues with some of the HR administrators that were trying to Actually implement our solution and they might have had something happen in their personal lives that would delay them. And so we were kind of working through that and always being client friendly and making those decisions. Sometimes that would impact when they went live, other times it might delay start dates. We're not really seeing that in the market right now. It Feels very much back to the way it was pre pandemic from time to first appointment to final decision and implementation cycles. Okay. And then just around product attach, can you comment around, I know it's early, but penetration rates, where those stand for premium video and on demand pay? Sure. So if you're seeing any greater interest for the automated pay offering. And then for premium video, is it trending the same way you would typically In past modules, above it, how would you characterize that? Yes. So I would have thought a year plus ago that premium video would probably be a little bit slower in Because we're really trying to push people for a more modern way to connect and communicate with employees. Because of the pandemic and what I Just went through earlier, we are seeing premium video on a very similar track to many of our other talent management products, which is really interesting. On Demand pay continues to grow. We're happy with that. I mean, an employee can log in, they can see real time exactly what they've earned throughout the payroll period. They can Request that payment, they can do it frequently throughout the period. And we're seeing that grow. It's been a kind of a constant growth and probably not quite at the pace of some of our Other products, but we're still optimistic about the future and the opportunity that's there because the customers that have used it have given us really good feedback That their employees love that opportunity. And I think as you see the market for labor being tighter, that feature becomes something that we see heavy hourly workers Demand from their employer. Your next question comes from the line of Alex Zukin with Wolfe Research, your line is now open. Hey, guys. Thanks for taking the question. Maybe just the first one. I want to kind of zero in on the guidance Because clearly this is the strongest guidance for a fiscal year you guys have ever given or since a long time ago. And I just want to kind of 0 in on what gives you that confidence. Is it the demand environment? Is it The significant opportunity from larger from a cross sell, up sell, is it employment levels coming back? I just want to 0 in Given the uncertainty that there still is with Delta, it is quite exemplary numbers. Sure. So I would tell you that anytime that we give guidance, it really first starts with what What do we think from a sales momentum perspective? And usually our ability to hit or exceed that guidance is largely due to sales performance. We do have some new variables with COVID in terms of looking at the employees on the platform, which for us is generally a pretty consistent number and something that is fairly predictable. We have seen a pretty significant return over the last few months. We're not all the way back to pre pandemic levels, but because that gap is a little bit smaller, we feel fairly comfortable With the momentum that we have in the sales force to be able to put forth, as you mentioned, some of the strongest guidance we've had in the last several years. Understood. And then if I think about now in a kind of hopefully post pandemic environment, how should we think Productivity improvements that you've seen in a remote selling environment and from a competitive standpoint, when you think about Yes, the last year, people having hesitancy to make any big moves as they're in COVID and in the pandemic and that kind of loosens up. Is there are there any vendors that you're seeing particularly stronger win rates against versus maybe over the past 12 months? I think we're in a bit of a unique position when you think of some of the products that we've introduced, things like community, the premium video we talked about, A lot of the engagement oriented products we think give us a really a different value proposition, really around the future of work and how we can play a role in that. And so we think that value proposition is resonating across the board. No real call outs in terms of doing better or worse against a particular vendor. More than anything, we're just feeling pretty good sales momentum across the board, kind of the small end of our market, midsize, the large end of our marketplace. We've got good unit traction in terms of volume that we're bringing on. And on top of that, we're getting higher average revenue per sale with some of these products. So No call it from a competitive environment, it's probably up to us from an execution perspective. Your next question comes from the line of Chad Walravens with JMP. Your line is now open. Great. Thank you and congratulations. It's great to see. So, if you step back and look at the big picture, Steve, what would you say are the top 2 or 3 things that you want to work on for the next 12 months at Paylocity? Sure. Well, we still have a Pretty large TAM and are relatively under penetrated in terms of that TAM. And so you start to think about investments for the future long term. So one is, it's a tight labor market. So staffing is really key, not just staffing kind of in the quarter, but for the year and beyond. And so we want to make sure that we can bring on great software engineers, great Salespeople, great people in our implementation. And so there's a lot of activity going on right now from a hiring perspective in a highly competitive environment. And I've Really happy about how we've done in terms of bringing on talent. So that certainly that's number 1. I think number 2, Really goes to some of the product strategy that we have and extending our capabilities from a water workforce perspective. We're really seeing great activity on our platform And that activity we think we can translate to additional use cases and really help our customers themselves Great employers and really engage with employees and get the benefit of higher retention. And so we really think that we're offering a great value proposition that goes well beyond just saving a little bit of time. And that's what I'm really excited about, the combination of bringing the talent on board and being able to extend our roadmap, offering our clients much more value than time savings. And I'm sure you don't want to give too much away, but you want to give us a hint on sort of additional things you could do that you don't do today? I think we talked a little bit about in the prepared script. One of the things that's become pretty obvious to us the way customers are using our community platform is they're interacting the groups That we had capability. They're interacting themselves as teams. And they're asking for additional capability in terms of what they would like to do as a team. We have all the data about the teams, The people, the positions, the supervisors. And so we're pretty interested with our Samepage acquisitions, bringing incremental capabilities that Certainly bleed into the collaboration space to be able to enable them to get their work done. Your next question comes from the line of Samad Samana with Jefferies. Your line is now open. Hi, good evening and thanks for taking my questions. Great to see the strong outlook given all the Certainly, sir. Congrats on that. Maybe first just, I know you guys said you're still going to be hiring salespeople Behind the opportunity that you're seeing. I'm curious now that we're all kind of used to working from home, is it changing Either the type of or the geography in which you're willing to hire a salesperson, are there people that you're willing to hire that may not ever be back In physical office, so it doesn't even matter if they're targeting a region that they're never going to be in physically? Yes, it's a good question. I would say when you think of the smaller end of our market, the under-fifty employees segment, we think that's a real opportunity. We have inside sales teams prior to the pandemic that we're focused on that, but admittedly relatively small. As we started to expand throughout the pandemic, essentially every person you're hiring ends up being an inside salesperson for some period of time. But in that segment, we absolutely hired people with the idea that you would stay inside long term and that being able to close business virtually can be more effective and efficient. I think as you move up market, the broker network becomes a really important part of the equation, being in market, having a common set of customers That you can talk to them about and potentially having back to face to face events we think is still critical. So we remain focused on hiring in market outside of the very low end. Great. And then maybe a question on M and A. I know the company has only done a handful of tuck ins, but They've proven to be successful. I'm curious if there's any change in maybe the M and A appetite As you look forward and think about maybe accelerating the product roadmap? Yes, we're certainly open to it. Obviously, we've got Strong balance sheet and we've got a big opportunity in front of us. We're just highly selective is probably the right answer. If you look at our premium video product, At the end of the day, it feels like we actually built it from the ground up. Now we didn't build the video recording capability. We've got a great team that we were able to acquire that already did that, but we really a good time to integrate the user experience and it's just like we would have built it ourselves. And so keeping that user experience at the forefront, as we continue to integrate something like Page is that exact same velocity. From a user perspective, it's absolutely going to feel like we built it. And sometimes when we acquire something, we have to rebuild components to make sure that that happens and we're very comfortable with that. So we're going to continue to look for opportunity to do that where we can get really talented people, be able to integrate them into our teams and then be able to deliver a product that advances The roadmap, hard to do that a ton of times a year and actually do that effectively. So, it's certainly possible that we see some acceleration there. That's not necessarily a goal. It's Purely opportunistic. But I think look at our prior history as a good indication of how we think about those and the type of opportunities we would look forward to in the future. Your next question comes from the line of Brad Reback with Stifel. Your line is now open. Great. Thanks very much. Steve, overall, how did you feel about rep productivity over the course of fiscal 2021? I think throughout the pandemic, I used the word fairly resilient, and I think that's very true. We were able to sell more than the prior year. We certainly had more reps, But we didn't have the same productivity that we were seeing pre pandemic. So pre pandemic, as a reminder, we were hitting 40% year over year growth in sales. And then obviously that took a hit and started to rebound and recover throughout the pandemic. Sitting here today, you can see our forecast next year, which we feel really good about, and that's with 18% more headcount. So we feel really good about the trajectory of productivity right now And our opportunity to kind of get back to the momentum that we had pre pandemic and certainly driving productivity is absolutely part of our equation in terms of the growth formula. And then maybe one quick follow-up. As we look forward post pandemic whenever that wraps up, Do you think the structural growth rate of the market is better as people have sort of seen the challenges that the pandemic has brought on and The need to address them in a different way? Yes. There's certain parts of our suite that probably structurally aren't that different. So at the end of Everybody had to do payroll in some way, shape or form. So I'm not sure that maybe there's a little bit of pent up demand because people didn't move and you've got something that frees up. But I think At the end of the day, a lot of those core products you kind of needed to have before. Some of the newer stuff we have, we definitely are seeing more demand now. And I think We're probably early in that cycle of a customer saying, wow, this has been really hard to attract the talent I need. It's a tight labor market. Gen Z is demanding things from me that I never saw prior generation. I need to think about my HR platform as being much more modern and go well beyond just compliance and time savings. And we think that those conversations will continue to accelerate over time and will create incremental opportunity for us Your next question comes from the line of Daniel Jester with Citi. Your line is now open. Great. Thanks for taking my question. I joined a little late, so apologies if I asked something that someone already has. But Steve, you mentioned higher revenue per customer. Is that Reflective of sort of bigger initial land, better cross sell, sort of more modules. Can you kind of pull that apart? And as we go to the next fiscal year, do you see anything changing in that mix of sales? So we've been on a path for, let's call it, the last 4 years to do more sales back to the client base. I would tell you that we've incrementally grown that. Now I say incrementally, we've actually grown that relatively quickly, but starting from a very small base. And so that is incrementally a higher percentage of our total sales every year. I think Toby mentioned earlier, it's still a small percentage of our total sales. But it is improving and we're seeing good traction within our client base with some of those new products. The biggest driver is still The units that we bring on that are new and the fact that we're able to sell them more. And so from a land and expand perspective, we're definitely still heavily leaning on the land side of the equation. Got you. And then Ted Gady is leaving and he's obviously been a big strong partner of yours. Can you maybe just philosophically talk about like what Kind of leader you think it's going to take to sort of take the product to the next level from that perspective? Thank you very much. Yes. Ted has been with us for 8 years and has done an Absolutely a phenomenal job and has decided to leave and certainly take some time off, which is well earned, I think, in terms of everything he's been able to do for I think from my perspective, he's created a great team. That's the most important thing. And as all of you know who worked with me for a while, I'm very involved personally In product, and very involved with his team. And so he will definitely be missed and that's a big shoe that we have to fill. But we want somebody that fits in culturally That can continue to focus on our goal to deliver the most modern platform. And he's left us with a team that's really strong And may require a little bit more of my time in the meantime till we find somebody, but I think we're going to be in pretty good shape from a product perspective driving that strategy forward based off who he developed and hired. Your next question comes from the line of Siti Pinig Vai with Mizuho. Your line is now open. Hey, thanks for taking my question. First one housekeeping item. So when you say 588 sales reps, could you give me the breakdown of that Emerging market sales reps? Yes, we don't provide segment based headcount by sales reps. But you could think about the largest group of those sales reps being in kind of our core market, kind of our mid major size customers And some customers that are focusing on the larger end and the smaller end and both the larger end and smaller end being a smaller number. And we also have an inside sales group as well that fits into that smaller end bucket as well. Okay. Okay. And then when you think of your investment, It looks like EBITDA margin is kind of flat year over year. So where do you plan to focus on this, is it more on the R and D side? How should About the investment. So the first thing I would say is, this year is an interesting year because the anniversary on COVID where we didn't have any Travel and conferences, there's just we paused hiring for a while. So certainly, there was a bunch of things that we did to try to manage expenses Through COVID, so anniversarying those does create a little bit of a challenge from a comparable perspective. But on the flip side, we've been really happy about our investments we've been making in product, Some investments we've been making in sales and marketing. It's taken us a while to ramp those up through COVID and we've got really good momentum there. And so because we've got great sales momentum, we've got Great momentum in the marketplace. We felt like this wasn't the year where we're number one priority was focused on adjusted EBITDA, But to make sure that we take advantage of the momentum we've got in the marketplace. And we certainly feel like that 30% to 35% is still a target that we will achieve From a longer term perspective, and we will typically make progress to that on an ongoing basis. It's just this year, we think this is a year for us to focus on investment. That's correct. Thank you. We have no further questions at this time. I will now turn the Call, I'll go back to the management for closing remarks. Great. Well, I want to thank all of you for your interest in Paylocity and of course, thank our 4,000 plus employees for helping us and our customers through a very challenging year. Hope everyone has a great night. Ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect.